A person who organizes, operates and takes risks for a new business venture. The entrepreneur brings together the various factors of production to produce goods or services.
Characteristics of an entrepreneur
Risk taker
Creative
Optimistic
Self-confident
Innovative
Independent
Effective communicator
Hard working
Business plan
A document containing the business objectives and important details about the operations, finance and owners of the new business
Content of a business plan
Executive summary
The owner
The business
The market
Advertising and promotion
Premises and equipment
Business organisation
Costs
Finance
Cash flow
Expansion
Making a business plan before actually starting the business can be very helpful
A new entrepreneur will find it easier to get a loan or overdraft from the bank if they have a business plan
Startup
A company typically in the early stages of its development. These entrepreneurial ventures are typically started by 1-3 founders who focus on capitalizing upon a perceived market demand by developing a viable product, service, or platform
Reasons for the government to help new startups
They provide employment to a lot of people
They contribute to the growth of the economy
They can also, if they grow to be successful, contribute to the exports of the country
Start-ups often introduce fresh ideas and technologies into business and industry
Government support for startups
Organise advice
Provide low cost premises
Provide loans at low interest rates
Give grants for capital
Give grants for training
Give tax breaks/ holidays
Ways of measuring business size
Number of employees
Value of output
Value of capital employed
Internal growth
When a business expands its existing operations
External growth
When a business takes over or merges with another business
Merger
When the owner of two businesses agree to join their firms together to make one business
Takeover
When one business buys out the owners of another business, which then becomes a part of the 'predator' business
Horizontal merger/integration
When one firm merges with or takes over another one in the same industry at the same stage of production
Benefits of horizontal merger
Reduces number of competitors in the market
Opportunities of economies of scale
Merging will allow the businesses to have a bigger share of the total market
Vertical merger/integration
When one firm merges with or takes over another firm in the same industry but at a different stage of production
Backward vertical integration
When one firm merges with or takes over another firm in the same industry but at a stage of production that is behind the 'predator' firm
Benefits of backward vertical integration
Merger gives assured supply of essential components
The profit margin of the supplying firm is now absorbed by the expanded firm
The supplying firm can be prevented from supplying to competitors
Forward vertical integration
When one firm merges with or takes over another firm in the same industry but at a stage of production that is ahead of the 'predator' firm
Benefits of forward vertical integration
Merger gives assured outlet for their product
The profit margin of the retailer is now absorbed by the expanded firm
The retailer can be prevented from selling the goods of competitors
Conglomerate merger/integration
When one firm merges with or takes over a firm in a completely different industry. This is also known as 'diversification'.
Benefits of conglomerate merger
Conglomerate integration allows businesses to have activities in more than one country. This allows the firms to spread its risks.
There could be a transfer of ideas between the two businesses even though they are in different industries. This transfer o ideas could help improve the quality and demand for the two products.
Drawbacks of growth
Difficult to control staff
Lack of funds
Lack of expertise
Diseconomies of scale
Reasons why businesses stay small
Type of industry
Market size
Owners' objectives
Reasons for business failures
Poor management
Over-expansion
Failure to plan for change
Poor financial management
Reasons why new businesses are at a greater risk of failure
Less experience
New to the market
Don't have a lot of sales yet
Don't have a lot of money to support the business yet