Why businesses exist
- Businesses provide goods (physical products) and services (actions done for customers) to meet customers' needs and wants.
- They combine the factors of production: land (natural resources), labour (workers), capital (man-made resources such as machinery) and enterprise (the entrepreneur's ideas and risk-taking).
Entrepreneurs
- An entrepreneur spots an opportunity, takes a risk and organises resources to start a business. Useful qualities include creativity, determination, initiative, hard work and a willingness to take risks.
- Reasons for starting a business: financial rewards (profit), independence, being your own boss, following a passion, and spotting a gap in the market.
- Risks: the business might fail, the owner might lose the money invested, income is uncertain, and the hours can be long.
Ideas and adding value
- Ideas come from spotting a gap in the market, improving an existing product, new technology or changes in customers' tastes.
- Adding value means making a product worth more to customers than the cost of its inputs, for example through branding, quality, convenience, design or a unique selling point (USP).
Key terms
- Entrepreneur
- A person who takes a risk to start and run a business.
- Enterprise
- Having the ideas and taking the risks to start a business.
- Goods
- Physical products, such as a phone.
- Services
- Actions done for customers, such as a haircut.
- Factors of production
- The resources needed to make goods and services: land, labour, capital and enterprise.
- Gap in the market
- A customer need that no business is meeting yet.
- Added value
- The difference between a product's price and the cost of its inputs.
- USP
- A unique selling point that makes a product stand out from its competitors.