Enterprise, Entrepreneurs & Business Aims

The Purpose of Business Activity

Every business exists to satisfy people's needs and wants. A need is something essential for survival, such as food, water, shelter and clothing. A want is something that makes life more comfortable or enjoyable but is not essential, such as a holiday, a games console or a designer handbag. Because human wants are unlimited but resources are scarce, businesses compete to produce the goods and services that customers value most.

Businesses combine resources — often called the factors of production (land, labour, capital and enterprise) — to produce goods (physical products like trainers) and services (intangible activities like a haircut or insurance).

Key terms

Need — a good or service essential for survival (food, shelter).

Want — a good or service that is desirable but not essential.

Goods — physical, tangible products.

Services — intangible activities provided to customers.

Adding Value

A successful business does more than just buy materials and sell them again. It adds value. Adding value means increasing the worth of resources by changing or improving them, so that the selling price is higher than the cost of the inputs (raw materials, components and other bought-in costs).

$$\text{Value added} = \text{Selling price} - \text{Cost of bought-in materials and components}$$

For example, a sandwich shop buys bread, cheese and salad for £0.80 per sandwich and sells the finished sandwich for £3.00. The £2.20 difference is the value added by preparing, presenting and selling a convenient product.

Businesses can add value in several ways:

Convenience — selling a product where and when customers want it (e.g. a 24-hour shop).
Branding — a trusted name lets a firm charge more (e.g. Nike vs an unbranded trainer).
Quality — better materials or workmanship.
Design — attractive or innovative styling.
Speed of service — fast delivery or quick service.
Unique selling point (USP) — a feature competitors do not offer.

Exam tip

When asked to calculate value added, only subtract the bought-in materials and components — not wages, rent or other running costs. Those are paid out of the value added, not used to find it.

Enterprise and the Entrepreneur

Enterprise is the willingness and ability to take a risk to start and run a business. The person who shows enterprise is called an entrepreneur. An entrepreneur spots a business opportunity, brings together the other factors of production and takes the financial risk in the hope of making a profit.

Key terms

Enterprise — taking a risk to set up and run a business in pursuit of profit.

Entrepreneur — an individual who takes the risk of starting and operating a business.

Characteristics of a successful entrepreneur often include:

Risk-taking — willing to invest money and time with no guarantee of success.
Determination and hard work — persisting through setbacks.
Innovation and creativity — coming up with new ideas or ways of working.
Confidence and decision-making — making firm decisions, often quickly.
Organisation — planning and managing resources, money and people.
Self-motivation — driving the business forward without a boss.

The roles of an entrepreneur usually include organising resources (combining land, labour and capital), making business decisions and taking the risk of possible failure.

Why People Start Businesses

People become entrepreneurs for both financial and personal reasons:

Profit — the chance to earn more than as an employee.
Independence — being your own boss and making your own decisions.
Following a passion or interest — turning a hobby or skill into income.
Spotting a gap in the market — meeting an unsatisfied customer need.
Flexibility — choosing working hours that suit family life.
Dissatisfaction — wanting to escape an unrewarding job or redundancy.

Risks and Rewards of Starting a Business

Starting a business is exciting but uncertain. Entrepreneurs weigh up the possible rewards against the possible risks.

Real world

When James Dyson developed his bagless vacuum cleaner, he built more than 5,000 prototypes over several years before launching a successful product. He took a large personal and financial risk, but the reward was a global business. His story shows how risk-taking, determination and innovation can eventually pay off — though many entrepreneurs who take similar risks do not succeed.

Business Aims and Objectives

A business aim is a long-term goal that the business wants to achieve. A business objective is a specific, measurable target that helps the business reach its aim. Setting clear objectives helps a firm plan, motivate staff and measure success.

Common business objectives include:

Survival — staying in business, especially important in the early days or during a recession.
Profit — earning more revenue than total costs, often to reward the owner and reinvest.
Growth — becoming larger by increasing sales, opening new outlets or entering new markets.
Increasing market share — winning a bigger percentage of total sales in the market.
Social and ethical objectives — looking after employees, the community and the environment, and trading fairly.

Key terms

Aim — a long-term goal a business hopes to achieve.

Objective — a specific, measurable target set to help meet an aim.

Market share — one firm's sales as a percentage of total market sales.

New vs Established Businesses

Objectives often differ depending on how long a business has been trading.

A new business often focuses on survival because it has few customers, limited cash and strong competition. Once it is established and financially secure, it can aim higher — for example chasing profit, growth or a larger market share.

How Objectives Change Over Time

Objectives are not fixed; they change as a business and its environment change. For example:

1. A start-up aims to survive its first year.
2. Once profitable, it shifts to growth — opening a second branch.
3. As it grows, it targets a larger market share to compete with rivals.
4. A mature, successful business may add social and ethical objectives, such as cutting waste or supporting its local community.

Objectives may also change because of outside factors, such as a recession (back to survival), new competition, a change in customer tastes, or new laws.

Exam tip

If a question asks how objectives "might change over time", link the change to a reason. Don't just list objectives — explain why a business moves from survival to growth (e.g. "because it now has a loyal customer base and steady cash flow"). This earns the higher analysis marks.

Summary

Businesses exist to satisfy needs and wants and to add value to resources.
Enterprise means taking a risk to start a business; the entrepreneur organises resources, makes decisions and takes the risk.
Starting a business brings possible rewards (profit, independence) and risks (failure, no regular income).
Aims are long-term goals; objectives (survival, profit, growth, market share, social/ethical) are the targets to reach them.
Objectives differ for new vs established firms and change over time as circumstances change.