What is enterprise?
Enterprise is the process by which new businesses are formed and new products and services are created and brought to the market.
What is an entrepreneur?
An entrepreneur is an individual who is capable of turning an idea into a real business. They take the risk and the subsequent profits that come with success or the losses that come with failure.
-vision, creativity and innovation
-willingness to take risks
Motives for starting a new business...
Why do it?
-Financial reward: You retain all profits
-Independance: Appealing to become your own boss: enabling you to make your own decisions and have total control.
-Building a business: Most get satisfaction from having built their own business.
Business ideas involve:
-invention (scientific investigations)
-copying (most businesses do this)
-personal idea (offering something new)
Risks, rewards and opportunity cost...
Reasons for failure:
-lack of finance
Entrepreneurs have to take huge risks, and the idea of failure is a major factor that keeps them motivated and determined to succeed.
Opportunity Cost: the 'real cost' of taking a particular action or the next best alternative forgone.
Government support and helping the economy...
Small businesses help the economy for the simple reason that they are the origins of the large successful businesses of the future.
Entrepreneurs help the economy by: generating wealth through spending, providing jobs and providing a product/service for customers.
The government help small businesses by: giving grants or subsides, making free training available and creating legislation protection (laws; e.g. patents/copyright, Ltd etc)
How do you protect a business idea?
Businesses often protect their products, processes and images through:
Copyrights: legal protection given to books, plays, films and music.
Patents: an official document allowing exclusive rights to use a process or product, usually for a fixed period of time, up to 20 years.
Trademarks: a word, image, sound or smell that enables a business to differentiates itself from its competitors. (creates a USP)
-product stays original -have exclusivity, so can charge a high price.
-over-priced products for customers -lack of competition discourages further product development.
What is a franchise?
This is when a business (the franchisor) gives another business (the franchisee) the right to supply its service or product.
-lower risks of failure; established brand name/product already.
-easier to raise finance from banks
-you do no own the business; so not totally independant.
-if the franchise fails the whole branch fails, including you.
Adding value in the production process...
Added value is: the difference in value between the price of the finished product and the cost of materials used.
Businesses can add value in the following ways:
-Advertising; creates interest in a product/service. May convince a customer to pay a higher price, and so increaes added value.
-Product features; USP allow the business to charge a higher price.
-Location; may enable the business to add value, i.e. if the location is seens as desirable.
Benefits of adding value:
-diferentiates business from competitors
-higher profit margins.
Business inputs and outputs...
Inputs: The elements that go into producing goods and services
Outputs: The finished products resulting from the transformation process.
The transformation process is seperated into 3 types of production:
Primary sector: organisations involved in extracting raw materials i.e. the staple industries
Secondary sector: organisations involved in processing/refining the raw materials into semi-finished products i.e. the manufactures.
Tertiary sector: organisations invovled in providing services to customers and to other businesses in either public or private sector. i.e. the shop that sells the product.service.
What is a business plan?
A business plan is a set of targets or tasks that a new business should set itself before starting up.
A BP should look at...
-Market research (primary and secondary)
-Finance (sources of, knowing your business costs and cash flow forecasts)
-Labour (the skilled/unskilled labour that the company need)
-Production (location and cost)
-Suppliers (quality, price, delivery service)
-Objectives (targets set to help measure success and progress)
-SWOT analysis (strengths, weaknesses, opportunities and threats)
Business plan: +ve and -ve
Benefits of a BP:
-clear targets/objectives to help measure success and progress, so reduces risk.
-more likely to get loans form banks
-critical that one is created in order to plan finance well.
-market research helps you know competitors/customer needs/whether market is growing or declining.
Problems of a BP:
-entrepreneurs do not have the skills to do one
-needs of customers contantly change
-plans are often too optimistic
-markets often change i.e.whether its good or bad and how it will effect the business.
Sources of help preparing a business plan...
Friends, family and work colleagues may have some previous business knowledge; talking to a wide variety of individuals will help generate ideas and highlight problems.
Bank managers all the major banks offer banking services to start-up businesses, including loans. They give advise on how to write and present a business plan.
Accountants- They are particularly good at giving advice on the finance side.
Small business advisors- potential entrepreneurs can buy advice from a wide range of small business advisors.
Local enterprise agencies- These are non-for-profit companies whose primary objective is to help new and growing businesses. They provide a wide variety of resources. Their funds come from local authorities etc.
What is market research?
Market research is the systematic and objective collection, analysis and evaluation of information that is intended to assist the marketing process.
Market research helps a business to:
-achieve its objectives quicker/more accurately.
-attempt to gain the opinion of consumers on the features of a company's product and on the needs/wants of the customer. If this is completed successfully the chances of a product selling increase.
-a company may gain information on its competitors also, and could possibly gain an advantage over them.
Benefits and drawbacks of market research
-actions of competitors can be judged and analysed.
-market size can be judged
-consumer trends can be noted and analysed
-to carry out surveys and obtain market research will cost the company... money, time, organisation and management expertise. Things that not every business has.
-Smaller firms need to judge the costs against possible benefits.
Primary Market research is...
The collection of information first-hand for a specific purpose. e.g. use of your own :sales and profit figures, opinions and use of questionnaires, sampling and testing etc. This can be done through... -experiment: An organisation experiments with a particular approach in certain areas or for a certain time. +ve. relatively cheap -ve. could delay introduction of a potentially successful strategy.
-observations: Stores watch customers while they're shopping and gather information on customer reactions/thought processes. +ve.examines actual customer behaviour in detail. -ve. it's expensive to employ specialist psychologists.
-focus groups: group of consumers are encouraged to discuss their feelings about a product or market.+ve.these groups help uncover new ideas.-ve.sometimes an element of bias within the groups.
-surveys: consumers are questioned about the product/service. This can be done through: personal/telephone interviews, postal/internet surveys.
-test marketing: launch a product in a limited part of a market and discover customer opinions. +ve.relatively accurate -ve.markets are rapidly changing.
Secondary Market research is...
The use of information that has already been collected for a different purpose.
e.g. office of national statistics (gov, dept), newspapers, magazines, company records, competitors, market research organisations, loyalty cards, the internet.
-data is easy to collect
-is much cheaper than primary research
-not specific to your business
-competitors know the same information and may have used it first.
What is qualitative market research?
It is the collection of information about the market based on subjective factors such as opinions and reasons. e.g. why people watch Eastenders?
-this research can highlight issues that the business was not aware of.
-it can give detailed insights into customer's thinking processes when they buy products.
-it is expensive to gather the information, as skilled personnel are needed to interpret it.
-it is difficult to compare with other data as the opinions are often unstructured.
What is quantitative market research?
It is the collection of information about the market based on numbers. e.g. How often do people watch Eastenders?
-the use of numerical data makes it easier to compare results.
-numerical data can be used to identify trends and project future trends.
-it only shows 'what' rather than 'why', therefore the data produced is less useful than qualitative data in helping a business to understand trends.
-it can lack reliability and validity if the sample is biased or too small.
Sample: A group of respondents or factors whose views or behaviour should be representative of the target market as a whole. (done through primary research)
Random sampling:a group of respondents in which each member of the target population has an equal chance of being chosen. +ve. cheap -ve. quality of research is poor.
Quota sampling:this is not random, as not everyone has an equal chance of being in it. A group of respondents comprising several differnt segments, each sharing a commonn feature e.g. gender. No. of people being interviewed in each group depends upon the market segment that they cover for your product. +ve. results are more specified to the businesses product/service. -ve. takes more care and time than random.
Stratified:a group of respondents selected according to particular features e.g. age. but, unlike quota sampling, where the final selection is left to an interviewer, in stratified sampling the sub-groups and their sizes are chosen specifically. +ve. very accurate -ve. very time consuming.
Factors that affect the choice of sampling...
costs and the availability of finance: random=cheap
The importance of market segments: quota/stratified=focuses on different types of consumers
Whether the business is targeting a specific group of customers: quota/stratified=identify opinions of 1 target group.
The firm's understanding of its customer base: random=does not need to know the customer type to focus on.
Types of markets...
Local Markets: Customers are only a short distance away.Town markets and car boot sales are examples.They're common with personel services e.g. hairdressers/ plumbers. Majority of goods purchased by a consumer are from local businesses. +ve. reputation will spread quickly and easily to customers and potential customers.
National Markets: A geographically dispersed market where customers are spread over a large area.+ve.larger potential market.-ve.slower communication with customers.
(both types of markets above are 'physical locations')
Electronic Market: Does not have a physical presence, but exists in terms of a virtual presence via the internet. Many businesses have gone from 'brick to click'.
Market segmentation is the classification of customers or potential customers into groups or sub-groups, each which responds differently to different products or marketing approaches.
Geographical segmentation: based on geographical area targeted.
Demographic segmentation: based on age, gender and social class.
-assist new product development. -identify ways of marketing a product.
-it's difficult to the most important segments for a product. -hard to meet needs of customers not in chosen market segment.
Demand: the amount of a product or service that consumers are willing and able to buy at any given price over a period of time.
It's influenced by: price, income and wealth of customers, tastes and fashion and prices of other goods (competitor action).
Market size: the volume or value of sales of a product.
Market growth: percentage change in sales over a period of time.
M.G. is influenced by: economic growth, changes in taste, fashion.
Market share: the percentage or proportion of the total sales of a product or service acheived by a firm or brand of a product.