Adding Value & Entrepreneurs

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Adding Value

* Firms will attempt to add value to the product
* Added value is the difference between the cost of materials used in the production process and the price the finished goods are sold for. * 25c
25c
New shampoo is sold for $6, therefore there is an added cost of $5.20 New shampoo is sold for $6, therefore there is an added cost of $5.20 25c
25c
SHAMPOO
30c
SHAMPOO
30c
Shampoo is sold for $4, therefore there is an added cost of $3.30 Shampoo is sold for $4, therefore there is an added cost of $3.30 20c
20c
20c
20c
SHAMPOO
30c
SHAMPOO
30c
Inputs -> Processes (Transformation) -> Output (Finished Products) *

An entrepreneur is a risk taker. They operate a business, but in order to start the business they must take a risk. The role of the entrepreneur

The role of the entrepreneur is to identify a new idea or a new way of offering a good or a service, or to adapt an existing product or service. This involves : * An element of risk
The characteristics of successful entrepreneurs

Joe buys a café and employs 7 people, what are his most important characteristics of an entrepreneur? * Leadership skills: These are important in order to lead his team of 7 employees. Other characteristics:

* Innovation – Find a niece market
* Commitment and self-motivation
* Multi-skilled
* Self confidence
* Risk Taking
Example

John is a successful small business owner. He runs a café and employs 6 people. Could he be described as an entrepreneur? What personal characteristics may have contributed to his success? John can be described as an entrepreneur, as he has taken a risk in order to establish his café. Some personal characteristics that may have contributed to his success include any leadership skills, as he will need to be able to lead and motivate his employees to work. He may also be self-motivated, as it will be a lot of hard work getting his café started. Sefton’s beginning

John could be seen as an entrepreneur as running a business such as a café involves an element of risk.

Tip: Try to use some of the exact words from the question.

Challenges faced by entrepreneurs

* Identifying a business opportunity
* Is there a gap in the market for this product or service? * Do customers really need the product?
* Is it unique / differentiated?
* Finding a niche?
* The competitive environment poses quite a challenge
* Sourcing finance
* Start-up capital can be a problem
* Lack of trading record, banks unwilling to lend, you may be a credit risk. * Government grants for small businesses a possibility
* Establishing a loyal customer base
* Here a franchise has an advantage
* Consumer loyalty is very important for a business
* Establishing a location
* As the business is new and sales are not yet high, fixed costs need to be kept down, break even output needs to be kept down (profit can’t be made until costs are covered) * High visibility areas incur high rent : problem

* The rent is very expensive. E-commerce involves buying and selling online, which can solve the problem of high rent for a business.

Why do new businesses often fail?

* Lack of working capital
* Funds for day to day operations : Paying wages, purchasing supplies and stock * Low working capital (Money from day to day operations): Poor liquidity (Money that the business owns). Cash is a problem. * Possible solutions: cash flow forecasts, bank overdrafts. * Poor management skills

* Student work.

Changes in the business environment

* Dynamic
* Nothing is constant except change
* Competition
* Legislation
* Consumer and employment laws
* Economic Activity
* Recession, boom
* Technology
* Products can soon become obsolete.

Why do governments like entrepreneurs and small businesses?

* Employment creation
* High unemployment levels are always a...
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