1.3 business activity

• Entrepreneur


  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