IB Business Management HLUnit 1.1 — What Is a Business?Paper 1 & 2Core skill~10 min read
Getting a New Business Off the Ground
Having the idea is the easy part. Between the idea and the first customer sits a queue of unglamorous jobs: research, paperwork, money, legal checks. Most start-ups that fail did not have a bad idea. They ran out of cash before they finished the queue.
📘 What you need to know
Business ideas come from personal experience, work experience and observation of a gap.
Six steps: plan the basics, research the market, write the plan, check the law, raise finance, test then launch.
A business plan is needed to raise money, and it forces the owner to think the idea through.
Start-up finance comes from own savings, family, banks, angels, crowdfunding and peer-to-peer lending.
People start businesses for financial reasons (necessity, profit, profit satisficing) and non-financial ones.
The classic start-up problems: lack of funding, no real demand, competition, hiring, legal issues, scaling.
Testing on a small scale first is the cheapest way to find out whether the idea works.
Where the idea comes from
Ideas are rarely invented from nothing. They usually arrive from one of three directions.
Source
What it means
Example
Personal experience
A hobby, a frustration, a need the founder has themselves
A cyclist who cannot find late-night repairs opens a repair shop
Business experience
Spotting the flaw in an industry you already work in
A chef who knows suppliers well starts a delivery service
Observation
Noticing a gap in a market or copying an idea from elsewhere
Seeing a format work abroad and bringing it home
The six steps to launch
Steps 1 to 3 are about thinking. Steps 4 to 6 are about doing. Founders who enjoy the doing often rush the thinking, and that is where the money disappears.
The business plan
A business plan is a written document setting out what the business will do, who will buy from it, and how the numbers work. Students often think it exists only for the bank. It has two jobs.
External: lenders and investors will not hand over money without one. It is the evidence that the idea has been thought about.
Internal: writing it forces the founder to face the awkward questions — what happens if sales are half of what I hoped? It also becomes the yardstick to measure progress against.
Exam-ready detail: a plan sets out the objectives, the market research findings, the marketing plan, the resources needed and when they are needed, plus cash flow and profit forecasts. It also tells staff and suppliers where the business is heading.
Where the money comes from
The green sources cost nothing in interest but strain relationships. The blue and purple ones cost money or ownership. There is no free option.
Why people start businesses
Type
Reason
What it looks like
Financial
Necessity
Redundancy or a change at home pushes someone to create their own income
Financial
Profit maximisation
Building something as large and profitable as possible
Financial
Profit satisficing
Earning enough, and protecting time and family instead of chasing more
Non-financial
Gap in the market
Spotting a customer need nobody is meeting yet
Non-financial
Ethical stance
Building the business around fair trade, sustainability or social justice
Non-financial
Independence
Wanting control, flexibility, or simply to be your own boss
Profit satisficing is the one students forget, and it is a gift in evaluation questions. If a case study says the owner “wants to keep weekends free” or “does not want to open a second branch”, that is satisficing — and it changes which recommendation is actually right for them.
What goes wrong in year one
Lack of funding. The single biggest killer. Money runs out before the business turns profitable.
No real demand. The idea sounded great to the founder and to nobody else. Research is the defence.
Competition. Established rivals have brand, scale and lower costs, and can cut prices to see the newcomer off.
Hiring. Skilled staff want security and good pay. A start-up can offer neither with confidence.
Legal issues. Employment, safety and consumer law take time and money to get right.
Doing everything at once. One person handling marketing, accounts, deliveries and customers will drop something.
Scaling. Success creates its own problems — more demand than the business can actually serve.
EXAM-STYLE
Explain two problems a new bakery is likely to face in its first year. [4]
Case: Omar is opening a bakery in a town that already has two established ones.
Problem 1: cash flow
Ovens, flour and rent are paid before any bread is sold, so cash leaves before it arrives.
If sales build slowly, Omar may not be able to pay suppliers even though the bakery is busy.Problem 2: established competition
Two rivals already have loyal customers and better prices from bulk buying.
Omar has to give people a reason to switch, which usually means spending on promotion he can barely afford.Both problems point back to the same shortage: cash
EXAM-STYLE
Recommend a source of finance for Omar’s bakery. [6]
Option A: bank loan
Large enough for the ovens, and Omar keeps full ownership.
but interest is due whether or not the bakery is busyOption B: business angel
No repayments in the early months, plus experience and contacts.
but Omar gives up a share of the business and some controlJudgement
Ovens are a fixed, one-off cost with a known price, so a loan fits it well.
Recommend a bank loan, with a small overdraft for slow monthsa recommendation needs a reason tied to this business, not a general preference
💡 Exam tip
Match the finance to the need. Long-term assets suit loans; short-term gaps suit overdrafts. Saying this shows real understanding.
Cash flow beats profit in start-up questions. A profitable business can still die of an empty bank account.
Use the founder’s motive. A satisficing owner should not be told to expand aggressively.
Name the legal areas — employment, health and safety, consumer protection — rather than writing “legal issues”.
“Test the market” is an underused answer. Launching small reduces risk cheaply and is easy to justify.
For “recommend” questions, always give the drawback of your own choice before you conclude.
⚠ Common mix-up
A business plan is not a guarantee. It is a forecast built on assumptions, and assumptions can be wrong.
Crowdfunding is not free money. Backers expect a product, a reward or a share, and campaigns often fail.
A business angel is not a bank. They invest for a share of ownership and usually want a say.
Profit satisficing is not laziness. It is a deliberate choice to trade extra profit for something the owner values more.
Market research does not remove risk, it only reduces it. People say one thing in a survey and do another in a shop.
Own savings are not “no risk”. They are the highest personal risk of all, because there is nobody else to share the loss.
Up next: The Private Sector and the Public Sector — who owns a business, where its money comes from, and why that single fact changes what the organisation is trying to do.
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