Chapter 1: Enterprise
The purpose of business activity
A business is any organisation that uses resources in order to fulfil people´s needs and wants. They add a
value to raw materials like for example turning a piece of wood into paper. Business activity uses
resources to produce goods or services which make our life easier and more comfortable.
What do businesses do?
Businesses identify the needs of customers or other firms and then purchase and use resources to
satisfy those needs. The most common aim of a business is to gain profit or to expand.
Why do businesses need to produce goods and services?
Factors of production.
Land: land for buildings and location of the business, and proximity to raw materials (e.g. locating near a
forest for wood)
Labour: manual or skilled labour who form the workforce.
Capital: finance needed to start up a business and to pay resources and suppliers.
Enterprise: risk-takers who make decisions and manage the business
The concept of added value
A business adds value to their products when sold, so that there is enough capital to pay suppliers. From
the added value a business pays, not only suppliers, but other costs such as rent, taxes or their
workforce. If a business increases its added value but doesn´t increase the costs, then profit will be
The role of the entrepreneur.
A good entrepreneur must:
- Have an idea for a new business
- Invest some of their own savings and capital
- Accept the responsibility of managing the business
- Accept the possible risk of failure
Characteristics of a successful entrepreneur
Innovation: the must be able to attract customers and make their business stand out from the rest.
Invest on the future and in the new ideas. Commitment and self-motivation: being ambitious and willing to work hard, energetic and focused in
Multi-skilled: being able to perform several different tasks like producing, promoting and providing a
product or service.
Leadership skilled: being able to command tasks and encourage workers.
Self-confidence and an ability to “bounce back”: being able to encourage yourself to re-open a business
after a previous failure.
Risk-taking: being able to take risks to obtain any type of result, sometimes investing their own money:
Challenges faced by entrepreneurs
Identify successful business opportunities
Most people think it is better to work for them. However when they do, they don’t have a good
entrepreneurship. Because they haven´t identified a market need which results profitable. Most new
businesses come from sources like:
- Own skill or hobbies: dress making or car repair
- Previous employment experience: working for a successful business allows you to judge
whether you will be able to start one yourself.
- Franchising conferences and exhibitions: these offer ideas to star up a new, successful business.
- Small budget market research: internet, newspapers allow you to see local or further
Sourcing capital (finance)
Once decided what business to open you then need to consider the capital you will need to start it up.
These are some problems with raising capital:
- Lack of sufficient own finance: very limited personal savings
- Lack of awareness of the financial support and grants available
- Lack of any trading record to present to banks as evidence of past business success.
- A poorly produced business plan that does not convince investors
Determining a location
It is important to minimise fixed costs. Break-even of output level must be kept low. Many
entrepreneurs began at home, this meant there where less location co