DQM Basic Units

Entrepreneurship flashcards

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What is an entrepreneur, and how does the role differ from a manager's?

An entrepreneur identifies a business opportunity, organises the resources (capital, labour and materials) needed to pursue it, and bears the risk of the venture in the hope of a return. A manager runs an existing operation but did not necessarily create or risk it.

How does entrepreneurship differ from self-employment?

Entrepreneurship: identifying, evaluating and exploiting a business opportunity, usually with growth ambition and risk-taking. Self-employment: working for oneself rather than an employer, which may or may not grow beyond the owner's own labour. Every entrepreneur is self-employed at the start, but not every self-employed person is building a growth-oriented enterprise.

When does a business idea become a business opportunity?

Only once it is shown to meet a real, sufficiently large market need at a cost the entrepreneur can profitably meet. Not every idea clears that bar, which is why evaluation follows idea generation.

What are the five criteria for evaluating a business idea?

Market demand: is there a real, sufficiently large need? Feasibility: can it be delivered with the resources available? Profitability: will revenue exceed cost? Competition: how saturated is the market? Risk: what could make it fail, and how badly?

Which forms of business expose the owner's personal assets to the business's debts, and which protect them?

Exposed (unlimited liability): the sole proprietor and the partners in an ordinary partnership. Protected (limited liability): private and public limited companies, which are separate legal entities, so members are liable only for any amount unpaid on their shares.

How should an entrepreneur match finance to its purpose, and weigh a loan against an investor?

Fund long-term assets such as equipment with long-term money, and short-term needs such as stock with short-term money. A loan keeps the owner in full control but must be repaid however the business performs. An investor avoids repayment but takes a share of ownership and future profit.

What are McClelland's three needs, and which is typical of entrepreneurs?

Achievement, affiliation and power. Entrepreneurs typically score high on need for achievement: they seek challenging but attainable goals and want prompt feedback on their progress.

What are the four types of innovation?

Product: new or significantly improved products. Process: a better way to produce or deliver an existing product. Market: reaching a new customer segment or geography. Business model: changing how the business creates and captures value.

What are the six components of a business plan?

Executive summary, business description, marketing plan, organisational/management plan, production/operation plan and financial plan.

How are break-even units and break-even revenue worked out?

Contribution per unit = selling price - variable cost per unit. Break-even units = fixed costs / contribution per unit. Break-even revenue = break-even units x selling price. Below break-even the business makes a loss; above it, each extra unit adds its contribution to profit.

What roles does an entrepreneur play in a business?