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INTRODUCTION
1
TO BUSINE SS

MAN AGEMENT

1.1 What is a business?

By the end of this chap ter, you should be able to:

➔ Explain the nature of businesses and how they combine human,

physical and nancial resources to create goods and ser vices

➔ Dene primary, secondary, ter tiary and quaternary sectors

➔ Outline the nature of business acti vity in each sector and the impact

of sectoral change on business acti vity

➔ Examine challenges and oppor tunities for star ting up a business

The nature of business

A business aims to meet the needs and wants of individuals or

organizations through any of the following activities:

● Producing crops or extracting raw materials from the earth

● Creating a product

● Providing a service

Some businesses focus on one activity. For example, a business may grow

olives or manufacture transistors. Other businesses engage in multiple

activities. For example, a farm that grows olives may convert the olives

into olive oil for sale under its own label. Sometimes a business will cluster

several related activities or sometimes even engage in activities that are

completely different from each other.

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All of these businesses input resources and process them to generate the
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desired output. This is how the business adds value (sometimes referred to
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as “added value”) to the inputs. It is rewarded by gaining revenue (sales)

and/or recognition for satisfying a want or a need.

Many activities or organizations that most people would not consider to be

“a business” operate under various business principles. All organizations

must have human, physical, and nancial resources. Thus, many charities,

religious organizations (churches, mosques or synagogues, for example)

and other types of organizations (such as clubs) are in a sense a business.

Needs and wants are different. To survive, we all need the basics – food and

water, clothing and shelter – and many businesses provide for our basic

needs. Other businesses provide for our wants. Religious organizations,

charities, clubs and so on all provide services or products that people need

or want, and in that sense they are businesses.

Business activity is summarized in the ow chart shown in Figure 1.1.1.

human

goods

physical

production

nancial

services

enterprise

Resource inputs Processes to add value Product outputs

Figure 1.1.1 Summary of business activity

The resource inputs can be categorized as follows:

● Human – the right quality and quantity of people required to make the

product or provide the service. All businesses, even highly automated

ones, still require human input – even if it is only one person. Others

require many individuals, often with different skillsets.

● Physical – the right quality and quantity of materials, machinery,

and land space required to make the product or service. Even internet

businesses require some ofce space and a computer.

● Financial – the right quantity of cash and other forms of nance

required to make the product or service.

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1.1 What is a business?

● Enterprise – the least tangible input but crucially important for

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business. It is the business idea and the determination to turn that

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idea into a functioning and, ideally, thriving business. Enterprise is

sometimes referred to as “entrepreneurship”, which is a term often

associated with high-tech and cutting-edge businesses dealing with

computers, smartphones, social media, etc. But enterprise exists in

all types of business, including the everyday (such as lawn-mowing

services, laundry services or brick manufacturing).

Production processes to add value can take many forms:

● Capital-intensive processes use a large proportion of land or

machinery relative to other inputs, especially labour. Sometimes the

land or machinery may have proprietary or special qualities (land rich

in a resource, or specialized equipment with unique features), or the

land and the machinery simply cost a great deal due to the scale of the

operation (a car factory, for example).

● Labour-intensive processes use a large proportion of labour relative

to other inputs, especially in relation to land or machinery. Labour-

intensive operations may involve fairly low-skilled workers but can also

involve highly skilled employees.

Product outputs can be categorized as follows:

● Goods – these are tangible products that we can physically take

home. They might be items produced in the primary sector, such as

agricultural products or other items extracted from the environment,

or they might be things made in the secondary (manufacturing) sector,

such as an iPad or a car.

● Services – these are intangible and the buyer does not physically

take them home. They include, for example, a karate class, a medical

examination, and the international delivery of a package. Retail sales

are a service: the retailer provides the service of having an array of

products for consumers to purchase.

Business functions

All businesses, from small start-ups to huge conglomerates, are organized

along the same lines, by function – what is to be done. There are four key

functions:

● Human resources (HR)

● Marketing

● Finance and accounts

● Operations management or production

The only difference between small businesses and large ones is that the

owners of smaller businesses have to deal with these functions themselves,

whereas a larger business can afford to hire specialized managers to carry

out the functions in separate departments.

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1
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HR

HR

Finance

Business

Marketing and

organization

accounts

Finance

Business

Marketing and

organization

accounts

Operations

Operations

A small business
A large business

Figure 1.1.2 Business functions in a small business and a large business

The role of business depar tments

In larger businesses, “specialized” managers will focus only on their

function and in doing so help the business to achieve its overall objectives.

Some examples are set out below.

Table 1.1.1 Business functions

Function Role

HR Ensuring that appropriate people are employed to make the product or

service and that they are suitably rewarded for doing so. To accomplish

these goals, the HR depar tment must recruit people, train them, at

times dismiss them, and determine appropriate compensation.

Finance and Ensuring that appropriate funds are made available to make the

accounts product or service. To accomplish this goal, the nance and accounts

depar tment must forecast requirements, keep accurate records,

procure nancial resources from various providers, and ensure proper

payment for goods and services acquired to operate the business.

Marketing Ensuring that the business oers a product or service that is desired by

a sucient number of people or businesses for protable operations.

To accomplish this goal, the marketing depar tment must use

appropriate strategies to promote, price, package, and distribute the

product or service.

Operations Ensuring that appropriate processes are used in order to make the

management or product or service, and that the product or service is of the desired quality.

production To accomplish this goal, the operations management or production

department must control the quantity and ow of stock, determine

appropriate methods of production, and, in today’s competitive world, look

for ways to produce the good or service more eciently.

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1.1 What is a business?

All of these functions are interdependent. For example, if the marketing

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department determines that a product needs to be made differently

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as a result of changes in consumer taste, the operations management

or production function must redesign its processes, at least to some

degree. That redesign may require nancial resources, which the nance

department must procure. The redesign may inuence the number

and type of people working in the business, which would have to be

coordinated with the HR function.

The character of the interdependence can change over time. Initially,

businesses typically focus on survival, with HR, nance and accounts,

marketing, and operations management or production all geared towards

that end. Once a business is established in the marketplace, its priorities

may change. For example, a business may plan to diversify (produce other

goods or services), which places new requirements on each of the four

business departments. If a business is very successful, then growth and

even control of the market might become a priority, which could require

signicant modications to the different business departments.

The strength of a particular business depends on how successfully aligned

the four functions are. Is the business producing a desired good or service

for the market it is targeting? Are the right people producing the good or

service, and are those people rewarded appropriately (nancially and

non-nancially)?

Small businesses often have an advantage in that they can respond quickly

to changes in the marketplace. On the other hand, large businesses

generally have greater resources, wider reach, and more name recognition.

However, even a business dominating a market must remain vigilant. If

they become complacent, large businesses can fail.

yduts esaC

Thomas Cook

For 178 years, Thomas Cook provided

travel agency services for the British. The

company arranged individual and group

travel rst within the UK, and then to

Europe and eventually to the entire world.

However, when the internet became widely

available, traditional travel agency services

were severely threatened. Companies

offering travel services (like Expedia, Kayak,

and Travelocity) reduced the need for

traditional travel agents.

By the beginning of the 21st century,

Thomas Cook was experiencing signicant

competition from these new online booking

services. A poorly conceived merger in 2007 with MyTravel added to Thomas Cook’s problems.

Though the company tried a number of tactical moves to retain its viability, none of them seemed

to work. According to The Guardian, on the eve of Thomas Cook’s collapse, only one in seven Brits

used traditional travel agency services. Finally, in 2019, the venerable company that had created the

phenomenon of mass tourism began laying off 22,000 employees, liquidating its assets, and leaving

150,000 travellers stranded overseas.

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Primary, secondary, tertiary, and

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Key terms
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quaternary sectors

Primary sector

Traditionally, economists have grouped business activity into different

the par t of the economy

sectors, as set out in Table 1.1.2, and this activity can take place in different

engaged in extraction (such

geographic areas.

as of minerals or oil) or

Table 1.1.2 Sectors of business activity

production of raw materials

(farming, shing, forestry,

Goods Primary All raw materials are acquired in the primary sector. This can be by

raising livestock , and

extraction, mining, farming, shing, hunting, or even trapping. Today,

quarrying)
because of the scarce nature of many resources in the primary

sector or because of the potential to damage fragile environments,

Secondary sector

governments closely monitor activities in the primary sector.

the par t of the economy

Secondary In the secondary sector raw materials are processed, usually by

engaged in the production

manufacturing. Goods from the secondary sector can take many

of nished goods (ie the

forms, such as consumer durables, non-durable consumer goods,

manufacturing sector of the

and capital goods. For most of the 19th and 20th centuries, much

economy)
secondary sector production occurred in what are referred to today

as “developed” countries. Since the 1970s, however, manufacturers

Ter tiary sector

in developed countries have been facing increasing competition

the par t of the economy

from manufacturing rms located in “developing” countries and

engaged in the delivery of

“emerging markets”.

services, such as banking,

Ser vices Ter tiary All services are provided in the ter tiary sector, sometimes using

healthcare and restaurants

manufactured products. These services can be nancial, leisure,

healthcare, education, transpor t, security, and many others. As

Quaternary sector

manufacturing (the secondary sector) has shifted to developing

the par t of the economy

countries, the ter tiary sector has grown in impor tance in developed

engaged in the production,

countries. Services such as banking, insurance, transpor tation,

processing and transmission

retail and wholesale, and consultancy have become especially

of information. Whereas some

impor tant.

consider the quaternary

Quaternary This sector, a subgroup of the ter tiary sector, provides services

sector a subset of the ter tiary

that are focused on knowledge. Generally speaking, various types

sector, others emphasize that

of e-services and those involving IT, the media, and web-based

quaternary sector activities

services are considered quaternary. This sector is typical of “post-

are based on advanced

industrial” economies and, thus, many businesses in the developed

knowledge and include

world engage in quaternary activities.

information technology

services, consultancy, and

The four sectors are typically linked in what is referred to as the

research and development.

production chain or chain of production. A chain of production is the

steps through the different sectors that have to occur in order to turn raw

materials into a consumer good that is marketed.

Fishing is an example of an industry in the primary sector

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1.1 What is a business?

For example, many types of raw material (metals, rubber, materials to

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Student workpoint
make plastic and glass, etc) are extracted (primary sector) and processed

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1.1
into the materials (secondary sector) that manufacturers turn into car parts

(secondary sector). The car parts are then used on an assembly line to

Be a thinker

make cars (secondary sector). The cars are shipped (tertiary sector) to car

Think of some everyday

dealerships, which sell the cars to consumers (tertiary sector). Car dealers

products that you use and

also typically provide after-sale services (oil changes, tune-ups, and even

imagine their production

major repairs), also in the tertiary sector. Sometimes, before consumers

chain. Consider:
buy cars, they read magazines or online reports about car features and

service records. Sometimes this information is free and provided by the

● A cherry pie you

government, but in other cases this type of information is produced by

purchase

for-prot companies that sell information. This type of business is in the

● A skateboard

quaternary sector.

● A smartphone

Sectoral change

What primary, secondary,

The size of each sector of the economy may change because, just as

tertiary, and quaternary

individuals or businesses grow and develop, so too will countries.

businesses are involved

Economists usually measure the size of each sector in terms of the number

in the production,

of people employed by the industries in that sector. The traditional pattern

distribution, and marketing

is set out in Figure 1.1.3.

of these products?

Closely related to changing economies are the complexities of social contexts.

The more advanced sectors require more complex social contexts for

businesses to thrive. Thus, whereas raw material extraction is often Less developed

possible with relatively few skilled workers and large numbers of low- (low income) economies

skilled workers, the quaternary sector relies both on highly skilled

primary

workers (producers and managers of information) and consumers –

secondary

people and businesses that want and have the ability to make use of

ter tiary

advanced information. Thus, more developed economies typically see

quaternary

social technologies and economies advance in tandem: as the economy

develops, social technologies improve; as social technologies improve,

economies develop.

Developing

However, developments are not linear. Technological innovation in (middle income) economies

one area (for example computerized word processors) and its related

primary

workers (individuals knowledgeable about operating word processors)

secondary

can make other technologies and occupations obsolete, such as

ter tiary

typewriters and typists. Thus, while some occupations become obsolete,

quaternary

new ones emerge (which are often perceived as “high skill”).

Businesses that can anticipate or adapt to the changing environment can

Developed
do well, even in industries that are perceived as “in decline”. In general,

(high income) economies

developed economies have moved away from the primary sector. In

both Canada and Australia, however, two primary sector industries have

primary

done remarkably well: organic farming in Canada and wine production

secondary

in Australia. Another example is Germany: as one of the most

ter tiary

developed economies of the world, it has a strong quaternary sector.

quaternary

However, German businesses have retained two of their long-standing

strengths: high-quality engineering and a strong secondary sector.

Figure 1.1.3 Size of sectors

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The process of shifting from one proportional weighting of sectors in an

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economy to a different weighting (shifting from an economy based on the

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primary sector to an economy based on the secondary sector, for example)

can produce strains on resources, such as human resources. Secondary

sector businesses may require specialist skills that may be in short supply.

Financial resources, too, will be diverted from one sector to another.

Finally, an economy based mainly in the tertiary or quaternary sectors will

require fewer physical resources (they will not be needed as much in the

production of intangible services as for tangible goods).

Other strains can occur as well. As an economy shifts to the secondary

sector, legislation and other protections against environmental damage

are often weak, and manufacturing rms in developing countries

often do more damage to the environment than manufacturing in

developedeconomies.

Challenges and opportunities for starting

up a business

Reasons for star ting up a business or enterprise

People start businesses for many reasons, as summarized in Table 1.1.3.

Each of these reasons presents an opportunity.

Table 1.1.3 Reasons to star t a business

Rewards Working for someone else means that you do not get to keep

all the rewards yourself. Although some criticize this aspect of

capitalism, one central element is that those who put their capital

at risk (the business owners) get the rewards, whereas those

who do not put their capital at risk (employees) receive wages or

salaries that are typically less than the return on capital is to the

owners. Many millionaires own “boring” small businesses.

Independence Working for yourself means that you are your own boss and not

following someone else’s rules. Individuals with an entrepreneurial

spirit sometimes feel constrained by bosses, policies, and

procedures in large organizations. Star ting your own business

means that you can set and change the policies and procedures

as you see t.

Necessity Sometimes businesses are star ted by individuals whose positions

were made redundant or who could not nd work . The necessity of

having an income leads them to star t a small business.

Challenge Some people just want to see whether they can “make it”

themselves. Star ting a small business typically requires one

person to perform all functions of the business (HR, marketing,

accounts and nance, and operations management or

production). Over time, if the business is a success, the business

owner then has to learn new skills as his or her role changes to

accommodate a larger and more complex operation.

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1.1 What is a business?

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Interest Many interesting businesses are set up by people with a passion

for something who want to just keep doing what they enjoy doing.
C oncep t

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The business producing Hawaiian Tropic suntan lotion was star ted

by a high-school chemistry teacher who liked spending time at the

CRE ATIVITY

beach. Many specialty shops – guitar stores, lamp stores, ballet

clothing stores, rare books stores, etc – allow their owners to work Creativity can be dened as the

in an area for which they have a passion. process of generating new ideas,

or of considering existing ideas

Finding a gap Businesses may see or nd an untapped oppor tunity in order to

from new perspectives. Setting

achieve “rst-mover advantage”. Sometimes businesses, large or

up a business involves creativity

small, stumble into oppor tunities that they were not looking for.

in numerous ways. For example,

The idea of Post-its, one of the most successful products of the 3M

entrepreneurs must be creative,

Company and which revolutionized interoce communications,

with the initial business idea itself,

was stumbled across by accident by Dr Spender Silver, a scientist

and also to prepare a business

working at 3M.
model with limited resources,

Sharing an idea If you really believe in something, you may want to sell the idea to to get the initial nance for their

others. Yoga studios, for example, are typically owned by people star t-up costs, or even to invent the

name of the business.

who themselves do yoga and want to spread the idea that yoga

enhances quality of life. Marketing the idea helps their business,

Can you think of other areas where

but often the original motivation to open a yoga studio is to spread

creativity is a key element of

the idea. entrepreneurship? This may give

you ideas for your IA.

The process of starting up a business

Two features are common to all successful start-ups:

● The business idea

● Planning

The business idea refers to the fundamental activity that the business

will do, whether it is something basic (such as a house-cleaning service)

or something more sophisticated (such as manufacturing). The business

idea can be market-driven – that is, determined by the needs of the market

or product– or service-driven, which means that in some sense the

entrepreneur or business must convince others that the product or service

is worth purchasing.

Regardless of whether the new business is basic or sophisticated, market- or

product-driven, the entrepreneur must have a basic business idea. Then

the entrepreneur should carefully plan the business in order to reduce the

many risks associated with starting up a business.

4 Establishing

1 Organizing 2 Researching 3 Planning 5 Raising the 6 Testing the

legal

the basics the market the business nance market

requirements

Figure 1.1.4 Steps for star t-ups

1. Organizing the basics. The entrepreneur starting a new business

must address several basic questions: Where is the business going to

be based? What will the entrepreneur call the business? What will

be its legal structure? What will be its operational structure? Is there

a sufcient business infrastructure to make the business feasible –

suppliers, potential customers, and government services?

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2. Rening the business idea through market research. Once the

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entrepreneur has determined that, in broad outline, the business concept

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is feasible, they should do market research to determine how the business

will distinguish itself from others in the market. Rarely is a gap in the

market obvious. If that were the case, it would be easy to start a successful

business. However, new businesses have very high failure rates. While

precise rates of failure are difcult to determine, as many business are

so small and so short-lived that they elude detection in surveys, failure

rates in the United States, for example, are between 50 and 80% in the

rst four years of operation; 25% fail in the rst year alone. In Europe,

another developed economy, failure rates are also high.

Thus, once the basic business idea is determined, the business must

then do market research to determine the precise market segment it

will target, and the entrepreneur must answer some basic questions:

How will they conduct market research? Who will be the target

market? Can the new business test its concept? What will be its “unique

selling proposition” (USP)? How will the business communicate with

the market?

Let’s consider the example of the entrepreneur who wants to enter the

grocery business. The idea is very attractive. After all, food is one of the

basic necessities of human existence. However, market research may be

very revealing. A market may have too many competitors, or a segment

of the grocery market (high volume, low cost, for example) may be

saturated. Market research might reveal that a small niche market (such

as for organic products or specialized meats) is where there is a gap in

the market. Thus, researching the market has narrowed and rened

the basic business idea (a grocery store) to a signicantly more precise

idea: a speciality grocery store that offers either organic products and/or

specialized meats.

Student workpoint

1.2

Be a researcher

Imagine that you are an

Market research could lead an entrepreneur to sell only local, organic groceries
entrepreneur seeking to

start a for-prot social

3. Planning the business. Once the concept has been narrowed, the

enterprise. Develop a

entrepreneur should write a business plan, which is a document that

basic business plan for a

addresses all the issues that need to be planned before operations begin.

business with which you

The business plan will be of use to multiple stakeholders, especially

could make a prot and

potential owners of the business and nancial institutions (banks,

full a social purpose.

lending companies) that may provide capital.

http://www.statisticbrain.com/star tup-failure-by-industry/

10

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1.1 What is a business?

The composition of the business plan requires the entrepreneur or

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people starting the business to think through most of the specic

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elements of how the business will operate. For investors and nanciers,

the business plan can provide some condence as it indicates that the

business has foreseen potential issues and is trying to address them.

4. Establishing legal requirements. All businesses operate in countries

that have laws that can inuence the legal organization of the business,

its labour practices, and its operational practices, as well as determine

tax obligations. In most countries, businesses must be registered, even

if they are sole traders (which are not legally separate entities from the

operator of the business). Other types of business – corporations, for

example – are legal entities that must be established in accordance with

the laws of the host country. In many countries, businesses must have

specic licences and/or pass certain inspections before they can operate.

These legal requirements can be extensive and costly.

Finally, the business must investigate the tax requirements of the

country. These taxes would include not only income taxes, but also

various sorts of payroll tax that must be paid, such as for employees’

pensions from the government, unemployment and sickness benets,

or even medical insurance.

5. Raising the nance. Once the basic business idea has been rened,

abusiness plan written, and legal requirements met, the business must

then raise nance – money – to get the business started and to support

the business until it can sustain operations from prots, which can

often take years. (Even if the business is protable from the beginning,

its cash requirements may be greater than the prots.) Any investor or

Student workpoint
lender must have condence in the accounting and auditing procedures

1.3
of the business. Who will prepare accounts in the business and who,

external to the business, will verify that they are accurate?

Be a thinker

The business must attract start-up monies. Some or all may come from Choose one of the

the entrepreneur, or other investors may be required. When someone following businesses:

provides equity capital, it means that person is a partial owner of the

● Local delicatessen

business. Most entrepreneurs who start up a business do not want to

and café

lose control of the business, so some of the capital will be in the form of

● Manufacturer of a
investment – selling shares – but some of the capital may be loans to the

new energy drink

business. Who will the lenders be? What kind of terms will they want?

● Travelling hairdresser
6. Testing the market. The nal stage is the launch of the business.

and beautician
How will that occur? Will the business begin on a small scale (a

“pilot”) to test consumer reaction? What will the criteria for success

● After-school sports club

of the pilot be? In some types of business, especially capital-intensive

Work in groups to discuss

manufacturing, the initial launch is extremely expensive and the rm

the challenges and

can respond to market reactions in only a limited and slow way. Other

opportunities that you

types of business – restaurants, for example – can often respond quickly

would face when opening

and easily, by changing the menu, changing recipes, or changing other

up such a business.
aspects of the business.

Write down at least

The purpose of testing the market is to verify that the business idea will

ve challenges and ve

be received well enough by consumers to suggest that the business has

opportunities.

a reasonable chance of success.

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Challenges that a new business may face

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Even when the six steps outlined above are followed, start-ups still have
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a high probability of failure. Businesses that fail often do so because of

what they did before the business even opened. For example, the business

had problems in basic organization, its products or services were based

on insufcient or poor-quality market research, planning was poor, it

was unable to convince investors or lenders, legal requirements were not

properly satised, accounts were poorly kept and/or the business had

insufcient funds to operate, or the launch was unsuccessful and sales did

not materialize. All of these problems can cause a business to fail.

If a start-up has a good business idea and develops a strong business

plan, the business may still fail. Sometimes failure results from a lack of

Student workpoint recognition of the business name in the marketplace. Other times failure

1.4 stems from the inability to recruit labour with the right skills. In other

cases, it is because the business cannot accurately anticipate the reactions

Be an inquirer

of competitors (and certainly a start-up cannot control the actions of its

Go to Kiva or one of
competitors). New businesses generally have less capital to rely on if the

the other micronance

economy weakens. When a business is put under stress, often problems

lending sites. Find three

between managers or executives surface which would not be present if

businesses that you

the business were operating successfully. Therefore, many things outside a

nd interesting and

business’s control can cause it to fail.

compelling. What is it

Table 1.1.4 Reasons why star t-ups fail

about these businesses

that interests you? Why

Organization ● The location of the business was inappropriate.

do you think they could

● The structure of the business did not work .

be successful? Would you

● Supplies were unreliable.

consider making a small

donation to one of these Market research ● The market research was poor.

businesses?
● The target market wasn’t appropriate.

● The test was too optimistic.

● Channels of communication were weak .

TOK discussion

Business plan ● The business plan did not convince.

1. Is business management
● Goals were too vague or contradictory.

an ar t or is it a science?

Legal requirements ● Labour laws were not addressed.

2. As a business can

● Registration was too dicult.

operate in more than one

● Tax obligations were not addressed.

sector, why do we need

the categories called Finance ● The accounts were not kept properly – cash ow,

“sectors” (primary sector, in par ticular, was a problem.

secondary sector, etc)?

● Raising star t-up capital was too dicult.

3. To what extent can

● Raising medium-term to long-term nance was dicult.

entrepreneurs know in

The market ● The launch failed.

advance the challenges

● The pilot was inconclusive.

they may encounter when

● Success was limited – the product failed to inspire.

star ting up a business?

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1.1 What is a business?

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Revision checklist

✓ Businesses combine human, physical and nancial resources to produce

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goods and services.

✓ Human resources are the people needed to carry out the aims of the

organization. Physical resources include buildings, machinery and raw

materials. Financial resources include the money needed to make the

product or service.

✓ Business activity is categorized into one of four main sectors:

✓ The primary sector generally involves the acquisition of raw

materials.

✓ The secondary sector involves processing raw materials, usually to

create a product.

✓ The tertiary sector is where most service businesses sit.

✓ The quaternary sector provides services that focus on knowledge.

✓ Business offers many opportunities, which is why so many people start

businesses. Steps involved in starting up a business include researching

the market, planning the new business, establishing legal requirements,

raising nance, and testing the market.

✓ A new business might face challenges at each stage. The business will be

able to control some of the challenges but not all of them.

Practice question

To answer the question below effectively, see Unit 6 pages 398–402.

Starbucks

Starbucks, a large coffee store chain with its headquarters in the United

States, has been protable for years and thus has considerable cash and

other resources. Starbucks wants to open coffee shops in India, which

has a large population and is a potentially large market. The laws of India

regarding foreign businesses operating in the country present an obstacle to

Starbucks.

To get around this legal obstacle, Starbucks is considering working with

Tata Coffee, a major Indian company that has its own coffee shops and is

involved in aspects of the coffee business besides retail.

In addition to coffee shops, Tata Coffee also owns coffee farms where coffee

is grown. Its labour force on these farms is trained and knowledgeable.

a) With reference to Starbucks and Tata Coffee, explain the role

of businesses in combining two of the following: human

resources, physical resources, or nancial resources to create

goods and services. [4 marks]

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