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 profut 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
1.5.4 Forms of business
Public limited companies
What is a public limited companies?
- Owned by shareholders
- Incorperated businesses - has its own seperate legal identity
- Shareholders have limited liability
- Shares can be bought/ sold through the stock market, this means anyone ( over 18 ) is able to buy shares
1.5.4 Forms of business
Public limited companies
What is the pros and cons of Public limited comapnies?
PROS:
- Limited liability
- Easy to raise finance by selling shares on stock exchange –> Banks are willing to lend money to PLCs
CONS:
- Must provide detailed financial information which is available to the public
- Companies reports may be expensive to produce
- Risk of takeover
1.5.4 Forms of business
Growth to PLC and Stock market floatation
- Risk of hostile takeover
- The process of becoming a PLC is called a floatation
- The business floats itself on the stock market
- Open to more public scutiny
- As a business grows it may wish to change business ownership from an LTD to PLC
1.5.5 Business choice
What is opportunity cost?
The benefit lost of the next best alternative when making a choice
EXAMPLE:
Opportunity cost of running your own business
Independence
Flexibility
Make more money
1.5.5 Business choice
How does resources and opportunity cost link?
- As all resources are scarce businesses must make choices in order to allocate these resources
- There are always competing alternatives when making choices
- There is an opportunity cost for all decisions made by businesses
1.5.5 Business choices
What are trade-offs?
Opportuntity cost is the cost of the next best alternative
However, there may be a range of alternatives all of which have been given up
All of these alternatives are reffered to as ‘ trade-offs ‘
EXAMPLE:
Trade-off of leaving your original job
Lack of free time
Responsibilty for all day-to-day
Requires various skills
1.5.6 Moving from entrepreneur to leader
What is an entrepreneur?
A perosn who spots an opportunity and shows intiative and a willingness to take risk in order to benefit from the potential rewards
1.5.6 Moving from entrepreneur to leader
What is a leader?
A perosn that can inspire others and motivate them to meet objectives
1.5.6 Moving from entrepreneur to leader
What are the difficulties in developing from an entrepreneur to a leader?
- Adapting the mindset
- Stress
- Sharing ownership and control
- Trust
- Lack of leadership qualities
1.5.6 Moving from entrepreneur to leader
How to overcome difficulties?
- Delegation and trust
- Earn respect
- Maturity and experience
- Education
- Reduce stress
