Entrepreneurs and leaders

Roles of an entrepreneur

• Creating and setting up a business

• Running and expanding a business

• Innovation within a business

• Barriers to entrepreneurship

• Anticipating risk and uncertainty

Creating and setting up a business

• Generating a business idea

• Spotting an opportunity

Generating a business idea

The main sources of business ideas are:

• Observation: Watching what other businesses are doing or how consumers behave may give an idea that it can be copied elsewhere

• Thinking ahead: This is spotting trends that will lead to changes in the future that will offer business opportunites

• Personal or business experience: Noticing certain needs aren’t met through personal experience or within a workplace

Spotting an opportunity

Sources of opportunity tend to be centred on changes in the real world:

• Changes in technology: increased computing power in mobile handsets broadens the range of apps that can be produced

• Changes in the economy: Differing rates of national or regional economic growth may offer opportunites to be exploited

• Changes in society: Trends in the way people behave, such as increased a

Running and expanding a business

Habits that entrepreneurs demonstrate when running a business are:

• They measure performance in an unbiased way: If there are problems, they can’t be ignored, they have to be identified

• They have an eye for detail: It’s unlikely anyone other than the entrepreneur will be worried about getting things right.

• They have the ability to step back from the day to day issues

• They love what they do: without this, the motivation to do the 3 things above will drain away

Problems when considering expansion

• Over-estimating demand: What works in one place may not work somewhere else

• Failing to raise sufficient finance: It is a lack of cash that ultimately leads to business failure, without having made sure that the business has enough finance to support operating on a larger scale, the danger of running out of cash becomes acute

• Not recruiting enough/ the right people, more expansion means more limited time, with more to oversee, with more to see, and more stress, so it’s vital that when they recruit, they get the right staff.

Innovation in a business

Large businesses want creative and disruptive thinking that entrepreneurs have, they want the innovation it brings to give them a competitive advantage 

Intrapreneurship

The name given to the encouragement of entrepreneurial behaviour within larger businesses

Barriers to entrepreneurship

• Funding

• Gender bias

• Lack of public sector support

Funding- barriers to entry

Following the financial crash of the last decade, banks have been less willing to provide finance to smaller businesses, considering them high risk for low return, as they’re believed to be relatively unprofitable, so entrepreneurship may die back in the UK.

Gender bias

Uk entrepreneurs are three times likely to be be male as female, so many entrepreneurial would go to waster

Lack of public sector support

Although the image of an entrepreneur has improved recently, some who work in the public sector may be sceptical, suspecting tax avoidance or motives based on greed, this perception can lead to the education system not valuing entrepreneurial skills.

Characteristics required to become a successful entrepreneur

• Understanding the market

• Determination

• Passion

• Resilience

• The ability to cope with risk

Risk

The likelihood of things going wrong or the size of the consequences of things going wrong

Good entrepreneurs accept risk but not take on risk too big.

Skills of good entrepreneurs

• Financial skills:

• Persuasive ability

• Problem-solving skills

• Networking skills

Financial skills

Involves understanding key financial documents, and how finance allows a business to run

Networking skills

With a wide range of possible business contacts, entrepreneurs can find someone easier when the business needs help

Reasons why people set up businesses

• Profit maximising

• Profit satisficing

• Independence (not taking orders from others)

• Homeworking

• Ethical stance

• Social entrepreneurship

Profit satisficing

Blending a desire for profit with other factors

Such as building a good reputation, or the work-life balance

Business objective

A specific target set out by the business

Business strategy

The plan devised by the business to achieve objectives

SMART objectives

Targets that are designed to be well-defined and achievable

• Specific

• Measurable

• Achievable

• Realistic

• Time bound (a clear deadline, e.g 6 months)

Common business objectives

• Survival

• Profit maximisation

• Sales maximisation

• Market share

• Cost efficiency

• Employee welfare

• Customer satisfaction

• Social objectives

Survival

Focusing on generating sufficient cash to sustain the business

Circumstances when it is used:

• When starting up

• When an external environment threatens the future of a business(Recession, powerful competitor)

Profit maximisation

Earning the most profit possible in a specific time period

Sales maximisation

Growing the number of customers, without a major focus on controlling costs

• In a rapidly growing market, firms may try to maximise their share of the market, with an expectation of generating profits when market growth has slowed and competition reduces.

Market share

Increasing this helps ensure long term success, through distribution and preventing new entrants from challenging in the market

Typical circumstances:

• Market leaders will often seek to increase their lead and thus power, by enhancing market share

Cost efficiency

A focus on minimising the cost of the product or service and the running costs of a business

Typical circumstances:

• Good for firms trying to undercut rivals with lower prices, if costs are low, profits can still be made even with a lower price

Employee welfare

Looking after straff by treating them well, and by devloping their skills through training and internal recruitment

Typical circumstances:

• Where people play a key role in gaining a competitive advantage, whether that be in customer service, or innovatio

Customer satisfaction

Prioritising the need to ensure every customer has a positive interaction with the business

Typical circumstances:

• This is crucial where attracting new customers is costly, and losing them is expensive, such as phone networks or banking

Social objectives

Objectives that relate to the beneficial role a business can play within society

Typical circumstance

• Some businesses see improving society as a key purpose, so set social objectives in a meaningful way.

Reason why businesses set objectives

To ensure the whole business is working towards the same goal

Liability

Refers to the extent to which owners of the business must repay debts incurred in the running of the business

Businesses with unlimited liability

• Sole trader

• Partnership

Sole trader

A person who starts and runs a business without turning it into a company, this explains why the law sees the business and the owner as the same, so the owner is personally liable for any debts built up in running their business.

If the business goes bust, the owner is responsible for the debts to whom the business owed money to

Benefits of a sole trader

• Owner has full control over decisions

• Owner keeps all the profits made

• Minimal paperwork is needed to startup

Drawbacks of a sole trader

• Hard to raise finance

• Owner has unlimited liability

Partnership

A type of business where two or more people own the business and share the responsibility, risk and profits

Benefits of a partnership

• More owners allow finance to be raised easier (owners capital)

• Partners may bring varied skills and experience

• Responsibility is shared among owners.

Drawbacks of a partnership

• Owners have unlimited liability

• Potential disagreements among partners

Unlimited liability

Owners of the business must take personal responsibility for covering debts run up by the business

Businesses with limited liability

• Private limited company

• Public limited company

Limited liability

A form of legal protection for business owners which ensures that owners of a limited company can only lose the amount of money they have invested into the business

Other forms of businesses

• Franchising

• Social enterprise

• Lifestyle business

• Online business

Franchise

A license to use another business’s name and business model in return for payment

Franchiser

A business that sells the right to use its name and model to entrepeneurs or other businesses

Franchisee

An entrepreneur or a company that buys the license to use another business’ name and model in return for payment.

Franchising

Offers the oppourtinity to start a business using a tried and tested formula.

For the franchisor, this can be a cheap and quick way of expanding the business rapidly

Benefits of being a franchisee

• Access to a tried and tested formula for business success

• Support from the business franchisor with providing materials

• Advice and training on all business functions

Drawbacks of being a franchisee

• The franchisee may feel frustrated as they are unable to make decisions dictated by the franchisor

• Likely to be an initial franchise fee to buy the license

• Franchisor will expect royalties, a percent of revenue

Social enterprise

Place the desire to fix a social problem above the profit motive when making decisions

Lifestyle businesses

A business set up around the owners personal life, rather than to make the highest profit.

Online businesses

Businesses set up online have two major advantages:

• Lower costs (No need to spend on physical premises)

• High potential for revenue (scope on selling worldwide)