The Association of Business Executives

QCF

Entrepreneurship and Business

Development
Suggested Answers

Unit Title:

Entrepreneurship and Business Development

Unit Code:

5EBD

QCF Level:

Session:

December 2012

STRUCTURE OF PAPER: Answer BOTH sections

SECTION A: Answer ALL SIX questions

SECTION B: Answer ONE question

Q1Q6

14 marks
each

Either Q7 or Q8

16 marks

TOTAL MARKS AVAILABLE FOR THE PAPER

100 marks

SECTION A
Candidates must answer ALL SIX questions in this section.
Section A is worth 84% of the total marks available for the paper.
Question 1
Duncan is a businessman. He buys and sells vintage furniture. His knowledge in this business area
is exceptional. He started the business four years ago from a spare room in his house. As the
business grew, Duncan recruited staff to help him and later he hired premises. His staff all have
clear goals and Duncan recognises the important role that his employees play in the business and
they are rewarded accordingly. The business is now highly profitable.
Duncan owns large business premises, and he is constantly diversifying into new products and
markets and is now successfully selling high volumes of furniture in the competitive online market.
He was the first supplier in the market to use social media as a method of communicating with
customers.
Duncan was recently asked to give a presentation at a Young Entrepreneur event. Duncan politely
declined the offer as he does not view himself as an entrepreneur. He believes that entrepreneurs
are born and not made. He stated that all of his family were manual workers who spent their
working lives working for other people. Duncan believes that entrepreneurs have a natural gift
which is passed on through generations.
Q1
(a)

Discuss whether entrepreneurs are 'born' or 'made'.

Entrepreneurs are born
This argument states that you must possess an inherent hunger, a belief, a passion,
something that drives you, motivates you, encourages you and that you have to be born
with it.
This belief states that without these natural inherent traits, you will not be a successful
entrepreneur as you do not have the skill-set, ideas, belief, contacts, passion or hunger
that people who are born with it have. However, this viewpoint could put off future
potential entrepreneurs from ever trying to be successful.
Entrepreneurs are made
This argument states that you can learn and develop into a successful entrepreneur,
generally learning by mistakes that have been made. This viewpoint is inclusive in that it
states that all people could be entrepreneurs and make their own success and define
their own glory. It just takes effort, time, hunger, passion, desire, money, patience and a
lot of hard work.
Maximum Marks for (a)

6 marks

Q1
(b)

Discuss, using your knowledge of entrepreneurial attributes, whether Duncan could be

considered an entrepreneur.
Personal attributes
He is innovative as his was the first business to use social media sites to communicate
with customers. He also appears determined, starting the business from home, then
purchasing his own premises. It is likely that he will have received multiple knockbacks
during this time but will have learnt from the mistakes and carried on.
Technical skills
His business has grown significantly so it is obvious that his customers trust him. He has
also now broken into the online market so it is clear that he understands the markets in
which he is located. He also has exceptional product knowledge.
Management competencies
As before, he has broken into new markets. His business has grown, and he has now
purchased premises, so it would appear that Duncan has a good grasp of the business
financials. He also seems to be managing his staff effectively, giving them individual
goals and rewards packages.
Entrepreneurial management behaviour
Duncan spotted an opportunity to sell his products online and also to communicate with
his customers using social media.
It appears that Duncan could be classed as an entrepreneur. He has proven to have all
of the main entrepreneurial attributes.
Maximum Marks for (b)

Total Maximum Marks for Q1

8 marks
14
marks

Question 2
Q2

A new company is launching an innovative product on to the market. It has invented a

new music player which is smaller in size than its competitors products.
Advise the company on specific business development strategies that they could
execute to help the successful launch of this product.
Who does the firm target? Electronic shops / target markets i.e. young people /
department stores
What does the firm want to sell? New music player
Where are the customers? Market research / market segmentation / target places
where their target market will attend e.g. young people are likely to go to the cinemas.
Advertising on TV during relevant commercial breaks.
When will they be approached? Specific launch or seasonal trade
Which are the appropriate target personnel? Internally key sales/ finance staff.
Externally purchasing departments
Why would they want to meet with the firm? Differentiated on size / potential high
margins / innovative new product

How will they be reached? Communication methods meetings / online /

Skype
Total Maximum Marks for Q2

14
marks

Question 3
Q3

In 1986, Peter Drucker identified seven types of opportunity in his book Innovation and
Entrepreneurship. He named these the sources of innovation and they are:

The Unexpected
Incongruities
Process Needs
Industry and Market Structure
Demographics
Changes in Perception
New Knowledge

Select any four of these opportunities and, for each one, explain how it can contribute to
an entrepreneurs success.
1.

The Unexpected: An example of the unexpected is the invention of post-it notes

which were created accidently. Unexpected inventions like these can sometimes be
so unusual that they would never have been invented if somebody was creating
intentionally. However, products like these can sell high volumes.

2.

Incongruities: A discrepancy between reality and what everyone assumes it to be, or

between what is and what ought to be, can create an innovative opportunity. These
conflicts between opposing functions, requirements or values may be the start of an
innovation. For example, the request for a small car that still has enough space on
the inside seems to be incongruent. This, however, was solved in a new design as
the Smart Car.

3.

Process needs: When a weak link is evident in a particular process, but people work
around it instead of doing something about it, an opportunity is available to the
person or company willing to supply the missing link. In this way they could profit
maximally from the existing economies of scale and learning curve.

4.

Industry and market structure: The opportunity for an innovative product, service or
business approach occurs when the underlying foundation of the industry or market
shifts. Industry markets and market structure may offer opportunities for new types of
services. Outsourcing of activities such as the maintenance of the IT infrastructure is
an example.

5.

Demographics: Changes in the populations size, age structure, composition,

employment, level of education and income can create innovative opportunities. An
aging population can present opportunities to the entrepreneur.

6.

Changes in perception: Innovative opportunities can develop when a societys

general assumptions, attitudes and beliefs change. Entrepreneurs can then exploit
this change in attitude i.e. takeaway restaurants selling healthier options rather than
typically unhealthy fast food, following from people becoming more health-conscious.

7.

New knowledge: Advances in scientific and non-scientific knowledge can create

new products and new markets. Things are now conceivable which were once seen
as technically impossible. Cuba is trialling an HIV vaccine in 2012 due to modern
science and research, which at one time was expected to be impossible.

Total Maximum Marks for Q3

14
marks

Question 4
A business owner is researching her competitors. Recently, many of her customers have moved to
competing businesses. The business owner has reduced her product prices but the customers
have still not returned. She feels she needs to research the performance of her leading competitor.
She owns a telesales company where her employees all sell products direct to customers over the
phone. The business owner believes that the loss of customers is due to a drop in service quality
offered by her employees, but she is unable to identify which employees are the cause. She is able
to access telephone recordings. She has heard of random sampling and stratified sampling.
Q4
(a)

Suggest the types of information that the business owner would want to obtain by
researching her competitors, giving reasons for your choices.

Processes (efficiencies/effectiveness/resource utilisation)

People (level/salary/staff turnover)
Products (mix and age)
Place of sale (online/stores)
Promotion (advertising/marketing/launches)
Price (competitive/niche products/variation in quality)

Maximum Marks for (a)

Q4
(b)

6 marks

Describe how sampling could help the business owner identify which employees are
offering the poor service.
Sampling
Allows her to listen to a selection of telephone recordings
She will be able to hear which employees have offered poor quality service
She will be able to identify if employees are the cause for the loss of customers or
whether it could be due to other reasons.
She should not need to listen to all recordings saves time/cost
Maximum Marks for (b)

Q4
(c)

4 marks

Explain which of the two sampling methods identified by the business owner (random or
stratified) would be appropriate given the information in the scenario.
Appropriate methods of sampling
Stratified can split the telephone calls into groups (by employee) and then randomly
select calls from within that group. This means that all employees will have had some
of their phone calls sampled.
Random sampling would not be appropriate as some employees are likely to not have
any of their calls sampled as the calls will be picked out at random.
Maximum Marks for (c)

Total Maximum Marks for Q4

4 marks
14 marks

Question 5
Q5

An entrepreneur has opened a new business that handles confidential information about
clients.
Explain the data protection principles that a business owner must comply with under the
UK Data Protection Act 1998, and outline the specific measures that the business owner
should put in place to comply with these principles.
Data Protection Act
If you handle personal information about individuals, you have a number of legal
obligations to protect that information.
The eight principles of the Data Protection Act 1998 are that information held should be:1.

Processed fairly and lawfully.

2.

Obtained for specified and lawful purposes.

3.

Adequate, relevant and not excessive.

4.

Accurate and up to date.

5.

Not kept any longer than necessary.

6.

Processed in accordance with the data subjects (the individuals) rights.

7.

Securely kept.

8.

Not transferred to any other country without adequate protection in situ.

Specific measures
Training for all staff who have access to data
Passwords on computer
Locked filing cabinets
Staff have different access rights on computer system
Shredder to destroy information once it has passed the document retention period
Clients to show ID on arrival or when asking for personal information to be released
Total Maximum Marks for Q5

14
marks

Question 6
Q6

Explain the role of information and communications technology (ICT) in supporting

entrepreneurship and business development.
Role
Upload information onto website
Network computers
Deal with day to day computer issues
Can create bespoke software solutions
External support to clients manager web servers / networks
Create and manage websites
Develop integrated systems (save time/money)
Train in the use of ICT systems and software
Control telephone networks (merging audio visuals)
Supporting Entrepreneurship and Business Development
They can maximise the use of the Internet for marketing, purchasing,
accounting/finance and operations purposes.
They can use Cloud computing as a form of ICT outsourcing
Allow an entrepreneur to focus on the core of business
Make systems more efficient, which will save time
ICT can help a business maintain competitive advantage by:
Stock control
Better reporting
Communication tools
Marketing
Keeping accurate records to enable better forecasting
Aid in targeting new markets e.g. social media
Can use SEO (search engine optimisation) to enhance marketing impact.
Use of network/intranet to allow good internal communication which can lead to more
effective processes
Databases to store customer information which could lead to better customer
service

Total Maximum Marks for Q6

14
marks

SECTION B
Candidates must answer ONE (AND ONLY ONE) question from this section
Each question carries 16 marks.
Section B is worth 16% of the total marks available for the paper.
EITHER Question 7
Q7
(a)

Explain how a credit controller contributes to an effective working capital cycle for a
small business.

Keeping receivables up-to-date

Pursuing overdue debt
Dealing with customer queries
Reporting to sales staff about new enquiries
Giving references to third parties
Checking out customers credit worthiness
Advising on payment terms

Maximum Marks for (a)

Q7
(b)

8 marks

Identify the two main cycles in the credit cycle and list six of the stages of the credit
cycle.
The credit cycle
Stages
1.
Customer places order (phone/online/order form etc.) ORDER
2.

Establish credit status (refuse or accept based on references/credit checks)

ORDER

3.

Check credit limit (depending on high/medium or low risk) ORDER

4.

Deliver goods (with delivery note) ORDER

5.

Raise invoice ORDER

6.

Issue invoice to customer COLLECTION

7.

Send statements COLLECTION

8.

Reminder letters COLLECTION

9.

Telephone calls COLLECTION

10.

CONSIDER PROVISIONS FOR WRITE OFFS/SELLING DEBT TO A THIRD

PARTY

11.

Cash received COLLECTION

Maximum Marks for (b)

Total Maximum Marks for Q7

8 marks
16
marks

OR Question 8
Q8
(a)

Describe three pricing strategies that a small business could adopt when operating in a
competitive environment.
The options are the customer-based or competitor-based pricing strategies. The list
below is not exhaustive.
Market-oriented pricing
Setting a price based upon analysis and research compiled from the target market. This
means that marketers will set prices depending on the results from the research. For
instance, if the competitors are pricing their products at a lower price, then it is up to the
small business owner to either price their goods at an above price or below, depending
on what the company wants to achieve.
Penetration pricing
Setting the price low in order to attract customers and gain market share. The price will
be raised later once this market share is gained.
Price discrimination
Setting a different price for the same product in different segments of the market. For
example, this could be for different ages (cheaper prices for children and seniors) or for
different opening times (some restaurants offer early bird discounts for those who dine
before 6.30 pm).
Price leadership
An observation made of oligopolistic business behaviour in which one company, usually
the dominant competitor among several, leads the way in determining prices, the others
soon following. The context is a state of limited competition, in which a market is shared
by a small number of producers or sellers.
Target pricing
Pricing method whereby the business deducts a required profit per unit from the already
known selling price to arrive at a target cost. At this point, the business must research
whether they are able to produce the unit for this target cost.
Maximum Marks for (a)

9 marks

Q8
(b)

Explain the possible dangers to a new company in pursuing a policy of growth by

turnover. Your answer could refer to the difference between turnover and profit.
Turnover relates to net sales of a business, whereas profit is the bottom line of a
business.
Many businesses fail when they over-drive on turnover at the expense of profit. If
businesses focus solely on turnover growth, they may decide to make only small
margins on each unit as a method of increasing the volume of sales; however, their
profits may not cover all of their overheads. New businesses focusing only on increasing
turnover also run the risk of falling into an overtrading situation. This is where the
business has grown too quickly and does not have the infrastructure or resources
(working capital) to fund such rapid growth.
Profit is the surplus that remains from the turnover once all costs have been taken into
account. It is needed to meet your personal expenses. Turnover does not take into
account any of the costs associated with the unit that has been sold and, therefore,
turnover alone does not measure a businesss success.
Maximum Marks for (b)

Total Maximum Marks for Q8

7 marks
16
marks