AQA Business Unit 1 Revision Notes
AQA Business Unit 1 Revision Notes
AQA Business Unit 1 Revision Notes
More control over working life want to choose what kind of work is done
Need a more flexible work schedule, including being able to work from or
close to home
Feel that skills are being wasted and that potential is not being fulfilled
Want to escape an uninteresting job or career
A desire to pursue an interest or hobby
Fed up with being told what to do want to be the boss!
Want the feeling of satisfaction from building a business
Want more of the rewards from the effort being put in
Fed up with working in a business hierarchy or bureaucratic organisation
As a response to a shock in personal circumstances e.g. redundancy,
illness, bereavement
Face occasional loneliness and isolation. This is often the case for homebased startups.
Be unable to blame others when things go wrong the buck stops with the
entrepreneur
Probably be under financial pressure earning little or sometimes nothing
as the business tries to establish itself
Have to work much harder than in a conventional job average working of
70+ hours per week is common. This puts a great strain on family and
social life
Probably suffer from higher stress levels
The main risk is that the business will fail and that the entrepreneur will
lose his/her investment. In the case of a sole trader or partnership, the
entrepreneur may also end up personally liable for the debts of the failed
business.
A failed business will leave the entrepreneur struggling to finance another
business or getting a normal job.
Stigma of failure itself: people are ashamed of failing in business.
Opportunity cost
Opportunity cost arises whenever a business decision is taken. The opportunity
cost of a decision is the cost of missing out on the next best alternative. It refers
to the benefits that could have been obtained by taking a different decision.
Examples of opportunity costs of the decision that an entrepreneur makes:
5. Industry contacts, who might then become the first customers of the
start-up!
All of the above help the business planning process and you could argue that
they reduce the risks of a start-up. On the other hand, you might argue that
familiarity breeds contempt. In other words, detailed experience of an industry
means that the budding entrepreneur doesnt have a fresh perspective.
Someone who is new to a market may be able to exploit approaches that have
worked in other industries to make an impact with the start-up.
Personal experience- Many ideas come to entrepreneurs from their day-today dealings in life, or from their hobbies and interests. For instance, poor
customer service can be frustrating and a bad experience, however the
entrepreneur might find a business opportunity to do something better,
quicker or cheaper than the existing products. Hobbies and interests are
also a rich source of business ideas, although you have to be careful to
avoid assuming that, just because you have a rare passion/interest, there
is a ready market from people with similar interests.
Observation- Simply observing what goes on around you can be a good
way of spotting an idea. Often an idea will be launched in another country
and has not yet been tried in other, similar economies.
Solve a problem
Offer a cheaper or better way of doing things than existing products
or services
Are simple and practicable
Can be developed and delivered to the market quickly
Have a clear focus on meeting the needs of the target customer
Anticipate market trends and exploit growth opportunities
Franchises
A franchisor (owner of the original business idea) grants a licence (the
"franchise" to another business (the "franchisee") to allow it to trade using the
brand or business format.
For a start-up entrepreneur, there are several advantages to investing in a
franchise:
decisions (remember opportunity cost!) there are several disadvantages for the
franchisee:
Franchises are not cheap! The franchisee has to pay substantial initial fees
and ongoing royalties and commission. He/she may also have to buy
goods directly from the franchisor at a mark-up
There are restrictions on marketing activities (e.g. not being allowed to
undercut nearby franchises) and on selling the business
There is always a risk that the franchisor will go out of business.
The franchise needs to earn enough profit to satisfy both the franchisee
and franchisor -there may not be enough to go round!
If granted, a patent gives the owner the right to take legal action against others
who try to take commercial advantage of the invention without getting the
permission of the patent owner. A patent can last for up to 20 years. A key
benefit of a patent is the ability of the patent owner to "licence" the right to use
the invention. For example, a patent owner could grant a larger manufacturing
business the right to use the idea in a product, in return for a royalty.
Inputs by themselves are rarely enough for a start-up to succeed. They need to
be the right kind of inputs, in the right mix. So, for example, a successful
entrepreneur will be keen to ensure:
High quality people are employed (the best the business can afford at
each stage of development) and that these people are retained and
invested in (training).
Capital investment is focused on efficiency and quality use of modern
machinery or IT systems of the right kind can have a significant effect
whether a small business is able to compete.
Outputs from the transformation process: The outputs of business activities are
reflected in the products and services sold to customers. Similar business
activities can be grouped based on those outputs.
Building a brand a reputation for quality, value etc. that customers are
prepared to pay for.
Delivering excellent service high quality, attentive personal service can
make the difference between achieving a high price or a medium one
Product features and benefits for example, additional functionality in
different versions of software can enable a software seller to charge higher
prices; different models of motor vehicles are designed to achieve the
same effect.
Business Plans
Here are the main reasons why a start-up should have a business plan:
Provides a focus on the business idea - is it really a good one, and why?
Producing a document helps clarify thoughts and identify gaps in
information
The plan provides a logical structure to thinking about the business
It encourages the entrepreneur to focus on what the business is really
about and how customers and finance-providers can be convinced
It helps test the financial viability of the idea - can the business achieve
the required level of profitability
The plan provides something which can be used to measure actual
performance
A business plan is essential to raising finance from outside providers
particular investors and banks
Limitations of a business plan: For a start-up, the plan is often produced with
incomplete or out-dated information, it can be time-consuming and there is a
danger than the financial forecasts produced might create misplaced optimism
about the business prospects. A detailed business plan is certainly timeconsuming, although there are plenty of resources available to help. The trick is
to remain well organised, to do enough (but not too much market research) and
to seek help (ideally free) when needed.
Contents of a business plan: For a start-up there are usually two kinds of
business plan - a simple one and a detailed one.
Banks: The main high street banks all provide specialist support to startups to help produce a business plan.
Business Link: The Government-funded agency provides comprehensive
guidance on the business planning process
Other sources: Many commercial organisations that deal with start-ups
and small businesses provide advice on business planning
Websites dedicated to small business are also active in this area
What kind of customers are there in the market? What are their
preferences in terms of when and where they buy, what prices they pay
and which methods of promotion are effective?
Finding a niche: The purpose of market research for a start-up is the find a
position in a niche market that will enable the business to charge a reasonable
price and to earn reasonable profits once the business has been set-up and
established.
Why should start-ups aim for a market niche? Because surviving in high volume
or mass market segments is rarely possible for a start-up. The largest market
segments are normally dominated by well-established businesses that enjoy
lower costs and can charge low prices. In other words, a start-up will face stiff
competition from much stronger competitors if it tries to setup in a mass market.
It helps to obtain the details and insights that help plan an effective
business strategy.
An entrepreneur needs to be satisfied that there is likely to be a demand
for the product or service.
At the start-up stage, funds are often limited and a new, small business is
constrained by how much research can actually be carried out.
Secondary Data: Once a business starts trading, it quickly develops data that can
help it understand the market. Sales reports, financial data, customer feedback
and other information are really useful sources of insights into a market and a
how the products of a business are performing. This kind of data is called
internal data i.e. information that comes from within the business.
For a start-up is this internal research data does not exist it needs to start
trading before the data is created. So the start-up entrepreneur has to rely
There are various methods of primary research, each with their own advantages
and disadvantages:
The best primary research for a start-up is likely to be research that is low-cost
and timely and which fills the gaps in market knowledge that are not covered by
secondary research.
suppliers. Research therefore relies on taking a sample and trusting that the
findings from a sample are representative of the market population as a whole. In
market research, a sample is a group of people that is intended to represent the
overall target population. Primary market research is undertaken by sampling the
views of a selection of customers. The sample size is simply the number of
people in the sample.
What should the sample size be?
For a start- up cost and time is an issue. There is a trade-off (choice) to be made
between cost and accuracy. Large sample sizes increase the reliability of the
research, however lower sample sizes reduce the cost of the research.
The degree to which the results from a sample are a reliable predictor of the
overall market is known as the confidence level. For example, a confidence level
of 90% means that the results of the research will be right nine times out of ten.
There are three main methods that are used to choose a sample in market
research:
Understanding Markets
What does the new business need to understand about its target market?
A market is anywhere where buyers and sellers come together to transact with
each other.
the market they are in because it assists business planning (e.g. allowing
for them in any monthly cash flow forecasts).
Government action- Changes in legislation and government regulation can
certainly affect demand. Some legislative changes have the effect of
reducing demand in certain markets. An example is the introduction of the
ban on smoking in public places which has reduced demand (spending) in
traditional pubs. Some legislative changes are designed to de-regulate a
market, which should have the effect of increasing demand. For example,
the de-regulation of certain betting and gaming laws in the UK initially had
the effect of increasing visitors to bingo clubs. Although there is nothing a
business can do about it, the entrepreneur should be aware of recent or
pending changes and take account of them in business planning.
Lack of information and data: some markets are poorly researched with
little information about different customer needs and wants
Difficulty in measuring and predicting consumer behaviour: humans dont
all behave in the same way all of the time. The way that they behave also
changes over time! A good example is the grey generation (i.e. people
aged over 50). The attitudes and lifestyles of the grey generation have
changed dramatically in recent years.
Hard to reach customer segments once identified: it is one thing spotting a
segment; it is another finding the right way to reach target customers with
the right kind of marketing message
Analysing market data: Markets need to be measured in order to assess the size,
growth and competitive shares of the market. The key areas well cover in BUSS1
are:
The market size is a measure of the total sales in a market. Total sales can be
measured in terms of
Approximately 25,000 cars are valeted in the Worcester area each year
The average price of a car valet service is 10
Last year there were about 22,000 car valets performed
Whilst there are many small car valeting businesses in the Worcester area,
the three largest competitors currently achieve the following annual sales:
Sales ()
Clean style
65,000
30,000
Firstly, we can calculate market size, since we have a volume measure and an
average price. So the total value of valeting sales = number of valets per year
(25,000) x average price (10) = 250,000.
Secondly, we can also work out market shares. This is because we know the
overall market size and the sales of the three largest competitors. The table
below shows how this data can be calculated:
Sales ()
Clean style
65,000
Share (%)
26.0%
18.0%
Auto Fresh
30,000
12.0%
Others
110,000 44.0%
Total
250,000 100.0%
You can see from the above table how market share is calculated. Take the
example of Clean style, which is the market leader with sales of 65,000. That
means that Clean styles share of the market size (250,000) = 65,000 /
250,000. Market share is calculated as a percentage, so the number is 26% (i.e.
(65/250) x 100)
After calculating the individual market shares for the three largest competitors,
you can see that the balance of all the other car valeting businesses must equal
44%. This is because the total market shares of a market = 100%.
From the information given, we can also calculate market growth. We are told
that last year the total volume of car valets was 22,000. This year it is 25,000,
which is an increase of 3,000 valets.
To calculate market growth, we express the change (3,000) as a percentage of
the previous figure (22,000). So market growth is 3,000 / 22,000 = 13.6%
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