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Topic 2

Enterprise and entrepreneurs

Learning outcomes

After studying this topic, you will be able to:

� explain what the term ‘entrepreneur’ means;

� outline the main skills and behaviours that are needed to be asuccessful entrepreneur;

� describe the importance of these skills for a thriving economy.

Introduction

In Topic 1 we looked at what makes a business successful and why peoplestart up new businesses. The terms ‘enterprise’ and ‘entrepreneurs’ wereused in answering these questions. In this topic we develop these ideas inmore detail, looking at what it means to be enterprising, at the role playedby ‘entrepreneurs’, and at why it is important to grasp these terms if wewant to understand how countries build successful economies.

2.1 Enterprise and entrepreneurs

‘Enterprise’ is a word that can be used in two ways. Any business, first ofall, can be referred to as ‘an enterprise’, particularly if it is a small businessor a new business start-up. In this topic, we use the other meaning ofenterprise, which is an individual’s ability to identify the potential in a newbusiness opportunity. Enterprise can be a personal quality: an ‘enterprising’person is one who naturally has ideas for new products or services, andwho is able to develop those ideas into something that can be ‘brought tomarket’. With the right training and support, other people can also learnand develop enterprise skills.

An ‘entrepreneur’ is an enterprising person who firstly has an idea (or, quiteoften, a stream of ideas) for a new product or service. They are then able toturn an idea into a fully developed product or service. What distinguishessuccessful entrepreneurs from other people with enterprising ideas,however, is that they are willing to take the risks involved in starting a newbusiness. They often fund the project independently, using their own moneyand borrowing money when necessary, in an effort to build a successfulbusiness.

1© ifs University College 2016

Discuss

Many entrepreneurs havebeen so successful they havebecome celebrities. Theirbusiness and personal livesare frequently the subject ofstories in the press, on TV, onthe radio and on the internet.Some are even globalcelebrities, well known allover the world.

How many famous entre -preneurs can you name?

How did these entrepreneursmake their fortunes?

2.1.1 Intrapreneurs

Existing, established businesses can also be enterprising. Ifthey are not content with producing the same products or

services they have always produced, they will look to growand expand their business by:

� looking for new products or services they can sell(ie opportunities that other businesses have not yetspotted); or

� looking for new ways of selling their existingproducts or services; or

� looking for new and better ways of making theirproducts or providing their services.

Inside existing business organisations, enterprisingideas come from ‘intrapreneurs’ – company employees

with a talent for enterprise, who are able to come up withnew business ideas which their company then develops

into new products or services. Intrapreneurs share sometraits with entrepreneurs, for example a creative flair for

invention or innovation, but they are not willing to take the risksnecessary to go it alone and start their own business.

2 © ifs University College 2016

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2.1.2 Risk and reward

There is a risk of failure in any business, but entrepreneurs and enterprisingbusinesses must prepare for a greater risk of failure because they are doingsomething new – something that has not been ‘tried and tested’. Inaddition, for an entrepreneur to get a new business up and running, theymay have to:

� give up their job;

� invest their own money; and

� borrow additional funds from a bank or otherinvestors.

If the business fails, the entrepreneur mayfind that they have not only lost theirstart-up money, but also that they haveno job and are deep in debt.

While the risks are high, thepotential rewards for successfulentrepreneurs and enterprises canbe even higher – whethermeasured in terms of the moneythey may make, or the pride andsatisfaction that comes frombuilding a successful businessfrom a simple ‘light-bulb moment’idea.

A key part of enterprise, therefore, isweighing up the risks and rewards ofan opportunity. A successfulentrepreneur will gather all the resourcesthey need to start or expand a promisingbusiness. Money is the key resource, whichwill be needed to pay for materials andequipment or to pay workers.

In Topic 1 we discovered that Sue Baker had launched herown enterprise – a gourmet burger cafe – which also sold her brotherRichard’s pottery. The following case study looks at how Richard firstbecame an entrepreneur.

Case study: Richard Baker’s entrepreneurial beginnings

When Sue announced that she was opening a cafe in the high street, shesaw an opportunity to sell some of her brother Richard’s handmadepottery, so that he could find new customers. The bowls and vases hemade for Sue’s cafe did not sell too well, as few customers looked atthem. This was a shame, but Richard was already selling his pottery onlineas his full-time business.


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Richard

A few years ago, I wasn’t enjoying the job I was doingand wanted to be able to devote all my time tomaking pottery. I did some research online andfound websites, Etsy and Folksy, that made it easyand cheap to set up an online ‘shop’ and sellhandmade items like mine.

As a hobby, I had been making brightly colouredvases and table lamps, which a few friends hadbought from me. The craft sales websites I hadfound weren’t selling anything quite like theseproducts – so this was my gap in the market.

To turn my hobby into a viable business, I neededmoney, or ‘start-up capital’, as Sue’s accountant callsit. I had to put down a deposit on a small industrialunit I rented as my workshop, pay for the newequipment I needed, and pay for supplies of rawmaterials like clay and paint. It was going to take afew months before sales would produce a decentlevel of income, so I allowed for some extra moneyto use as my working capital.

I calculated that I would need £10,000 to launch thebusiness, but I had no savings I could use. The nextstep was to approach a bank for a bank loan. I drewup a detailed business plan, detailing projected costs,sales revenues and profits. Then I contacted both bigand small banks, and eventually agreed a £10,000loan with one of them. I was able to launch as a soletrader, and after a few months I sold enough to makea profit.

This year, Sue wanted to help me reach morecustomers through her new cafe. But not muchpottery has been sold that way, so I’m planning toexpand my range of ‘unusual but practical’ potteryproducts online. I have a potter friend whosometimes works as my assistant to fulfil biggerorders, and I’m hoping that she will join me full-timeas a partner in the business. It will mean splitting theprofits, but if we can make and sell more products,it will be worth it.

Entrepreneurs like Richard need to pay back any money they haveborrowed. Their financial plans for the business have to account forrepaying loans, plus paying interest and any other loan fees or charges. If other people have invested in the business (in return for partownership), they will expect a return on theirinvestment in the form of a share of the profits. Sostarting a new business often means taking abig financial risk. If the business losesmoney, the entrepreneur will be unable topay their bills and the business will fail.

Very often a new business strugglesin the beginning – particularly if, likeSue Baker in Topic 1, the businessis launched based on a hunch thatit will work. Entrepreneurs aremuch more likely to succeed ifthey do a lot of research beforethey start the business, so thatthey are taking a calculated riskand are confident in thebusiness’s chances of success.

Weighing up risk and reward is allabout looking at the chances ofsuccess against the consequences offailure. If you believe the risk isworthwhile, then you can go ahead withthe business idea.

2.1.3 Finding a gap in the market

Successful entrepreneurs often start a new businessbased on a good idea for a product or service that has a USP. The USP issomething that no other business is currently offering – the proverbial ‘gapin the market’. The good idea has to be something that customers bothwant and are willing to pay for. If you can find the right product or service,you have the start of a business.

The new product / service can be something that appeals to large numbersof people (ie the ‘mass market’); or a specialist product aimed at a ‘niche’market, with a small (but still commercially viable) potential number ofcustomers. Celebrity entrepreneurs who become millionaires only representa small proportion of all entrepreneurs – the majority run small- to medium-sized enterprises, which are successful in terms of their own objectives, butdon’t expect to become global household names.


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Entrepreneurs are not always successful: even well-known Dragons’ Den entrepreneurs have had their shareof failure.

Peter Jones has founded several successful businesses,including Wines4Business.com – which sold expensive winesonline – and a specialist staff recruitment agency. But his firstbusiness, set up in his twenties, ended in failure. He had tosell his house and move back home with his parents.

Rachel Elnaugh set up a business called Red Letter Days,which sells ‘experience day’ gift vouchers. She started thebusiness in 1989, when she was just 24, and by 2001 it hadan annual revenue turnover of £17.5 million. Things wentwrong in 2005, however, when a £1 million profit in theprevious year turned into a £4.7 million loss and thecompany went into administration (which, for a business, issimilar to an individual going bankrupt). It was eventuallybought by Peter Jones and another ‘Dragon’: Theo Paphitis.It still trades successfully today.

2.2 The qualities of an entrepreneur

Entrepreneurs come in all shapes and sizes – men; women; young; old;every possible ethnic background; some highly educated and well qualified;some who left school at 15 without a single GCSE. There are entrepreneurswith a scientific or engineering background, and others who are moreartistic and creative. So what traits or qualities do they have in common?What qualities do you need to be a successful entrepreneur?

2.2.1 Attitudes and qualities

Entrepreneurs tend to have certain attitudes and qualities.

2.2.1.1 Attitude to risk

The first quality shared by the majority of entrepreneurs is their attitude torisk. We have already talked about the significant risks involved in any newbusiness venture. While some first-time entrepreneurs may not be fullyaware of the risks they are taking on, most do understand the risks but goahead anyway, because they believe that, if they are not prepared to fail,they will never achieve the high rewards they are looking for. Theirwillingness to take a calculated risk, a quality not often found in others,allows them to profit from their enterprise activities.

2.2.1.2 Drive, determination and focus

The American inventor and entrepreneur Thomas Edison (1847–1931),whose inventions include the electric light bulb, the motion-picture cameraand the record player, once said:


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“None of my inventions came by accident. I see a worthwhile needto be met and I make trial after trial until it comes. What it boils

down to is one per cent inspiration and ninety-nine per centperspiration.

” – Thomas Edison

Successful entrepreneurs are invariably ‘workaholics’, fully prepared to worklong, hard hours to develop their ideas into viable products, and then tobuild successful companies around them. They are determined to achievetheir business objectives and have the drive and energy to make it happen.They are not put off by early failures or by mistakes, which they see asopportunities from which to learn.

Did you know?

When James Dyson set out toinvent a new kind of vacuumcleaner, he spent five yearsmaking prototype afterprototype before he felt hehad got the design right. Eventhen, he was not able tointerest any of the traditionalvacuum-cleaner manufacturers,so he decided to set up hisown company to manufactureand sell the new Dysonmachines – which becamehugely successful.

You might expect entrepreneurs to be motivated by money, driven by adesire to be rich. This is not always the case. Think of the well-known richentrepreneurs who could retire to a private island in the Caribbean, but whochoose instead to carry on working. What drives them is their need to beseen as successful, to beat the competition and to prove how good they areat what they do. It is the same competitive spirit that drives other people tobecome athletes, to play football, to climb mountains, to play a musicalinstrument, and so on. In the case of entrepreneurs, however, the focus oftheir competitive spirit is to build the most successful business they can.

Focus is a related, important quality for entrepreneurs. Focus is the abilityto give all your attention, time, and energy to one particular activity or goal.This quality means you are not distracted by tasks and issues that are notimportant to the specific job in hand.


Topic 2

2.2.1.3 Decision-taking and responsibility

Entrepreneurs may work alone, take on employees or have businesspartners, but whatever their situation, they must be able to take decisionsand make choices. Some decisions will be hard to make, because of thepotential consequences of making the wrong choice.

There may be times, for example, when an entrepreneur has what seemslike a good idea but, after putting in a lot of time, effort and money to turnthat idea into a viable product, they realise that things are not going well.They will then have to decide whether to keep going, and risk losing moremoney, or to ‘cut their losses’ by abandoning the project and moving on tosomething with more chance of success. They must be ready to takeresponsibility for problems and for the decisions that need to be taken toresolve them.

2.2.1.4 Self-confidence

Self-confidence is a key quality of all successful entrepreneurs.

Figure 2.1 Self-confidence

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Self-confident people believe that, within reason, they are capable ofachieving any objective they set out to achieve. This does not mean thatthey can achieve any objective; they still need to have realistic expectationsand know their limitations. But even when some of their expectations arenot met, they remain confident that they will succeed in the end.

People who lack self-confidence depend excessively on the approval ofothers to feel good about themselves. They generally do not expect to besuccessful, and tend to avoid taking risks because they fear failure.

While self-confidence is generally a positive quality, entrepreneurs cansometimes become overconfident or even arrogant – showing an inflatedidea of their abilities and importance, and a belief in their superiority overother people. An arrogant attitude can damage their business if, as a result,they:

� do not consider things that might go wrong;

� do not make contingency plans to cope with potential problems; and

� are not willing to take advice from other people.

2.2.2 Skills and talents

Entrepreneurs also share a number of skills and talents.

2.2.2.1 Analytical skills

Analysis involves asking questions:

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Entrepreneurs make decisions based on the answers to these and othersimilar questions. They find the answers by gathering and analysinginformation, designing and testing solutions to problems, and making plansto bring new products to the market.

Important uses of analytical skills include:

� calculating the likely costs and risks associated with a new enterprise;

� finding ways of minimising those costs and risks as far as possible; and

� ensuring that the potential rewards are substantial enough to justifygoing ahead.

Similarly, good analytical skills will enable an entrepreneur to find the bestsuppliers of the resources that the business needs.

2.2.2.2 Organisational skills

Some people picture inventors and other creative people as disorganised,absent-minded and untidy. While this may be an accurate picture of someentrepreneurs, the majority are probably the opposite.

All of the following tasks require good organisational and planning skills:

� being able to plan, organise and make the best use of your time;

� being able to organise the employees in your workforce;

� finding the best suppliers of equipment and raw materials;

� organising delivery in good time.

If an entrepreneur has organisational skills, they can minimise their risksand reduce the chances of failure.

2.2.2.3 Creativity and imagination

We have mentioned that when you start a business you need to see a gapin the market – something consumers want or need, but which is notcurrently available. You must also have the initiative to invent or innovatesomething to fill this gap. To do this, you must be able to think creativelyand imaginatively, in order to picture the new product or service that isneeded. Being creative involves:

� thinking differently or seeing things in a different way;

� seeking answers that no one else has thought of before;

� finding solutions that are not obvious.

Entrepreneurs who can do this can be ‘first to market’ with their newproduct, which will give them a strong advantage over their competitors.When you are first to market, you have a head-start over competition.


Unit 3

Discuss

Are you a creative thinker? Have you spotted any potentialgaps in a market?

Can you think of any products or services that are notcurrently available, but which you would buy if anenterprising entrepreneur started to produce them?

2.2.2.4 Forward thinkers

The scientists and inventors who have developed computers and theinternet, from the 1950s until the present day, have created endlessopportunities for other forward-thinking innovators to make use of newtechnology. They have brought about ever-faster worldwidecommunications, through which businesses now offer a whole new range oftechnology-based products and services. Smartphones, laptops and tablets,flat-screen smart TVs and games consoles are just a few examples of newtechnology that entrepreneurs have been able to introduce in recent years.

The most successful innovators envision how existing hardware andsoftware can be developed and improved, and how technology can be usedin different ways to meet needs consumers didn’t even know they had.Entrepreneurs like Steve Jobs, who founded and built Apple into a worldwidebusiness, and Facebook founder Mark Zuckerberg are classic examples ofpeople who were able to see what products and services people would wantin the future. Good entrepreneurs will stay aware of changing trends andfashions in their market and adapt their products / services to keep themup to date.

Did you know?

Mark Zuckerberg’s Facebooksite originally had strictmembership rules. In 2004,only students from HarvardUniversity were allowed to bemembers.

When the Facebook founderssaw the potential for the site,they developed it and made itavailable to anyone in theworld over the age of 13. ByNovember 2015 the companywas valued at US$300 billion(Source: CNBC).


Topic 2

2.2.3 Management and leadership

While many new businesses start with an invention, an innovation or just abright idea, the key to turning the idea into a successful business lies inthe leadership and management skills of the entrepreneurs in charge. Evenif, like James Dyson, they start off working by themselves, there will comea time when an entrepreneur will have to employ workers so that they canbuild the business to meet growing demand for its products or services.On a small scale, this is what Richard Baker is considering for his potterybusiness.

Whether a workforce is kept to a relatively small team, or grows tothousands of workers, the entrepreneurs running a business need thenecessary skills to make sure every employee is working productively andeffectively, making a contribution to the success of the business.

Some of the attributes we discussed in the previous sections are alsoimportant for good management and leadership – for example, being ableto take decisions, analytical skills, and organisation and planning skills.

Good leaders will also typically have the following traits.

Figure 2.2 Traits of good leaders

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Not every entrepreneur will exhibit all of the many skills, attitudes and otherqualities we have identified. But successful entrepreneurs are likely topossess the majority of these traits.

Discuss

Do you have the qualitiesneeded to become a successfulentrepreneur?

How much of a risk-taker areyou? Can you think of a timewhen you took a calculatedrisk?

2.3 The importance of enterprise skills to the economy

There are serious consequences when a country’s economy hits trouble andbegins to slip into a ‘downturn’. The health of an economy is usuallymeasured by certain key indicators, including:

� levels of employment andunemployment;

� business demography – eg thenumber of new businesses‘born’ and the number that ‘die’each year;

� the total value of all goods andservices produced in a country,known as the gross domesticproduct (GDP).

When an economy starts to falter, the effects will begin to show as negativechanges in some or all of these indicators:

� unemployment may start to rise;

� the numbers of new business start-ups may begin to fall, while thenumber of business ‘deaths’ may start to increase; and

� the rate of GDP growth will begin to slow down.

The economic downturn caused by the 2007 global financial crisis led toan increase in the number of people out of work in the UK by almost 1 million in just over 18 months. Similarly, the UK’s GDP, which grew byaround 3% per year between 2004 and 2007, fell back sharply in 2008, withthe result that the UK economy produced 0.8% fewer goods and services inthat year than it had the year before.


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2.3.1 Businesses, enterprise and jobs

So how can enterprise skills and entrepreneurship – new ideas and businessopportunities – help the economy? Was the spirit of enterprise able tocombat the worst effects of the economic downturn, and help build arecovery in the UK?

It would be easy to look only at celebrity entrepreneurs and imagine thatour economy just needed a few more Richard Bransons and Lord Sugars toensure that we quickly returned to full employment, sustainable economicgrowth and an ever-improving standard of living. In reality, the picture is alot more complicated. Let’s look at some relevant facts and figures.

2.3.1.1 New business start-ups

There has been a steady and significant growth in the number of newbusiness start-ups in the UK each year since 2000. These annual newbusiness ‘births’ have more than equalled the number of business ‘deaths’and, as a result, the number of private businesses in the UK has grownsteadily, from 3.5 million in 2000 to 5.4 million at the start of 2015, anincrease of 54% (Department for Business, Innovation & Skills, 2015).

The period from 2000 to 2007 was generally a time of economic growth,so it is no surprise that large numbers of new businesses opened theirdoors during this time. What is surprising is that the trend continuedthroughout the economic downturn from 2007 to 2014. The downturn did,however, increase the number of UK business failures. Before 2007,between 4,000 and 5,000 UK businesses closed down each year, but thefigure jumped to 7,000 in 2008 and has since settled to around 6,000 ayear.

Between 2007 and 2015, the greater number of business births thanbusiness deaths was enough each year to produce an annual net increasein the total number of UK private businesses. Even in 2008, the worst yearof the downturn, the thousands of business failures were more than offsetby new start-ups, resulting in a net increase of 72,000 businesses(Department for Business, Innovation & Skills, 2013).

2.3.1.2 Small businesses and jobs

While it is useful to know these figures for the numbers of businessesoperating in the UK, they do not give us a true picture of the contributionnew businesses make to the economy in terms of:

� jobs created; and

� contribution to GDP.

To give us an idea of the importance of new businesses, we need toconsider the fact that most new businesses start on a small scale and themajority remain small – employing fewer than 50 people.

As Figure 2.3 shows, nearly all UK businesses were small businesses in2015, and they provided nearly half of the jobs in the private sector.


Unit 3

Figure 2.3 Size of businesses in the UK private sector and their share of

employment and turnover

Source: Department for Business, Innovation & Skills, 2015

These figures suggest that, because the majority of new businesses startoff on a small scale, we cannot expect them to create enough new jobs eachyear, particularly during an economic downturn, to replace those being lostthrough redundancy. This is why the thousands of new business start-upsin 2008 did not prevent unemployment rising sharply in the first years ofthe downturn, as bigger businesses reduced the number of workers theyemployed or went out of business.

2.3.1.3 Small businesses and economic growth

There is a similar picture when we look at turnover (ie revenue or incomefrom sales). Despite making up the vast majority of all private businesses,small businesses account for a very small part of the private businesssector’s total turnover. This total turnover can be seen as a measure of thecontribution businesses make to growth in GDP. Small businesses produceda third of the total turnover of all private UK businesses in 2015, while theconsiderably fewer large businesses generated more than half of totalturnover (also shown in Figure 2.3).

Again, this shows that we should not expect new small business start-upsto bring about significant growth in GDP, or to reduce the impact of aneconomic downturn.


Topic 2

However, small business start-ups and entrepreneurial activities remainvitally important for the economy. Every economy needs enterprisingindividuals and entrepreneurs to continually set up new businesses. Eventhough many will not be successful or will quickly fail, and others willremain sole traders, some will develop into successful medium-sized andeven large businesses. These success stories will provide jobs to manythousands of the UK’s employed population in the future, and will make asignificant contribution to the UK’s economic prosperity.

Discuss

Do you think that the government and the banks should domore to encourage and support entrepreneurs to set up newbusinesses?

Do you see yourself setting up a business in the future?

2.3.2 Changing patterns of employment

To understand job creation, it’s worth looking at how patterns ofemployment have changed over the past 50 years or so. Traditionally, thetypical job was permanent and full time (40 hours a week or more). Peoplewould find a job after leaving school or graduating from university and staywith the same company for many years. Often it was a ‘job for life’ thatwould provide a high enough wage or salary to support a family.

In recent years, this has become less and less common, owing to social andeconomic changes in our society. A full-time job is now typically around 37 hours per week, while the ever-growing number of part-time jobs canrange from 5 to 30 hours per week. People work part-time either by choiceor because they cannot get a full-time job.

� Some people make a positive choice to work part-time. It suits theirlifestyle, allowing them to work more flexibly around their familycommitments and other interests.

� Many people want and need to work full-time, but are only able to getpart-time jobs. These jobs are often on a fixed short-term contract for sixmonths or a year. The workers who do these jobs are ‘underemployed’,ie they cannot work as many hours as they would like to.

� Other workers have to work part-time because they cannot afford thechildcare that would allow them to work full-time.

The 2008 economic downturn boosted this trend towards part-time work,and also led employers to offer more temporary (ie short-term) jobs. In bothcases, having fewer permanent, full-time members of staff made it easierfor businesses to adjust their staff numbers in line with changes in demandfor their goods and services. This is not good news for employees, as itmeans less job security, lower pay and less chance of a redundancypayment if you lose your job.


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In addition to this growth in part-time and temporary work, many morepeople now work on their own as self-employed sole traders or as part of asmall partnership. Self-employment is where someone runs their ownbusiness, taking their income out of the profits of the business. In somecases self-employed traders can be classed as entrepreneurs – if theirbusiness is based on a new or different business idea, and they are takingfinancial risks to set it up because they believe it could grow into asubstantial and successful business.

Many self-employed people use their existing skills and experience tocontinue to do a job they are good at. For example, an electrician, plumber,web designer or accountant may have been employed by a company, beforesetting up as a sole trader.

Growing numbers of people have been willing totake risks and set up businesses on their own sincethe 1980s; part of the reason is an entrepreneurialdesire to ‘be your own boss’. People starting theirown business often say that they don’t like workingfor someone else. They may not like being told whatto do, or having to work 9-to-5 office hours; or theymay dislike their job, and want to turn a hobby intoa job they will enjoy. Others have that ‘light-bulbmoment’ idea that they are convinced is going tomake them rich.

For others, self-employment becomes an optionbecause they have been made redundant and arefinding it difficult to find a new, permanent full-timejob. These reluctant entrepreneurs and self-employed sole traders first emerged in areas wheretraditional industries – such as coal-mining, steel-making and shipbuilding – were shutting down, throwing thousands ofworkers out of their jobs. During the long economic downturn after 2007,however, many more redundancies in a wide variety of industries pushedan ever-growing number of people to embrace self-employment.

In some cases, businesses have made workers redundant and then offeredthem work as ‘freelancers’. Such workers are self-employed, but arecontracted to carry out particular tasks or projects as and when required.This benefits the employer because they only have to pay out when there iswork that needs doing, and they also avoid having to pay employers’National Insurance contributions (NICs) and pension contributions.

Towards the end of 2013 and into 2014, the end of the economic downturnseemed to be in sight. Statistics released by the Office for National Statistics(ONS) showed that the economy was growing at a healthy rate, peaking at3% annual growth in 2014 before falling back to around 2% by 2016. Thenumbers of unemployed people were also falling, but this was due more toredundant workers turning to self-employment than to businessesproducing more job opportunities. By December 2015, UK unemploymenthad fallen to 5.2%, the lowest rate for ten years (BBC News, 2015).


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2.3.3 The role of enterprise skills

For some years in the UK, a growing number of people have turned to self-employment and set up their own small businesses. The success of theseenterprises depends on the entrepreneurial skills of the people who setthem up; and the high rate of failure of these enterprises suggests thatmany people do not have these skills.

This issue has been recognised bythe educational establishment (ieschools, colleges, universities andexam boards), which can be seen bythe growing number of courses andqualifications now on offer that aimto increase students’ understandingof enterprise and develop theirentrepreneurial skills. There is alsosupport for business start-ups fromorganisations like the Prince’s TrustEnterprise programme, which helpsunemployed young people to

develop their own business ideas and decide whether self-employment isright for them.

The government has also recognised the need to help entrepreneurs. Itprovides support, advice and guidance for new business start-ups and smallbusinesses hoping to expand and grow. Several government departmentsand agencies are involved in providing help.

However, it is not just new and small businesses that benefit from ownersand employees with enterprising and entrepreneurial skills and traits.Medium- and large-scale businesses also need leaders and ‘intrapreneur’employees with the same attributes.

Enterprise skills are vital in helping our modern economy to succeed, byensuring that businesses of all descriptions:

� look for new ideas and business opportunities;

� develop new products and services to keep up with changing trends,fashions and technology, and to stay ahead of the competition;

� are willing to take calculated risks in order to grow their businesses;

� have the managerial, organisational and leadership skills needed for thebusinesses to be run efficiently and effectively; and

� have the drive and determination to succeed.


Unit 3

The more people in businesses throughout the UK who possess at leastsome of these enterprise and entrepreneurial skills, the greater thechances that the economy will:

Discuss

Why does the government help people set up their ownbusinesses?

2.3.4 The business cycle and enterprise

The ‘business cycle’ is a term used to describe the performance of theeconomy over time. There is a pattern in all economies:

� ‘boom’ periods of growth in economic activity and GDP; followed by

� ‘slump’ periods of decline in economic activity and GDP.

As we have seen, when an economy is doing well, GDP will increase andthere will be economic growth. In these ‘boom’ periods (such as the yearsbefore the 2007 financial crisis), people have enough money to buy (iedemand) the goods and services they want. So businesses produce moregoods and services to meet that demand. Businesses then need to ensurethey have enough workers to produce the required products or services, sothey take on more employees. This means that unemployment falls, and asmore people earn money, people tend to spend more. This createsadditional demand for products and the whole ‘virtuous circle’ starts again,as shown in Figure 2.4.

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Figure 2.4 Economic ‘boom’ periods – the virtuous circle

After some years of economic boom, the good times are always brought toan end by a serious economic downturn or slump. The most recent examplewas in 2008, when a downturn followed 2007’s global financial crisis.

The problem was that the spending which created high levels of demandduring the boom was not funded out of people’s earnings. Instead, peoplehad taken advantage of cheap, easy-to-get loans being offered by banksand other lenders, and were using this borrowed money to pay for theirspending. When people began to have difficulty paying back the money theyhad borrowed, they cut back on spending, and demand for goods andservices fell dramatically.

The economy then entered a ‘negative circle’ (see Figure 2.5). Less demandfor products means fewer workers needed to produce products, so thereare job losses and redundancies, leading to higher unemployment. Losingyour job means losing your income, so spending falls further and there isa further drop in demand, leading to more redundancies. As fewer goodsand services are produced and sold, the previously high growth in GDP fallsback. If demand falls enough, this leads to a reduction in GDP, which iscalled a ‘recession’ if it lasts for more than six months.

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Figure 2.5 Economic ‘slump’ periods – the negative circle

The role of enterprise and entrepreneurs in the business cycle is twofold.

1. When an economy is booming, entrepreneurs and intrapreneurs lookfor opportunities to produce new goods and services, thereby takingadvantage of high demand. There can be a problem at the height of aboom if businesses can’t produce enough goods and services to satisfythe demand for them.

When this happens, the economy gets ‘over-heated’. If consumers startto find it hard to buy the products they want, they will be willing topay more for them, which can lead to a general rise in prices (ieinflation).

If enterprising businesses can produce new products, or increaseproduction of existing products, they can help to satisfy consumers’unmet demand. This helps the economy to continue to grow withoutoverheating.

2. When an economy moves from boom to slump, enterprisingbusinesses can also play a role in reducing the most serious effects ofthe downturn. In a slump, unemployment will rise, as some businessesshut down and others reduce their workforce by making peopleredundant. People will have less money to spend – either because theyhave lost their jobs or are earning less – and they will look for bargain,low-cost products and services.

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Topic 2

Entrepreneurs and intrapreneurs may see opportunities to produce new low-cost products and services as alternatives to the things people can nolonger afford to buy. In a slump, it is not unusual to see a growth in second-hand shops and ‘pound shops’, opened by entrepreneurs who have spottedthe new demand for cheap, value-for-money products.

Some people who have lost jobs and are unable to find new ones will alsotake the opportunity to start their own business. They may use theirexisting job experience, or try to turn a hobby into a business. There isevidence, mentioned earlier, that this happened during the most recentslump, when the number of new businesses being set up each year wasconsistently higher than the number closing down.

2.3.5 The financial impact of entrepreneurs

When an entrepreneur first sets up a new business, they may create newjobs, offer products or services that were not previously available, and makea small contribution to economic growth. When significant numbers ofentrepreneurs are doing the same thing, they have a much greater impacton the economy. Some entrepreneurs produce inventions and innovationsthat will save money, save energy, improve the environment, or bring aboutpositive changes in the way things have traditionally been done.

Those enterprising businesses that flourish and grow into biggerbusinesses will create more jobs, and can also provide income to otherbusinesses who supply them with the products and materials they need. Inturn, their employees and their suppliers’ employees will have more moneyto spend, creating more demand across the economy and contributing toeconomic recovery and a return to economic growth.

SummaryFinally, we can recap what we have learned in this topic.

We have learned:

� that ‘intrapreneurs’ are enterprising people who work within a company,while ‘entrepreneurs’ take the risk needed to start their own business;

� the main enterprise skills, traits and behaviours that are needed to be asuccessful entrepreneur;

� the importance of these skills for achieving and maintaining a thrivingeconomy, at all stages of the business cycle.


Unit 3

Key terms

Calculated risk – taking a risk after weighing up the potentialconsequences and rewards.

Drive – the extent that you are driven to attain a goal or satisfy a need.

Economic cycle – fluctuations in production, trade and economic activityover several months or years in an economy.

Enterprise skills – the skills required to be a successful entrepreneur.

Entrepreneur – a person who sees a business opportunity and isprepared to take a risk to profit from that opportunity.

Focus – the ability to give all your attention, time, and energy to aparticular activity.

Initiative – the ability to assess and initiate things independently.

Innovation – renewing or changing products, services or processes forthe better, or creating more effective ways of doing things.

Intrapreneur – an employee within a company who uses enterprise skillsto develop an idea or project as an entrepreneur would.

Personal responsibility – taking responsibility for your actions, andaccepting the consequences that come from those actions.

Progressive thinkers – a person who is able to think ahead and stayahead of their rivals.

Reward – something achieved by effort, whether a monetary reward (suchas profits) or a personal reward (such as pride in your work).

Self-confidence – a feeling of trust in one's abilities, qualities andjudgement.

Social responsibility – the ethical theory that organisations andindividuals have an obligation to act to benefit society at large.


Topic 2

Bibliography and further reading

BBC News (2014) Economy tracker: unemployment [online]. Available at:http://www.bbc.co.uk/news/10604117

BBC News (2015) UK unemployment rate falls to 5.2%, lowest in nearly 10years [online]. Available at: http://www.bbc.co.uk/news/business-35111020

CNBC (2015) Facebook tops General Electric in market value [online].Available at: http://www.cnbc.com/2015/11/05/facebook-tops-general-electric-in-market-value.html

Department for Business, Innovation & Skills (2013) Business populationestimates for the UK and regions 2013 [pdf]. Available at:www.gov.uk/government/uploads/system/uploads/attachment_data/file/254552/13-92-business-population-estimates-2013-stats-release-4.pdf

Department for Business, Innovation & Skills (2015) Business populationestimates for the UK and regions 2015 [pdf]. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/467443/bpe_2015_statistical_release.pdf

Etsy – www.etsy.com/uk/

Folksy – http://folksy.com/

Find out more about James Dyson’s story here:www.dyson.com.au/community/about-james-dyson.aspx

Government support for entrepreneurs – a guide to the services availablecan be found here: http://www.greatbusiness.gov.uk/

Images © iStock.com

House of cards image © PresenterMedia.com

Trading Economics (2016) United Kingdom GDP annual growth rate[online]. Available at: http://www.tradingeconomics.com/united-kingdom/gdp-growth-annual


Unit 3

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