Understand the reason why entrepreneurs embark on running businesses and…

The idea

Entrepreneurs embark on running businesses for various reasons, fundamentally shaping the enterprise's purpose. Primary motivations include seeking financial reward, desiring independence to be one's own boss, pursuing a personal passion, or identifying an unfulfilled gap in the market. For instance, an entrepreneur might launch a start-up to commercialise a new app. However, starting a business involves significant risks, such as financial loss or failure. To minimise risks, businesses can undertake specific activities. These include conducting thorough market research to validate customer demand, developing a detailed business plan to secure funding, and operating as a private limited company to benefit from limited liability.

What earns the marks

• Identifies specific reasons why entrepreneurs embark on running businesses, such as the desire for financial reward, independence, or fulfilling a social need.
• Explains how identifying a gap in the market acts as a catalyst for entrepreneurs to start a new enterprise.
• Describes the inherent risks of running a business, including the potential for financial loss, lack of job security, and business failure.
• Explains activities businesses can undertake to minimise risks, such as conducting primary and secondary market research to understand customer needs.
• Analyses how creating a comprehensive business plan helps an entrepreneur anticipate financial challenges and secure necessary investment.

Common mistakes and how to put them right

• Stating that all entrepreneurs start businesses solely to make a profit.

  Put it right: Acknowledge that many entrepreneurs are driven by non-financial motives, such as independence, passion, or social objectives.

• Claiming that businesses can completely eliminate risk through planning.

  Put it right: Emphasise that activities like market research and business planning can only minimise or mitigate risks, as external uncertainties always remain.

• Confusing the reasons for starting a business with the activities used to minimise risk.

  Put it right: Clearly distinguish between motivations (e.g., wanting independence) and risk-reduction strategies (e.g., writing a business plan).

Exam tips

• When asked why an entrepreneur started a business, use the case study to identify their specific motivation, rather than giving a generic list.
• If evaluating risk minimisation, provide a concrete example of an activity, such as using a business plan to forecast cash flow, and explain exactly how it reduces the chance of failure.