Unit 1.

1 - Enterprise

What do business do?

Business activity exists to produce consumer goods or services that meet the needs of customers.
These goods and services can be classified in several ways.

Consumer goods: the physical and tangible goods sold to the general public – they include durable
consumer goods, such as cars and washing machines, and non-durable consumer goods, such as
food, drinks and sweets that can be used only once.

Consumer services: the non-tangible products sold to the general public – they include hotel
accommodation, insurance services and train journeys.

What do businesses need to produce goods and services?

Factors of production

These are the resources needed by business to produce goods or services. They include:

■ Land – this general term includes not only land itself but all of the renewable and non-renewable
resources of nature, such as coal, crude oil and timber.

■ Labour – manual and skilled labour make up the workforce of the business.

■ Capital – this is not just the finance needed to set up a business and pay for its continuing
operations, but also all of the man-made resources used in production. These include capital goods,
such as computers, machines, factories, of ices and vehicles.

■ Enterprise – this is the driving force, provided by risk taking individuals, that combines the other
factors of production into a unit capable of producing goods and services. It provides a managing,
decision-making and coordinating role.
 The concept of creating or adding value

All businesses aim to create value by selling goods and services for a higher price than the cost of
bought-in materials, this is called ‘creating value’. If a customer is prepared to pay a price that is
greater than the cost of materials used in making or providing a good or service, then the business
has been successful in creating value. This can also be referred to as ‘adding value’. The difference
between the selling price of the products sold by a business and the cost of the materials that it
bought in is called ‘added value’.

Here are two examples of how different businesses could create added value to their products:

1 Jewellers – well-designed shop-window display, attractive shop fittings, well-dressed and

knowledgeable shop assistants and beautiful boxes offered to customers to put new jewellery in.
These features might allow an increase in jewellery prices above the additional costs involved.

2 Sweet manufacturer – extensive advertising of the brand of sweets to create an easily recognised
name and brand identity, attractive packaging, selling through established confectionery shops and
not ‘cheap’ vending machines. Higher prices as a result of successful branding should create added
value.

Opportunity cost

This need to choose leads to the next important principle of our subject – opportunity cost. In
deciding to purchase or obtain one item, we must give up other goods as they cannot all be
purchased.

The role of the entrepreneur

An entrepreneur is a person who is willing and able to create a new business idea or invention
and takes risks in pursuing success.

Successful entrepreneurs can identify and pursue opportunities, create value for customers and
build thriving businesses

These individuals bring a unique entrepreneurial spirit into the business, which helps drive it
forward and expand

Eg. Howard Schultz was hired by Starbucks in 1982 as Director of Retail Operations and Marketing.
He later left to start his own coffee company, but returned to Starbucks in 1987 as CEO. Under his
leadership, Starbucks expanded globally and became one of the most recognised brands in the
world

Entrepreneurs fulfil important roles in business, such as:

o Organising resources, including finance, facilities, people and equipment

o Making decisions, both at the start and throughout the life of a business
o Taking risks to maximise returns and maintain a competitive advantage
 Characteristics of successful entrepreneurs:

Innovation: The entrepreneur may not be an inventor in the traditional sense, but they must be able
to carve a new niche in the market, attract customers in innovative ways and present their business
as being different from others in the same market. This requires original ideas and an ability to do
things differently – this is the skill of innovation.

Commitment and self-motivation: It is never an easy option to set up and run your own business. It is
hard work and may take up many hours of each day. A willingness to work hard, keen ambition to
succeed, energy and focus are all essential qualities of a successful entrepreneur.

Multiskilled: An entrepreneur will have to make the product (or provide the service), promote it, sell
it and keep accounts. These different business tasks require a person who has many different
qualities, such as being keen to learn technical skills, being able to get on with people and being
good at handling money and keeping accounting records.

Leadership skills: The entrepreneur will have to lead by example and must have a personality that
encourages people in the business to follow them and be motivated by them.

Self-confidence and an ability to bounce back:

Risk taking: Entrepreneurs must be willing to take risks in order to see results. Of en the risk they take
is by investing their own savings in the new business.

What do Entrepreneurs do?

They Organise Resources They make Business Decisions They take Risks
• Gather and coordinate the • Make initial decisions that • Take financial, personal,
resources necessary to start determine the success or professional or conceptual
and operate a business failure of a business risks

• E.g. Michael Dell started his • E.g. A restaurant owner • E.g. An entrepreneur may
computer company in his decides the type of food to invest life savings or quit a
garage, organising serve, restaurant location, secure job to start their
resources such as space, and what prices to charge own business
computers, software tools
and employees • Making the wrong decisions • These risks can pay off with
can lead to wasted great rewards, but they can
resources, lost also lead to failure and
opportunities, financial loss
and ultimately business
failure
 Barriers to Entrepreneurship

Barrier Explanation

Lack of finance • Entrepreneurs may not be able to afford to invest their own
money into a business

• Lenders may be reluctant to approve loans due to the lack of a

trading record or an unconvincing business plan

• They may also be unaware of grants or other available

financial support for new businesses

Lack of customers • There is no guarantee that an unknown new business will appeal
to customers

• Failure to attract customers to buy its products means that a

business is unlikely to survive

Finding a suitable • The best locations are often too expensive for new businesses
location
• Many entrepreneurs run their businesses from their own home
initially to minimise operating costs

Lack of • Entrepreneurs need to have a good idea that has the potential
opportunities to generate a profit

• They also need time, experience and sufficient evidence to

support their decision to take the risk in pursuing it

Existing competition • Well-known businesses that offer a similar product or

service may already exist

• Competitors are likely to have greater market knowledge and

an existing customer base as well as the financial resources to
invest in promotional activity
 How Small Businesses Contribute to a Country's Economic Development

Improve choice and service for consumers

Increase the country's level of output to achieve
economic growth
• This results in higher living standards and • Competition for existing businesses can
raises tax revenues for governments to lead to greater innovation and better
spend on improved public services customer service

• E.g. The Ugandan government has • E.g. Robinhood offers a commission-free

remodeled its education system to include share trading platform that makes
entrepreneurship as a core subject in investing accessible and affordable for a
secondary schools and has established broader range of individuals and has
innovation hubs to help entrepreneurs challenged traditional financial institutions
launch successful startups in a market that had changed little in many
decades

Reduce the level of unemployment Businesses set up as social enterprises often

support disadvantaged groups or improve
communities
• New or growing businesses create jobs • E.g. During the Covid-19
and increase labour skills pandemic Fuzzlab provided its chatbot
free of charge to UK social housing
• This is particularly important for African organisations
youth (15-24 years) who constitute around
37% of the working age population but
account for about 60% of the continent's • This meant tenants could continue to
jobless total access 24/7 support for any housing-
related enquiry at a time when customer
service staff were unable to carry out their
work

Social enterprise – objectives

Social enterprises often have three main aims. These are:

1 economic – make a profit to reinvest back into the business and provide some return to owners

2 social – provide jobs or support for local, often disadvantaged, communities

3 environmental – to protect the environment and to manage the business in an environmentally

sustainable way. These aims are often referred to as the triple bottom line. This means that profit is
not the sole objective of these enterprises.
ENTERPRISE

Q1.

(a) State two aims of a social enterprise organization. [2]

(b) Briefly explain how entrepreneurs could benefit your country. [3]

(c) Explain what ‘creating value’ means. [3]

(d) Explain what is meant by the term ‘triple bottom line’. [3]

Q2.

(a) Define the term ‘entrepreneur’. [2]

(b) Briefly explain two reasons why new businesses often fail. [3]

Q3.

(a) Briefly explain two qualities of a successful entrepreneur. [5]

(b) Analyses the impact of social enterprises on the development of a country. [8]

(c) Analyses problems a business could experience in its first year of trading. [8]

(d) A new business selling computer software has just opened in your town. Explain three needs that
this business will have if it is to be successful. [6]

(e) Explain how a supermarket could create value added to the food and other goods it buys in. [4]