What is enterprise?

Enterprise means spotting a gap in the market and taking the risk to set up a business to fill it. An entrepreneur is the person who takes on this financial risk in return for the reward of profit. Being enterprising is not just about starting new firms - it also means being innovative inside an existing business, which is called intrapreneurship.

Why new business ideas come about

Business ideas usually come from spotting a problem, a change in technology, or a change in what customers want. Market mapping helps entrepreneurs see gaps by plotting existing products against two features, such as price and quality, to find an unfilled space.

Risk and reward

Entrepreneurs take on financial risk because they may lose their own money if the business fails. In return they can earn profit, independence, and job satisfaction. Common risks include cash flow problems, competition, and simply misjudging customer demand.

Enterprise skills

OCR expects you to know the key skills of a successful entrepreneur: innovation, risk-taking, determination, and good communication. You should also know they need to be able to plan, negotiate, and manage people even with limited resources.

Business aims and objectives

Aims are the long-term goals of a business, such as survival, profit, growth, or market share. Objectives are the smaller, specific steps taken to reach those aims - often written using SMART targets (Specific, Measurable, Achievable, Realistic, Time-bound). A common mistake is confusing aims with objectives - aims are the destination, objectives are the milestones.

Stakeholders

Stakeholders are individuals or groups with an interest in the business, such as owners, employees, customers, suppliers, the local community, and the government. Different stakeholders often want different things - for example, owners want profit while employees want higher pay - which can cause conflict.

Adding value

Adding value means making a product more desirable so customers will pay more for it than the cost of the raw materials. Methods include branding, convenience, unique design, and quality of service. Adding value is central to why a business idea can succeed even in a crowded market.

Common exam mistakes

Students often forget to link answers back to the specific business in the case study. Always explain why a skill or objective matters for that business, not just what it means in general. Also remember profit is not the only aim - growth and survival matter too, especially for new start-ups.

What marketing actually does

Marketing identifies and satisfies customer needs profitably. It is not just adverts - it covers researching customers, choosing target markets, and designing the whole offer using the four Ps.

Market research

Businesses use primary research (data collected first-hand: surveys, questionnaires, interviews, focus groups, observation) and secondary research (existing data: government stats, trade journals, competitor websites, market reports). Primary research is more relevant and up to date but costs more and takes longer. Secondary research is cheap and quick but may be out of date or not specific enough.

Market segmentation

Markets are split into segments so a business can target its offer precisely. Common bases: age, gender, income, location, lifestyle. Choosing the right segment shapes the whole marketing mix.

Types of market

A niche market serves a small, specific segment with less competition but limited size. A mass market targets a large segment with wide appeal, often more competition and lower prices. Businesses may also compete on price (undercutting rivals) or on product differentiation (unique features, quality, branding) to gain a competitive advantage.

The marketing mix (the 4 Ps)

• Product: features, quality, design, branding, USP (unique selling point) that meets customer needs.
• Price: strategies include penetration pricing (low price to enter a market), price skimming (high price for a new innovative product), competitive pricing, and psychological pricing (e.g. £9.99).
• Place: how and where the product reaches the customer - retailers, online, wholesalers, distribution channels.
• Promotion: advertising, sales promotions, sponsorship, direct marketing, and social media/influencer marketing used to inform and persuade customers.

Product life cycle

Products move through introduction, growth, maturity, and decline. Sales and profit change at each stage, so the marketing mix (especially price and promotion) is adjusted - for example heavy promotion at introduction, extension strategies (new features, new markets, rebranding) at maturity to delay decline.

Common mistakes

• Confusing primary and secondary research - remember primary is collected first-hand by the business itself.
• Forgetting that market segmentation must link back to the marketing mix in extended answers.
• Mixing up penetration pricing (low, to gain market share fast) with price skimming (high, to maximise profit early on a new innovative product).
• Not naming all 4 Ps when asked to evaluate a marketing mix - always cover product, price, place and promotion together.

Why businesses need finance

Businesses need finance for two main reasons: to start up (buying premises, equipment, stock) and to grow or survive (expansion, new products, covering cash-flow gaps). Finance can be short-term (day-to-day, under 1 year) or long-term (over 1 year, for big investments).

Internal sources of finance

These come from within the business, so no interest is paid and no outside control is given up.

• Personal savings: the owner's own money, common for sole traders starting out
• Retained profit: profit kept in the business rather than paid to owners
• Sale of assets: selling unused equipment or property for cash

The main drawback is that internal finance is often limited in amount, especially for a brand-new business with no profit history.

External sources of finance

These come from outside the business.

• Bank loans: a lump sum repaid with interest over an agreed term, good for large one-off purchases
• Overdraft: allows a business to withdraw more than is in its account, useful for short-term cash-flow gaps but has high interest rates
• Share capital: money raised by selling shares in a limited company; shareholders become part-owners
• Venture capital: investment from specialist investors in exchange for a share of the business, often for high-growth startups
• Crowdfunding: raising small amounts from many people, usually online
• Trade credit: buying goods now and paying the supplier later (commonly 30 days), which helps cash flow but must be repaid on time to protect supplier relationships

Choosing the right source

Exam answers should link the source to the business context: a sole trader needing £500 for stock would use retained profit or an overdraft, not share capital (only limited companies can sell shares). A large company building a new factory would more likely use a bank loan or share capital because the amount needed is large and long-term.

Common mistakes

• Don't say 'the bank gives free money' — loans always carry interest, which is a cost.
• Remember only limited companies (Ltd or Plc) can raise finance through share capital, not sole traders or partnerships.
• Don't confuse a loan (fixed lump sum, fixed repayments) with an overdraft (flexible, short-term, higher interest rate).
• Always match the source to the amount needed and how quickly it must be repaid — this is what examiners reward with application marks.

What operations means

Operations is the part of a business that makes the product or delivers the service. It covers production methods, quality, procurement (buying supplies) and the supply chain that gets goods to customers.

The three production methods

• Job production: one-off, unique items made to order (a wedding cake, a bridge). High quality and flexible, but slow and expensive per unit.
• Batch production: groups (batches) of identical items made together, then the process switches to a different batch (a bakery making 50 loaves, then 50 buns). Flexible and cheaper than job, but changeover between batches wastes time.
• Flow production: continuous, standardised production on an assembly line (cars, cans of drink). Very high output and low unit cost, but huge set-up cost and little flexibility.

Choosing a method

• Depends on the level of demand, how much customisation customers want, and how much capital the business has.
• Common mistake: students say 'flow is best' — it is only best for high, constant demand of a standard product. For low demand or bespoke orders, job production is better.

Procurement and supply chain

• Procurement = sourcing and buying the raw materials, parts or stock a business needs.
• The supply chain is the full journey: raw materials to supplier to manufacturer to wholesaler/retailer to consumer.
• Choosing suppliers: compare price, quality, reliability (delivery on time) and how far/fast they can deliver.

Stock control

• Buffer stock (also called safety stock) is the minimum stock level kept to avoid running out.
• Just-in-time (JIT): stock arrives exactly when needed, minimising storage costs, but risky if a supplier delay stops production ('stockout').
• Just-in-case (JIC): stock is bought ahead and stored as a buffer, safer but ties up cash and needs storage space (a cost).
• Common mistake: mixing up JIT and JIC — JIT means low/no buffer stock; JIC means holding a buffer.

Quality

• Quality control: checking output at the end of production, usually by a separate inspector — catches faults but wastes materials on faulty items already made.
• Quality assurance: building checks in at every stage of production so everyone is responsible for quality as they go — prevents faults happening, seen as best practice.
• Poor quality causes: wasted materials, returns/refunds, damaged reputation and lost customers.

Why operations matters

Good operations management keeps unit costs down, quality up and customers supplied reliably — this is a key way a business builds competitive advantage.

Why human resources matters

Human resources (HR) is about getting the right number of people, with the right skills, in the right jobs, at the right time. Good HR helps a business hit its objectives; poor HR leads to high staff turnover, low motivation and rising costs.

Organisational structures

• A hierarchy shows the chain of command, from the top (owner/directors) down to shop-floor workers.
• Span of control = the number of people directly managed by one person. A wide span means fewer levels (flat structure); a narrow span means more levels (tall structure).
• Chain of command = the route through which instructions pass down the hierarchy.
• Delayering removes a layer of management to cut costs and speed up decisions, but can increase workload and reduce promotion chances.
• Centralised structures keep decisions at head office; decentralised structures let local branches decide. Centralised gives consistency; decentralised allows faster, locally relevant decisions.

Recruitment and selection

• Internal recruitment fills a job from within the business (quicker, cheaper, motivates staff, but limits new ideas).
• External recruitment fills a job from outside (brings fresh skills and ideas, but is slower and costlier).
• The process: identify the vacancy, write a job description (duties) and person specification (skills/qualities needed), advertise, shortlist, interview, select.

Training

• Induction training introduces a new starter to the business, its people and procedures.
• On-the-job training happens at the workplace, often shadowing a colleague (cheap, disrupts production a little).
• Off-the-job training happens away from the workplace, e.g. a college course (higher quality, but costs more and the worker is absent).

Motivation in the workplace

• Financial methods: wages (paid per hour), salaries (fixed annual amount), commission, bonuses, profit sharing.
• Non-financial methods: praise, promotion, more responsibility, better working conditions, job rotation.
• Motivated staff tend to be more productive and produce higher-quality work, which reduces waste and improves customer service.

Common mistakes to avoid

• Don't muddle job description (the duties of the job) with person specification (the qualities of the ideal candidate).
• Don't say delayering always saves money with no downside — remaining staff often take on extra work and stress.
• Remember span of control and chain of command are different things — one is the number of people managed, the other is the path instructions travel.
• Always link the HR method back to the specific business context in exam answers — generic answers score fewer marks.

Why businesses exist

A business takes inputs (people, materials, money, time) and turns them into outputs (goods or services) that customers want. The main purpose is usually to make a profit, but some organisations are not-for-profit, such as charities, co-operatives and social enterprises, which still need income to survive but reinvest surplus into their cause rather than paying it to owners.

Business ownership

• Sole trader: one owner, unlimited liability, keeps all profit, easy and cheap to set up.
• Partnership: 2 or more owners sharing profit and unlimited liability (unless a Limited Liability Partnership).
• Private limited company (Ltd): shares sold privately, owners have limited liability, must file accounts at Companies House.
• Public limited company (plc): shares sold on the stock exchange to the public, minimum share capital of £50,000, limited liability.

Limited liability means owners only lose what they invested, not their personal assets, if the business fails.

Stakeholders

A stakeholder is any person or group affected by, or with an interest in, a business's activities: owners/shareholders, employees, customers, suppliers, the local community, government and pressure groups. Stakeholders often have conflicting objectives, for example employees want higher wages while shareholders want higher profit, so businesses must balance competing interests.

The external environment (PESTLE-style factors)

• Technological change: new tech can cut costs or make products obsolete.
• Legislation: employment law, consumer law and health and safety rules that businesses must follow.
• Economic climate: changes in interest rates, exchange rates, inflation and unemployment affect spending and costs.
• Competition: rival businesses affect pricing and market share.
• Ethical and environmental issues: businesses face pressure to trade fairly, reduce waste and cut their carbon footprint.

Globalisation and ethics

Globalisation means businesses increasingly trade, source materials and compete internationally, aided by improved transport and digital communication. This creates opportunities (bigger markets) but also risks (currency changes, import tariffs, cultural differences). Ethical trade means treating stakeholders fairly, for example paying suppliers fairly (Fairtrade) and not exploiting workers, even where it costs more than the cheapest option.

Common mistakes

• Do not say limited liability means 'no risk' — owners can still lose their investment.
• Do not confuse Ltd (private, cannot sell shares publicly) with plc (public, can sell shares on the stock exchange).
• Remember stakeholders are not just customers and owners — include employees, suppliers, government and community.
• Ethical and profitable are not opposites; many businesses use ethics as a selling point.