Chapter 1
What is a business? A business is any organization that uses resources to meet the needs of
customers by providing a product or service that they demand.
Business activity exists to produce goods or services, which can be classified in several ways:
- Consumer goods: the physical and tangible goods sold to final users
- Consumer services: non-tangible products that are sold to final users
- Capital goods: physical goods that are used by industry to aid in the production of other
goods and services
The role of businesses: Businesses identify the needs of consumers or other firms. They then
purchase resources, which are the inputs of the business. The ‘outputs’ of a business are the
goods and services that satisfy consumers’ needs. Business activity exists to produce goods or
services, which can be classified in several ways:
consumer goods, consumer services, and capital goods.
What are business “inputs''? These are the human, physical, and financial resources needed
by businesses to produce goods or services. There are four inputs:
- Land: all of the renewable and nonrenewable resources of nature.
- Labor: Manual and skilled labor make up the workforce of the business.
- Capital: this consists of the finances needed to set up a business and pay for its
continuing operations as well as all of the man-made resources used in production.
- Enterprise: this is the driving force of business, provided by risk-taking individuals,
which combines the other factors of production into a unit that is capable of producing
goods and services.
Business functions: Most businesses have four main functional departments:
- Human resources: identifies all the workforce needs of the business. These
departments aim to manage human resources to help the business achieve its overall
business.
- Finance and account: This function has the responsibility of monitoring the flow in and
out of the business.
- Marketing: This department is responsible for market research and for analyzing the
results of such research. Once a product is made this department has to decide its
pricing, how and where to promote and how to sell it.
- Operation management: has the responsibility for ensuring adequate resources are
available for production, maintaining production and quality levels of productive
efficiency.
Interrelationship of functions: It should not be assumed that all business decisions taken
within these departments are separate and unconnected to the other parts of the business.
,Economic sectors: All production can be classified into four broad types of business activity, or
economic sectors. The four sectors are primary, secondary, tertiary, and quaternary:
- Primary sector: is firms engaged in extracting natural resources from the planet.
- Secondary sector: is firms that manufacture and process products from natural
resources.
- Tertiary sector: firms that provide services to consumers and other businesses.
- Quaternary sector: is focused on information technology (IT) businesses and
information service providers
Why start a business? Reasons for starting a new business include some or all of the
following:
- Losing a job encourages many people to start their businesses
- Independence
- By talking with family and friends it might become clear that a business opportunity might
exist
- Desire to make more money
Entrepreneurs: someone who takes the financial risks of starting and managing a new
business.
Entrepreneurs: someone within a large company who takes direct responsibility for turning a
new idea into a profitable product, by using his “entrepreneurial skills”.
Role of entrepreneurs: New businesses started by entrepreneurs can be based on a new
product or customer service idea or a new way to offer a service.
Entrepreneurs have:
- Had an idea for a new business
- Invested some of their savings in it
- Accepted the responsibility of managing the business
- Accepted the possibility of failure
Entrepreneurs do not risk their capital and the consequences of failure are accepted by the
organization that they work for.
Entrepreneurs’ skills:
- Innovative: The entrepreneur may not be a ‘product inventor’, but they must be able to
carve a new niche in the market, attract consumers in innovative ways and present their
business as being ‘different’.
- Commitment and self-motivation: A willingness to work hard, a keen ambition to
succeed, energy and focus are all essential qualities of a successful entrepreneur.
- Mutli tasked: An entrepreneur will have to make the product or provide the service,
promote it, sell it, and count the money.
- Leadership skills: An entrepreneur has to lead by example and must have a
personality that encourages people in the business to follow them and be motivated by
them.
- Belief in oneself: Many business start-ups fail, yet this would not discourage a true
entrepreneur who would have such self-belief in their abilities.
- Risk taker: Entrepreneurs must be willing to take risks to see results.
, Start-up businesses: New business start-ups can be found in nearly all industries. However,
there are some industries and sectors of industry where there is a much greater likelihood of
new entrepreneurs becoming established. These include:
- Primary sector
- Secondary sector
- Tertiary sector
- Quaternary sector
Impact of enterprise (and intrapreneurship) on business activity:
- Employment creation: In setting up a new business an entrepreneur is employing not
only themselves (‘self-employment’) but, very often, will employ other people too.
- Economic growth: Any increase in the output of goods or services from a start-up
business will increase the gross domestic product of the country.
- Firms’ survival and growth: Although a high proportion of new firms fail, some survive
and a few expand to become really important businesses. These will employ large
numbers of workers, and add considerably to economic growth
- Innovation and technology: New businesses tend to be innovative and this creativity
adds dynamism to an economy.
Common steps in starting a business or enterprise
Identifying market opportunities: Original idea for most new businesses comes from one of
several sources including:
- Own skills or hobbies
- Previous employment experience
- Franchising conferences offer a wide range of new business ideas
- Small-budget market research
Sourcing capital (finance): Once the entrepreneur has decided on the business idea or
opportunity, the next task is to raise the necessary capital. This will come from various sources.
Banks may provide loan finance or an overdraft facility – but bank officials will want to check the
business plan contents very rigorously.
Determining a location: A suitable location is vital if the start-up business intends to sell
directly to consumers. This raises the problem of costs. Perhaps the most important
consideration when choosing the location for a new business is the need to minimize fixed
costs. Operating from home is the most common way for entrepreneurs to establish their
businesses. This has the great advantage of keeping costs low, but there are drawbacks:
- It may not be close to the area with the biggest market potential.
- It lacks status
- It may cause family tensions.
New businesses, whatever, try to pay more attention to this aspect.
Building a customer base: To survive, a new form must establish itself in the market and build
up customer numbers as quickly as possible. The long-term strength of the business will
depend on encouraging customers to return to purchase products again and again. This better
service might include:
- Personal customer service
- Knowledgeable pre and after-the-sale
- Satisfy customers’ little needs, the thing that most of the bigger firms can’t do
What is a business? A business is any organization that uses resources to meet the needs of
customers by providing a product or service that they demand.
Business activity exists to produce goods or services, which can be classified in several ways:
- Consumer goods: the physical and tangible goods sold to final users
- Consumer services: non-tangible products that are sold to final users
- Capital goods: physical goods that are used by industry to aid in the production of other
goods and services
The role of businesses: Businesses identify the needs of consumers or other firms. They then
purchase resources, which are the inputs of the business. The ‘outputs’ of a business are the
goods and services that satisfy consumers’ needs. Business activity exists to produce goods or
services, which can be classified in several ways:
consumer goods, consumer services, and capital goods.
What are business “inputs''? These are the human, physical, and financial resources needed
by businesses to produce goods or services. There are four inputs:
- Land: all of the renewable and nonrenewable resources of nature.
- Labor: Manual and skilled labor make up the workforce of the business.
- Capital: this consists of the finances needed to set up a business and pay for its
continuing operations as well as all of the man-made resources used in production.
- Enterprise: this is the driving force of business, provided by risk-taking individuals,
which combines the other factors of production into a unit that is capable of producing
goods and services.
Business functions: Most businesses have four main functional departments:
- Human resources: identifies all the workforce needs of the business. These
departments aim to manage human resources to help the business achieve its overall
business.
- Finance and account: This function has the responsibility of monitoring the flow in and
out of the business.
- Marketing: This department is responsible for market research and for analyzing the
results of such research. Once a product is made this department has to decide its
pricing, how and where to promote and how to sell it.
- Operation management: has the responsibility for ensuring adequate resources are
available for production, maintaining production and quality levels of productive
efficiency.
Interrelationship of functions: It should not be assumed that all business decisions taken
within these departments are separate and unconnected to the other parts of the business.
,Economic sectors: All production can be classified into four broad types of business activity, or
economic sectors. The four sectors are primary, secondary, tertiary, and quaternary:
- Primary sector: is firms engaged in extracting natural resources from the planet.
- Secondary sector: is firms that manufacture and process products from natural
resources.
- Tertiary sector: firms that provide services to consumers and other businesses.
- Quaternary sector: is focused on information technology (IT) businesses and
information service providers
Why start a business? Reasons for starting a new business include some or all of the
following:
- Losing a job encourages many people to start their businesses
- Independence
- By talking with family and friends it might become clear that a business opportunity might
exist
- Desire to make more money
Entrepreneurs: someone who takes the financial risks of starting and managing a new
business.
Entrepreneurs: someone within a large company who takes direct responsibility for turning a
new idea into a profitable product, by using his “entrepreneurial skills”.
Role of entrepreneurs: New businesses started by entrepreneurs can be based on a new
product or customer service idea or a new way to offer a service.
Entrepreneurs have:
- Had an idea for a new business
- Invested some of their savings in it
- Accepted the responsibility of managing the business
- Accepted the possibility of failure
Entrepreneurs do not risk their capital and the consequences of failure are accepted by the
organization that they work for.
Entrepreneurs’ skills:
- Innovative: The entrepreneur may not be a ‘product inventor’, but they must be able to
carve a new niche in the market, attract consumers in innovative ways and present their
business as being ‘different’.
- Commitment and self-motivation: A willingness to work hard, a keen ambition to
succeed, energy and focus are all essential qualities of a successful entrepreneur.
- Mutli tasked: An entrepreneur will have to make the product or provide the service,
promote it, sell it, and count the money.
- Leadership skills: An entrepreneur has to lead by example and must have a
personality that encourages people in the business to follow them and be motivated by
them.
- Belief in oneself: Many business start-ups fail, yet this would not discourage a true
entrepreneur who would have such self-belief in their abilities.
- Risk taker: Entrepreneurs must be willing to take risks to see results.
, Start-up businesses: New business start-ups can be found in nearly all industries. However,
there are some industries and sectors of industry where there is a much greater likelihood of
new entrepreneurs becoming established. These include:
- Primary sector
- Secondary sector
- Tertiary sector
- Quaternary sector
Impact of enterprise (and intrapreneurship) on business activity:
- Employment creation: In setting up a new business an entrepreneur is employing not
only themselves (‘self-employment’) but, very often, will employ other people too.
- Economic growth: Any increase in the output of goods or services from a start-up
business will increase the gross domestic product of the country.
- Firms’ survival and growth: Although a high proportion of new firms fail, some survive
and a few expand to become really important businesses. These will employ large
numbers of workers, and add considerably to economic growth
- Innovation and technology: New businesses tend to be innovative and this creativity
adds dynamism to an economy.
Common steps in starting a business or enterprise
Identifying market opportunities: Original idea for most new businesses comes from one of
several sources including:
- Own skills or hobbies
- Previous employment experience
- Franchising conferences offer a wide range of new business ideas
- Small-budget market research
Sourcing capital (finance): Once the entrepreneur has decided on the business idea or
opportunity, the next task is to raise the necessary capital. This will come from various sources.
Banks may provide loan finance or an overdraft facility – but bank officials will want to check the
business plan contents very rigorously.
Determining a location: A suitable location is vital if the start-up business intends to sell
directly to consumers. This raises the problem of costs. Perhaps the most important
consideration when choosing the location for a new business is the need to minimize fixed
costs. Operating from home is the most common way for entrepreneurs to establish their
businesses. This has the great advantage of keeping costs low, but there are drawbacks:
- It may not be close to the area with the biggest market potential.
- It lacks status
- It may cause family tensions.
New businesses, whatever, try to pay more attention to this aspect.
Building a customer base: To survive, a new form must establish itself in the market and build
up customer numbers as quickly as possible. The long-term strength of the business will
depend on encouraging customers to return to purchase products again and again. This better
service might include:
- Personal customer service
- Knowledgeable pre and after-the-sale
- Satisfy customers’ little needs, the thing that most of the bigger firms can’t do
