The Business Idea PDF

TOPIC 1 UNIT 1 AREA OF STUDY 1 The business idea OUTCOME 1 On completion of this topic you should be able to describe a process for creating and developing a business idea, and explain how innovative and entrepreneurial practices can contribute to the national economy and social wellbeing. LEARNING SEQUENCE 1.1 Overview....................................................................................................................................................................4 1.2 Entrepreneurship.................................................................................................................................................... 7 1.3 The personal motivation behind starting a business............................................................................. 11 1.4 Characteristics of successful business managers and business entrepreneurs........................ 15 1.5 Identifying business opportunities................................................................................................................ 19 1.6 Goal setting and decision-making in business........................................................................................ 24 1.7 Business concept development.................................................................................................................... 29 1.8 APPLY YOUR SKILLS Creating a business idea..................................................................................... 33 1.9 Market research and initial feasibility studies........................................................................................... 35 1.10 APPLY YOUR SKILLS Developing the business idea........................................................................... 38 1.11 The contribution of businesses to the nation........................................................................................... 40 1.12 EXTEND YOUR KNOWLEDGE Business contribution to the economy — taxation revenue.................................................................................................................................................................... 45 1.13 Methods for fostering a culture of business innovation and entrepreneurship in a nation..... 48 1.14 EXTEND YOUR KNOWLEDGE Research and development.............................................................. 54 1.15 Review..................................................................................................................................................................... 57 1.1 Overview Hey students! Bring these pages to life online Watch Engage with Answer questions videos interactivities and check results Find all this and MORE in jacPLUS 1.1.1 Why it is important A business idea can come from anywhere, just ask Gary Leech. After toying with the idea of producing hand-cooked potato chips and experimenting with different potatoes, slice thicknesses and oil temperatures, Leech produced the first bag of Kettle Chips in 1982. From its humble beginnings sprang an enormously successful brand. When Gary Leech and his partners sold the business to Arnott’s Biscuits, Kettle Chips had an annual turnover of $18 million. Time has passed and Snack Brands Australia (formerly Snack Foods Limited) now owns Kettle Chips, but the point remains. Leech is an entrepreneur who was prepared to take a risk. This topic will explore where business ideas come from and what needs to be considered before a business is established. CONTEMPORARY CASE STUDY MANUFACTURING BUSINESS: Carman’s Fine Foods CEO Carolyn Creswell Revenue $105 million (2020) Headquarters Huntingdale, VIC Gross profit $20 million Employees Over 250 Carolyn Creswell is the founder of Carman’s Fine Foods, a health food company that manufactures muesli, muesli bars and a range of other snacks. She started the business in 1992 when she was 18 years old with $1000. As a first-year university student, Creswell was working at a homemade muesli business. When the owners told her that they were selling the business, she saw an opportunity. Thinking that she already knew how to make the muesli and believing that it was a great product, Creswell took a risk and made an offer to the owners, partnering with a friend who also worked at the business. An offer of $2000 was made to the owners — $1000 each. The offer was initially dismissed, but after receiving no other offers, the owners finally agreed to sell. The new business was named Carman’s after the first three letters of Creswell’s name and the first three letters of her business partner’s name. Creswell later bought out her partner. Initially, the business supplied muesli to a number of cafés and delis across Melbourne, but, after much hard work and persistence, Creswell managed to get the major supermarkets to start stocking Carman’s products. 4 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition Today, Carman’s products are sold in supermarkets across Australia and exported to more than thirty countries; exports make up 10 per cent of their revenue. In 2018 Carman’s moved into custom-built buildings in Huntingdale in Melbourne. These buildings include a Learning Hub and Innovation Lab, gym, yoga room, recreation and breakout areas, commercial kitchen with chef, a salon and massage room, as well as meeting rooms. After expanding into China, Carman’s pulled out in February 2020 after its Chinese partner faced financial difficulties. The business now turns over in excess of $100 million a year. Carman’s employs more than two hundred and fifty staff. CONTEMPORARY CASE STUDY SERVICE BUSINESS: Linfox CEO Mark Mazurek Revenue $3 billion Headquarters Essendon, VIC Gross profit $43 million Employees Over 24 000 Lindsay Fox founded Linfox, a transport and logistics business, in 1956. The son of a truck driver, Fox dropped out of school at age 16 when he realised that a formal education was not going to suit him. Unlike his father, Fox wanted to own a truck, not just drive them. When he was 19 years old, he purchased his first truck (a 1957 Ford F500) for £400 from a wrecker in Melbourne, and he began carting coal and briquettes in the winter and soft drinks in summer. When he purchased another truck the following year, he wanted to let everyone know that he had two trucks — this is where the iconic slogan ‘You are passing another Fox’ was born. Fox’s first goal was to achieve £10 a day, five days a week. Through a combination of hard work and self-reliance, each new goal was achieved and the business, known early on as Lindsay Fox Cartage, continued to grow. Making use of his skills in negotiation and relationship building, Fox guided the business through a number of milestones: landing a contract with soft drink manufacturer Schweppes in 1958, which resulted in an expansion of the fleet to ten trucks; opening a depot in Moorabbin; then securing contracts with tyre manufacturer Dunlop and GJ Coles and Coy (now Coles) in the 1960s. Eventually, Fox realised that for the business to continue to thrive, he needed to stop driving trucks and start working on the business. In 1961, the business was incorporated (became a company) and five years later was renamed Linfox Transport Pty Ltd. Today, more than 24 000 employees work for Linfox. The business has a fleet of more than 5000 vehicles with operations in 12 countries, including New Zealand, China, Hong Kong, Thailand, India, Indonesia, Vietnam and Malaysia. The business continues to invest in new services and explore new markets. Fox has since stepped back from the day-to-day running of Linfox. His son Peter was appointed Executive Chairman in 1993. In 2022, Linfox introduced its first electric truck for Australian retailer Coles. The electric vehicle is a step towards Linfox and Coles’ shared sustainability goals, highlighted by Linfox’s ‘Act Sustainably’ strategic promise, along with Coles’ ‘Together to Zero’ strategy. TOPIC 1 The business idea 5 1.1.2 What you will learn Key knowledge Use each of the points from the VCE Business Management Study Design below as a heading in your summary notes. Key knowledge Subtopic The concept of entrepreneurship 1.2 The personal motivation behind starting a business, such as the desire for financial and 1.3 personal independence, to make a profit and to fulfil a market and/or social need The characteristics of successful business managers and business entrepreneurs and how 1.4 these characteristics contribute to business success Sources of business opportunity such as innovation, recognising and taking advantage of 1.5 market opportunities, changing customer needs, research and development, technological development and global markets The importance of goal setting and decision-making in business 1.6 The importance of business concept development 1.7 The relationship between business opportunities and business concept development 1.7 Market research and initial feasibility studies 1.9 The contribution that businesses make to the economic and social wellbeing of a nation 1.11 The methods by which a culture of business innovation and entrepreneurship may be 1.13 fostered in a nation, such as government investment in research and development, council grants for new businesses, school-based educational programs in entrepreneurship and the creation of regional business start-up hubs Key skills These are the skills you need to demonstrate: Key skills Identify, define, describe and apply business management concepts and terms Interpret, discuss and compare business information and ideas Analyse case studies and contemporary examples of business management Apply business management knowledge to practical and/or simulated business situations. source: VCE Business Management Study Design (2023–2027) extracts © VCAA; reproduced by permission. Resources Resourceseses Digital document Key terms glossary (doc-37629) Weblinks Snack Brands Australia Carman’s Fine Foods Linfox 6 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition 1.2 Entrepreneurship KEY KNOWLEDGE The concept of entrepreneurship Source: VCE Business Management Study Design (2023–2027) extracts © VCAA; reproduced by permission. What image comes to your mind when you hear the word entrepreneur? Perhaps you imagine a wealthy or famous business person, an owner of a technology start-up or an innovative person finding a new way to solve a problem. You might imagine a small business owner opening up their new restaurant. There are a range of views on what an entrepreneur is and what the term entrepreneurship means. However, entrepreneurship is generally considered to refer to the process whereby a person creates and operates a new business, usually in response to opportunities, while taking on the risk of the venture in the hope of making a profit. This may involve the entrepreneur investing their time, money or skills into launching and managing the business. Three significant ideas are implicit in this definition. As seen in the figure below, these include pursuit of business opportunities, innovation and seeking growth. These ideas will be explored in more detail throughout this topic. Entrepreneurship Pursuing business Innovation Seeking growth opportunities 1.2.1 The pursuit of business opportunities A key feature of entrepreneurship is pursuing sources of business opportunities, entrepreneurship the act such as gaps in the market that no-one else has noticed or paid attention to. An of starting and operating a entrepreneur may seize on other opportunities, such as changes in customer new business in response to needs, technological developments or changes in global markets. These sources opportunities, assuming all the risk in the hope of making a profit of business opportunity will be examined more closely in subtopic 1.5. business any activity conducted An entrepreneur converts these opportunities into manageable business ideas and by an individual or individuals to produce and sell goods and makes the idea a reality. For example, as a teenager, Bill Gates, co-founder of services that satisfy the needs of Microsoft Corporation, decided to take the risk of establishing his own business society, as well as making profit to market a computer operating system that he and a friend had developed. Today, profit what is left after business there are over one billion active users of Microsoft software. There are many other expenses have been deducted from money earned from revenue well-known entrepreneurs, including Jeff Bezos, founder and executive chair of Amazon, Melanie Perkins, co-founder and CEO of Canva, and Elon Musk, founder and CEO of SpaceX and CEO of Tesla. TOPIC 1 The business idea 7 However, entrepreneurial qualities are not limited to famous people. Eleven-year-old Eli Jones recently launched a business Daniel Ek is a Swedish billionaire and one of the founders of Spotify, the music called Mr Eli Pine Cone. His business plan involves picking up streaming service. The service has grown pine cones at his grandma’s property in South Australia, bagging to a massive size, and it will likely continue them, then selling them online at $20 for a bag of 40. The pine to absorb a large share of the music cones are popular with customers as fire starters or as mulch for market. gardens, so Eli’s business is growing. Eli Jones and more well-known business people are all considered to be entrepreneurs. They organised their business, undertook the necessary arrangements for it to operate and were prepared to take a risk. The size of the profits may differ, but they both took advantage of an opportunity. DID YOU KNOW? According to Global Entrepreneurship Monitor data, 10.5 per cent of Australia’s adult population (1.7 million people) were early-stage entrepreneurs in 2019. This figure has declined from 14.6 per cent in 2016, with Australia currently sitting slightly below average among the 25 OECD economies in relation to this indicator. 1.2.2 Innovation Another key feature of entrepreneurship involves Innovation is a key part of being an entrepreneur. innovation: change, improvement and/or transformation. Entrepreneurs blend their flair, imagination and creativity to develop new products or ways of doing business, or improve existing products or processes. Innovation is frequently used by entrepreneurs as a source of business opportunity — to meet the needs and wants of customers or to take advantage of change. Innovation will be examined more closely in subtopic 1.5. 1.2.3 Seeking growth Entrepreneurs work hard to pursue growth. Not content to stay the same, an entrepreneur will seek new trends, explore new products and new approaches so that the business increases in size. Growth is necessary for the survival of a new business. Becoming bigger would be expected to lead to increasing sales and market share, and greater profit. Profit is one of the incentives that encourages entrepreneurs to take the risks involved in establishing the business in the first place. An entrepreneur will have a vision, meaning that they will have an understanding or hope of what the business will be like in the future. Setting clear goals, such as to make a profit, increasing sales and market share, or to fulfil a social need will give the business direction. Goal setting will be examined more closely in subtopic 1.7. 8 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition CONTEMPORARY CASE STUDY: FAMOUS ENTREPRENEURS Elon Musk Elon Musk has big ambitions. In an entrepreneurial career that started at university, Musk has been linked to various businesses such as PayPal, and has become the CEO of both Tesla, Inc. and SpaceX. He is well known for his involvement in scientific and engineering solutions; he was founder of The Boring Company and co-founder of OpenAI and Neuralink. In 2022 Elon Musk offered to buy Twitter for US$44 billion, an event which caused intense media interest. This increased further when he backed out of the initial deal. Musk also has aspirations to establish a colony on Mars. Mark Zuckerberg Mark Zuckerberg is a famous American entrepreneur. He is one of the founders of the very successful online social media and social networking service Facebook. As a computer programmer, Zuckerberg began creating websites while he was at college and, in 2004, he launched Facebook. It has grown in popularity ever since — as of December 2021, there were almost 2 billion daily users of Facebook. The business has been successful because Zuckerberg has specialised skills and was willing to take a risk to develop a unique business idea. Zuckerberg believes in the open and free flow of information between people. Facebook has allowed this to occur, but the company has also courted controversy throughout its years of operation. The business has been criticised over issues such as contributing to screen addiction and low self-esteem, political manipulation, violations of user privacy and dubious content, such as fake news and hate speech. In 2021, the Facebook company changed its name to Meta Platforms, Inc., or ‘Meta’, as it shifted its focus to developing a ‘metaverse’. Zuckerberg shared more about the vision for the new company in a founder’s letter. He noted that the future would be ‘an embodied internet where you’re in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build’. Gina Rinehart Gina Rinehart is the richest person in Australia and one of the richest women in the world. She is the Executive Chairman of the Hancock Prospecting Group, a business with interests in mineral exploration and extraction, as well as agriculture. The company produces millions of tonnes of iron ore each year. The Hancock Group was founded by Rinehart’s father, Lang Hancock, in 1955. Rinehart became executive chairman of the company when her father passed away in 1992. The business was in a financially unhealthy position, carrying significant debt and various other liabilities, as well as substantial legal claims. Rinehart seized the opportunity to save the business. Taking a risk, she transformed the Hancock Group by maintaining tight control over operations and building a new iron mine in the Pilbara — the Roy Hill Mine. Roy Hill has since become the Hancock Group’s largest source of revenue and profit. The development of new mines involves lengthy approval processes and huge expenditure. Rinehart carried this risk, via the company, raising the finance necessary to develop major mines and related facilities. Rinehart’s vision to grow and improve Australian food led to the Hancock Group diversifying and investing in pastoral properties. The company also recently established a share portfolio, consisting of investments in future metals including copper, rare earths and lithium. TOPIC 1 The business idea 9 KEY IDEAS Entrepreneurship is the process whereby a person creates and operates a new business, in response to opportunities, while taking on the risk of the venture in the hope of making a profit. 1.2 Exercises Students, these questions are even better in jacPLUS Receive immediate Access Track your feedback and access additional results and sample responses questions progress Find all this and MORE in jacPLUS 1.2 Quick quiz 1.2 Exercise 1.2 Exam questions 1.2 Exercise TEST your understanding 1. Briefly explain what is meant by the term ‘entrepreneurship’. 2. Outline how entrepreneurship relates to each of the following: a. pursuit of business opportunities b. innovation c. seeking growth. APPLY your understanding 3. Choose one of the entrepreneurs in the ‘Famous entrepreneurs’ case study and explain how they demonstrate entrepreneurship. 4. Think of a person whom you believe demonstrates entrepreneurship. Justify why you chose this person in light of your understanding of entrepreneurship. 5. Devise your own definition of entrepreneurship. Outline your answer to a partner. 1.2 Exam questions Question 1 (2 marks) Identify two significant features of entrepreneurship. Question 2 (2 marks) Define the term ‘entrepreneurship’. Question 3 (3 marks) Explain, using an example of a contemporary business case study, the concept of entrepreneurship. Question 4 (3 marks) Describe the relationship between innovation and entrepreneurship. More exam questions are available online. 10 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition 1.3 The personal motivation behind starting a business KEY KNOWLEDGE The personal motivation behind starting a business such as the desire for financial and personal independence, to make a profit and to fulfil a market and/or social need Source: VCE Business Management Study Design (2023−2027) extracts © VCAA; reproduced by permission. The success or failure of a business depends largely on the owner’s abilities, resources, enthusiasm, initiative, level of management expertise, decision-making skills and, above all else, motivation. Two of the most crucial questions that a potential business owner has to ask themselves are: Am I motivated enough to want to do this? Do I possess the appropriate qualities and skills required to operate a business? Resources Resourceseses Video eLesson The personal motivation behind starting a business (eles-2974) 1.3.1 The desire for financial and personal independence The desire for independence is a major reason for wanting Starting a business may lead to greater to start a business. Some people dream about starting their independence, but may also increase own business and becoming wealthy. The potential for long- workload. term financial independence is a motive for many people starting a new business. Establishing a business means that they will not have to rely on an income from an employer or be dependent on other people to pay for living expenses. Many people start a business simply to have control over their own destiny. These individuals are motivated by personal independence. For some people, working for another person as an employee can be a challenging experience. ‘Being my own boss’ is a common reason given for commencing a new business. Often, a person will simply desire the freedom to choose when and where they work, the tasks they undertake, with whom they work and whether to work from home. The great attraction is the belief that the business owner will be able to do their own thing. 1.3.2 To make a profit A second reason for wanting to start a business is monetary reward. Someone financial independence the willing to work hard may believe that they can earn much more by working for capacity to support a lifestyle themselves than they would by working for someone else. They would expect without having to be employed or their extra effort to be rewarded through the profits from their own business. be dependent on others These rewards may not come immediately — even the most successful businesses personal independence the capacity to be in control of may lose money in their early start-up phase — but the hope is that eventually the decisions that affect one’s business owner will earn more from being self-employed. everyday actions or activities TOPIC 1 The business idea 11 1.3.3 To fulfil a market need Another reason for wanting to start a business is the recognition of a market need. Market need refers to the products that customers require that may not be available. A prospective business owner may recognise that particular goods or services for which there is a demand are not readily available in a particular suburb or town. In other words, an individual may be motivated to set up a new business after identifying a gap in the market. Alternatively, the potential business owner may have particular skills that can be the basis of a new business. In some cases an invention or the development of a new product will inspire the developer of that product to set up a business to market it. 1.3.4 To fulfil a social need Sometimes a person will be motivated to start a business in order to fulfil a social need. This refers to the production or selling of goods and services for the purpose of making the world (or the community) a better place. Some examples of typical social needs are: providing opportunities for local unemployed people developing skills, providing vocational training or lifelong learning opportunities for disadvantaged people in the community creating access to a better quality of life for disadvantaged members of the community focusing on some sort of environmental need. Many people are motivated to start a business through their desire to help other people or the environment. Accordingly, an individual may establish a business that gives some of its profit to a social need, or set up a business that operates in such a way that it meets a social need — for example, providing employment to local disadvantaged people or incorporating waste minimisation and recycling into the procedures of the business. This is a type of business that makes a profit, but concentrates on community or market need the goods or services environmental need. Any profit that the social enterprise makes will be reinvested that customers require that are not back into the business so that it can continue to fulfil the social need. Social readily available enterprises will be examined more closely in topic 2. social need the production and/or selling of goods and services for the Owning a business is something that many people aspire to; however, it comes with purpose of making the world (or the benefits and limitations. community) a better place Benefits Limitations Being your own boss — independence Hard work and long hours Possibility of making a profit Meeting the demands of customers, suppliers and Challenging, rewarding and satisfying financiers Increasing personal wealth Fluctuating or uncertain income Contributing positively to society Risk of failure Developing own creative ideas Stress and worry Overcoming unemployment High levels of responsibility Achieving a better lifestyle Constantly solving problems Employing family members Difficulty selling the business Possible tax advantages 12 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition CASE STUDY SecondBite fulfils a social need Ian and Simone Carson established SecondBite in 2005 because they could no longer stand to see Businesses such as Muffin Break donate fresh food perfectly good food going to waste while there were to SecondBite, which redistributes it to community hungry people in the community. They realised that food programs. In doing so, SecondBite fulfils a social there was a need for redistributing food that was need. still safe to eat but could not be sold. Approximately 8 billion dollars’ worth of food is thrown away in Australia every year. Recognising the scale of food wastage in this country, the Carsons began to explore ways of redistributing food. Initially they focused on rescuing surplus fresh food from farmers, markets and supermarkets and transporting it to local agencies such as Sacred Heart Mission and Brotherhood of St Laurence. The social enterprise grew as volunteers, donors and other supporters became involved. ‘You go anywhere and people hate seeing things thrown out, so once they know you can actually do something with it, they want to help you,’ Mr Carson says. The food that SecondBite collects is sorted and packed into crates for each community food program. The food programs use the deliveries to make up food parcels, cook dine-in meals or run school breakfast or lunch programs. These programs support people who are homeless, women and families in crisis, youth at risk, Indigenous communities, asylum seekers and new arrivals to Australia. SecondBite has also developed a nutrition education program and advocates for an end to food insecurity. When SecondBite started it operated with just three volunteers in Victoria and moved just over 600 kilograms of food. Now it has warehouse locations and state offices in Melbourne, Brisbane, Sydney, Adelaide and Perth. SecondBite also partners with organisations in Tasmania and the Northern Territory. With over 600 volunteers, and more than 80 staff members, it provided 48.7 million meals in the 2021 financial year. Resources Resourceseses Weblink Start-ups KEY IDEAS Any person wanting to set up a business must be very clear about their objectives and motivation. The motivations behind starting a business include the desire for independence, both financially and personally, to make a profit, to fulfil a market need and to fulfil a social need. TOPIC 1 The business idea 13 1.3 Exercises Students, these questions are even better in jacPLUS Receive immediate Access Track your feedback and access additional results and sample responses questions progress Find all this and MORE in jacPLUS 1.3 Quick quiz 1.3 Exercise 1.3 Exam questions 1.3 Exercise TEST your understanding 1. Outline what determines the success or failure of a business. 2. Identify the two most crucial questions that a potential business owner has to ask themselves. 3. Explain two possible personal motivations behind a person starting their own business. 4. Identify one benefit and one limitation of owning a business. APPLY your understanding 5. Outline why Ian and Simone Carson established SecondBite. 6. Explain how SecondBite redistributes fresh and nutritious food. 7. Use the Start-ups weblink in the resources tab to read this UK start-up service website’s ten reasons to start a business. Rank the reasons in order from most important to least important, then share your top five with other students in your class. Justify your choices. 8. Interview local business owners. Ask them to identify their motivation behind starting their business. Provide each business owner with the following five options: desire for independence, to make a profit, to fulfil a market need, to fulfil a social need, other. If the business owner responds ‘other’, then ask them what their particular motivation was. Collate your research with that of other students in your class, then graph the results. Outline the most popular motivation for starting a business. 1.3 Exam questions Question 1 (3 marks) Distinguish between a social need and a market need. Question 2 (6 marks) ‘Being self-employed is better than working for someone else.’ With reference to this quote, discuss the benefits and limitations of owning a business. Question 3 (2 marks) Outline one motivation for starting a business, using an example of an entrepreneur with whom you are familiar. Question 4 (4 marks) Explain how and why businesses can fulfil social needs, with reference to a contemporary business you are familiar with. More exam questions are available online. 14 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition 1.4 Characteristics of successful business managers and business entrepreneurs KEY KNOWLEDGE The characteristics of successful business managers and business entrepreneurs and how these characteristics contribute to business success Source: VCE Business Management Study Design (2023−2027) extracts © VCAA; reproduced by permission. The thousands of businesses in Australia are owned and operated by all types A business manager runs a of people. These businesses all had a beginning, with a person or small business on a day-to-day group of people who decided to ‘have a go’. Not everyone will be suited basis, ensuring that it makes to the role of business manager or entrepreneur. Certain characteristics are a profit. required to succeed in starting and running a business. Let’s have a close look at some of the qualities needed to commence a business, including the characteristics of successful business managers and successful entrepreneurs. 1.4.1 Business managers A business manager runs a business on a day-to-day basis so that it makes a profit. They prefer to minimise risks and make calculated decisions where the outcome is reasonably clear. A business manager might have an idea for solving a problem or meeting a need in order to satisfy a target market. There is no simple checklist of personal characteristics that guarantee the success of a business manager. However, many studies have shown that certain personal characteristics are helpful in managing a business, and that the potential business owner should be prepared to honestly answer the manager a person who has following questions: responsibility for overseeing the operations of the business to ensure that it successfully achieves its goals 1. Am I self-motivated, with a desire to succeed? 2. Am I self-disciplined enough to start and follow through long-term projects? 3. Am I healthy enough to withstand the extra workload and stress involved? 4. Do I have leadership qualities to assist in managing and motivating others? 5. Do I have good organisational and administrative skills? 6. Am I willing to take calculated risks? 7. Do I have the ability and willingness to learn new skills? 8. Can I make decisions based on logic rather than emotions? 9. Am I able to listen to others’ advice as well as communicate my ideas to others? 10. Am I reasonably at ease in my relationships with people, and sensitive to the needs of others, especially employees and customers? 11. Am I prepared to work long hours? 12. Am I prepared to receive lower financial returns in the early years than I would receive if I worked for someone else? TOPIC 1 The business idea 15 1.4.2 Business entrepreneurs An entrepreneur is generally considered to be a person who is willing to seize opportunities to start and operate a business, and is prepared to take risks in the hope of making a profit. Business owners displaying entrepreneurial behaviour will also establish a shared vision and will demonstrate initiative, innovation and enterprise. An entrepreneur’s vision might be to make a big change or have an impact entrepreneur a person who is on the world with their idea for a new product. For these people, the opportunity to willing to seize opportunities to explore untapped markets with no guarantee of success can be motivation within start and operate a business, and is itself. Entrepreneurs often do not know if their ideas are achievable or not. prepared to take risks in the hope of making a profit CONTEMPORARY CASE STUDY MANUFACTURING BUSINESS: Carolyn Creswell and Carman’s Fine Foods Caroline Creswell’s business went from an opportunity (buying out a homemade muesli business) to generating a large turnover and profit. Some people have suggested that the business was an overnight success. Creswell responds that her success is due to her hard work. She learned everything she knows about the business while working on the job, and she believes this makes it easier for her to empathise with staff. However, Creswell says that in the early days of running Carman’s, she often struggled to see the light at the end of the tunnel. She admits that there were times where she was so broke that she didn’t know if she was going to be able to pay staff wages. Nevertheless, she never gave up, even when the business made no money for long periods of time. Creswell believes that getting into and staying in supermarkets was a key to the success of the company. She received many rejections from the supermarkets, but persisted, and they eventually gave her products a chance. Creswell is driven by passion rather than the desire to make money. She believes it is vital to have a clear vision of where the business is heading and to consider this when making every decision. When the COVID-19 pandemic hit, Cresswell thought ahead and increased her production early, in anticipation of increased sales and stock shortages. Resources Resourceseses Weblink Starting out — Carman’s Fine Foods Entrepreneurs tend to have A shared vision Initiative Innovation and enterprise 16 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition Entrepreneurs tend to have: a shared vision. They have a clear understanding or hope of what the business will be like in the future. This gives the business a clear direction. Having a shared vision means that everyone in the business works together, as a team, to develop and then accomplish a goal. When this happens, it is much more likely that staff will enthusiastically contribute to making sure the vision is realised. initiative. They will take the first step in a series of actions or in a process. They frequently do this without someone prompting or telling them to take this step; an entrepreneur will usually make this decision independently. However, they might seek the help or advice of other people before they do so. innovation and enterprise. Innovation is either adding a new product (which can be a good or service) to an existing product line, or significantly improving an existing product or process. This could simply involve changing the way a business works so that it delivers better products. Enterprise is the effort made by someone to creatively or boldly achieve something new. Entrepreneurs exhibit enterprise by taking risks to determine if the market is interested in their ideas. 1.4.3 Have you got what it takes? Starting a new business requires courage, Business owners are a varied group but all share the determination and energy, and it demands a entrepreneurial spirit. wide range of skills. It is important for people to recognise their strengths and weaknesses, decide if they have the right personal characteristics to be a business owner, and learn the skills they don’t presently have. It is best for business owners to select a business opportunity that suits their personality and builds on their strengths. If people have an honest understanding of their own personal qualities, then failure can be minimised: the ‘square peg in a round hole’ problem can be avoided. Business owners are a varied group. It is extremely difficult to categorise them or the qualifications they possess that make their business a success. As well, a variety of personal factors encourage individuals to go into business. However, two factors that are often mentioned are motivation and the ‘entrepreneurial spirit’. They combine to form a powerful desire to create a new business. DID YOU KNOW? It is said that most new ideas are ‘99 per cent perspiration and 1 per cent inspiration’. This saying highlights the great deal of time and effort that needs to be put into fully developing a new business concept. KEY IDEAS Some characteristics of entrepreneurs are the ability to take risks, share a vision and demonstrate initiative, innovation and enterprise. Some characteristics of successful business managers are the ability to start and see through long-term projects, leadership qualities, organisational skills and the ability to take managed risks. Business owners must be able to assess honestly their own personal characteristics to determine whether they have the necessary attributes to operate a successful business. The characteristics of business managers and entrepreneurs ensure that a business will be successful. Without a goal or direction, without leadership or organisation, a business would be likely to fail. TOPIC 1 The business idea 17 1.4 Exercises Students, these questions are even better in jacPLUS Receive immediate Access Track your feedback and access additional results and sample responses questions progress Find all this and MORE in jacPLUS 1.4 Quick quiz 1.4 Exercise 1.4 Exam questions 1.4 Exercise TEST your understanding 1. Explain the difference between a business manager and an entrepreneur. 2. Identify five characteristics that a successful business manager is likely to have and explain how these can help them perform their duties. 3. Explain why it is best for business owners to select a business opportunity that suits their personality and strengths. 4. Outline the characteristics that a successful entrepreneur is likely to have. Justify why these might be needed for a business to be successful. APPLY your understanding 5. Identify the characteristics that suggest that Carolyn Creswell is an entrepreneur. 6. Choose a business you would like to start. Outline the characteristics that you think you will need to be successful in this business. 7. Test yourself by answering the 12 questions for potential business owners. For each question that you answer ‘yes’, give yourself 1 mark. A ‘no’ response will score zero. Add up your score: the higher the score, the more suited you may be to operating a business. Explain what this tells you about your chances of success if you decided to open a business. 8. Choose an entrepreneur — one that you know or have heard of — and investigate the characteristics they bring to their business. Use the questions below to help you. a. Identify what business this entrepreneur started and at what age. b. Outline why this person become an entrepreneur. c. Describe the entrepreneurial behaviours this person displays. d. Outline the skills this entrepreneur has. 1.4 Exam questions Question 1 (4 marks) Elon Musk is a famous entrepreneur who developed Tesla, Inc., an electric car and clean energy company, and the SpaceX program, which has launched rockets into space and aims to successfully complete a mission to Mars by 2025. Analyse the importance of the characteristics of entrepreneurs in the success of these companies. Question 2 (4 marks) Explain how two entrepreneurial characteristics have contributed to the success of an entrepreneur with whom you are familiar. Question 3 (4 marks) Distinguish between the characteristics of successful business managers and business entrepreneurs. Question 4 (6 marks) Identify three characteristics that a successful business manager is likely to have. Justify why each characteristic might be needed for a business to be successful. More exam questions are available online. 18 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition 1.5 Identifying business opportunities KEY KNOWLEDGE Sources of business opportunity such as innovation, recognising and taking advantage of market opportunities, changing customer needs, research and development, technological development and global markets Source: VCE Business Management Study Design (2023−2027) extracts © VCAA; reproduced by permission. Identifying a business opportunity is not just about having an idea. An opportunity is a set of circumstances that a person can perceive as an avenue to success. If you look around, you will see so many opportunities for starting a business. Potential business owners are always searching for opportunities, including ideas for new products, new customers and new ways of running businesses. There are many sources of opportunities for business ideas, including innovation and entrepreneurship, recognising and taking advantage of market opportunities, changing customer needs, research and business opportunity a set of development, technological development and global markets. Successful business circumstances that presents itself as an avenue to success managers and entrepreneurs will be very quick to seize their opportunities. Great Aussie inventions How would you describe a country that has invented the Victa lawnmower, Esky, Hills Hoist, Two iconic Australian inventions, the Hills Hoist and Speedo swimwear, StumpCam (a small camera Victa lawnmower hidden in a cricket stump to provide action replays), surf life saving reel and insect repellent? You might describe it as a sports-loving nation that enjoys an outdoor lifestyle. Of course, the country is Australia! However, if we examine another list of inventions — penicillin, IVF freezing technique, cochlear implant (hearing implant), ultrasound technology, black box flight recorder and flu vaccine — then Australia could also be seen as a nation of scientists. What these two lists reveal is that Australians are innovative. According to the Australian Innovation System Monitor (2020), Australia has a fairly high level of innovation relative to the size of its economy. In 2021, Australia ranked twenty-fifth out of 132 countries in The Global Innovation Index (GII), a high-profile international index summarising factors affecting innovation. Innovation and invention can lead to the establishment of a business based on the development of new or improved products. Converting an innovative idea into a business concept often requires the creativity and risk taking of an entrepreneur. Resources Resourceseses Video eLesson Sources of business opportunity (eles-2973) TOPIC 1 The business idea 19 1.5.1 Innovation The definition of innovation may vary, but it generally refers to the process of creating a new or significantly improved good, service or process (way of doing something). Invention refers to the development of something that is totally new. Both innovation and invention can result in the creation of something unique for a business. Ideas for new products, or development of and improvements to existing products, will often provide the opportunity for the establishment of a new business. Many business concepts are an innovation on an existing product. DVD players and personal computers, for example, came into existence in innovation either creating a new the same way as light bulbs and car tyres — that is, through people making technical good, service or process, or advances with established products. Sometimes, a person has an idea for a totally new significantly improving an existing product, an invention, which will satisfy a need that is not presently being satisfied. one DID YOU KNOW? Vegemite is an example of a great Australian invention. Food entrepreneur Fred Walker hired a food chemist to create an edible substance out of brewer’s yeast. Vegemite wasn’t an instant success though, and Fred tried a number of tactics to convince the consumer of the value of his product. By the late 1930s, Vegemite was accepted as an Australian product that was a valuable source of vitamins. In 2018, Professors Peter Blamey and Elaine Saunders partnered with RMIT University and Swinburne University to develop a breakthrough in hearing aid technology. Their product, Facett, is the world’s first self-fit modular hearing aid. It has many features that make for simple and convenient use, eliminating the need to travel to audiology appointments, while reducing the cost and barriers to accessibility of improved hearing health. 20 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition 1.5.2 Market opportunities Markets — the places where buyers and sellers interact to trade goods and services — are always changing. A potential business owner may be able to identify opportunities from these changes in markets and take advantage of them as potential business ideas. For example, a person may notice a good or service that is being consumed in one market, possibly overseas, but is not available locally. This presents an opportunity to import that good or service and start a business in their own country, if the product meets a need in their local area. Another person may identify an opportunity for a new business because of an inefficiency in a market. They may feel that they can provide a good or service in a better or different manner from the way in which it is already provided. Alternatively, a business opportunity may present itself as a ‘gap’ in a market that is not already being satisfied by existing businesses. DID YOU KNOW? In the 1990s, entrepreneur John Parselle developed Fingerscan, which is fingerprint identification technology. This was a new concept and a gap in the market for electronic security was identified. Fingerscan permitted a person to identify themselves by pressing their finger against a device, taking a scan of their fingerprint and instantly matching it with a template stored on a computer. This technology is widely used today and allows users to unlock smartphones, laptops and high security areas with their fingertip. 1.5.3 Changing customer needs Markets are constantly changing, as are the needs of customers. Any person considering starting a new business might find opportunities by focusing on meeting any of these changing needs. The needs of customers in the market for any product can change due to: changing incomes. Incomes may be either increasing (so customers are likely to demand more products, particularly luxury items) or diminishing (so it is likely that customers will demand fewer products). changing tastes and fashions. Changes can increase or reduce the demand for certain products. changing prices of complementary and substitute goods and services. Some products are complementary: they go together like cars and petrol, or pens and paper. Others are substitutes: they can replace each other like margarine and butter, or tea and coffee. This means, for example, that if the price of petrol increases then demand for petrol will fall, which can cause demand for cars to fall because cars and petrol are complementary. This may lead to demand for large cars switching to small cars that consume less petrol, because large cars and small cars are substitutes. changing population. Changes in age and gender distribution will have an impact on demand; for example, an ageing population is likely to demand products related to the health and retirement industries. changing expectations about the market, including future prices and incomes. This means that customers will act in a certain way if they expect that something is going to happen. changes in the number of potential customers. An increasing number of customers often generates greater demand for products, whereas a decline in the number of potential customers is likely to reduce demand. The prospect of meeting these changing needs before someone else does provides an opportunity for a business idea. 1.5.4 Research and development research and development (R&D) a set of activities Potential business owners undertaking research and development (R&D) have undertaken to improve existing produced many of the goods and services that we take for granted. Individuals and products, create new products and improve production businesses undertake R&D in order to expand their knowledge of products and processes processes. Many successful businesses are built on product innovation. TOPIC 1 The business idea 21 R&D can provide a potential business owner with many opportunities. For example, it can allow a person to develop new products in response to the actions of any competitors, or to improve existing products so that they become superior to those of competitors. R&D can also lead to technological developments, such as robotics and information technology, that improve the way the product is produced or the way it is delivered to customers, and thereby result in a new business becoming very competitive. Elon Musk has an ambitious vision to make his mark on the world. He is working on achieving this through continuing investment in R&D. With a strong commitment to reducing global warming, Musk has founded numerous companies involved in sustainable energy production and consumption, such as Tesla, Inc., an electric vehicle and solar panel manufacturer. 1.5.5 Technological development Technological development refers to applications of knowledge that have changed people’s lives and changed the way in which businesses operate. The development of new products and processes creates opportunities for people with business ideas. New communication technologies allow ideas and information to be transmitted rapidly to an ever-increasing number of people across borders, making it easier for customers to learn about products made overseas. Technologies such as the internet, mobile phones and electronic funds transfer help to open up global markets, which can be tapped by potential business owners. The use of automation in many industries has improved productivity and reduced production costs, allowing a person with a business idea to create new products at a high level of quality. 1.5.6 Global markets Goods and services are exchanged between businesses and customers across the world. This provides opportunities for people seeking ideas for new businesses because it means that the potential business owner can have access to more customers and more sales. Some of the advantages afforded by global markets include: the opportunity to grow and further expand a business reduced dependence on local markets extended life cycle of new and existing products through the discovery of new markets to sell them in reduced effects of fluctuations in markets caused by changes in season or demand by moving into markets with different patterns. Before deciding to start a business that sells products in other countries, a business owner needs to consider whether or not their business idea would work in an overseas country. They should contemplate whether the people of the targeted country are familiar with the product. It is also important that the potential business owner thinks about how comfortable they would be selling products in overseas countries. Resources Resourceseses Weblink Young entrepreneurs KEY IDEAS A business opportunity can come from innovation, recognising and taking advantage of market opportunities, changing customer needs, research and development, technological development and global markets. Invention and innovation can lead to the development of new or improved products, which can form the basis for the establishment of a business to sell those products. Converting an innovative idea into a business concept often requires the creativity and risk-taking ability of an entrepreneur for success to be achieved. 22 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition 1.5 Exercises Students, these questions are even better in jacPLUS Receive immediate Access Track your feedback and access additional results and sample responses questions progress Find all this and MORE in jacPLUS 1.5 Quick quiz 1.5 Exercise 1.5 Exam questions 1.5 Exercise TEST your understanding 1. Explain what innovation is and provide an example of innovation in business. 2. Outline two types of business idea that may arise from recognising and taking advantage of market opportunities. 3. Identify three factors that can cause the needs of customers in a market to change. 4. Outline the importance of research and development in business. 5. Explain how the development of technology has created opportunities for potential business owners. 6. Identify two opportunities that global markets present for a potential business owner. APPLY your understanding 7. Identify a significant invention or innovation. Outline the way in which this creation satisfied the need for a new product or an improved product. Explain whether it formed the basis of a new business or has been produced by an existing business. 8. Use the Young entrepreneurs weblink in the resources tab to select two of the young entrepreneurs profiled in the SmartCompany Smart 30 Under 30 list. For each young entrepreneur, answer the following questions: a. Outline the nature of that person’s business. b. Explain what motivated them to go into business. c. Identify any major obstacles or challenges they have had to face. d. Explain how these challenges have been overcome. 1.5 Exam questions Question 1 (3 marks) Using an example, explain how changing customer needs can provide opportunities for a business idea. Question 2 (3 marks) Explain the relationship between ‘research and development’ and ‘innovation’. Question 3 (4 marks) Australia has an ageing population, whereby there are increasing numbers of older people living in the country. Explain two types of business opportunity that this may create. Question 4 (4 marks) Explain how a contemporary business that you are familiar with has seized an opportunity. More exam questions are available online. TOPIC 1 The business idea 23 1.6 Goal setting and decision-making in business KEY KNOWLEDGE The importance of goal setting and decision-making in business Source: VCE Business Management Study Design (2023−2027) extracts © VCAA; reproduced by permission. 1.6.1 The importance of goal setting A driver of a car usually knows their final destination and how they will get there. In the same way, a successful business owner has a destination in mind for their business. A business goal describes what a business expects to accomplish over a set period. Without a goal, a business has no clearly defined purpose and nothing to aspire to. Goals provide a business with direction and help to measure results. Setting goals can also allow the potential business owner to develop their ideas for a business. Setting goals is an important step in helping a business realise its vision of where it wants to be in the future. This vision is often described in a vision statement and is supported by a mission statement, which outlines how the business will achieve this vision. With these in mind, a business can develop the right kind of goals that will keep it on course to achieving the kind of success that it desires. 1.6.2 Goal setting A simple and proven method of goal setting is to make the goals S.M.A.R.T. An example of a smart goal might be ‘obtain 500 new customers in the market before the end of the financial year by delivering good service and using internet-based marketing’. S.M.A.R.T. goals are specific, measurable, attainable, relevant and time bound. Mid- to short-term goals that are specific and measurable are often referred to as objectives. S M A R T Specific Measurable Attainable Relevant Time bound Goals should be Goals should be Goals should be Goals A deadline or clear and focused. quantiﬁable challenging but should be time limit For example, (i.e. they should they should worthwhile, should be set. ‘obtain 500 contain numbers be realistic. support other new customers to allow the An attainable goals and in the market’. business owner goal will should be to know whether usually address based on or not they are the question, current on track). ‘How can the conditions goal be in the market. accomplished?’ A business owner should write their goals down and develop a written plan outlining how these goals will be attained. The goals of a small business, along with how goal what a business expects to they will be achieved and other relevant background information, can be found in a achieve over a set period of time document called a business plan. We will examine business plans in more detail in vision statement describes where topic 2. The goals of larger businesses are often found on their websites or in annual the business wants to be in the reports. Woolworths Limited — a large retail company that sells groceries, liquor future (e.g. five years from now) and general merchandise — states its goals on its website. Woolworths’ goals are mission statement describes what the business does and how it will reflected in its purpose, which states that ‘we create better experiences together for achieve its vision a better tomorrow’. 24 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition Goals are the motivating force behind a business. Many businesses strive to achieve three broad types of goal: financial goals, social goals and personal goals. Resources Resourceseses Video eLesson Milling to success (eles-2404) 1.6.3 Financial goals 1. Making a profit. This is a financial goal that is There are many ways businesses can maximise central to many businesses. Profit is what is left after profit. A business owner’s idea for a business may business expenses have been deducted from money involve selling products at low prices to increase earned from sales (revenue). A loss occurs when the volume of sales or using clever advertising that the expenses exceed the revenue. For example, if will convince consumers to buy their new product. business expenses totalled $100 000 per year and revenue from sales was $300 000, the business would have made a profit. Many businesses not only want to make a profit, but also they want to maximise their profit. A business may set several other goals to support its main goal of maximising profit. 2. Increase sales. This may be done by deciding to sell products at a lower price so consumers purchase more. Alternatively, the business may seek to increase sales through more clever marketing or creating innovative products or delivering better service than other businesses. 3. Increase market share. Market share is a business’s share of total industry sales. This is easy to visualise using a pie chart that shows the percentage of sales the business has in relation to all its competitors. In many industries, increasing market share is usually a goal only for large businesses. Such businesses often develop an extensive product range, using industry the classification of groups of businesses related to many different brand names, to gain an extra few percentage points of the particular good or service they market share. Small market share gains often translate into large profits for produce these businesses. return on investment a positive or negative percentage that 4. Expand the business. Most businesses want to grow. Growth might be relates the money gained or lost achieved by opening more outlets, employing more staff, starting new on an investment to the cost projects or introducing innovative products. A business can also expand by of that investment. It is usually merging with another business so that they become one. A merger occurred taken to mean that the return on the investment occurs over a when airline company Qantas joined with Jetset Travel. Expansion can also 12-month period. take place through acquisition. This means that one business purchases productivity a measure of another; for example, when Coca-Cola Amatil purchased Neverfail business efficiency comparing Springwater, which supplies bulk bottled water to Australian homes and offices. output produced with the quantity of inputs. It is calculated using 5. Maximising the return on investment. Making profit is the primary goal of the formula: Productivity = many businesses. This is particularly important for investors in a company. If outputs/inputs the part of the profit gained by the business is returned to investors, then the efficiency a measure of how well we do things; for example, if we return on their investment is important. The return on investment is a ratio are able to produce more outputs that relates the money gained or lost on an investment relative to the cost of from the same inputs, we have the investment. It is expressed as a percentage. become more efficient at using these inputs. 6. Improving the way that the business operates. A business should constantly effectiveness a measure of strive to improve the way it goes about its day-to-day operations. Three whether the business is doing key aspects of measuring operational performance include productivity, the right things — those that are most important to the success of efficiency and effectiveness. Productivity measures how many outputs we the business produce per input. Efficiency measures how well we do things and will help TOPIC 1 The business idea 25 to increase our productivity. Effectiveness looks at whether we are doing the right things, those that are most important to the success of the business. 1.6.4 Social goals All businesses operate within a community and, like individuals, have certain social responsibilities. Many businesses develop social goals and adopt strategies that will benefit the community as well as achieving financial goals. Among the main social goals are: 1. community service. Business sponsorship of a wide range of community events, promotions and programs have rapidly increased during the past decade. Many business owners plan to financially support educational, cultural, sporting and welfare activities. 2. provision of employment. Most businesses do not regard employment of people as a main goal. Many business owners, however, look at the continuity of their business, sometimes planning to employ family members who otherwise might be unemployed. 3. social justice. Everyone has the right to be treated fairly. A potential business owner may be concerned for social justice — that is, they will plan to adopt a set of policies to ensure employees and/or other community members are treated equally and fairly. 4. ecological sustainability. Businesses have to take increasing responsibility for the protection of the environment. Earth is a fragile ecosystem, and we need to take care so it can sustain itself. The social conscience of responsible business owners leads them to adopt policies of conservation, recycling and restoration. Social goals of businesses The main social goals Community Provision of Ecological Social justice service employment sustainability CONTEMPORARY CASE STUDY A socially responsible business: The Body Shop Founded in Brighton, England, in 1976 by Dame Anita Roddick, The Body Shop now operates approximately 3000 stores in more than 70 countries. In addition, the cosmetic products company, which is owned by Natura, serves more than 30 million customers and employs 10 000 people, with a further 12 000 in its franchise team. Roddick’s original vision was to build a socially responsible business that supported the community. She believed that business could be a force for good in the world. 26 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition Accordingly, Roddick developed five values: 1. activate self-esteem 2. oppose animal testing 3. support community fair trade 4. defend human rights 5. protect the planet. These values have guided The Body Shop’s employees and the company’s business decisions for three decades. Today, The Body Shop is a high-profile advocate for social and environmental causes. For example, the Body Shop is committed to producing products that are sensitive to environmental concerns and sells all its products in reusable or recyclable containers. The Body Shop prides itself on being a retail activist. Some of its campaigns include ‘Stop Sex Trafficking of Children and Young People’, ‘Defend Human Rights’, ‘Against Animal Cruelty’ and ‘Protect Our Planet’. In Australia, The Body Shop launched a Christmas campaign in 2021 called ‘Spread the Love, Share the Joy’, which encouraged customers to be kind to themselves, as well as to others. DID YOU KNOW? Some businesses are able to address both social and financial objectives. Westpac Banking Corporation and IBM Australia Ltd are two platinum members of the Australian Network on Disability and have made a significant commitment to including people with disabilities in the way they go about their business. 1.6.5 Personal goals Prospective business owners usually have a number of personal goals. Often, the nature and operation of the new business will tend to reflect these personal goals, especially in small businesses. Personal goals of a higher income and improved financial security, for example, complement the business goals of growth. Personal goals for business owners are not normally made public. However, this does not diminish their importance because they motivate the business owner and may underpin the viability of the business. 1.6.6 Decision-making in business Decision-making is an important skill for a prospective business owner to have when taking a business idea and making it a reality. Decision-making involves identifying available options and then choosing one course of action from the alternatives. Effective decision-making underlies every aspect of creating and developing a business idea, including identifying opportunities and business planning. For instance, before starting a business the business owner should assess their idea and determine the likelihood of that idea being successful. Accordingly, a potential business owner should follow a decision-making process when deciding whether or not to move forward with a business idea. A typical decision-making process, consisting of five steps, can be seen in the following figure. The first step is to clearly state what the desired goal or position is. This includes having some sort of measurable criteria for what this situation should look like. So the goal might be to make a profit, and the relevant criterion might be to make a profit of at least $1000 each week. If a potential business owner was making a decision about a particular business idea, they would need to keep this goal in mind. The same decision-making the ability to would be true if the person was making a decision about their suitability for identify the options available and operating a new business, or any of the other many key decisions that need to be then choose a specific course of made before starting the business. action from the alternatives TOPIC 1 The business idea 27 All of the facts and information related to the situation then The decision-making process need to be outlined, including any circumstances that may cause a problem or issue, or possible obstacles that may prevent the Step 1 attainment of the desired goal or position. Once all the facts have Develop goals been outlined, the desired goal or position (step 1) should be reassessed to confirm if it was developed clearly and whether or Step 2 not it is realistic. Outline the facts In step 3, alternative solutions need to be generated that will possibly overcome any circumstances or obstacles identified in Step 3 step 2. The next step (step 4) involves analysing the alternatives. Identify alternative solutions Each alternative solution should be closely examined for the resources that would be needed to carry them out and their possible consequences. As part of an analysis, the alternatives Step 4 should be ranked in terms of their costs and benefits, strengths and Analyse the alternatives weaknesses, or advantages and disadvantages. The business owner then needs to choose the best alternative according to the criteria Step 5 and implement it (step 5). Choose one alternative and implement it KEY IDEAS A business goal refers to what a business expects to accomplish over a set period. Without a goal, a business has no clearly defined purpose and nothing to aspire to. Businesses strive to achieve three broad goals: financial, social and personal. Decision-making is the ability to identify the options available and then choose a specific course of action from the alternatives. It is an essential aspect of creating and developing the business idea. 1.6 Exercises Students, these questions are even better in jacPLUS Receive immediate Access Track your feedback and access additional results and sample responses questions progress Find all this and MORE in jacPLUS 1.6 Quick quiz 1.6 Exercise 1.6 Exam questions 1.6 Exercise TEST your understanding 1. Briefly explain what is meant by the term ‘goal’. 2. Identify the five characteristics of a S.M.A.R.T. goal. 3. Outline two examples of financial goals and two examples of social goals. 4. Identify five steps in a decision-making process. 28 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition APPLY your understanding 5. ‘We plan to expand our market into Asia, increasing worldwide market share by 2 per cent.’ Is this goal more likely to belong to a large or small business? Outline reasons for your answer. 6. In the following examples, identify the business goal/s the individual is trying to achieve and outline how they are seeking to achieve them. a. A new business owner wishes to increase the number of retail customers, so a large sale is planned. b. Manthi is planning to open a business in which employees will visit a retirement home so that elderly people gain some contact with other people. This will take place on a rotating basis so that employees spend one afternoon per month at the retirement home. c. The owners of a new company knew that there would be only one way to expand their business and that would be through buying the opposition. d. A man who is starting a small printing company is hoping to employ his nephew, knowing that he may need extended periods away from work to pursue his sports career. e. Vin is planning to start a home-based business and wants to use only recycled paper in the office. He is hoping to employ the services of a recycling company to take away the discarded paper. f. The partners in a new legal firm are planning to offer advice to homeless people as part of an outreach program that visits a homeless shelter. 1.6 Exam questions Question 1 (2 marks) Explain why it is important for a potential business owner to set goals. Question 2 (3 marks) Providing an example of each, distinguish between social goals and financial goals. Question 3 (2 marks) Outline a goal of a contemporary business that you are familiar with and explain the potential benefits to the business of striving towards the achievement of this goal. Question 4 (2 marks) Define the term ‘decision-making’. Question 5 (3 marks) Explain the importance of decision-making in business. More exam questions are available online. 1.7 Business concept development KEY KNOWLEDGE The importance of business concept development The relationship between business opportunities and business concept development Source: VCE Business Management Study Design (2023−2027) extracts © VCAA; reproduced by permission. 1.7.1 Developing a business concept Have you ever thought to yourself, ‘If only I could buy this product somewhere’ or ‘someone could make a fortune with this idea’ or ‘this is a great idea for a business’? This is the starting point of a business concept. As well as determining whether or not they have the motivation and personal qualities to start a business, potential business owners need to have a concept of what they wish to sell. Sometimes this will be an original idea for a good or service that is different from anything already on the market, or a distinct improvement on something already available. Alternatively it may be a realisation that a particular product is unavailable in a particular area. TOPIC 1 The business idea 29 The source of a business concept may come from a person’s own experiences, interests, abilities or All businesses in the world have started from an initial idea or concept and then grown according to their imagination. Inspiration for ideas can be success within the market. Coke, for example, started as generated by: a medicinal tonic sold off the back of a travelling wagon. listening to people, particularly for ideas on Now, the Coca-Cola Company is an internationally the goods or services people want, but that successful business that dominates the soft drink market may not be readily available throughout the world. reading magazines and books and researching on the internet visiting displays and exhibitions in areas such as new technology or new products from overseas accessing government statistics and research information identifying a ‘gap in the market’ — that is, a demand not currently being satisfied determining improvements that could be made to an existing product. The successful identification of a gap in the market is key to establishing a lucrative business. It means the new business provides something not already available. Breaking into a market that is already well served means the new business has to do something exceptional to draw customers away from existing businesses. CASE STUDY Christopher Lu — CLU. Living Business owner and designer Christopher Lu turned his passion for furniture design and interior design into a highly successful The CLU. brand is also built on business employing three people. CLU. Living is a lifestyle excellent customer service. furniture and homewares brand that offers home furnishing solutions and interior design for compact living. Christopher’s market research showed that because more people are living in apartments and townhouses, there is a growing demand for innovative ways to accommodate furniture in limited areas, incorporating multi-functionality and clever storage capabilities. His business is renowned for small space decorating using space-saving modular furniture, sourced both locally and from around the world. CLU. Living’s products are selected for their modern design, quality and affordability. ‘I studied the existing competition and their products, marketing techniques and unique selling points, and used this to create an exclusive offering with a unique look and feel. The CLU. brand is also built on excellent customer service. We listen carefully to our clients’ needs to make sure we provide custom solutions for their unique problems based on their budget and lifestyle. This has allowed us to establish a loyal customer base,’ he said. 30 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition 1.7.2 The relationship between business opportunities and business concept development The development of the business concept is when the prospective business owner takes an idea that has arisen from an assessment of possible Ideas come from assessing business opportunities, leading opportunities, and begins to turn it into an actual business. The business to the development of the concept is affected by the motivations and personal qualities of the owner business concept. wanting to start a business, as well as the goals that they want to achieve. This relationship can be seen in the diagram at right. As the business owner develops their business concept, they will need to protect their idea and then determine how feasible it is by conducting market research and initial feasibility studies. These will be explored in subtopic 1.9. Business Protecting a business idea opportunities The potential business owner’s idea or concept is referred to as intellectual property (IP). IP is any creation of the mind such as a new invention, a brand, a design or artistic creation. These creations can have a commercial Motivation Goals value, or provide a competitive advantage, for a person or a business, so Business concept development it is very important to ensure that competitors do not copy them. Almost every business would have some form of IP that needs to be protected. The following table outlines five common methods for protecting IP. Five common methods for protecting IP Method Description Trademark This is a right granted over a letter, word, phrase, number, sound, smell shape, logo, picture or aspect of packaging that a business will use to represent its products and services. A registered trademark is legally enforceable and gives the business owner exclusive rights to use it for commercial purposes, license it or sell it for the goods and services that it is registered under. Patent This is a right granted for any device, substance, method or process that is new, inventive and useful. This is legally enforceable and gives the owner exclusive rights to use the invention for commercial purposes for the life of the patent. Copyright This is free and automatic protection of original works, such as writing, music, art, films, sound recording, broadcasts and computer programs. Although it’s not necessary in Australia, placing a copyright notice in a prominent place on any work can act as a reminder to competitors. It can also be a requirement in some countries to establish copyright. Design rights These are rights given to the owner to commercially use, licence or sell a design (the visual appearance of a product). A registered design could be for a logo, branding, packaging, new invention or new technology. Domain name A potential owner can register a domain name (the business’s unique address on the internet) so that nobody else can register it. It can be a good idea to do so even if there are no plans to build an actual website for some time. It will be available if and when the business does launch a website. Patenting, copyrights and trademarks will be examined in more detail from a global perspective in topic 2. TOPIC 1 The business idea 31 Resources Resourceseses Weblinks Intellectual Property Australia CLU. Living KEY IDEAS A business concept describes the core activities of the business, the specific features and value of the goods or services it provides, and the target market. A business concept is developed by a prospective business owner after an idea has arisen from an assessment of possible business opportunities. 1.7 Exercises Students, these questions are even better in jacPLUS Receive immediate Access Track your feedback and access additional results and sample responses questions progress Find all this and MORE in jacPLUS 1.7 Quick quiz 1.7 Exercise 1.7 Exam questions 1.7 Exercise TEST your understanding 1. Identify three possible sources of new business concepts and explain how each could provide ideas for a new business. 2. Briefly explain two common methods for protecting intellectual property. 3. Outline the link between business opportunities and business concept development. APPLY your understanding 4. Gerry has had an interest in antique and unusual children’s toys since he was a child, and has been collecting toys from the 1940s and 1950s for many years. He is interested in setting up a toy shop, incorporating a museum or similar display for his collection. His hope is that the display of antique toys will be a means of attracting customers. a. Identify the source or inspiration behind Gerry’s business concept. b. Outline how Gerry has sought to differentiate his business from those of possible competitors. c. Explain how Gerry could protect his intellectual property. 5. Use the Intellectual Property Australia weblink in the resources tab to answer the following questions: a. Define the term ‘patent’. b. Identify and describe an example of an Australian invention that has been successfully patented. c. Define the term ‘trademark’. d. Identify and describe an example of an Australian business that has successfully registered a trademark. 1.7 Exam questions Question 1 (2 marks) Explain the importance of business concept development. 32 Jacaranda Key Concepts in VCE Business Management Units 1 & 2 Seventh Edition Question 2 (2 marks) ‘The business concept is the starting point for any new business.’ Explain. Question 3 (4 marks) Analyse the relationship between business opportunities and business concept development. Question 4 (6 marks) Analyse the importance of protecting the business idea or concept (intellectual property), with reference to a contemporary business that you are familiar with. More exam questions are available online. 1.8 APPLY YOUR SKILLS Creating a business idea PRACTISE YOUR SKILLS Identify, define, describe and apply business management concepts and terms Interpret, discuss and compare business information and ideas Analyse case studies and contemporary examples of business management Apply business management knowledge to practical and/or simulated business situations Source: VCE Business Management Study Design (2023−2027) extracts © VCAA; reproduced by permission. CONTEMPORARY CASE STUDY Moregolf Mick and Simone McGrath are the owners of Moregolf, a wholesale business located in Oakleigh. Because it is a wholesale business, it sells golf products to retailers. As well as Mick and Simone, the business employs a warehouse manager and five sales contractors. Mick and Simone purchased the business because of a desire to be independent — both financially and personally. Before they took over the business, they spent some time with the previous owner observing the day-to-day operations of the business. They also met with accountants who helped them to develop a business plan. Mick and Simone have goals for Moregolf, including making a profit and increasing sales, as well as expanding the business and introducing new products. The owners of Moregolf have been prepared to take risks and have been willing to change direction to meet the needs of the market. Mick and Simone say they have learnt from their mistakes. ‘We started off selling a range of hardware, such as golf bags and clubs,’ Simone says. ‘But we found that we could not continue to compete with the larger golf equipment outlets.’ They decided to focus on specialised or niche products instead. These are products that appeal to a specific group of people with a common interest. Moregolf now wholesales products such as Lamkin grips, golf club shafts and repair gear. They also offer repairs and sell accessories. The business is now at a stage where it is starting to see profit and is becoming better known in the industry. TOPIC 1 The business idea 33 1.8 Exercises Students, these questions are even better in jacPLUS Receive immediate Access Track your feedback and access additional

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