Entrepreneurs, business plans and why businesses fail

Last time

Before we start: last time, in Business objectives and stakeholders, you learned these points. Here they are again on one card. Keep them in mind, because today builds on them.

Starting a business

Every large company started as one person's idea. That person, the entrepreneur, took a risk with their own money and time. This lesson covers what makes a good entrepreneur, why a business plan matters, and why so many new businesses fail.

The entrepreneur

An entrepreneur is a person who organises, operates and takes the risk for a new business venture. They combine land, labour and capital to make a product, and they keep the profit, or bear the loss. Governments encourage entrepreneurs because new businesses create jobs and competition.

Characteristics of a successful entrepreneur

Hard-working and determined: new businesses need long hours and do not give up at the first problem. Willing to take risks, and creative: they see opportunities and new ideas that others miss. Self-confident, good at communicating, and able to persuade customers, banks and workers. An eight-mark question may ask for four of these. Each one needs its explanation and a link to the person in the case.

The business plan

A business plan is a document that sets out the business's objectives and how it will achieve them. It describes the product, the target market, the competitors, the marketing, the location, the workers needed, and the finance. It includes forecasts of sales, costs, profit and cash flow.

Why a business plan helps

It is needed to get a loan: banks want to see how the money will be repaid. It makes the entrepreneur think through every part of the business before risking money. It gives clear targets, so progress can be checked. But a plan is only as good as its forecasts, which may be wrong.

Government support

Governments help new businesses with advice and training on running a business. With grants and low-interest loans, and lower taxes for small firms. And with cheap premises, sometimes in business parks for start-ups.

Why new businesses fail

Poor management: the owner may lack experience in finance, marketing or managing people. Lack of finance and poor cash flow: running out of cash to pay bills, even if sales are growing. Too few customers: little market research, a poor location, or strong competition from established firms.

Why new firms face more risk

A new business has no reputation and no loyal customers yet. Its owner may lack experience, and it is too small to gain economies of scale, so its costs are higher. And it has fewer savings to survive a bad month. The question may say 'other than lack of finance', so read it carefully.

Why businesses succeed

Understanding the market: good market research means products customers want. Unique selling point: something that makes the product different from rivals. Good management of people and cash, and the ability to adapt when the market changes.

Success or failure

Here are the main causes of success and failure. Most are two sides of the same coin.

Answering a 6-mark explain question

Six marks for two points: each point gets a mark for knowledge, a mark for applying it to the case, and a mark for explaining its effect. So write: the reason, then the detail from the case, then why it matters, ending with a result for the business. If it asks which is most important, give a justified judgement at the end.

Mistakes that lose marks

Mistake one: listing qualities of an entrepreneur without explaining why each matters. Mistake two: giving lack of finance when the question says other than lack of finance. Mistake three: no reference to the business in the case. The fix: point, explain, apply, every time.

The full-marks tip

The full-marks tip: for each point, give the idea, explain why it matters, and use a detail from the case. For a business plan, say both why it helps and its limits.

On one card

So, on one card: enterprise. Keep it for revision.