Section 5 - Entrepreneurs and Leaders

• Entrepreneur


  A person who sets up a business, taking on financial risks in the hope of profit
• Roles of entrepreneurs


  • Creating and setting up a business
  • Selling
  • Running and developing a business
  • Bringing innovation to the business world
  • Overcoming barriers to entrepreneurship
  • Anticipating risk and uncertainty
• Creating and Setting Up a Business


  1. Identifying a gap in the market and a need for a product

  2. Writing a business plan

  3. Researching the business idea thoroughly

  4. Deciding on the form of legal ownership
• Selling


  Raising the necessary money and resources to start the business
• Running and Developing a Business


  1. Keeping the business running by staying up-to-date with laws, sales, marketing, and accounting

  2. Continuing market research to check for changes

  3. Setting aims and objectives to monitor performance and make decisions

  4. Hiring employees to manage different areas as the business grows
• Bringing Innovation to the Business World


  1. Thinking of new products or ways of doing things and taking on the risks

  2. Encouraging employees to be innovative and take risks

  3. Implementing employee's innovative ideas across the business
• Overcoming Barriers to Entrepreneurship


  • High start-up costs
  • Lack of confidence
  • Lack of business management knowledge
  • Lack of entrepreneurial capacity in the firm
• Risk


  The probability that a decision will have a negative effect on the business
• Uncertainty


  Unpredictable external factors that affect the business, beyond the entrepreneur's control
• Anticipating Risk and Uncertainty


  1. Weighing up the probability of negative effects against potential gains

  2. Minimising risks through thorough market research and starting small

  3. Keeping up to date with predicted economic changes and planning for worst-case scenarios
• Skills needed by entrepreneurs


  • Good communication skills
  • Good team-working skills
  • Problem-solving skills
• Skills entrepreneurs need to be successful


  • Communication skills to effectively convey messages to customers, staff, investors, suppliers, etc.
  • Team-working skills to share responsibilities, consider others' opinions, and be reliable
  • Problem-solving skills to identify problems, assess solutions, and implement plans
  • Numeracy skills to accurately analyse costs, revenues, and make sales/profit forecasts
  • Organisation skills to have reliable systems in place to manage the business
  • IT skills to conduct market research, communicate, and promote the business
• Financial motives for setting up a business


  • To earn enough money to support oneself
  • To make more money than in employment
  • To generate profit - making more money than it costs to run the business
• Profit maximisation


  Making as much profit as possible by reducing costs and increasing sales revenue
• Profit satisficing


  Making enough profit, but not pushing to maximise it - either because the business doesn't have shareholders or to just keep shareholders satisfied
• Non-financial motives for entrepreneurs


  • Desire for independence and freedom
  • Flexibility in work hours and location
  • Enjoyment of the challenge and thrill of building a successful business
  • Desire to make a difference to a social problem (social entrepreneurs)
  • Ethical considerations
• How an entrepreneur may need to develop into a leader as the business grows


  1. Delegate responsibility to other staff to manage specific business functions

  2. Develop emotional intelligence to identify and manage own emotions, recognise others' emotions, and respond appropriately

  3. Become less reactive and consider consequences of decisions on staff
• Aim


  A broad target or goal set by the business for the long-term
• Objective


  A specific target or goal set by the business in the short- to medium-term to help achieve an aim
• Profit maximisation


  A very common aim for businesses - the more profit a firm makes, the more capital it has available in order to grow and expand
• Break even


  When enough sales revenue is being made to cover all of a business's costs
• Sales maximisation


  Where the business focuses on increasing sales, which may help increase profits
• Cost efficiency


  Improving cost efficiency by reducing unit costs, which can increase profits
• Economies of scale


  When unit costs fall as a result of producing on a larger scale
• Employee welfare


  Improving employee welfare can lead to lower costs and more sales through a more motivated and productive workforce
• Customer satisfaction


  Having a high level of customer satisfaction may lead to increased revenue and allow a firm to charge more for its products
• Social enterprises


  Firms that are set up with the overall aim of improving a social problem
• The two main ways a business can achieve an objective of profit maximisation are by reducing costs and/or increasing sales revenue
• Business objectives other than profit maximisation


  • Survival
  • Sales maximisation
  • Increasing market share
  • Improving cost efficiency
  • Improving employee welfare
  • Increasing customer satisfaction
  • Pursuing social objectives
• Sole trader


  A business run by an individual, who has full responsibility for the financial control of the business and for meeting running costs and paying taxes
• Sole trader


  • Has minimal legal formalities when setting up
  • Has advantages like freedom, profit, simplicity, and less complex bookkeeping
  • Has disadvantages like unlimited liability, time commitment, limited expertise, and vulnerability if the owner gets ill
• Partnership


  A business owned by between two and twenty people, who have shared responsibility for the business's debts
• Partnership


  • Has advantages like shared responsibility in decision making, shared costs and risks, and a wider range of skills and ideas
  • Has disadvantages like the need for owners to agree on big decisions, and profits need to be shared
• Limited company


  A business owned by shareholders, with two types - private limited (Ltd) and public limited (PLC)
• Limited company


  • Shareholders are paid dividends, a proportion of the profits
  • Has limited liability, so owners' personal assets are not at risk if the company goes bankrupt
• Sole traders and partnerships may become private limited companies as the business grows and develops
• Becoming a limited company allows the business to sell shares, providing more money for growth, and gives the owners more financial protection
• Dividends


  A proportion of the profits earned by the company which are paid out to the shareholders
• Private and public limited companies


  • Have limited liability
  • The business is a separate legal identity from the owners
  • The money the owners risk losing if the company goes bankrupt is limited to what they have invested
• Sole Traders and Partnerships may Become Private Limited Companies


  1. An entrepreneur can set up their business as a private limited company

  2. Many private limited companies arise as sole traders or partnerships grew and developed into this form of business

  3. Becoming a limited company lets the business sell shares, which provides it with more money to use for growth

  4. A limited company has limited liability, which means the owners have more financial protection if the company goes bust

  5. Limited companies can be perceived as having more credibility than sole traders or partnerships as they have their own identity and appear more professional, so many customers have more confidence buying from them

  6. Limited companies require lots of paperwork, unlike sole traders or partnerships

  7. Limited companies are legally obliged to publish their accounts each year

  8. It can be harder for a limited company to borrow money from banks as the owners aren't risking their personal assets, which may mean the banks are less able to get the money back if the company fails

  9. There are more owners in a limited company so there is less profit available for each owner, and having more owners can mean decision making is slower or harder as the original entrepreneur or owners have less control