1.5 ENTREPRENEURS AND LEADERS Flashcards
1.5.1 Role of an entrepreneur
Creating and setting up a business
What must an entrepreneur be like and what is an opportunity cost?
An entrepreneur must:
- Be innovtive ( gap in the market / adapting existing ideas )
- Organise factors of production
- Take risks ( always the risk of business failure )
- Make decisions ( strategic & tactical / consier the opportunity cost of any decision )
Opportunity Cost:
- Making a decision means that the opportunity to benefit from an alternative decision is lost
- An entrepreneur must balance the potential benefit involved in making a decision with the opportunity cost
1.5.1 - Role of an entrepreneur
Creating and setting up a business
How do business ideas come about ?
Business ideas can be:
* MARKET ORIENTATED
- A business reacts to what customers want
- Decisions based around information about customers’ needs and wants
*PRODUCT ORIENTATED
- A company that follows production orientation
- Focuses on building a quality product
*MARKET MAPPING:
- Plotting existing products or business based on two characteristics
1.5.1 Role of an entrepreneur
Running and expanding/developing a business
How to run a business and what must an entreprenur have to do ?
- Enough money to invest
- Motivation
- Support / the correct group
As the business grows
An entrepreneur will have to…
* Employ staff
* Use the service of experts
* Delegate responsibity to others
AND potentially think about…
* Moving to bigger premises
* Changing supplies
* Expanding product range
1.5.1 Role of an entrepreneur
Barriers to entrepreneurship
What are the different types of barriers to entrpreneurship?
Types of barries to entrpreneurship:
- Access to finance, lack of confidence, lack of training, fear of failure
PERSONAL:
- Lack of self- esteem
- Risk averse
- Fear of failure
- Lack of technical skills
ECONOMICAL:
- Taxation
- Market entry regulations
FINANCIAL:
- Lack of start-up capital
- Lack of cheap labour
- Lack of investment
POLITICAL:
- Unable political landscape
1.5.1 - Role of an entrepreneur
Anticipating risk and uncertainty
What are the risks and uncertainties?
RISK:
* Can be anticipated by entrepreneurs
- Market research
- Understanding of the industry
- Assessing own personal potential losses
- Business plans
UNCERTAINTIES:
* Are harder to anticipate as outside of the entrpreneur’s control:
- Keep up to date with current business climate
- Make plans for unexpected events
- Spread risks
1.5.2 Entrepreneureurial motives and charachteristics
Characteristics and skills requires
What are the characteristcs and skills that an entrpereneur may need?
CHARACTERISTICS:
- Need passion to succeed
- Determination
- Resilience
- Need to learn from failure
- A strong vision
SKILLS:
- Organising
- Negotiating
- Managing people
- Finacial management
1.5.2 Entrepreneurial motives and characteristics
Financial motives
What the financial motives to why people set up a business?
PROFIT MAXIMISATION:
- To make as much profit as possible
PROFIT SATISFICING:
- To make enough profit to be satisfied but not be purely motivated by profit
1.5.2 Entrepreneurial motives and characteristics
Non-financial motives
What the non-financial motives to why people set up a business?
ETHICAL STANCE
- To behave in a manner deemed to be morally correct
- Provide a good or service that meets ethical beliefs
SOCIAL ENTREPRENEURSHIP
- Motivated by supporting a cause rather than making a profit
- Any surplus revenue earned is used to further support the cause
INDEPENDENCE
- Be your own boss and make own decisions
HOME/ TELE WORKING
- Work/ life balance
- Match family communties to work commitments
1.5.3 Business objectives
Survival
How is survival related to as a business objective?
SURVIVAL
- To continue to exist
- Short term
- Primary objective of a start-up or one under difficult trading conditions, to ensure sufficient cash is available to meet day to day expenses
- Need cash to beak even
1.5.3 Business objectives
Profit maximisation
How is profit maximisation related to as a business objective?
PROFIT MAXIMISATION:
- To produce at the level of output where the surplus of sale revenue over total cost is at its highest
P = SR - TC ( FC + VC )
- Keep owners / investors happy
1.5.3 Business objectives
Sales maximisation (Revenue)
How is sales maximisation related to business objectives?
- Achieve the highest amount of sales either by volume or value
- Volume = amounts of sales expressed as units sold
- Values = Amount of sales expressed as the total sum of money spent by consumers
1.5.3 Business objectives
Market share
How is market share related to business objectives ?
- Market share is the proportion of total market sales that a firm has
SALES / MARKET SHARE X 100
1.5.3 Business objectives
Cost efficiency
How is cost effciency related to business objectives?
- To control costs so that the maximum value of output is achievable with the lowest value of inputs
- This is necessary to support an objective of profit maximisation
1.5.3 Business objectives
Employee welfare
How is empliyee welfare related to business objective?
- To look after the economic and physical well being of the workforce
- A motivated workforce will increase productivity
- Helps maintain positive employee relationships
1.5.3 Business objectives
Customer satisfaction
How is customer satisfaction related to business objective?
- To ensure that goods and services meet the needs and expectations of the consumer
- Helps to build consumer loyalty , and repeat business maximising sales in the long run
1.5.3 Business objectives
Social objectives
How is social objectives related to business objective?
- To behave in a way which benefits society
Could include… - To create employment
- To support local community
- Improve educational standards
1.5.4 Forms of business
Sole trader
What is a sole trader and what are the pros and cons of a sole trader?
SOLE TRADER:
- One person own, controls and makes the decisions for the business
- Usually small local businesses
- Unlimited liability
PROS:
- Owner keeps all profit
- Easy and quick to set up
- Quick decision making
- Owners can decide on hours, dress code etc.
CONS:
- Unlimited liability
- Long hours, owners must do most of the work
- Difficult to raise finance –> banks may be unwilling to lend money
1.5.4 Forms of business
Partnership
What is a partnership and what are the pros and cons of a partnership?
- Between 2-20 people own business
- Partners share the profits and work load
- Partners have unlimited liability
- Usually local businesses
- Deed of Partnership
PROS:
- Workload is shared –> More ideas
- More expertise from other partners
- More finance is raised
CONS:
- Unlimited liability
- Profit is shared
- Risk of disagreement between partners
1.5.4 Forms of business
Private limited company
What is a private limited company and what are the pros and cons of a private limted company?
- Owners by shareholders
- Incorperated business
- Limited liability
- Name ends in LTD
- Shares NOT sold on stock exchange, shares can only be bougt/ sold with approval of other shareholders
- Complicated legal processes needed to set up
PROS:
- Shareholders have limited liability
- Funds can be raised by selling shares
CONS:
- Complicated legal process needed to set up and LTD
- Lenders may not want to lend because of limited liability
1.5.4 Forms of business
Franchisee
What are the pros and cons of a franchisee?
PROS:
-Training included
- Use the brand name
- Less risk
- Less invetment is required
CONS:
- Cost to buy franchise
- Have to pay a % of your revenue to the business
- Less flexible
1.5.4 Forms of business
Franchisor
What are the pros and cons of a franchisor?
PROS:
- Grow your business
- Earlier management
- Develop your brand
CONS:
- Costs
- Time
- Training and support
1.5.4 Forms of business
What is social enterprice?
- Not-for-profit organisations are businesses that trade in order to benefit the community
- These business have social aims as well as trying to make money
1.5.4 Forms of business
What is lifestyle business?
- Not a form of business as such
- More often as an unicorporated business
- Business objectives tend to be less important
1.5.4 Forms of business
What is online business?
- Any kind of business activity that happens over the internet
- Buying and selling online or providing an online service
