1.5 - Entrepreneurs and Leaders Flashcards
Entrepreneur
Person who organsises, operates and assummes the risk for a business venture
Characteristics of an entrepreneur
- Passionate
- Calculated risk taker
- Resilient
- Visionary
- Decisive
Intrapreneurship
People within a business creating or discovering new business opportunities which leads to creation of new parts of the business or a new business
Barriers to entrepreneurship
- Lack of capital
- Market and competition barriers
- Legal and regulatory barriers
Rewards for enterprise
- Profits
- Capital gains
- Self esteem
- Personal development
- Sense of control
Financial motives for starting a business
- Profit maximisation
- Profit satisficing
Non-financial motives for starting a business
- More control over working life
- Pursue an interest or hobby
- Being your own boss
- Escape an uninteresting job or career
- Change in personal circumstances
Drawbacks of being an entrepreneur
- Lack of financial security
- High risk
- Long working hours
- High responsibility
Mission
Qualitative statement of the business’ aims
Aim
Long term plan from which business objectives are derived
Objective
Time assigned target which must be achieved to realise the stated aim
Examples of corporate objectives
- Increase sales
- Reduce costs
- Improve cash flow
- Improve customer satisfaction
Examples of functional objectives
- Successfully launch five new products in the next two years
- Increase factory productivity by 10%
- Reduce the average time taken for customer to pay invoices from 75 to 60 days
- Achieve a 95% level of high customer service
SMART objectives
- Specific
- Measurable
- Achievable
- Relevant
- Time bound
Factors influencing business objectives
- Age of the business
- Views of owners and managers
- Competition
- Corporate culture
- Market conditions
Features of strategic objectives
- Focused on long term
- Set by the board
- Involve higher risk and uncertainty
Features of tactical objectives
- Focused on short term
- Set by line management
- Relatively low risk
Mission statement
Short, clear statement that defines a business’s purpose, objectives, and values. It explains why the business exists and what it aims to achieve
Criticisms of mission statements
- Not always supported by the actions of the business
- Often too vague and general
- Often just stating the obvious
Cost efficiency
Aim to achieve the most cost effective way of delivering goods and services to the required level of quality
Benefits of cost efficiency
- Lower unit costs
- Improved cash flow
- Higher operating profit
Incorporated business
Company that has legal identity separate from its owners, meaning it can own assets, incur debts, and enter contracts in its own name. The owners have limited liability, meaning they are not personally responsible for the company’s debts
Unincorporated business
Company that does not have a separate legal identity from its owner(s). This means the owner is personally responsible for the business’s debts and liabilities, and the business ceases to exist if the owner leaves or dies
Limited liability
When owners (shareholders) of a business are only responsible for the debts of the business up to the amount they have invested. Their personal assets are protected and cannot be used to repay business debts
Unlimited liability
When owners are personally responsible for all debts of the business. If the business cannot pay its debts, the owner’s personal assets (e.g., house, car, savings) can be used to cover the costs
Sole trader
Business owned and operated by one person, although they may employ others
Benefits of operating as a sole trader
- Quick and easy to set up
- Owner has complete control over business decision making
- Easy to shut down
Drawbacks of operating as a sole trader
- Has unlimited liability
- Harder to raise finance
- May have to pay a higher tax rate than a company
Partnership
Business owned and run by two or more people who share responsibility, profits and risks
Benefits of operating as a partnerships
- Greater potential to raise finance as each partner can provide finance
- Business has expertise and efforts from more than one owner
- Simple to set up
Drawbacks of operating as a partnership
- Unlimited liability
- Profit sharing
- Potential disagreements
Limited company
Business that has a separate legal identity from its owners, meaning the company can own assets, sue and be sued in its own name
Benefits of operating as a limited company
- Limited liability
- Easier to raise finance
- Stable form of structure meaning business continues to exist even when shareholders change
Drawbacks of operating as a limited company
- Greater admin costs
- Public disclosure of company information
- Directors’ legal duties
Public Limited Company (PLC)
Shares are traded on the stock exchange, allowing the public to invest
Private Limited Company (Ltd)
Shares are privately owned and cannot be sold on the stock exchange
Not for profit organisations
Business that does not aim to make a profit for owners or shareholders. Instead, it reinvests any surplus income to achieve its social, environmental, or community-focused objectives
Franchising
Business model where a franchisor (the original business) allows a franchisee (the buyer) to operate a business using the franchisor’s brand, trademark, business methods, and support. In return, the franchisee pays an initial fee and ongoing royalties
Benefits of operating as a franchisee
- Established brand reducing risk
- Franchisors provide training, marketing and operational support
- Easier to secure finance
Drawbacks of operating as a franchisee
- Initial cost and royalties
- Limited control
- Franchisees must continue to pay for marketing, supplies and fees even if business performance is weak
Opportunity cost
Measures the cost of the choice made in terms of the next best alternative forgone or sacrificed
Trade off
When having more of one thing potentially results in having less of another
Examples of trade offs
- Less market research to reduce costs, but may cause a less successful product launch reducing sales
- Higher quality standards to build reputation, but results in higher quality control and assurance costs
- Increasing advertising online, but results in reduced advertisement on TV
Roles of an entrepreneur
- Identifying opportunities
- Innovation and creativity
- Risk taking
- Resource management
- Creating value
Moving from an entrepreneur to a leader
- Strategic focus
- Delegation
- Decision making
- Team management and motivation
Difficulties in developing from an entrepreneur to a leader
- Relinquishing control
- Developing leadership skills
- Handling increased pressure and stress
- Adapting mindset
- Building trust
