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2. Understanding Customer Needs
Topic 1.1: Understanding
customer needs
What the syllabus says…
• Customer needs are central to starting a business
•How to collect and interpretprimary and secondary market research in the context of starting a new business
• The difference between qualitative and quantitative research data
• The value of market knowledge through direct customer contact
Understanding Customer Needs
Customer focus is crucial
What the syllabus says…
- How to analyse customer buying habits and preferences
- How businesses can identifymarket segments
- How businesses can map theirmarket to set out the keyfeatures of the market theyare planning to operate in andidentify a market gap
Topic 1.1: Market Mapping
Market Mapping
Segmentation
What the syllabus says…
- That initial planning to setup a business will require ananalysis of the competitors in the market
- How to analyse competitorstrengths and weaknesses
- Comparing a business offering with that of its rivalsenables an entrepreneur tospot further opportunities
Topic 1.1: Analysing the competition
CompetitionWhat do they have/do better
than you????
• Product Range
• Quality
• Design
• Selling experience
• After-sales service
• Price
• Brand image
• Suppliers
What the syllabus says…
- The meaning of the term ‘added value’
- Its importance in business survival and success.
- The main sources of added value * Convenience * Speed* Branding* Quality* Design,* Unique selling point
Topic 1.1: Adding Value
Added Value
Sources of added value:
• Quality
• Design and formula
• Convenience
• Speed and quality of service
• Branding
• Unique selling point
Adding value = Business survival & success
What the syllabus says…
The principles of franchisingas it applies to small businessstart-up.
- The advantages and disadvantages of using a franchise as a means of starting a new business.
- Assess franchising against otherbusiness start-up options.
- How to identify a suitable startup location
Topic 1.1: Franchises
What is Enterprise?
“A willingness by
an individual or a
business to take
risks, show
initiative, and
undertake new
ventures”
What the syllabus says…
- Enterprise involves:- Taking risks, - Showing initiative- Willingness to
undertake newventures
- The difference between providing goods or a service
Topic 1.2 – What is Enterprise?
Thinking Creatively
=Examples of
competitive
advantage:• Have a better
product
• Better way of
producing = lower
costs/quality
• Give customers
better service
• Better at selling
• Idea that is unique
What the syllabus says…
- Why thinking creatively isimportant in developing bothcompetitive advantage and anew business
- The role of lateral thinkingand deliberate creativity indeveloping new business ideas
- Edward De Bono’s Six Thinking Hats also works well for assessing new business ideas
Topic 1.2: Thinking creatively
What questions do Entrepreneurs ask?
What the syllabus says…
• The important questions to ask when coming up with new
• Business ideas such as Why? Why not? What if?
• The concept of looking beyond the obvious, asking ‘What if?’
• Judging the value of outcomes.
Topic 1.2: What questions
do Entrepreneurs ask?
Innovation and Invention
What the syllabus says…
•How new business ideas come about
•Understand the difference between innovation and invention
•Innovation means bringing a new idea to the market
•Explain steps an entrepreneur can take to protect their idea through patents and copyright
Topic 1.2: Innovation & Invention
Taking a calculated risk
EXAMPLE: What is the risk of a child getting burned from a cooking activity?
ANSWER: If a 2 year old is allowed to use the cooker = very high i.e. 50%
chance, if the cooker is in a separate room and children are not allowed in
there = 0% chance
What the syllabus says…
• Understand the principle of taking a calculated risk
• Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome and viability of a start-up
• To see mistakes as part of the process of learning to succeed
• The idea is to encourage thought about the downsides and upsides, as well as the chances of them occurring. ‘Dragon’ venture capital investors may look for huge potential upsides, whereas many entrepreneurs want a safe way of making a living, not a fortune.
Topic 1.2: Taking a calculated risk
Important Enterprise skills
There are many skills that an entrepreneur needs to be successful. 4 of them are:
Seeing
opportunitiesEffective
planning
Thinking ahead Drive and
determination
Making connections
What the syllabus says…
- Explain the importance of:- Planning- Thinking ahead- Seeing opportunities, - Having drive and
determination
- Making connections, using mind maps to collect thoughts and see opportunities
Topic 1.2: Other Enterprise Skills
Objectives When starting up
What the syllabus says…
• financial objectives: the range of motives for wanting to start a business including profit or income, financial security and wealth
• Non-financial objectives: personal satisfaction, challenge, to help others (starting a charity)
Topic 1.3: Objectives when starting up
Qualities shown by entrepreneurs
- Determination
- Initiative
- Willingness to take risks
- Decision making
- The ability to plan
- Persuasion
- Leadership
- Being lucky
What the syllabus says…
• Determination and initiative
• The willingness to take risks and make decisions
• The ability to plan and persuade
• Showing leadership
• The role of luck in business success/failure
Topic 1.3: Entrepreneur Qualities
Revenue, Costs & Profits
Examples of fixed costs:
•Loan repayments
•Salaries of permanent
workers
•Website maintenance
•Insurance
•Rent of premises
Examples of variable
costs:
•Fuel
•Raw materials
•Staff wages (paid by hour)
•Electric (if used to make
product)
TOTAL COSTS FORMULA: Fixed costs + Variable costs
Profit =
Revenue – Costs
Total revenue =
Price per unit X
Quantity sold
Revenue, Costs & Profits
What the syllabus says…
• How businesses forecast sales volumes and selling prices to estimate revenue
• How to determine fixed and variable costs
• Understand the difference between price and cost and the concept of profit
• Explain how profit is the difference between the total revenue generated over a period and the total costs
• The impact of profits and losses on a business and its owners
1.3: Revenue, costs and profit
Forecasting Cash Flow
Factors that can affect cash flow:
• Number of sales a business makes
• Costs can change
• Credit terms can change
• Stock levels (stock sat on shelves is
called “dead money” until it is sold)
Jan
InflowsCapital
Sales
Total Inflows
Payments/OutflowsSupplies
Mortgage
Electricity
Equipment
Other expenses
Total Outflows
Net Cash Flow (= Inflow – outflow)
Opening Balance(= balance at start of month)
0
Closing Balance(= net cash flow + balance at start of month)
Inflows:
- own money
- Loan
- sales Inflows:
- Wages
- Equipment
- Gas,
electricity
- Interest of
loans
What the syllabus says…
• Understand the role and importance of cash to the operation of a business and to its long-term success
• How to estimate monthly cash inflows and outflows to determine net and cumulative cash flows
• How cash flows are affected by stock levels and credit terms
• Explain how cash flow problems can lead to business failure (insolvency)
• Appreciate the role and importance of a business plan in minimising the risk involved
1.3: Forecasting cash flow
The Business Plan
A business plan is a written
document that describes
your business. It covers
objectives, strategies, sales,
marketing and financial
forecasts.
A business plan helps you
to:
• clarify your business idea
• spot potential problems
• set out your goals
• measure your progress
Obtaining Finance
What the syllabus says…
• Explain the main sources of finance for a small business start-up
• Long-term sources, such as:
– loans,
– personal savings,
– profit,
– venture capital
– share capital in the context of a private limited company
• Short-term sources such as
- overdrafts
- trade credit
Topic 1.3 – Obtaining Finance
Customer Focus and the Marketing Mix
Identifying needs
Anticipating needs
Meeting customer needs
What the syllabus says…
Customer focus:
• Understand that a business must anticipate, identify and meet customer needs if it is to be successful
The marketing mix:
• Understand that a business will have to consider price, product, promotion and place as important elements to meet the business opportunity
• Understand that different businesses will place different emphasis on the elements of the mix and that the mix can be amended to meet changing consumer needs
1.4 Customer focus and the marketing mix
Limited Liability
DifferencesRisk
Control
Profits
Privacy Liability = legally
responsible for debts
Topic 1.4: Limited Liability
What the syllabus says…
• Explain the principle of limited and unlimited liability
• Understand the implications of this in making a choice on the status of the business
• The differences between sole trader and private limited company status
• The focus should be on the different aims and implications of limited versus unlimited structures, highlighting the personal risk of unlimited liability.
Start up legal and tax issues
Income Tax
Keeping
business records
Value Added
Tax
NI
Contributions
Corporation tax
What the syllabus says…
• Understand the need to establish a unique trading and business name
• Understand the need to keep careful records.
• The implications for the business of:
– VAT,
– Income tax
– National Insurance
– Corporation Tax
• The need to register a new business with HM Revenue and Customs.
• The key is the need for record keeping rather than extensive details on types of tax.
Topic 1.4 Start up legal and tax issues
Recruiting, training and motivating staff
There are laws that protect
workers from unfair
practices by employers, a
few are not to be
discriminated against:
• Health and safety
• Holiday pay
• Unfair dismissal protection
• Working hours
Topic 1.4: Recruitment,
training and motivating
Topic 1.4: Recruiting, training and
motivating staff
What the syllabus says…
• The basic processes involved in recruiting staff to work in a small business
• The importance of skill versus attitude when recruiting and training staff
• Understand the importance of treating staff fairly and a simple understanding of the impact of relevant legislation, e.g. relating to age, sex, race and disability discrimination
Customer satisfaction
Customer service – The experience
that a customer gets when dealing with a
business and the extent to which that
experiences meets and exceeds their
needs and expectations.
Customer
satisfaction – a
measure of how much
products meet
customers
expectations.
- Fulfilling
customer
orders on-time
- Dealing with
complaints
Topic 1.4: Effective on-time
delivery and customer satisfaction
What the syllabus says…
• Explain how effective customer service includes fulfilling customer orders accurately and on-time and dealing with complaints.
• Recognise the importance of customer satisfaction in the success of a business
• The importance of repeat purchase for a business
Market Demand and Supply
COMMODITIES = Raw materials
ENERGY
COSTS
GOODS MARKET =
Everyday products
Topic 1.5: Demand and Supply
What the syllabus says…
• The prices of commodity markets (raw materials) are determined by the balance between supply and demand
• The difference between commodity markets (raw materials and normal markets (goods market – everyday products)
• The effect on small firms of price changes in raw materials and energy costs
Interest Rates
Impact on borrowing?
Impact on savings?
Type of interest rate
Bank of England sets the
base rate – they decide what
rate they will charge to lend
money to other banks, which
then impacts on what rates
are charged to consumers.
Topic 1.5: Interest Rates
What the syllabus says…
• How changing interest rates affect small firms which tend to rely on overdrafts and loans for finance
• The impact of changing interest rates on consumer spending
Exchange Rates
£
“The price of buying a foreign currency”
Topic 1.5: Exchange rates
What the syllabus says…
• Explain what exchange rates are
• How changes in the £/$ or £/€affect small firms that trade abroad or face competition from abroad
• The impact of changing exchange rates on the price of imported and exported goods
• How to calculate exchange rates on product prices (Questions will look only at £/$ and £/€)
The Business Cycle
Economic activity – the
amount of buying and selling that
takes place in a period of time.
The Economy – the economic
activity carried out by people and
businesses in a country.
Economic growth – Rises in
the rate of economic growth.
Measured by value of sales
(GDP)
Gross Domestic Product
(GDP) – the value of finished
goods and services
Topic 1.5: The business cycle
What the syllabus says…
• Understand that economic activity tends to rise and fall and that
• Changes in the level of economic activity can have serious effects on small businesses
What effect do business decisions have on stakeholders?
Conflicting objectives?
- Do they all want the same thing?
Stakeholder – anyone
interested in or affected by the
actions of a business.
Topic 1.5: Stakeholders
What the syllabus says…
• That stakeholders are those groups or individuals with an interest in a business
• Recognise that business decisions have different effects on different stakeholders
• Problems a business may face in meeting the demands of all stakeholders
