Generating and protecting business ideas

research suggests that there are 4 major sources of ideas for Entrepreneurs

• spotting trends and analyzing their impact on peoples lives
• noticing something that is missing from the market
• copying ideas from other countries
• taking a scientific approach
• Brainstorming and personal business experience

Once a business has used these methods, it needs to identify both a product and a market niche in which to target. After using one of these methods above, a business must then plan carefully…

• spotting trends: A business must decide on what style of product meets the markets needs
• Noticing something that is missing from the market: What product best fits in this gap?
• Copying ideas from other countries: Will the customers here like the product?
• Taking a scientific approach: the product is decided but who will buy it?
• brainstorming: an overview or idea of the potential market is needed
• personal business experience: Does the experience need to be adapted to the market?

Franchise

A franchise is when the business gives the right to supply its product or service to another business

Benefits to the franchisee of operating a franchise

• they offer lower risks compared to other startup business, therefore there is a higher success rate
• franchise business usually have an established brand name
• banks would be more willing to lend as there is less risk involved
• benefits from national advertising or promotion
• franchisee is more likely to have a monopoly in that area
• relationships with the supplier are strong as they are more likely to have been established by the franchisor
• franchise offers support and training

 

Disadvantages for the franchisee from operating a franchise

• the franchisor may not have set up a sustainable or viable business idea
• costs may be higher than expected
• reduced risk of operating a franchise business may mean less rewards
• other franchisees may give the franchise a bad reputation and may have an adverse impact on all franchises as a result
• the owners independance is reduced par the franchise agreement
• It may be difficult to sell the franchise as the franchisor must approve of the new franchisee

benefits of the franchisor from operating a franchise

• They receive regular reward for their ideas, as the franchisee provides the capital and the risk
• rapid expansion is easier as they do not need to provide the capital
• this means that that the business can capture a larger share of the market
• franchisor retains control of the products and the distribution

Disadvantages of the franchisor from operating a franchise

• the franchisees may do a terrible job and lower the brand image of the franchise
• the more franchises means it is harder to keep control
• franchisees are sharing the franchisors ideas

Protecting business ideas

Business can protect their ideas with patents,trademarks and copyrights

Copyright is a legal protection against copying for authors, artists and musicians

• films
• books
• music
• computer programs
• sound recordings
• The owner of the copyright can charge a royalty for letting other people use it

A patent is an official document granting the holder the right to be the only user or producer of a newly invented product or process for a specific period

Benefits of patents….

• The owner has a monopoly and has the right to sell the product for up to 20 years without close competition
• It can bring in revenue as the patent can be sold,rented, or licensed
• A small business with a patent can seem more appealing to banks and larger businesses

Although….

• it does cost a lot of money in order to apply for and protect the patent
• there are high legal costs involved as other firms cannot use it

Trademarks are signs, logos or symbols displayed on a companies product or its advertisements  It distinguishes it brand from its competitors

it helps the business by

• providing an image that is instantly recognized by consumers
• create a USP by differentiating itself from its competitors
• make it easier to launch new products as it is using the recognized trademark

analysis

• comparing different sources of business ideas in a specific firm
• recognizing the impact of limited resources on business ideas
• linking the choice of product to the market niche chosen by the business
• drawbacks of the franchisor/ee of using or having a franchise
• explaining the benefits and drawbacks of protecting business ideas

 

evaluation

• Merits of a franchise as opposed to an independent start up
• overall impact of protecting a business idea to the business
• weighing up of two different franchises
• key factors to consider when protecting business ideas

 

potential start up sources of finance

Types of legal structure are usually categorized as two separate businesses

Unincorporated

• Sole trader
• Partnerships

Incorporated

• private limited company
• public limited company

Unincorporated businesses have unlimited liability as their legal identity is not separate between the owner and the actual business. However Incorporated businesses have limited liability as their legal identity and their owners are seen as separate identities.

 

Pros of a sole trader

• easy and cheap to set up
• few legal formalities
• able to respond quickly to a change in circumstances
• the owner takes all the profits and therefore there is good motivation
• they have greater Independence than any other legal structures
• they enjoy more privacy as their financial details do not have to be published

Cons of a sole trader

• sole traders have unlimited liability
• they have limited collateral to support applications for loans
• they have limited capital for expansion and investment
• they have limited skills

Pros of a partnership

• wider range of skills and knowledge
• chance to raise greater amount of capital
• pressure on owners are reduced as there is more flexibility for work cover, eg when somebody is sick

Cons of a partnership

• control is shared among partners
• arguments may arise
• shortage of capital
• unlimited liability

Pros of a private limited company (LTD)

• more privacy compared to PLC
• Limited liability, its identity is seen as a legal identity separate from its owners
• more access to capital than unincorporated

Cons of Private limited company (LTD)

• Its shares are less appealing as they cannot be traded on the stock exchange so therefore it is more difficult to sell
• it is less flexible if expansion needs finance which is more difficult to raise than a PLC
• more legal formalities than for an unincorporated business

Pros of a public limited company (PLC)

• Limited Liability, its legal identity is separate from the shareholders
• easier to raise finance as a result of its stock exchange listing
• it has a greater scope for investment
• it can gain positive publicity as a result of trading on the stock exchange
• suppliers tend to be more willing to offer credit to public limited companies

Cons of public limited company(PLC)

• it has to publish a great deal of financial information about its performance
• there is greater scrutiny of activities
• significant administrative expenses
• the founders of the firm may lose control if they lose their share of 50%
• a stock exchange listing may mean that pressure from investors means that they will focus on short term goals as opposed to long term goals.
  

 

Analysis

• assessing benefits and drawbacks of all forms of legal structures
• explaining why a business would want limited liability
• comparing different types of legal structures to one another

 

 

 

 

Two Nuclei from one

Whats so important about making newcells?

• Asexual reproduction
• Growth
• Repair
• Replacement

Mitosis

• Mitosis refers to the process where nuclear division takes place and two new gentically identical nuclei form from one parent nucleas
• This process is broken into seperate phases
• Prophase
• metaphase
• Anaphase
• Telophase

 

Prophase

• The chromosomes supercoil and become visible under the light microscope
• The Nuclear envelope breaks down and dissapears
• The centriole divides into 2 and moves to seperate ends of the poles within the cells
• The centrioles then form a spindle
• The spindle is made of protein

Metaphase

• The chromatids move to the equator and hang from the spindle via the centromere

Anaphase

• The centromere splits
• the chromatids are pulled apart
• the now seperated chromosomes move towards opposite poles
• they form a V shape as they move towards the poles as the Centromere is in the lead
• The spindle fibres shorten, that is why they are pulled towards opposite poles

Telophase

• As the seperated (Gentically identical) Chromosomes head towards their respective poles, a new nuclear envelope forms around each ste
• the spindle breaks down and dissapears
• The chromosomes uncoil so you can no longer see them under the light microscope

Cytokenisis is not considered to be a part of the Mitosis, however it is known as the cleavage of the cytoplasm.

 

As shown in the picture above, Mitosis (M) only occupies a small percentage of the actual cell cyle, Interphase is the phase that happens before Mitosis and consists of

• G1: Biosynthesis, this means that proteins are made and organnelles are replicated
• S is synthesis of new DNA, so basically the replication of chromosomes
• and G2 is growth
• Then it is over to Mitosis

 

• There is a time and a place for the cell division to occcur, in animals, most cells are capable of mitosis and cytokenisis
• However in plants, only special cells known as meristem cells can undergo cell division
• Plant cells also do not have centrioles, the tubulin protein threads are made in the cytoplasm
• In animal cells, cytokinesis starts from the outside
• in plant cells, it starts with the formation of a cell plate, where the spindle equator was
• new cell wall and membrane are laid down along this plate

The cardiac cycle

1. When both the atria and the ventricles are relaxed, blood flows into the atria from the major veins
2. the blood flows through the atrioventricular valves into the ventricles
3. the atria contract simultaneously, pushing blood into the ventricles
4. blood fills into the atrioventricular valves, causing them to snap shut to prevent blood from flowing back into the atria
5. when the pressure in the arteries is higher than the pressure in the ventricles, the semilunar valves remain shut
6. the walls of the ventricles contract,starting from the bottom
7. when the pressure in the ventricles is higher than the pressure in the arteries, the semi-lunar valves open and blood is pushed out of the heart, the contraction only lasts for a short time
8. the ventricles relax
9. when the pressure of the ventricles is lower than the atria, the atrioventricular valves open up
10. when the pressure in the ventricles drops below the pressure in the artery’s the semilunar valves close shut again

 

• If the chambers of the heart contract out of sequence, it will lead to inefficient pumping

Filling phase

• When the atria and ventricles relax the internal volume increases and blood flows into the heart from the major veins
• This phase is called the DIASTOLE

Atrial contraction

• The heart beat starts when the atria contract
• both right and left atrium contract together
• the pressure created by this contraction helps to push blood into the ventricles
• This stretches the walls of the ventricles and ensures that they are full of blood
• Contraction of the atria is called atrial systole
• Once the ventricles are full they begin to contract
• blood fills the atrioventricular valve flaps causing them to shut. This prevents blood from returning to the atria

Ventricular contraction

• There is a short period when all 4 of the heart valves are closed
• the walls of the ventricles contract
• this is called ventricular systole
• this raises the pressure in the ventricles very quickly
• contraction starts at the apex of the heart
• this pushes the blood upwards towards the arteries
• the semilunar valves open and blood is pushed out of the heart
• the ventricle walls then relax allowing the heart to fill up again

 

 

 

You may have noticed that I have effectively talked about the same thing twice, one is a summary and one is in detail, they are both effective in their own ways…..

 

 

Business significance of XED, PES, PED and YED

PED

PED is widely used by businesses when pricing their products in the market. It is most common with business where market segmentation is based on time, such as transport and leisure. Train operators for example seek to maximise profits by charging for peak and off peak, where demand will vary.

If Demand is inelastic then train operators can increase the price and their revenue would increase, however if a company such as Sony raised the price of their playstation 3 then demand would fall and revenue would decrease, this is because demand is elastic as there are close substitutes available such as the Xbox 360.

YED

Over time most products tend to become income elastic, this is because the standards are always improving so income tends to increase. Firms with Inferior products would suffer because of this and would aim to make their elasticity positive in order to survive their market.YED can be used by businesses to forcecast future demand

XED

Firms competing in markets with close substitutes would be looking at the XED very carefully. this maybe in order to steal market share, for example by lowering their prices, which would increase their revenue, however increasing prices in a competitive market would be dangerous as it is more likely that revenue would be lost.

Complements also come into consideration, for example if the price of strawberries increased, then the demand for whipped cream would decrease, this can effect businesses that supply both of these products.

PES

PES is always positive. In the short term supply tends to be inelastic as it is difficult to shift the resources into a market, however firms can hold stocks to cope with the sudden change in demand, making it supply elastic, they may hold onto stock in anticipation of a price rise.

An example would be tuna in America, the supply elasticity was 0.2, this meant that supply was not very responsive to a change in demand, hence it was inelelastic. However demand for tuna increased, as the health benefits were made obvious, because it was inelastic, price increased in the US market as a result.

Price elasticity of supply

PES is the responsiveness in Supply to a change in the price of a product

%change in quantitysupplied/%change in price

This type of elasticity will always be positive as a producers main aim is to maximise profits, this therefore would mean that the higher the price, the more is supplied by a producer.

• Between 0 and 1: This suggests that supply is inelestic, this means that supply is not very responsive to a change in price of a product
• Greater than 1: Supply is elastic, therefore producers are able to respond to a change in price and supply more very quickly if price rises
• Equal to 1: here a change in price is proportional to a change in quantity supplied

  What determines the price elasticity of supply?

• Availability of stocks of the product: The speed at which goods can be released depends if the stock is available, the stock can be stored in warehouses or businesses such as Tesco can have “buffer stock” which means that they have extra stock to cope with sudden changes in demand, if this is the case, then supply is fairly PES elastic, in which an increase in price would mean that these businesses can quickly supply more.
• Availability of factors of production: Labour tends to be the most available factor of production, so that means that if the price increases then more can be produced, in this instance supply is thought to be PES elastic. However for some businesses it may be the availability of capital that determines the output produced, this maybe because extra capital will need to be found and installed, workers will need to be trained to use the equipment, and this would mean that supply would be inelastic
• Time: When supply takes more time adjust, it makes it more inelastic as it is less responsive to a change in price, however in the long term supply would be more elastic as more would be available.

 

Cross Elasticity of Demand XED

XED measures the responsiveness in demand of one product following a change in price of another product:

Change in quantity demanded of product A/change in price of product B

A (+) positive indicates that the products are substitutes, whereas if the elasticity is negative (-) it indicates that the products are complements, if the relationship is zero then there is no relationship between the two products whatsoever.

A higher positive XED indicates that the products are close substitutes whereas when the product has a highly negative XED it indicates that the products are strong complements.

 

How would this be analysed in an exam?

An exam question from the 2012 January OCR past papers which is relevant to this topic:

Using the information from fig 1, comment on wheathe chewing gum and theraputic chewing gum are substitutes

The question paper is available on the OCR website along with the markscheme, however I am just going to walk through on how this should be answered (as the case study is quite important aswell!)

• The XED for the 3 gums were 0.1, 0.2 and 0.3 (3 marks awarded for working out the XED)
• They are all positive therefore they are substitutes
• They are all XED inelastic
• all below 1
• Às the price goes up for theraputic gum, the demand for normal gum does not increase by so much

The above are all interpretations  that are made when analysing the figures, below are what you should do when you further comment to get the maximum marks for the question

• Questioning the reliability
• they are estimates
• other factors of demand may have influenced the inelastic nature
• users are not very likely to switch to normal chewing gum as the benefits are greater so price would not influence demand
• figures may change over time
• Inelastic estimates indicates weak substitutes

 

Income elasticity of Demand YED

YED measures the responsiveness in demand when there is a change in income:

%change in quantity demanded/%change in income

 

Normal goods are goods that have a positive YED, and inferior goods are goods that have a negative YED.

When income increases then demand for Normal goods increases, the more elastic a good is, reflects how much demand would rise.

Income inelastic: Is where goods for which a change in income produces a less than proportionate change in demand

 

Income elastic: os where goods for which a change in income produces a greater than proportionate change in demand

 

An example of a normal good is where income increase by 5%, this then leads to an increase of Apple Ipads by 8%, so remembering that negative and positive signs matter here, as a (+) sign means that the good is normal and if it is (-) sign it means that it is an inferior good, the YED is 1.6, this is YED elastic, so what does that mean for apple?

Well because it is a normal good:

• It tends to expand when income grows
• Apple will increase locating and advertising in high income areas
• they will do badly in a recession

And what if it was an inferior good that was effected?:

• They expand during recession
• Inferior goods will be more popular in low income areas
• Do well during recession

 

 

 

Price elasticity of Demand (PED)

 

The elasticity is the extent to which buyers and sellers respond to a change in market conditions…

Price elasticity of demand

PED measures the responsiveness in demand to a change in price, it is measured with the following equation:

% change in quantity demanded/%change in price

 

For example if Sony playstation raised the price of their Sony ps3 console by 5% and as a result of this demand for the games console fell by 10% it means that the price elasticity is:

10% (change in quantity demanded)/5% (change in price) = -2

This suggests that demand for the games console is responsive to a change in price, as it is above 2 it suggests that this product is price elastic:

Price elastic is when the percentage change in quantity demanded is sensitive to a percentage change in price

 

Price Inelastic therefore is when the percentage change in quantity demanded is NOT sensitive to a percentage change in price.

 

PED is greater than 1 = Price Elastic

PED is less than 1 = Price inelastic

PED 1 = where a change in price causes a proportional change in demand

So now we have looked at PED we need to ask the obvious questions, what factors affect demand for products?

• The availability and closeness of substitutes: This is an alternative to a particular product. The more close substitutes available for a product means that it is probably price elastic. So if we go back to the playstation example: It had an elasticity of 2 which shows that it is PED elastic, this implies that there are probably substitutes that are fairly similar to the product such as the XBOX 360
• The relative response to a product with respect to income: If the product takes up a small part of income, such as a packet of gum for example, then an increase in price would not really lead to such a large decrease in demand, in these instances, demand is thought to be price inelastic. However if a the product takes up a larger proportion of income, for example a holiday then demand would be more sensitive, making it more PED elastic. Some products are habit forming, such as Cigarettes. Therefore a change in price would not effect the demand for it by that much, no matter how much a proportion it may take up on the incomes, even for lower income families.
• Time: In the short term, changing buying habits may be hard, so during this period demand maybe price inelastic, however over time demand becomes more elastic as more substitutes become available. Consumption of a product can even be delayed, making it more price elastic, this is even more so as these products do not tend to be necessities such as home improvements.

 

Goverment intervention to correct market failure

Negative Externalities: goverments may apply charges to local authorities for the safe disposal of tyres and refrigirators; there are laws against fly tipping. For chewing gum, information is provided for its disposal. As for Binge Drinking, in some parts of the country, the owners of licensed premises are equired to pay a local levy to provide for police support workers to control revellers.

Positive externalities: This can refer to innoculations; for example they are free, advertisments tend to stress the benefits of a form of vaccination. Goverment training and provision for health and education, and also subsidies for major transport projects such as cross rail, as they are recognizeed for their wider social and economic value.

Merit goods: The provision of information and state provision from tax revenue are two ways in which goverments seek to address the problem of under consumption.

Demerit goods: The provision of impartial regulations and indirect taxes are some ways the government are trying to regulate and reduce their consumption.

Public goods: Government or state provison from general tax revenue, such as in general broadcasting, a charge is made for consumption.

Remember that the extent that the government would go to; to correct market failure largely depends on how concerned they are about a particular market failure and whether it believes that intervention will produce a better allocation of resources.

There are 2 methods involved that can be distinguished when talking about government intervention….

Methods that involve some manipulation of the market mechanism- subsidies,indirect taxation and the provision of information. These are generally referred to as market based solutions.

Non market methods are direct provision and various forms of regulation and control.