1.5 Entrepreneurs And Leaders Flashcards
What is the role of an entrepreneur?
- creating and setting up a business
- running and expanding/developing a business
- innovation within a business (intrapreneurship)
- barriers to entrepreneurship
- anticipating risk and uncertainty in the business environment
What is intrapreneurship?
Innovation within a business (intrapreneurship)
What does intrapreneurship allow businesses to do?
Intrapreneurship allows businesses to tap into the creative potential of their employees and generate new products, services or processes that can drive growth and competitive advantage
To promote intrapreneurship businesses may provide resources to employees or offer incentives/rewards for successful projects
What are the barriers to entrepreneurship?
- Entrepreneurial capacity
- fear of failure/lack of confidence
- lack of training/know-how
- access to finance
What is entrepreneurial capacity?
An individuals ability to think creatively, take risks, and identify and seize business opportunities.
Why do many entrepreneurs struggle?
To secure the funding necessary to start or grow their businesses
Lack of access to finance is a major barrier to entrepreneurship, especially for those from disadvantaged backgrounds.
What’s skills are required to grow a successful business?
Marketing, financial, management and leadership.
Why do many entrepreneurs fail?
They may worry about the financial risks involved in starting a business or fear failure
What is the difference between risk and uncertainty?
Risks can be calculated and prepared for, uncertainties cannot as they are unexpected events
Uncertainties are caused by factors outside of the entrepreneur’s control
E.g. changes in local and national laws
What skills are required by entrepreneurs?
Communication (persuasively)
e.g. Persuade people to join them in creating the product/service
Persuade customers of the value of their product/service
Team work
Problem solving
Organisation
Numeracy
Information technology
What characteristics are required by an entrepreneur?
Creativity
Hard working
Resilience
Initiative
Self confidence
Risk taking
What are the financial reasons for setting up a business?
Profit maximisation
Profit satisficing
What is profit maximisation financial reason to set up a business)?
Where people want to create a profitable business that generates substantial revenue and profit for themselves and their shareholders
E.g. Amancio Ortega, the founder of Zara, built a fast-fashion empire that has become one of the most profitable clothing retailers in the world
What is profit satisficing and who do we commonly see this being used by?
Occurs when the entrepreneur is not solely focused on maximising profits bit rather achieving a satisfactory level of profit
This is common among small businesses, where the owner may prioritise their work-life balance
What are the non-financial reasons for setting up a business?
Ethical stance
Social entrepreneurship
Independence
Home working
What is ethical stance? (non-financial reason to set up a business)
when a person takes a position on a topic or action based on defined ethical principles
Some entrepreneurs may have a particular ethical stance (e.g. environmental sustainability or social justice) that they want to build their business around
What do social entrepreneurial business men aim for? (non-financial reason for setting up a business)
aim to create a business that seeks to address a social or environmental problem while also earning a living
What is independence and why do many want it? (non-financial reason for starting a business)
Independent is where people are their own boss
Many people want to be their boss and have control over their work
They may be dissatisfied with traditional employment structures or desire the freedom and flexibility that comes with running their own business
Why do people work from home?
With the advance of technology, many people have started businesses from their homes and this offers them more flexibility and a better work-life balance.
What is the aim of most start up businesses and once this has been achieved what does the business objective usually switch to?
To survive the initial entry into the market and to generate enough cash flow to remain in business
Once that has been achieved, the business objective usually switches to profit maximisation
Why do profits benefit shareholders?
They receive dividends (a sum of money paid each year by a company to its shareholders from its profits) and increase the underlying share price
- an increase in the underlying share price increases the wealth of the shareholder
What are the common business objectives?
- sales maximisation
- increase market share
- cost efficiency
- employee welfare
- customer satisfaction
- social objectives
What is sales maximisation?
Generating the maximum revenue possible by selling its products/services
If a firms product is price inelastic what should they do to achieve revenue maximisation?
Raise prices
If a firms product is price elastic what should they do to achieve revenue maximisation?
Lower prices
What is market share?
The percentage of total sales a company holds in a particular market
How can a business increase market share?
By producing and selling better quality products than its competitors
What is cost efficiency and in what kind of market is this crucial for businesses in?
A company’s ability to produce and deliver its products at the lowest possible cost
This objective is crucial for companies that operate in highly competitive markets, as low costs enable them to compete with low prices
What is employee welfare?
A company’s commitment to providing a healthy and safe working environment for its employees
How may a business promote employee welfare?
By offering competitive wages, comprehensive benefit packages and promoting a healthy work-life balance
How does a business aim to achieve customer satisfaction?
A business may aim to achieve customer satisfaction by delivering high-quality products, providing excellent customer service and offering attractive pricing
What are social objectives and why are they crucial to a business?
Social objectives refer to a company’s commitment to addressing social or environmental issues
This objective is increasingly important for businesses that aim to operate sustainably and build a positive reputation
E.g. Superdry aims to reduce its environmental impact by using sustainable materials and minimising waste, while also promoting fair labour practices and contributing to social causes in the communities where it operates
What does having a limited liability mean?
If the business is sued the owners cannot lose their own possessions
What are the different types of businesses?
- sole trader
- partnership
- private limited company
- public limited company
- franchise
- social, lifestyle and online
What is a sole trader?
A business that has a single owner (although they may still hire employees)
What are the advantages and disadvantages of being a sole trader?
Advantages:
- easy and inexpensive to set up
- owner has complete control over the business
- all profits belong to the owner
- simple tax arrangements
Disadvantages:
- the sole trader is responsible for any debts the business incurs
- limited access to finance and capital
- limited skill set of the single business owner
What is a partnership?
Where two or more people join together to form a business
E.g. lawyers and accountants
What are the advantages and disadvantages of a partnership?
Advantages:
- easy to set up and inexpensive
- shared responsibilities and decision-making
- more skills and knowledge are available
- increased access to finance and capital
Disadvantages:
- partners have unlimited liability meaning if the business fails their personal assets are at risk
- potential for disputes between partners
- profits are often shared equally, regardless of the contribution
- difficult to transfer ownership
What are the characteristics of a private limited company?
The ownership of the business is broken down into a specific number of shares
- these shares can be sold by the owner, usually to friends and family or to venture capitalists (specialist investors in small to medium-sized businesses that have significant potential for growth)
Decision-making often rests with the person appointed to run the company, often called the Managing Director or CEO
What are the advantages and disadvantages of a private limited company?
Advantages:
- limited liability, meaning the owners are not personally responsible for the company’s debts
- access to greater finance and capital
- easier to transfer ownership
- can have a professional image and reputation
Disadvantages:
- more expensive and time consuming to set up
- more complex legal requirements + regulations than sole traders
- annual financial reporting and auditing are required
- shareholders have little control over the company as the founder usually imposes their agenda
What is franchising?
A business model where an individual (franchisee) buys the rights to operate a business model, branding, and support from a larger company (franchisor) in exchange for an initial lump sum, plus ongoing fees.
The franchisee operates the business under the franchisor’s established system and receives training, marketing support, and ongoing assistance.
E.g include Domino’s Pizza, KFC, Burger King
What is a social enterprise?
A business that has the primary purpose to create social or environmental impact (in addition to generating profits)
Profits are usually reinvested back into the business or used to create positive social change or address an environmental issue
E.g. Warby Parker is an eyewear company that donates a pair of glasses to someone in need for every pair of glasses sold
What is a lifestyle business?
Lifestyle businesses are typically small, owner-operated businesses that prioritise a specific lifestyle or personal interest of the owner over profits or growth
These businesses are often run from home or in a location that allows the owner to maintain a particular lifestyle or work-life balance
E.g a yoga instructor, personal training, business coaching
What are the characteristics of an online business?
Low overhead costs
Can operate from anywhere with internet connection
Still required to have a legal structure such as a sole traders or private limited company
E.g. e-commerce stores, online courses
When does a stock market flotation occur and why do businesses float themselves on the stock market?
Occurs when a business becomes a public limited company, businesses do this to raise capital by selling shares to the public on a stock exchange
E.g. the London Stock Exchange
What are The Benefits of becoming a Public Limited Company?
Access to capital: significant amounts of capital can be raised very quickly, this is often a more cost effective way to raise capital than borrowing.
Shared risks: risks are spread among a larger group of shareholders, this reduces the financial risk to anyindividual
Increased liquidity: a company’s shares become more liquid (can be bought and sold more easily) on a public stock exchange, This can increase the value of the company’s shares and make it easier for shareholders to buy/sell shares
Extended decision-making: The company will have a board of directors made up of independent directors and representatives from major shareholders
This can extend the decision-making process and bring in additional expertise/perspectives that can help the company grow and expand
Greater public profile: Becoming a PLC can raise a company’s public profile and increase its visibility with customers, suppliers, and potential investors
This increased visibility can help the company attract new business and grow its customer base
What is opportunity cost?
The value of the next best alternative forgone.
E.g. When a business decides to allocate all of its resources to producing electric vehicles, it may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the next best alternative (the opportunity cost)
Why do choices have to be made about how to best allocate limited resources amongst competing wants and needs?
Due to the problem of scarcity
When does a trade-off occur?
When 2 things cannot be fully achieved, therefore having more of one thing may mean having less of another
What are some examples of potential trade-offs?
Product: choosing to spend money upgrading an existing product may result in the loss of the next best alternative, which could be research + development of a new product.
Customer sales: A firm selling organic avocados are offered a supply contract by a supermarket that wants to buy all of their stock each month, but at a low price. The firm decides not to accept the contract as the opportunity cost (loss of prestigious customer) is worth less than the lost revenue to existing customers
Market research: Foregoing market research may help the business to get its product to market quicker
However, the trade-off is that the product may not have the features/qualities desired by the market
Business ownership: Choosing to operate as a partnership will mean that a business loses the benefits of operating as a private limited company
Promotional methods: Businesses have a limited amount of money to spend on promoting their products. Choosing to sponsor an elite athlete means that the business may have to give up other forms of promotion, such as radio advertising
Pricing strategy: If a business decides to use a competitive pricing strategy (where prices are set based on competitor prices, it loses the opportunity to price skim (initially set prices as high as possible and gradually lower them over time)
What are the difficulties faces by entrepreneurs in transitioning to a leader of a growing business?
The need to delegate (give tasks to others):
Entrepreneurs need to learn to delegate tasks and responsibilities to others
This can be difficult for entrepreneurs who are used to having control over every aspect of their business.
Trust and verify: As a leader, it’s important to trust your team members to do their jobs effectively
It’s also important to verify that tasks are being completed correctly and on time
Finding the right balance between trusting your team and verifying their work can be a challenge
Learn to listen: Entrepreneurs are often driven by their ideas and visions
As a leader, it’s important to listen to the ideas and perspectives of others
Having an open mind: Leaders need to be open to new ideas and willing to adapt to changing circumstances
Being less reactive: Entrepreneurs are often used to taking quick action and making decisions on the fly
As a leader, it’s important to take a more strategic and measured approach to decision-making
Developing emotional intelligence: Leaders need to be able to understand and manage their own emotions, as well as the emotions of their team members
Many entrepreneurs are used to being driven by passion and enthusiasm rather than emotional intelligence and empathy
