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1 Enterprise

Activity 1.1 (page 6)

How could the following businesses add value to the goods they buy in:
• hotel
• car dealer
• clothing manufacturer
• fast-food restaurant? [12 marks]

Definition of added value: the difference between the cost of purchasing raw materials
and other bought-in services and the price the finished goods are sold for.

Hotel – clean and well-presented guest rooms, attentive staff, 24-hour room service,
airport collection.

Car dealer – cars fully cleaned and polished, warranty providing cover in case of faults
after purchase, showroom to display cars, free drinks for customers.

Clothing manufacturer – fashionable designs, fashion shows, celebrity endorsements of


product.

Fast-food restaurant – light and airy premises, smart fixtures and fittings, comfortable
seating, efficient service with no queuing, waitress service.

Activity 1.2 (page 7): Bangalore enterprise blossoms

1 Rama is an example of a ‘business entrepreneur’. Explain what is meant by this term. [4]

• An entrepreneur is a risk taker who identifies business opportunities,


supporting these notions with market research, and brings together the other
factors of production (land, labour and capital) in order to facilitate the
production of goods and services. Consequently, a business entrepreneur is
critical to business activity.
• Rama identified selling roses as a business opportunity and took the risk of
investing his own savings to establish a business.

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2 Outline any three characteristics of Rama’s personality that led to the success of his
enterprise. [6]

Characteristic Outline
Willingness to take risks Businesses are unlikely to develop if risks are not taken.
In this case, Rama risked his own savings to start up
his business. He has also taken a risk with regard to
purchasing the Kenyan rose-growing business.
Motivation and hard Establishing a business often demands single-minded
work commitment and determination. Rama was prepared
to work long hours to make his business a success.
Self-confidence Rama’s confidence in his business venture encouraged
other investors to back him. Without other investors,
Rama may not have been able to start/expand the
business due to insufficient capital.

Activity 1.3 – answer provided on Student’s CD-ROM.

Activity 1.4 – research activity.

Activity 1.5 (page 13): Caribbean cook tastes success

1 Explain four possible benefits to the UK economy from Levi’s enterprise. [12]

Possible benefit to UK
economy Explanation
Economic growth and Opening a new factory to produce Reggae Sauce will
job creation create employment in the UK and, therefore, contribute
to reducing the rate of unemployment in the economy.
The investment will have a multiplier effect on the
economy, e.g. Reggae Sauce will create demand for
ingredients that will be supplied by other firms and
thus help boost their profits, and help to raise economic
growth.
Increased competition Reggae Sauce will provide competition for existing
and consumer choice brands in the market and thus encourage firms to be
more efficient and improve the quality of their products
to secure competitive advantage. The new product will
increase choice for the consumer.
Contribution to public The employment of workers to produce the sauce will
finances reduce unemployment and consequently reduce the
welfare benefits paid out by the government. This will
enable the government to use resources in some other
way, e.g. the money saved could be used to boost spending
on education. Further, Levi’s success will mean that the
government will benefit from increased tax revenue.
Export earnings In the long term, if the sauce is successful, it may be
exported to other countries, thus contributing to a more
favourable current account balance for the UK. Levi is
already in discussion with an export company regarding
exporting Reggae Sauce back to the Caribbean.

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2 Discuss the reasons for the initial success of Levi Roots as an entrepreneur. [20]

Directive word is discuss. Therefore you should consider the relative contribution
of different factors to the initial success of Levi Roots.

Possible reasons for the success of Levi Roots include:


• Having a good product – in most cases, business success is founded on the
provision of a good product or service. In this case, Levi has a great product,
which was tested on the public at the Notting Hill carnival and was sufficiently
good to attract Sainbury’s to stock it. As it is based on a recipe handed down
from his grandmother, this will have provided an effective angle for marketing
the product.
• His personality – Levi’s enthusiasm for, and confidence in, his product was
central to persuading the venture capitalist to back his business idea with
the necessary funds to enable large-scale production to be set up. These
same qualities were also instrumental in securing a contract with a leading
supermarket in the UK. With the backing of a national supermarket, Levi Roots
was able to bring Reggae Sauce to a national audience. Levi is also a highly
personable individual with whom the ‘Dragons’ could envisage a good working
relationship.
Top tip

In the A2 examination, it is essential that you give


answers in context of the case material. If you don’t
apply business reasoning to the case material, then
you will not gain any application or evaluation
marks.

• Media publicity – Levi’s appearance on the BBC’s Dragon’s Den would appear
to have been critical to the success of his business as he had already failed
to secure backing from high-street banks. Without the venture capital, the
growth of his business would have been severely constrained in the short term.
His appearance on the BBC also provided an ideal opportunity to promote
his business to a much wider public; his personality was, again, important in
making an impact on the British public.
• Commitment and determination – Levi did not give up on his dream despite the
setbacks of being rejected by many banks. Being able to bounce back in the face of
adversity is an important characteristic of many successful entrepreneurs.

Further investigation
Visit the BBC’s site for their programme Dragons’ Den. You can watch past epi-
sodes of the programme and catch up with what has happened to some of the
more notable characters attracted to the programme. When watching an episode,
try to identify the characteristics of the contestants who have been successful.

You may also see the pitch that Levi Roots gave to the ‘Dragons’, which
persuaded two of them to invest in his business.

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Revision case study 1 (page 15): Rivelino – entrepreneur,
innovator and strategic thinker

1 Explain the qualities Rivelino has that make him a successful entrepreneur. [8]

It may be inferred from the case study material that Rivelino has a number of
qualities that make him a successful entrepreneur. These include:
• Commitment and self-motivation – ‘Rivelino’s vision and that of his other
directors is fuelled by a drive to succeed.’ This suggests that Rivelino has the
essential qualities of being ambitious, energetic and focused.
• Self-confidence – Rivelino has set up other businesses in diverse industries,
including a business selling herbal teas and another arranging boat tours for
tourists. This willingness to repeatedly take risks suggests that Rivelino believes
in himself and his abilities.
• Marketing skills – Rivelino is able to identify business opportunities. The case
study implies that his previous businesses have had a degree of success.
• Recognition of his own limitations – this led to his decision to bring in two
partners for the ITS venture.
• Networking skills – Rivelino ‘quickly developed a very large number of
important business contacts’.

2 Why do you think it was an advantage to initially set up ITS with two other partners?
Explain your answer. [6]

The key advantage is that Rivelino may have lacked the relevant knowledge and
skills to make a success of the business opportunity by himself. By forming a
partnership, he was able to complement his own marketing skills and business
contacts with the skills of the other two partners.
• The second partner was trained in software design and development.
• The third partner had financial skills and software design experience.

The three partners thus had the potential to identify market opportunities, manage
the development of software applications and develop appropriate marketing
strategies whilst ensuring that the business remained on a sound financial footing.

ITS would also benefit from the start-up capital available from the three partners,
thus reducing the need for debt finance.

It might also be stated that the formation of a partnership is relatively quick and
easy as no formal paperwork is necessary (although it is advisable to draw up a
deed of partnership).

3 Discuss the challenges that face ITS in its aim to become a global software business. [9]

Evaluation may consider:


Evaluation is required, so you should identify a number of different challenges that might
be faced by ITS and make a judgement as to which is the most important challenge.

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Challenges are likely to include:
• It is a highly competitive industry. ITS will be competing with well-established
global brands. Although ITS has been successful in the Caribbean market, it will be
relatively unknown outside that market. Thus marketing the business to the wider
business community will be costly.
• The industry is characterised by rapid technological change; ITS will need to remain
at the forefront of change to be competitive on a global scale. This may require
substantial capital expenditure. Ultimately, this may mean changing the legal status
of the business to a plc.
• As it expands, ITS will need to recruit suitably qualified staff to provide the
‘advanced customised software’. Human resource management will become
increasingly important.
• Financing expansion will be necessary. If profits are insufficient to fund the
expansion, decisions about sources of finance will have to be made, e.g. debt finance
or equity finance.
• Organisational structure will need to develop alongside the expansion of the business.
The challenge may be how to retain control whilst still allowing the flexibility that is a
feature of modern knowledge-based firms. If ITS becomes a plc to facilitate its growth,
then there will be a divorce between ownership and control – that is, as a plc, owners
may no longer control the day-to-day operations of the business.

Revision case study 2 (page 15): Returned next day, or


nothing to pay

1 Identify four problems that Wesley now faces in managing his business. [4]

Directive word is identify, thus it is only necessary to state the problems that
Wesley faces. These problems must be taken from the case study material.
• managing cash flow
• collecting debts
• preventing employee disputes
• ensuring that delivery times are met for customers

2 Explain the skills that Wesley should have had from the start of the business and that
would have reduced the significance of these problems. [8]

An entrepreneur needs to be multi-skilled. It is not sufficient for Wesley to effectively


market his service; he should also have demonstrated the following skills:
• Effective financial management: keeping accounting records, predicting cash
flow, efficient management of debtors – Wesley has allowed his accounting
records to become out of date and, consequently, he has failed to collect
payments from debtors. This has contributed to his cash-flow problems.
• Effective management of human resources: that is, the workers – the ability
to communicate with and motivate employees is important. Wesley has not
allocated jobs clearly enough and this has caused disputes between workers.
• Effective operations management: ensuring that service commitments are
maintained – the failure of the business to return laundry the next day to
customers will be expensive in terms of lost revenue.

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• Effective management of business growth – it appears that Wesley allowed his
business to expand too rapidly and he has taken on too much work, resulting in
cash-flow problems and failure to meet the next-day delivery commitment.

3 Recommend to Wesley what steps he should now take to overcome the difficulties his
business is experiencing. [8]

Directive word is recommend, so it is necessary to evaluate, that is justify, steps that


should be taken to overcome the difficulties.

Possible actions:
• Negotiate an increased overdraft limit with the bank to ease cash-flow problems.
• Chase up debtors to bring an immediate inflow of cash. Wesley will, however,
have to honour the service commitment that he made, that is ‘Returned next
day or nothing to pay’. It may be beneficial to offer a discount to customers for
immediate cash payment of invoices.
• Improve efficiency of accounting within the business and ensure bills are issued
promptly. Wesley needs to decide whether or not to employ someone to take
responsibility for the financial side of the business. He needs to decide whether
he can afford to do so.
• Discuss allocation of jobs with employees. It may be possible to agree a rota for
handling the less-desirable jobs.
• Draw up clear job descriptions for employees. To be accepted, this may have to
be done in consultation with workers rather than imposed.
• Review operations and ability to provide a next-day service to avoid
overstretching resources. Wesley must operate within the capacity of the
business to avoid customer dissatisfaction.

Evaluation may consider:


In recommending the steps to be taken, evaluation may be demonstrated by identifying
the most important issues. For example, as a lack of working capital is frequently the
cause of business failure, it is most important that Wesley introduces measures to inject
cash into the business with immediate effect. To this end, it may be advisable to offer
discounts to existing debtors and new sales for cash payment, even though this will
reduce the profitability of the business.

Essay
1 To what extent do you believe that a successful entrepreneur depends on luck rather
than personal qualities and skills? [25]

Outline the typical qualities of a successful entrepreneur:


• Leadership skills: finding and motivating people – Peter Cullum, founder of the
insurance intermediary, Towergate, comments that success is:

about great leadership skills, too. If you want a great company, you have to find and keep
great people. I can only talk for Towergate, but our balance sheet is the people and that’s
what we think is our big differentiator. We do try and talent-spot as best we can and
keep our good people.
Source: Times Online, 11 May 2008,
http://business.timesonline.co.uk/tol/business/entrepreneur/article3907954.ece

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• Taking risks, e.g. Richard Branson starting up Virgin Atlantic.
• Innovative, eye for an idea – consider the experience of James Dyson, inventor
of the bagless vacuum, see http://www.dyson.co.uk/about/story/.
• Self-confidence and the ability to learn from mistakes – see The Times article
about Ricky Thomas below.
• Commitment and self-motivation – hard work usually plays a significant part in
business success; entrepreneurs are often highly focused and determined.
• Marketing skills – Jamal Hirani, founder of the restaurant, Tiffinbites, identifies
the importance of learning how to make a product and not compromising on
quality and customer service, that is, providing what the customer demands.
• Communication skills.

However, along with these skills many other factors will have an influence on
success, such as:
• The need for financial backing – without sufficient financial backing, progress
for most entrepreneurs is very slow. Lack of working capital is a key cause of
business failure. Thus, entrepreneurs need to have sufficient start-up capital and
be competent at forecasting and monitoring cash flow.
• Having a good business plan.
• Competition – most businesses face competition; few ideas are unique. As the
competition has more resources and market knowledge, many entrepreneurs
fail because they simply cannot compete.
• Other external factors, such as the state of the economy.

There is a thin line between success and failure in business and even with good
qualities and skills, to some extent entrepreneurs need a little luck to be successful.

Further reading
An interesting article from the BBC on the role of luck in determining success:
Does luck trump skill in success?
Ricky Thomas, founder of Petmeds,
How I made it: http://business.timesonline.co.uk/tol/business/entrepreneur/
article4596421.ece

You Tube has many videos of interviews with successful entrepreneurs:

There are a number of good interviews with Richard Branson:


http://www.youtube.com/watch?v=Q6hILGfbqsg
http://uk.youtube.com/watch?v=DudfBIxw6do

Sunil Bharti Mittal on Entrepreneurship:


http://uk.youtube.com/watch?v=TszOUpuVA38

Duncan Bannantine, a self-made millionaire, has written a very interesting


autobiography that gives an insight into his success:
Duncan Bannantine, Anyone Can Do It: My Story, Orion, 2007

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