1.3 Enterprise, Business Growth and Size - IGCSE Business Studies

Summary

This video from Cents Business explores the key elements of entrepreneurship, including the characteristics of successful entrepreneurs, the importance of business plans, and the various types of business growth. It discusses internal and external growth strategies, such as mergers and takeovers, and highlights the reasons some businesses remain small. The video also addresses common causes of business failure, including poor management, rapid expansion, and inadequate financial planning, offering valuable insights for aspiring entrepreneurs seeking to navigate the complexities of starting and growing a business.

Takeaways

• 😀 Entrepreneurs organize, operate, and take risks for new business ventures, requiring traits like creativity, optimism, and effective communication.
• 📄 A business plan is essential for documenting objectives and operations, which helps guide entrepreneurs and motivate employees.
• 🏢 Businesses vary in size, from single-owner entities to those with multiple shareholders, and can be classified based on several factors such as employee number and output value.
• 📈 Business growth can occur internally (expanding existing operations) or externally (merging or taking over other businesses).
• 🔄 Internal growth is exemplified by opening new branches, while external growth involves mergers and acquisitions, classified into horizontal, vertical, and conglomerate integrations.
• 🤝 A horizontal merger combines firms at the same production stage in the same industry, reducing competition and increasing market share.
• 🔗 Vertical mergers involve firms at different production stages, allowing for better supply control and profit absorption.
• 🌍 Conglomerate mergers diversify business activities, spreading risk across different industries and enhancing innovation through idea transfer.
• ⚖️ Not all businesses aim for growth; some remain small due to industry type, market size, or the owner's preference for personal engagement.
• 🚫 Common reasons for business failure include poor management, overexpansion, failure to adapt to market changes, and inadequate financial management.

Q & A

What is an entrepreneur?

An entrepreneur is a person who organizes, operates, and takes risks for a new business venture, bringing together various factors of production to create goods or services.

What are some characteristics of successful entrepreneurs?

Successful entrepreneurs are typically risk-takers, creative, optimistic, self-confident, innovative, independent, effective communicators, and hardworking.

Why is a business plan important for entrepreneurs?

A business plan documents the business objectives and operations, helping owners manage their business effectively, maintain focus on their mission and vision, and improve chances of securing loans.

How can businesses be classified by size?

Businesses can be classified based on the number of employees, value of output, value of sales, value of capital employed, and profits, although these methods have limitations.

What are the two main ways a business can grow?

A business can grow internally by expanding its existing operations, or externally through mergers or acquisitions with other businesses.

What is a horizontal merger?

A horizontal merger occurs when two firms in the same industry and at the same stage of production combine, reducing competition and achieving economies of scale.

What is vertical integration in business?

Vertical integration involves merging with or acquiring firms at different stages of production within the same industry, which can be backward (suppliers) or forward (retailers).

What is a conglomerate merger?

A conglomerate merger occurs when a firm merges with or acquires a business in a completely different industry, allowing for diversification and risk spreading.

Why do some businesses choose to remain small?

Businesses may remain small due to the nature of their industry, limited market size in their area, or the owners' preference for personal contact with employees and customers.

What are common reasons for business failure?

Common reasons for business failure include poor management, overexpansion, failure to adapt to changing customer demands, and poor financial management leading to cash shortages.