Enterprise, entrepreneurs and business plans

A business combines the four factors of production — land (natural resources and sites), labour (people’s work), capital (equipment, buildings and the finance for them) and enterprise (the risk-taking that organises the other three) — to produce goods and services that satisfy customers’ needs and wants.

Added value is the difference between what customers pay and the cost of the bought-in materials: a café turns $0.50 of coffee and milk into a $4 drink. A business adds value through branding, convenience, quality, design and a unique selling point — anything that makes customers willing to pay more than the inputs cost.

Resources are scarce, so every choice gives something up. Opportunity cost is the next best alternative forgone: money spent on a new machine cannot also fund the advertising campaign.

The business environment is dynamic — constantly changing through technology, competitors, consumer tastes, the economy and the law — so businesses must adapt quickly to survive. Businesses succeed through a clear market need, sound finance, good management and adaptability; they fail through poor cash flow, weak planning, competition, and failure to change.

• Local — serves one town or area.
• National — operates throughout one country.
• International — sells in more than one country, but produces in one.
• Multinational — has operations (production or service bases) in more than one country.

International and multinational are often confused: exporting from home makes a business international; producing abroad makes it multinational.

An entrepreneur identifies an opportunity and takes the risk of starting a business to exploit it. An intrapreneur is an employee who thinks and acts like an entrepreneur inside an existing business — developing new products or processes — with the business carrying the risk. Intrapreneurship keeps established businesses innovative; it needs management willing to give employees time, resources and freedom to fail.

The qualities examiners credit: willingness to take risks, initiative, resilience, self-confidence, creativity, commitment and hard work, and leadership. Pick one and show why it matters in the case — risk-taking matters most where the founder is investing their own savings in an unproven idea.

Barriers to entrepreneurship: raising finance with no trading record, finding a suitable location, lack of business knowledge or contacts, competition from established firms, and building a customer base from nothing.

Risk is the chance of loss that can be estimated and planned for — a bank can price it. Uncertainty cannot be measured: a pandemic, a sudden change in the law. Business plans and market research reduce risk; they cannot remove uncertainty.

Enterprise drives development: new businesses create jobs and incomes, pay taxes that fund public services, bring innovation and new products, raise skills through training, and can earn foreign currency by exporting. The analysis marks come from following one of these through to its effect on the country’s living standards.

A business plan is a written document setting out the business idea, its objectives and how they will be achieved. Its key elements: an executive summary, the owners and their experience, the product, market research and competitor analysis, the marketing plan, operations and staffing, and financial forecasts — cash flow, sales and profit.

On the 36 AS papers Quanta holds, 26 question parts test enterprise, on 18 of the papers (12 on Paper 1, 14 on Paper 2). The command words they open with:

• Explain × 11
• Analyse × 7
• Define × 3
• Identify × 3
• Evaluate × 2

By tariff — each size has its own technique:

• 3 × 1-mark, 3 × 2-mark, 11 × 3-markShort-answer questions (2, 3 and 5 marks) →
• 7 × 8-mark8-mark 'analyse' questions →
• 2 × 12-mark12-mark 'evaluate' questions →

Terms candidates have been asked to define or explain on this topic:

intrapreneur ×2 · added value · business plan · intrapreneurship · national business · dynamic business environment · multinational business

1. 1.Intrapreneur described as a type of entrepreneur who owns the business

   An intrapreneur is an employee; the business, not the individual, carries the risk.

2. 2.International and multinational treated as the same

   International sells abroad; multinational operates in more than one country.

3. 3.Added value defined as profit

   Added value is price minus bought-in materials; profit also subtracts wages, rent and every other cost.

4. 4.Business plan benefits listed with no context

   Tie the benefit to the founder in the case — a plan matters most to someone with no trading record who needs a bank loan.