New Business Ideas: Innovation and Opportunity

• New business ideas are driven by technological advancements, shifting consumer demands, and the obsolescence of existing products and services.
• Entrepreneurs spot opportunities in market changes and create innovative solutions.

Changes in Technology

• Technological advancements enable businesses to create innovative products and services.
• Smartphones and social media created opportunities for mobile apps and digital marketing.

Changes in Consumer Demand

• Evolving consumer demand drives development of new products and services.
• Increased demand for plant-based foods has spurred new businesses in the food industry.

Products and Services Becoming Obsolete

• Outdated products and services create opportunities for new innovations.
• Decline of physical media led to digital streaming services like Netflix and Spotify.

How New Business Ideas Come About

• New business ideas come from original concepts or adaptation of existing ones.
• Identifying a market need and creating a unique solution is key to success.
• Original ideas are unique concepts, often filling a market gap, based on new tech, markets, or perspectives.
• Nutrigene’s DNA-based personalized vitamin supplements is an example of an original idea.
• Adapting existing products involves improving them or tailoring them for a different market.
• Uber adapted taxi services with a more convenient, efficient mobile app solution.

Impact of Risk & Reward on Business Activity

• Business activity is significantly impacted by risk and reward as they balance potential failures against success.
• Businesses manage risks like failure, loss, and insecurity while pursuing success, profit, and independence.

Risks of Business Activity

• Business failure affects all sizes of businesses which occurs when financial obligations are unmet.
• Failure results in job losses, bankruptcy, and financial ruin.
• Financial loss is caused by poor management, economic downturns, or unexpected events.
• Financial loss reduces profitability, competitiveness, and investment ability.
• Lack of security involves data breaches, intellectual property theft, or physical threats.
• Security breaches damage reputation, create legal liability, and erode customer trust.
• Reducing risk involves cash flow management, market research, and clear objectives.

Rewards of Business Activity

• Business success is meeting or exceeding objectives like revenue, profitability, or expansion.
• Profit enables reinvestment, dividends, and financial stability.
• Independence allows businesses to make their own decisions, free from external demands.

The Purpose of Business Activity

• Business activity aims to produce goods or services that meet customer needs while adding value.
• Businesses take inputs, add value, and create products that meet customer needs.
• Goods include physical products.
• Services include non-physical items.

Meeting Customer Needs

• The ultimate goal is to create value-added products that meet customer preferences and needs.
• Meeting customer needs builds customer loyalty, boosts brand awareness, and generates revenue.

To Add Value

• Adding value differentiates products, creates a unique selling point, and increases satisfaction.
• Easier-to-use, well-designed, or higher-quality products provide a competitive edge.

Methods of Adding Value to Products/Services

• Adding value is the difference between the price charged and input costs.
• Packaged potatoes as oven chips is an example of adding value.
• Added value overlaps with product differentiation.

Real life Examples of how Businesses have Added Value

• Apple uses quality materials and marketing to build a superior brand that allows higher prices.
• Persil created tablets for dishwashers to offer convenience and charge a higher price.
• Jo Malone uses nice packaging to create an exciting experience and increase added value.
• MoonPig birthday cards allow customers to customize their orders increasing added value.
• Samsung Galaxy Watch 5 has features that allow this product to charge a higher price, increasing added value.

The role of Entrepreneurship

• Entrepreneurs create new businesses or inventions, taking risks to achieve success.
• Successful entrepreneurs seize opportunities, create customer value, and build thriving businesses.

Main Characteristics of Entrepreneurs

• Organize resources by gathering and coordinating essential business elements.
• Dell organized space, computers, software, employees, and finances.
• Make business decisions that determine business success or failure.
• A restaurant owner decides on the food, location, and prices.
• Take risks involves incurring financial, personal, or professional risks.
• Entrepreneurs may invest savings or quit jobs.
• Entrepreneurs might mentor staff to support their performance

Identifying & Understanding Customer Needs

• A market includes any place where buyers and sellers meet.
• Businesses thrive by meeting customer needs and wants.
• Needs are essential requirements.
• Wants are non-essential desires.
• Marketing aims to identify, anticipate, and satisfy consumer needs and wants for profit.
• Market research systematically gathers data from consumers to influence business decisions.

Understanding Customer Needs about Price, Quality, Choice and Convenience

• Price is the amount a customer is willing to pay
• Understanding price helps businesses offer targeted promotions and competitive prices.
• Quality is the standard of excellence customers expect.
• Quality standards lead to customer loyalty.
• Choice is the range of options customers want.
• Understanding choice helps businesses cater to different preferences, increasing customer satisfaction.
• Convenience involves easy access and use.
• Convenient shopping builds customer loyalty and increases sales.

The Benefits of Understanding Customers

• Understanding customers generates sales and ensures business survival.
• Understanding customer needs aids business survival.

The Purpose of Market Research

• Market research objectively collects and analyzes information about a market.
• It reduces the risk of launching new products or entering new markets.
• Market research identifies customer needs and market gaps.
• It identifies competitors by assessing their strengths and weaknesses.
• It helps make informed decisions about resource use.
• On-going research adapts the marketing strategy to changing customer preferences.

Methods of Market Research

• Market research is broadly classified into primary and secondary research.
• Primary research gathers new information directly from consumers.
• It often uses surveys and interviews.
• Secondary research collects and analyzes existing data.

An Explanation of the Methods of Primary Research

• Surveys gather data through questions to a sample of respondents.
• Results from the sample are extrapolated to the wider population.
• Observation studies consumer behavior in specific locations.
• Researchers note the impact of packaging or product placement.
• Interviews involve an interviewer asking questions.
• This method has follow-up questions and gathers information.
• Test marketing provides free samples to the target market to gauge response.
• Focus groups are led by a marketing specialist and collect detailed feedback.
• They typically involve 12-15 people meeting for 90 minutes to 3 hours.

The use of data in Market Research

• Market research data can be quantitative or qualitative.
• Quantitative data is number-based, including financial reports and market data.
• Qualitative data gathers descriptions and explanations based on conversations and feelings.
• Analysis should include a combination of both quantitative and qualitative data.

The Limitations of Qualitative & Quantitative Research Data

• Qualitative data sample sizes may be small, biased, or influenced by group responses.
• Gathering primary data can be expensive and time-consuming.
• Secondary data may lack relevance or be factually incorrect.
• Purchasing data can be expensive.
• Numerical data may be outdated.
• Incorrect data analysis can misguide business strategy.
• Numerical data may lack the reasons for insights.

Using Social Media to Collect Market Research Data

• Social media platforms offer market research opportunities.
• Communication speed is rapid.
• Cost of gathering information is low.
• Social media generates interactive relationships with customers, strengthening brand loyalty.
• Customers provide quick feedback and ideas for product changes.

Using Market Segmentation to Target Customers

• Market segmentation divides a single market into sub-markets or segments.
• Segments represent distinct consumer characteristics.
• Markets are segmented by geography, demographics, behavior, lifestyle, age, or gender.
• Markets are not simply seen as one market they are divided up into many market segments.
• Products targeted at middle to upper earners/professionals with a premium price.
• Health conscious crisps targeted at the health conscious market.
• Value snacks targeted at families and the mass market.

The Advantages & Disadvantages of Market Segmentation

• Market segmentation recognizes diverse consumer tastes.
• Products and marketing are tailored more precisely to meet different consumer needs.
• Segmentation is less wasteful than marketing to broad markets.
• It may increase loyalty through meeting specific needs.
• Not everyone in a segment behaves the same way.
• It can be difficult to identify segments.
• It requires detailed and costly market research.
• A segment may be too small to be profitable.

Using Market Mapping to Identify gaps in the Market

• Market mapping identifies a product's position in a market by considering price and quality.
• A market map is a two-dimensional diagram showing product attributes versus rivals' products.
• Examples include price, quality, age, or income.
• M&M positions itself as low price and low quality in this example of a market map

Market Map Analysis

• No spaces on a market map indicate a saturated market hence there are no opportunities to exploit a market niche.
• High competition and low profits results when a market is saturated.
• A space on the map indicates a potential market niche, that needs research.
• Any gaps in the market can't be successful.

The Usefulness & Limitations of Market Mapping

• Market gaps can be identified, giving ideas for new products.
• Comparisons can be made between a business and its rivals.
• Market maps are intuitive.
• A gap may exist because it is unprofitable to fill.
• Mapping may require expensive primary research.
• Only two criteria can be chosen, which may be too simplistic.
• Markets are dynamic, and maps are only current at a specific time.

Understanding the Competitive Environment

• Competition occurs when two businesses provide goods/services to the same market.
• The more businesses in a market, the more intense the competition.
• Direct competition exists when businesses target customers with the same product.
• Indirect competition occurs when firms sell different products competing for disposable income.
• Competition results in lower prices, better quality, and improved service.
• Absence of competition reduces incentives to innovate or be efficient.
• Assessing the the price, quality, location, product range and customer service indicates strength and weaknesses of competitiors.

Assessing the Competition

• Lower prices attract price-sensitive customers and promote economies of scale.
• High-quality products can differentiate a brand and command higher prices.
• Accessible locations give competitors an advantage.
• A wide product range attracts a larger customer base.
• Excellent customer service differentiates a business and generates loyalty.
• Sole reliance on lower prices may sacrifice profitability without perceived quality.
• Sole focus on quality may struggle against lower-priced alternatives.
• Relying only on location may struggle against other businesses in the area.
• A large product range may be hard to manage and keep quality consistent.
• Customer service has additional costs.

How Competition Impacts Business Decision Making

• Businesses must constantly evaluate strategies to stay ahead.
• Competition impacts decisions across all business areas.
• Pricing decisions must consider competitors to remain competitive and profitable.
• Product development decisions are influenced by competitors’ products and services.
• It may increase the speed of development of new features.
• Effective marketing strategies differentiate a business from competitors.
• Making decisions about advertising, promotions, etc. has to include an analysis of competitors actions.
• Operational decisions are influenced by competitors e.g., deciding on production methods.

An Introduction to Business Aims and Objectives

• Every business needs clear aims and objectives.
• Aims are long-term aspirations.
• Objectives are specific, measurable, achievable, relevant, and time-bound targets (SMART).
• Aims and objectives align employee efforts.
• A business aim may be to lead the market, with objectives to increase sales by 25% in three years.

Common Business Aims & Objectives for Start-ups

• Entrepreneurs have a mix of financial and non-financial objectives.

Financial & Non-financial Objectives

• Survival is most crucial in the first year.
• Social entrepreneurship aims to address social issues.
• Sales aim for customer purchases and income.
• Profit aims to have sales revenue exceed costs.
• Market share targets a percentage of total market revenue.
• Financial security enables covering bills, profit, and emergency funds.

Non Financial Objectives

• Personal satisfaction comes from doing what the entrepreneur is passionate about.
• Independence and control allow for making all independent business decisions.
• Challenge involves doing something unique
• Proving that something can be done to others (or the entrepreneur)

Why Aims & Objectives Vary Between Businesses

• Business aims and objectives differ due to industry, size, culture, ownership, and location.
• Businesses’ objectives are influenced by a range of factors

Industry

• Objectives and aims differ across industries.
• A health company focuses on wellbeing, while a financial firm focuses on profits.

Size

• Business size influences objectives.
• Small businesses focus on survival, while larger corporations prioritize expansion.

Culture

• Business culture impacts goals and strategies.

Ownership structure

• Ownership structure influences objectives.
• Family-owned businesses prioritize long-term stability over short-term profits.

Geographic location

• Businesses in developed economies prioritize innovation, while those in developing economies prioritize job creation.

Sales Revenue

• Sales revenue is the value of units sold by a business.
• It is a key performance measure and must be calculated to identify profit.
• The sales revenue formula is: Sales Revenue = Selling Price x Number of Units Sold.

Sales Revenue Examples

• When a firm sells one product it is easy to calculate its sales revenue
• The more products a firm sells it gets harder
• Forecast for the costs and sales of its mopeds for 2022

Costs

• Businesses incur costs such as raw materials, salaries, and utilities.
• Costs are fixed, variable, or total.

Fixed costs

• Fixed Costs do not change with output.
• They include rent, salaries, insurance, and loan repayments.
• Fixed costs are plotted as a horizontal line on a graph.

Variable costs

• Variable Costs change directly with output.
• They include raw material costs and production worker wages.
• Variable costs are plotted as an upward sloping line on a graph, starting at 0.

Total costs

• Total Cost is the sum of variable and fixed costs.
• Total costs are plotted as an upward sloping line, parallel to variable costs.

Cost Calculations

• Formulas for calculating costs.
• Total Cost (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC)
• Total Variable Cost (TVC) = Variable Cost (VC) x Quantity (Q)

Cost Calculations Using the Above Formulas

• Output (Q) FC TVC
• TVC = $ 60 x QTC = TFC plus TVC
• Where VC is £60 and FC is £200

Variable Cost Example

• Calculate the variable cost in £ for each candle

Calculating Variable Costs

• Identify the variable costs in the list
• Loan repayment is classified as a fixed cost so should not be included in the calculation

Reducing costs

• Reducing costs improves profit.
• Fixed costs can be reduced by relocating, reducing salaries, or lowering utility costs.
• Variable costs can be reduced by sourcing cheaper materials, buying in bulk, or outsourcing.
• Care must be taken with customer service, quality and speed of delivery as a result of cutting prices

Types of Profit

• Profit is the money left over after all costs.
• A loss occurs when the costs exceeds to the level of sales revenue
• Two main types of profit: gross and net.

Types of Profit

• Gross Profit (GP) shows the difference between revenue sales and production costs.
• Net Profit (NP) shows the difference between the gross profit and other operating expenses and any Interest

Calculating Profit

• Gross Profit = Revenue - cost of sales
• Net Profit = gross profit - (operating expenses + interest)

Calculating a Gross Profit

Calculating a Net Profit

To Find Net Profit:

• Substitute the values into the formula
• £2,851,200 - (£820,000 + £2,600) = £2,028,600.

Profit Margins

• A profit margin is the amount by which sales revenue exceeds the costs
• Higher profit margins are favorable, because more revenue is converted to profit
• Profit margins can be calculated for each type of profit (gross and net profit)

Calculating Profit Margins

• Calculated the Gross Profit Margin
• Calculated the Net Profit Margin

Gross Profit Margin

• This shows the proportion of revenue that is turned into gross profit and is expressed as a percentage.
• Gross Profit Margin = (Gross Profit/Sales revenue) x 100

Net Profit Margin

• This shows the proportion of revenue that is turned into net profit and is expressed as a percentage.
• Net Profit Margin = (Net Profit/Sales revenue) x 100

The Breakeven Point

• The breakeven point is a useful metric to measure how many units need to be sold before making a profit
• It is where the total costs equals the level of sales revenue

Calculating the Breakeven Point

• Formula for calculating breakeven point in units:
• Breakeven Point in Units = Fixed Cost / (Selling Price - Variable Cost)
• Formula for calculating costs divided by revenue:
• Break even point in costs divided by revenue = breakeven point in units x sales price

Interpreting Break Even Diagrams

• A break even chart visually represents the breakeven point
• The chart shows that at 324 units the total revenue = the total costs

Diagram analysis

• Fixed Costs remain constant as output increases
• The fixed costs do not change whether the business produces 0 units or 500 units
• At 0 units of output, fixed and variable costs are made up exclusively of fixed costs
• Total costs can be identified as the level as the distance between the revenue and total costs lines
• Revenue will increase with output
• The point at which the total costs and the revenue lines cross is the break even point

The Margin of Safety

• The margin of safety provides useful information on how many sales can be lost before the firm starts making a loss
• The amount by which the number of units sold is greater than the break even point

Calculating the Margin of Safety

• Formula for calculating margin of safety:
• Margin of Safety = Actual or Budgeted Sales - Breakeven Sales

The Importance of cash to a Business

• Profit and cash are different financial measures
• Profit is simply the difference between sales revenue and business costs
• A profitable business is likely to fail if it does not have sufficient cash

Terminology with Cash Flow

• Cash is measured by taking into account the full range of money flowing in and out of a business
• Trade credit is when the business receives stock today and has credit terms to pay at a later date
• An example of cash flow would be Joules

Calculation & Interpretation of Cash-flow Forecasts

• A cash flow forecast is a prediction of the anticipated cash inflows and cash outflows, typically for a three, six or twelve month period

Summary of Inflows & outflows

Total Outflows include

• payments on raw materials
• paying staff wages and salaries,
• paying bills such as electricity

Total Inflows include

• receipts from sales
• money received from a new bank loan
• money from the sale of an asset

Terminology

The net cash flow is calculated by subtracting total outflows from total inflows

The opening balance is the previous month’s closing balance carried forward

The closing balance is calculated by adding the net cash flow to the opening balance

An Introduction to Sources of Finance

• All businesses require finance to get started, achieve growth, and support ongoing activities.
• Finance is needed for capital and operating expenditures.

Uses for Finance

• Example of Capital expidenture would be spending on fixed assets such as equipment, buildings, IT equipment and vehicles
• Example of Operating expenditures is spending on raw materials or day to day expenses such as wages or utilities

Short-term Sources of Finance

• Businesses has short term and long time sources of finance available to them.

Types of Short term Finance

• An Overdraft, trade credit both hold pros & cons.

An Explanation of the Short-term Sources of Finance Available to Businesses

• Overdrafts are used for a business current account
• Trade Credit is an agreement between businesses where raw materials and components are paid for at a later date

An Explanation of the Long-term Sources of Finance Available to Businesses

• Examples of long term finance would include share capital, bank loans, crowdfunding and retained profit

Share capital

• Where finance can be raised in exchange for the sales of shares in a limited company as well as shared expertise.

Bank loans

• Where a sum of money is borrowed from the bank as is repaid (with interest) over a specific period of time

Crowdfunding

• Crowdfunding allows a business to access Small investors online.

Retained profit

• This is a cheap source of finance, as it does not involve borrowing, but shareholders wont get their own share or profit.

Venture capital

• Venture capitalists provide finance.

Things to consider when borrowing money

• Businesses must consider the full cost of repaying borrowing, including interest. When starting a business in 2019, Paulina took out a loan.