Page 2: What is an entrepreneur?
An entrepreneur is someone that creates a new business. This can carry a high risk because it requires money to set up a new business without knowing if it will give a return on investment.
Entrepreneurs need to have a good understanding of their markets. They find out what customers want and modify their products in line with market requirements. They also need to have good ideas.
Matt Stevenson is a good example of an entrepreneur. Matt started keeping fish when he was nine. One day Matt's sister decided to do him a good turn by soaking his fish tank gravel in bleach and of course all the poor fish died. From this, he realised the importance of creating an environment in which fish could flourish.
At university, Matt studied for a degree in marketing and product design. On completing his degree, he began research on adapting the traditional goldfish bowl. Goldfish bowls are quite small and do not filter the water. Matt designed a new environment to give fish more access to clean water. He registered his invention, was granted a patent and marketed his fish tanks under the biOrb name. Today biOrb is one of the biggest brands in the aquatic industry. In the first five years, turnover increased from £100,000 to about £4 million.
Setting up a business
To set up a new business, an entrepreneur needs to follow several steps:
- Develop new products and services. For example, the Innocent® brand of smoothies was created by three university students. They realised there was a market for fruit drinks made from completely natural ingredients. This new idea enabled Innocent to break into a market that was dominated by existing producers.
- Check that ideas are new. Entrepreneurs need to carry out a search of registered intellectual property to check that their idea does not already exist. Further information on searching intellectual property rights can be found at www.ipo.gov.uk
- Investigate if there are any barriers to setting up the business. Will the business need to comply with any legal requirements?
- Raise finance for the business.
All businesses need capital to operate. Long-term capital can be obtained from:
- the owners' own money and savings
- other investors, by offering shares in the new enterprise
- banks other institutions, in the form of loans and grants
Businesses can raise substantial sums in this way. However, investors will want a share of profits and, possibly some voice in the running of the business. Banks will expect a business to pay interest on any loan. The entrepreneur may also have to offer some asset, such as their own home, as security against the loan.
The business will also need short-term capital. For example, Matt Stevenson needed cash to buy parts for his products. Ideally, some money can be generated from sales revenue. But entrepreneurs may raise some short-term finance by taking out a bank overdraft or by using credit cards. This is usually easy to arrange, but banks charge high rates of interest on overdrafts.