AS Business Studies

Unit 1

Kerry McIntyre

AQA• Revision/Learning Notes• 16 October 2018

Business Studies

Unit One

ENTERPRISE AND ENTREPRENEURS

Key Terms:

Entrepreneurs: Individuals who have an idea that they develop by starting a new business and encouraging it to grow. They take the risk and subsequently gain the profits that come with success, or the loss that comes with failure.

Enterprise:Almost any business or organisation can be called an enterprise, but the new term usually refers to the process by which new businesses are formed and new products and services are created and brought to market. Enterprises are usually led by an entrepreneur.

Enterprise Skills: Skills that allow an individual or organisation to respond effectively to changing market situations. They include problem solving skills, thinking and acting creatively and innovatively. They also have to understand the importance of risk and uncertainty. The definition used by the department for Children, Schools and Families (DCSF) includes the following skills: innovation, creativity, risk management, risk taking and a can-do attitude.

Serial Entrepreneurs: People such as Richard Branson who constantly have new ideas for businesses and in so doing, provide many new products and services.

Characteristics of a Successful Entrepreneur:

•Willingness to take risks - this is probably the most important quality of an entrepreneur.

•Ability to spot and take advantage of a new opportunity.

•Determination and persistence.

•Passion.

•Relevant skills and expertise's.

•Vision, creativity and innovation.

•Motivation to succeed and not be daunted by failure.

Importance of having Entrepreneurial Skills Available in the Job Market:

•People change jobs often.

•Management structures have become less formal and more flexible.

•Working methods have become more innovative.

•Businesses are now more likely to encourage individuals to spot market niches, use their initiatives and adapt to changing market circumstances.

Risk and Reward:

•1/3 of people in the UK are scared of failure.

•Reasons for failure include: Lack of finance, poor infrastructure, skills shortage, complexity of regulations/red tape.

•An entrepreneur who can overcome the failures will be rewarded with the profits.

•Many people avoid risks, even though this is where the high profits are too be made as competitors are often scared to exploit these ideas.

Opportunity Cost:

•“Real Cost” for undertaking a particular action or, the next best alternative forgone which is the next best business idea that could have been undertaken instead of the idea chosen.

•The opportunity cost for setting up a new business could be the old wages the entrepreneur is giving up.

Reasons for becoming and Entrepreneur:

•Feeling of satisfaction due to successful idea.

•The ability to be your own boss.

•You keep the rewards (profits).

•More control over what you do.

•Increase in government encouragement - e.g. in schools, through grants and subsides etc, due to the desirable effects on the economy.

•Increase in wealth - constantly creating new opportunities, through the increased amount of jobs avaliable

•Desire for more independent work.

•The wish to make money.

•Desire to use talent/skills in a useful and productive way.

•Attempting to provide employment/wealth for the local area.

Government Support for Entrepreneurs:

•They encourage entrepreneurship because it creates jobs and help keep unemployment low in the economy.

•People earn money and pay taxes, which can then be hypothecated back into useful, positive services provided by the government, such as schooling and the NHS.

•Stimulates competition for existing providers in the market, increasing contestablity and thus increasing the quality of output.

•Increases productive efficiency by increasing the competition.

•Provide new goods and services which increases the choice for customers and increased the quality of the service they receive.

•Fill market niches and thus satisfy certain tastes which also gives consumers more choice.

•Encourages more flexible business that support the introduction of new ideas and technology.

How do Governments Help Entrepreneurs:

•Access to advice and useful information to help them get started.

•Funding such as grants to help with the initial start up costs.

•Legal protection for new ideas - patents. This enables inventors to make profits from their invention without their idea being “stolen” and duplicated.

•Reduction of regulations and bureaucracy (administration characterised by excessive red tape and routine)on enterprise.

•Reduction of barriers to entry into a market to raise finance for small businesses, such as privatisation of goods/services in the public sector in the hope to make them more contestable.

•Promoting change in the UK’s enterprise culture.

•Encouraging business startups in economically deprived areas of the UK.

•Introducing legislation to promote competition.

•Funding projects to raise awareness of enterprise among underrepresented groups of people.

•Encouraging unemployed people to move into self employment.

The Entrepreneurial Culture:

•Entrepreneurs are highly values and respected members of society.

•The business environment encourages and helps people to set up their own business.

•It is not unusual for new businesses to fail, in fact it is more likely they will fail than be successful - hence why people opt for franchises.

•If their are high regulations, such as forms and restrictions on what can and cannot be done, this may have a significant impact on peoples willingness to start up a business, as it may be expensive and difficult for entrepreneurs.

Opportunities for Analysis:

•Examining the skills or characteristics needed by an entrepreneur.

•Assessing weakness in an entrepreneur.

•Analysing the reasons for business failure.

•Recognising the opportunity cost of a business decision.

•Showing understanding of the motives of a particular entrepreneurs.

Opportunities for Evaluation:

•Assessing a balance between risk and reward in a particular business start-up.

•Evaluating the risks and rewards to an entrepreneur.

•Judging the importance of different characteristics of the entrepreneur in terms of their influence on the business achievements.

•Evaluating the significance of different motives for becoming an entrepreneur.

•Viewing the significance of the entrepreneurs skills relative to other factors that influence the success of a new business.

Links to Other Topics:

•The skills of an entrepreneur in providing an idea or identifying a subtable product or market niche.

•The quality of the entrepreneurs business plan and his or her skills in carrying out appropriate market research and choosing a good location.

•The need for entrepreneurs to raise significant finance to develop the business and his/her skills in that area of financial planning such as cash-flow forecasting and budgeting.

•The importance of entrepreneurial skills when assessing the relative success of business start-up.

Generating and protecting business ideas

Key Points:

•How entrepreneurs identify new product ideas or market niches.

•Ways of protecting your business ideas such as patents and copyright.

Key Terms:

Market Niche:A small segment within the market.

Brainstorming:A problem solving and idea generating technique in which individuals are asked to come up with as many ideas as possible. Everyone is encouraged to talk, then after a given amount of time the ideas are analysed in more detail.

Patents:Legal protection for new inventions.

Trademark:Legal protection for signs and symbols.

Where do Entrepreneurs get their Ideas From?:

•Spotting trends and anticipating the impact on peoples lives - E.G. mobile communication technology.

•Noticing something that is missing from the market or something that can be improved upon - E.G. Online holiday booking.

•Coping ideas from other countries - E.G. online holiday bookings.

•Taking a scientific approach - E.G. Dyson’s cyclonic cleaner.

•Noticing a missing aspect from the the current market - niche markets.

•Looking for a product, and when noticing it is not yet available creating it as a business.

•Buying the rights to sell a product that is already available on the market.

•Sometimes, people know that they want to become entrepreneurs and so they set about looking for an opportunity to become so. They may set about brainstorming ideas with friends and families to think of new products they could bring to market - the best example of this is the entrepreneurs behind Innocent Fruit Smoothies.

What makes a good idea?:

A business idea is only good if it is possible to provide it, it meets the needs of the customer and it meets the needs of the firm itself.

Entrepreneurs should ask themselves the following questions:

•Will it be perceived as value for money by customers?

•Will the business be able to make a profit? (This should be changed to raise money for charity, in the case of charities, or provide the best service in the case of public sector services)

A business considers the following questions when evaluating if an idea is worth pursuing:

1)Do you have the facilities and expertise to provide such a service efficiently?

•Do you have the necessary funds to get it started?

•Do you know how to make it a success?

•The example of household properties highlight how entrepreneurs have to be aware of the changing markets because if the markets crash it may become difficult to sell houses.

2)Is there demand for the good/service?

•A business can only survive if it has customers - this means a business must meet their demands.

•Of course, some people do not know their “needs” until introduced to them, as in the case of most hit films. In this instance entrepreneurs have to anticipate the market or they have to create and stimulate the demand for the good through marketing and hype.

3)Can you benefit from providing it?

•Ultimately the business needs to meet its own objectives or it is not worth pursuing the venture.

•For example, due to the profit motive, the money generated by selling a product must be more then the cost of producing it.

•Many entrepreneurs fail because they think they have a good idea but when it comes to producing and selling the product, they realise the cost it too great.

•It is important to remember that not all businesses are set up for the profit motive - remember public sector and charities.

Product/Market Led:

The above diagram shows, product-led enterprise. Some entrepreneurs have a conviction that their idea will work and are determined to go ahead with it.

The above diagram shows a market-led enterprise. Ideas arise after an analysis of the market, and only go ahead if the company feel the customers will want/buy it.

Why Protect your Idea?

•Clearly, if you set up your own business you want it to be successful/

•You do no want other businesses benefiting from your findings

•The protection is of benefit to businesses because:

•You gain more customers due to lack of alternative/substitute.

•There is an increased ability to make more money through selling the rights of your business/idea to other companies (franchising)

Patents:

A patent is a legal document that gives protection to new inventions. It can be granted over how the invention works, what the product does, what it is made of and how it is made.

The conditions of a patent grant are:

•New invention.

•Have an inventive step that is not obvious to someone with knowledge and experience in the subject field.

•Have the capability of being made of used by some kind of industry.

Inventors can own patents, with protection to their products for up to 20 years.

The benefits of having a patent are:

•The inventor is the sole owner and therefore has a complete monopoly and thus can sell the product without having any competition.

•Having a patent means that the invention becomes the property of the inventor. A patent can be sold, rented or licensed and so can bring revenue, even if the developer does not develop the invention themselves.

•A small business with an existing patent can become and attractive proposition for a large firm to purchase, simply in order to obtain the patent.

The are, however, some negative aspects to patents:

•It costs a lot of money and takes a long time to apply for and protect a patent.

•Preventing other firms from using your patent can mean high legal costs, high time consumption and can prove difficult if the business is in a different country. Often it is not worth it.

Consequences from patents:

•If other firms use your invention/idea without your permission you are able to sue them and gain compensation.

•However this relies upon you taking them to court, which has high time consumption and can prove difficult if the business is in a different country. Often it is not worth it.

Trademarks:

Signs, logos, symbols or words that display on a company’s product or advertising, including sound or music, which distinguishes it’s brand from its competitors. They help businesses to provide an image that is instantly recognisable by consumers. It also creates a USP (unique selling point) by differentiating a product from those of it’s competitors. It also makes it easier to launch new products, using widely recognised trademarks.

What can be registered?

•Name,

•Logo,

•Slogan,

•Domain Name,

•A Shape.

•A colour or sound.

Most product and packaging contains the (c) symbol on it, which shows that it is a registered trademark. Some examples of this are:

•Cola-cola (Name)

•Apple (Logo)

•Google (Name and Logo)

•Nick Tick (Logo)

•The above points all link to the brand and are easily associated and thus have created brand loyalty and association.

Copyright is the legal protection for authors, painters and artists against other businesses using them or something similar. The owner of the copyright can decide whether the material can be copied or not. They can charge a royalty for the licence fee.

•Literature, including novels, instruction manuals, computer programs, song lyrics, newspaper articles and website content.

•Music compositions and recordings.

•Art, including paintings, engravings, photographs, sculptures, collages, recordings of work such as sound and film.

•Broadcasts of work, such as radio or television.

The invention automatically owns copyright to something as soon as they create it. Others have to pay for the right to use the work, for example when it is played on the radio.

Overall:

Although there are many forms of protection to entrepreneurs, it may be the case that you are unable to protect your idea; which means that if you come up with an idea that works, other businesses will soon be copying it, which is not good for the profits/sales of the business!

Examiners Advice:

•By the end of this section you should know the different ways in which entrepreneurs protect their businesses.

•You also need to be able to decide if a particular idea is a good one or not.

What do you think?

Could you draw the trademarks of:

•Ministry of Sound?

•Nike?

•Adidas?

•Gucci?

•Google?

•Radley Handbags?

What do you think the advantages are of having such well known logos? Many entrepreneurs hope that though one day their name and logo will be hat famous.

Opportunities for Analysis:

•A comparison between different business ideas in a specific firm.

•Recognising the impact of limited resources on the creation of business ideas.

•Linking the choices of product to the market targeted by the business

•Explaining the benefits/drawbacks of copyright, patents and trademarks.

Opportunities for Evaluation:

•The overall impact of the patent of copyright on a businesses financial success.

•Key factors to consider when deciding on patenting/copyrighting.

Links to Other Topics:

•Franchising.

•Characteristics of the entrepreneur who has generated the business idea.

•Assessing business start-up relates closely to protecting business ideas.

Franchising

Key Points:

•The advantages and disadvantages of franchising.

Key Terms:

Franchise:When a business (the franchisor) gives the right to supply it’s product of service to another business/person (the franchisee)

How do franchises work?

•Franchisors sell the right to a product in return for an initial fee.

•Franchisee receives the right to the name and the systems used by the franchisor. This may include success to materials and training methods.

•In some cases i.e. McDonalds the company want to keep strict control over what products are sold and the condition in which they are sold. Some franchisee’s have to follow strict rules in terms of what they sell.

•Listed below are some good examples of franchises:

•Ben and Jerry’s ice cream

•Make-up Brands.

•Riverford Organic Vegetables.

•Dominos pizza.

•Threshers off-licence.

Types of Franchises:

Business Format Franchise:When the owner of a business (the franchisor) grants a licence to another person or business (franchisee) to use their business idea, often in a specific geographical location. The franchisee then sells the franchisers product/service under their trademark/trade name and thus benefit from the franchisors brand loyalty/reputation.

Distributors and dealerships:Franchisors sometimes sell their product to a franchisee, however the franchisee does not trade under the franchisor’s name. The franchisee has more freedom over how they run their business. This is common in car sales, where a car dealership trades a certain type of car, for example toyotas.

Agency:Where the franchisee sells goods or services on behalf of the supplier (franchisor)

Licences:Here the franchisee has a licence giving them the right to make and sell the franchisors products. Like distributors and dealerships, there is usually no restrictions on how the business is run.

Advantages of buying a franchise: