Lower Sixth A Level Business Pearson Edexcel Theme 1 Marketing & People - Entrepreneurs & leaders Summer 2021 Workbook

Lower Sixth A Level
         Business
      Pearson Edexcel
    Theme 1 Marketing &
          People
       • Entrepreneurs & leaders
       Summer 2021 Workbook

        Hills Road Sixth Form College
.

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Topic 1.5 Entrepreneurs and Leaders

        The key learning in this topic is as follows:
        1.5.1 Role of an entrepreneur
        1.5.2 Entrepreneurial motives and Characteristics
        1.5.3 Business objectives
        1.5.4 Forms of business
        1.5.5 Business choices
        1.5.6 Moving from entrepreneur to leader

1.5.1 Role of an entrepreneur

What is enterprise?

The demonstration of initiative, risk-taking, flair, dedication and skill required to set up and succeed in
business.

What is an entrepreneur?

An entrepreneur organises __________________ (land, labour and capital) so that business activity can
take place. In new business start-ups ________________ will usually be the founders and owners of the
business. Initially they are likely to make all decisions such as the location of the business, product design,
process and wages.

An entrepreneur is an _____________. Business activity usually begins with the entrepreneur having a
business idea which fills a ___________ _______ (provides for a consumer/customer need that is not
being fulfilled by any other business).

Identifying an Opportunity
Before a business can be started the owner must have an idea of what will be sold and who is going to buy
the product or service. Business opportunities can be identified in a variety of ways:

   • Using existing skills of the entrepreneur
We all have a bank of personal and business experience that might be used to identify an opportunity for a
new product or market. For example, Trevor Bayliss noticed when watching a programme about AIDS in
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Africa that there was no way of making public health broadcasts, so he invented the wind-up radio which
can be used in remote regions where it is hard to obtain batteries. Sometimes when people are made
redundant they may have business skills that they can bring to a new business

    • Identifying a product or market niche
A market niche is a gap in the market that has not yet been exploited. This is an opportunity to offer
consumers a product or service that does not currently exist. Market mapping may be used e.g. Stelios
Hajji-Ioannou noticed there were no cheap no-frills flights, so decided to fill this market gap by setting up
Easyjet. Small businesses may lack the resources to undertake large scale market research and so will carry
out small budget research. This involves getting a general understanding of the market. How might an
entrepreneur do this?

   1.
   2.
   3.

    • Invention or innovation
The creation of a new product or process or putting a new idea into practice in the market-
place. Some of these ideas may come from everyday life as shown in the article
“Generating Business Ideas”.

   •    Purchasing a franchise

A franchise involves a new business (the franchisee) buying the right to use the name, logo and trading
method of an existing, successful business (the franchisor) who wishes to expand. This is a bit like buying a
business “off the peg”. The existing business could be a successful brand name e.g. McDonalds, Spar, The
Body Shop, BSM, or a smaller business which wishes to expand without significant increases in
risk/investment. For the franchisee, there is a chance to run their own business but to have the experience
and support of an established business behind them. Since the new business (the franchisee) would be
trading using an already established brand name/business formula, start-ups based on franchising have a
far lower failure rate than independent firms. For this reason it has become an increasingly popular way to
start up a business in the last 10 years.

As the business grows
Once the business is off-the-ground the entrepreneur will face a different set of challenges. A sole trader
may not have to establish systems and set procedures if the number of staff is small, but this will have to
change as the company takes on more customers and staff.

Read page 57 to 58 of your Business textbook and summarise the main points

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Intrapreneurship
                 As a business grows leaders may struggle to keep the entrepreneurial spirit which made them
                 successful alive. New ideas may dwindle, responses to opportunities slow down and the
                 organisation ceases to value the input of those creative individuals who make things happen. In
                 order to overcome this, some businesses encourage their leaders to act more like entrepreneurs, or
                 rather intrapreneurs. Follow this link to an article on how Google brings Intrapreneurship into its
large organisation.

1.5.2 Entrepreneurial motives and characteristics

Why do people become entrepreneurs/set up in business?
As a group, identify some of the reasons;

 Financial                                          Non-financial

Profit Maximising versus Profit satisficing

One of the most common reasons for entrepreneurs to set up is to make a profit. Profit is the difference
between total revenue and total costs where total revenue is greater than total costs. However, there are
broadly two different approaches to the generation of profit.

Profit maximisation is a short term approach in which each customer is treated as a one-off opportunity to
generate cash. If there is no consideration of repeat purchases or building loyalty then the company may
be tempted to charge as high a price as possible (increase revenue) and cut costs. This may generate large
profits in the short-term, but at the cost of future profits.

Profit satisficing is a long-term approach in which care is taken to build a reputation and a relationship with
the customer. This may mean charging a lower price and therefore generating lower profits in the short-
term. These profits will be more sustainable in the longer term as customers continue to buy from the firm.

 Task
 Read the articles “It’s not all about the money” and “The Water Filter Entrepreneur” (this is about
 former Hills Road student Amanda Jones who teamed up with James Brown to create Red Button
 Design featured on Dragon’s Den).
 Note down any additional reasons for becoming an entrepreneur.

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Now read and complete the activity on the “It’s Not All about the money and the “Eco Hero”

What are the characteristics of a successful entrepreneur?

                Click here for a Tutor2U presentation on entrepreneurship.

Note down the skills needed by entrepreneurs with an explanation.

Now try to categorise the skills needed by entrepreneurs.

 Visionary skills                                        Practical skills

Risks versus rewards

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Any entrepreneur has to balance out the potential risks with the potential rewards before deciding
whether to start up in business.

The Risks
Setting up in business requires a massive commitment in terms of time, effort and money. Costs must be
paid in advance such as research costs, purchase of materials, rent/purchase of premises and equipment,
and payment of wages. There is no guarantee that the final product will be sold. Many entrepreneurs use
personal monies to set up in business or borrow against their own assets (e.g. their house). If nothing is
sold then they risk losses and bear all the costs of failure.

New start-ups have a high failure rate: ____% are likely to fail within the first year, _____%
by the end of year 2 and ____% by the end of year 4. (Answers can be found in this
article)

When considering risks, the following questions will be important to entrepreneurs:
  • What is the chance of the business being a success?
  • What is the chance of the business not being a success?
  • If it is not a success what will be the costs involved?
  • How can success be defined? (many entrepreneurs may not become millionaires but success could
      be “surviving the first 2 years” or “paying myself a salary and still breaking even”)

 Tasks:

 Conduct your own research into a well-known entrepreneur and present it to the rest of the
 class. Your presentation should be no longer than 4 PowerPoint slides.
 You should include:
     1. The nature of the business.
     2. The reason for the start-up
     3. The risks that the entrepreneur/s faced
     4. Their motives
     5. The characteristics of the entrepreneur/s
     6. The success of their business.

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Business choices

Opportunity Cost
When someone decides to give up their job and start their own business they obviously incur costs of
research, materials, rent, equipment and wages as mentioned above but by making their decision they are
also giving up a salary. This is the opportunity cost of their decision i.e. the benefits foregone by giving up
the next best alternative.

Any choices made in business will have an opportunity cost. For example a business might be considering 3
investment options, new computers, a new van or an office extension, but can only afford one. If it is
decided that the new computers are the priority and they are purchased, resources cannot be allocated to
the other 2 items. The other 2 options are foregone (given up). The benefits lost by not having the van or
the extension are the opportunity cost of choosing the computers.

 Task:

     1. Define opportunity cost

     2. Give two ways of measuring the opportunity cost of doing your homework

 James Sutton had a job as a marketing manager paying £55,000 per year. His career prospects
 looked very good, yet he handed in his notice to start his own online business. He knew it would
 take him away from 9-5 work and towards the dedication of 8am until 9pm (on a good day). If
 he took on a member of staff his wage bill rise by £16,000 per year.

     3. What was the most easily measurable opportunity cost to James of setting up his own
        business?

     4. What other less easily measured opportunity costs might there be?

     5. If James does decide to employ someone in his business what is the opportunity cost to
        the business?

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1.5.6 Moving from entrepreneur to leader

We also know that growth as a business objective. This growth could be measured in terms of an increase
in sales revenue or sales volume. The following link takes you to the Fast Track 100, which is a list of the
100 fastest growing private companies in the UK. Choose one of the companies on the league table and
write a short summary. This should include company’s ownership, sources of finance, main activities and
recent performance.

https://www.fasttrack.co.uk/league-tables/fast-track-100/

Growth in sales value may be achieved through the opportunity to increase sales price without adjusting
volumes in which case the impact on the business may be relatively small. Growth of volume of output
poses more difficult challenges. When growth is anticipated, firms can take steps to plan for the increase in
volume and have time to implement these. These may include:

 Functional area         Key considerations of change in output
 Marketing

 Finance

 HR

 Operations

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Problems of growth

Overtrading

This is when a firm expands from a weak financial base. Consider the following cash flow cycle and note
the difference in timings of cash in- and outflows.

If firms significantly increase their output they will need to buy additional stock and possibly hire additional
staff, both of which represent outflows. If they do not have enough working capital then they may struggle
to pay suppliers and employees.

Change from entrepreneur to leader/manager

Review your list of skills required to be a successful entrepreneur here.

1.

2.

3.

4.

5.

Now consider how these might differ from those required to be a successful manager/leader.

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Of course, differences in the skill sets of entrepreneurs and managers are not the only people issues that
rapidly growing companies face. Unanticipated rapid growth may mean that staff may be obliged to
perform tasks for which they do not have the desired skill level and for which there is insufficient
opportunity to train them.

This may be exacerbated by the Peter Principle which is………………………………………………………

……………………………………………………………………………………………………………………………………………..

…………………………………………………………………………………………………………………………………………….

Change In organisational structure.

A growth in output may also necessitate a change in organisational structure as more employees are
recruited. Consider the differences between these two structures. What are the principle differences and
what challenges may the company face when moving from organisation B to organisation A?

Delegation means passing authority to complete tasks down the hierarchy to junior employees. Why might
this be difficult for entrepreneurs to do as the company that they founded becomes larger and larger?

Loss of direction and control

As firms grow in size its operations become increasingly complex. This means it may become more difficult
to co-ordinate activities between different parts of the business and more employees. Managers’ attention
may be directed at problem solving and monitoring rather than planning the longer term direction of the
company.

Entrepreneurs may be less interested in this aspect of running larger businesses or underestimate the
organisational skills required. They may also be embolded by this growth and success and be tempted to
start other businesses, thinking that they will be able to enjoy similar success.

All this makes it harder for those leading the organisation to monitor and co-ordinate activities, which may
result in a loss of direction of the whole company. Entrepreneurs and managers need to continually review
the mission statements and business objectives to keep the business focused on its core business.

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Further watching, reading and listening

                 Revision quiz of enterprise and entrepreneurs
                 https://www.tutor2u.net/business/blog/buss1-revision-quiz-enterprise-entrepreneurs

                 ‘Entrepreneurs – The Cambridge Satchel Company’ Business Review Magazine, Volume
                 20, September 2013

                 Watch any of ‘Alex Polizzi – The Fixer’ documentaries on ClickView (use your college
                 password to sign in, click on ‘Libraries’ and select Economics & Business and then type
                 Alex Polizzi The Fixer into the search box)

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