1.5 - Entrepreneurs & Leaders Flashcards
Entrepreneur
Sees an opportunity which others do not fully recognise, tries to meet an unsatisfied demand or to radically improve the performance of an existing business.
Involves;
- Creating and setting up a business
- Running and expanding/developing a business
- Innovation within a business (intrapreneurship)
- Anticipating risk and uncertainty in business environment
Issues in creating and setting up a business
- Having the initiative to exploit a business opportunity
- Calculate risks involved
- Raising finance to investment in the set up of the business
Issues when expanding a business
- Carry out marketing research to see if there is demand to justify expansion
- Raise necessary finance
- Introduce new products and services
- Invest in new tech, better equipment to improve service
- Take on more skilled staff
- Changing the organisation of the business
Intrapreneurship
An employee within a larger business who thinks like an entrepreneur
- Takes risks
- Solves problems
- Drives innovation
- Understands trends
- Proactive in adding value
Uncertainty
A situation in which there is degree of risk and the consequences are not known or are unclear
Why business faces uncertainty
- Economic reasons
- Competitor actions
- Changes in society
Motives for starting a business
- Own boss
- Earn their own money/profit
- Social reasons
- To have something to hand over to their children
- Wanting to work in a more ethical way
- Wanting flexibility in hours or location
Barriers to entrepreneurship
- Personal (lack of self esteem, risk averse, fear of failure, lack of technical skills)
- Economics (taxation, recession, unemployment)
- Financial (lack start-up capital, lack of cheap labour, lack investment)
- Political (regulations, unstable political landscape, lack govt support)
Examples of objectives
- Survival (reach a sustainable level of sales to reach break-even point)
- Profit maximisation
- Sales maximisation
- Market share
- Cost efficiency
- Employee welfare
- Customer satisfaction
- Social objectives
Franchise
Where a small business owner buys the rights to sell the goods and services of a large, well-established company
Franchisee (smaller business)
Franchisor (large business)
Usually an initial set up fee (costly)
% of sales turnover is paid annually (royalty)
Franchise adv and disadv
+/ - Franchisor chooses franchisees carefully
- Franchisor decides how much money franchisee must invest
- Franchisor provides support, management advice & training, help solve problems
-/ - Franchisees don’t have freedom, bound by rules
- Franchisee can’t sell business without permission
- Franchisee pays % of profits in royalties
- Franchisee won’t ever own the business outright
Social enterprise
- A business that trades for a social and/or environmental purpose
- Their mission is social and they achieve it by selling products/services
- Not the same as charity as they don’t receive grants/donations
Lifestyle business
- Aim is to provide great quality of life for the owner
- Something they enjoy
Sole trader
- Business owned by one owner
- Can employ people but they will not be involved in control of business
- Small business
- Unlimited liability
Pros and cons of sole trader
+/ - Easy to set up
- Make decisions quickly
- Less capital needed
- Taxed differently
- Keep all profits
- Can offer personal attention
-/ - Unlimited liability
- Difficult to raise money
- No economies of scale
- No one to take over ill-health/holidays
Partnership
- 2-20 partners
- Joint owners
- Unlimited liability
- Profits shared
+ and - of partnership
+/ - Easy to set up
- Low capital needed
- Easier to raise extra capital
- Profits go to partners = motivation
- Good working relationships
- Private info
- Range of skills
- Share problems/decisions
-/ - Unlimited liability
- Disagreements
- Death/bankrupcy = partnership is dissolved
Private limited company (LTD)
- Owners buy shares in business
- Business has separate legal identity
- Limited liability
- Shares can’t be bought publicly
- Minimum 2 people
+ and - of private limited company
+/ - Limited liability
- Easier to expand (selling shares)
- Can employ managers
- Can continue trading if a shareholder dies
- Own legal status
-/ - Accounts can’t be kept private
- More difficult and expensive to set up
- Can’t sell shares on stock exchange
Public limited company PLC
- Normally start LTD then become PLC so has limited liability
- Shares made available for sales through stock exchange
- Most shares owned by organisations rather than individuals
- Has own legal status
PLC + and -
+/ - Limited liability
- Easy to raise capital - issue more shares
- Banks are more willing to lend money to large well-established company (less risk)
- Easier to grow and expand
-/ - Expensive
- Issue more info about itself (expensive to produce)
- Has to prepare annual accounts
- Must make accounts available to public and competitors
Floating on stock market
- Stock market floatation costly way of raising new capital which involves selling a % of company’s stock on stock market for the first time
Trade-off
Arises where having more of one thing potentially results in having less of another
E.g. Create high quality products with zero defects therefore increased quality control costs
Opportunity cost
The cost of missing out on the next best alternative. It compares the choices made against what you have given up by making that choice.
E.g. business puts all of its R&D budget into one product therefore other products that are not developed
Why are trade-off’s important in business?
- Most decisions not right/wrong not consequences/actions
- Decisions clearer if look at trade offs and opportunity costs involved
- Allows best use of money, staff, time and resources
