Chapter 2: Entrepreneurship

Question 1

What is an entrepreneur? (3 pts)

Answer 1

A person who is able to spot an opportunist in the market and collect the necessary resources, to take advantage of the opportunity identified. Entrepreneurs aim to grow their business ventures by creating a loyal customer base (which is done by satisfying the needs/wants of the customer) and continuously trying to make profit.

Question 2

What are the ‘push’ and ‘pull’ factors in business? Give an example of each. (3 pts)

Answer 2

They describe the various things that motivate (pull, positive) or motivate but for more insistent, negative reasons (push, negative) a person to become an entrepreneur/start their own business.
For example:
Possible push factors could be unemployment, job security, no formal training (can’t find a job), or a disagreement with current employer.
Possible pull factors could be independence, recognition, self actualisation, and personal employment and wealth.

Question 3

What is the EAP? What does it stand for? (2 pts)

Answer 3

Economically active population, which ranges from 15 (starting a job) to 65 (retiring).

Question 4

Why is entrepreneurship important to South Africa’s EAP? (1 pt)

Answer 4

SA unemployment is estimated at roughly 22%-28% because the population growth rate is higher than the economic growth rate. To survive, people have to create their own jobs, as it is likely that they will be unable to find work otherwise.

Question 5

What does EBV stand for in business terms? (1pt)

Answer 5

Entrepreneurial business venture.

Question 6

State 3 characteristics that differentiate an EBV from an average business that just tries to survive. (3 pts)

Answer 6

• Innovation
• Growth potential
• Sound objectives

Question 7

Describe and expand on the first characteristic of an EBV- innovation. (2pts)

Answer 7

EBV’s continuously look for new and better ways to satisfy needs and wants, versus an average business simply maintaining the status quo in order to survive. EBV’s al so look for ways to incorporate technology into the product/service, because consumers are becoming increasingly driven by technology.

Question 8

Describe and expand on the 2nd characteristic of an EBV- Growth potential. (2pts)

Answer 8

Unlike a business that merely aims to survive and is satisfied with the current customer base only, EBV’s actively look for ways to grow via innovating, offering its products/services to a broader target market, or entering a bigger geographical area.

Question 9

Describe and expand on the 3rd characteristic of an EBV- Sound objectives.(3 pts)

Answer 9

EBV’s formulate clear objectives (built around the vision and mission of the business) and continuously work towards them. To do this they use well thought out strategies, including the analysis of trends and planning in case of crisis.
Objectives can include entering new markets and developing existing markets by growing the current market share.

Question 10

List the various forms of ownership in a business.(5 pts)

Answer 10

• NPO (nonprofit organisation)
• Sole proprietors (1 person)
• Partnership (2+ people)
• Private and public companies
• NGO (non government organisation)

Question 11

True or false? Starting a business from scratch cannot be more complicated than buying an existing business. (1 pt)

Answer 11

False Starting a business from scratch CAN be more complicated than buying an existing business.

Question 12

What risks does an entrepreneur take if they do not register a company? (1pt)

Answer 12

Unlimited liability.

Question 13

Why is starting a business often more expensive than buying an existing one? (1pt)

Answer 13

The entrepreneur needs to purchase all assets needed to manufacture goods, to satisfy the needs/wants of the customer.

Question 14

What steps would a person take in order to buy an already established company? (3pts)

Answer 14

1. Identify a business that is for sale.
2. Assess whether your skill base matches what is required to run the business.
3. Undertake necessary research to ensure that you are not buying a failing business - why does the current owner wish to sell their business? Does the reason have effect on the future of the company?

Question 15

List advantages of buying an already established business, versus starting one from scratch. (3pts)

Answer 15

• Lowers legal costs or efforts to get the business going.
• SWaves the entrepreneur time which would otherwise be spent looking for a suitable location and building customer loyalty.
• Already has sound networks (e.g. suppliers and distributors) that make it easier for the entrepreneur.

Question 16

Describe various aspects one should consider when buying an already established business. (9 pts)

Answer 16

• THe reason for the sale of the business (for example, a good reason would be that the owner is old and wishes to retire, while a bad reason would be that the business has financial trouble or a bad reputation.
• The industry/market that the business operates in.
• The profitability of the business.
• The customer base of the business.
• Contracts that the business has already entered into.
• The business’s form of ownership, e.g. sole proprietor/partnership/companies.
• Financial position of the business.
• SARS (SA revenue services - AKA taxes) requirements.
• Rental agreements.

Question 17

List examples of a franchise. (2pts)

Answer 17

Steers, checkers, roman’s pizza, MacDonald’s.

Question 18

Why is purchasing a franchise an attractive idea to an entrepreneur? (1pt)

Answer 18

They already have an established brand & name that is successful.

Question 19

What is a franchiser? (1pt)

Answer 19

Owner of franchise, responsible for maintaining its reputation. To do so they perform strict and thorough inspections across franchise establishments.

Question 20

What is a franchisee? (1pt)

Answer 20

An individual who buys into s franchise, and manages a specific store. Their actions can largely reflect the reputation of the business and the franchiser.

Question 21

Fill in the blank: A franchise duplicates the _______________ across a ______________. (2pts)

Answer 21

• successful name and brand
• wider geographical area, usually in urban areas.

Question 22

What rights does an entrepreneur gain when they buy into a franchise? (5pts)

Answer 22

Right to use of the franchisor’s (using steers as an example)
- name (Steers)
- logo (the flame thingy)
- production systems (flame grilled)
- overall success recipe (production and sales of ‘Steers Spice,’ and ‘Thousand island sauce.’

Question 23

Why have family businesses proven to have a high success rate? (1 pt)

Answer 23

The entrepreneur has grown up with the business, and understands the process & customer base.

Question 24

Family businesses are traditionally aimed at survival. How has this changed over the last generation? (2pts)

Answer 24

Newer generations are seeing the benefits of EBV, and are moving towards growth and away from simple survival of the business. they are expanding into bigger geographical areas and different markets.

Question 25

Describe the entrepreneurial process. (5 pts)

Answer 25

A. Identifying an opportunity.
B. conducting research
C. Assessing resources required.
D. Developing the business plan.
E. Managing the entrepreneurial venture.

Question 26

How does an entrepreneur identify and evaluate an opportunity? (4 pts)

Answer 26

Start with assessing the viability (does the idea/opportunity have the potential to generate sustainable profits and return on investment/ROI?) and the feasibility (Is the idea/opportunity workable, and can it be practically implemented?).
Based on the research results, perform a SWOT analysis.

Question 27

What does SWOT Stand for? (4pts)

Answer 27

S- Strengths. Positive factors in the business.
W- Weaknesses. Things that hinder the business from taking advantages or opportunities, or achieving competitive advantage.
O- Opportunities. Factors that present gaps in the market to the entrepreneur.
T- Threats. Challenges which cause the business to fail.

Question 28

Give 3 examples of various formats of research. (3pts)

Answer 28

Questionnaires, surveys, observation

Question 29

While conducting research, the correct decisions and target market must be identified. What sort of things should one do/ask once this has been done? (2 pts)

Answer 29

It is important to get a representative sample from the target market - e.g, if the product is nappies, then the target market is parents. The target market should be asked questions related to their needs and preferences.

Question 30

What aspects make up a good location for a business to be rooted on? (4 pts)

Answer 30

• Proximity to target market
• Sufficient parking
• Good security
• Nearness of complimentary businesses

Question 31

How does one assess the resources required when starting a business? ((5 pts)

Answer 31

The opportunity in question will dictate the resources required. The entrepreneur must assess the availability of resources and whether maintaining production is possible - resources can include financial resources, raw materials, machinery and labour with particular skills.

Question 32

Why is it important to develop a business plan? (1pt)

Answer 32

They assist the entrepreneur to obtain funding - banks require business plans before they grant loans. They assist the manager in identifying, calculating and managing risks.

Question 33

Give detail on the management of an entrepreneurial venture. (3 pts)

Answer 33

The entrepreneur is responsible for managing the business or appointing competent people to do so. They will be Planning, Organising, Leading and Controlling (POLC) the different business activities to ensure success. This is also known as task management.

Question 34

List the factors that create a competitive advantage, with some detail on each.
(5 pts)

Answer 34

• Price: Lower prices = higher competitive advantage, but less profit per item sold.
• Customer convenience: Convenience should always be maxed - for example online shopping > IRL stores.
• Experience of the customer: Polite and helpful employees, not too difficult to navigate etc.
• Product differentiation: AKA variation of products. More products = more competitive advantage.
• Time: Knowing when various products are more popular than others, and analysing trends in order to do so.