IB Business Management SLUnit 1 — Introduction to Business ManagementPaper 1 & 2Core skill~9 min read
Getting a New Business off the Ground
Most businesses that fail do not fail because the idea was bad. They fail because something ordinary was skipped — nobody checked whether customers actually wanted it, or the cash ran out three months before the profits arrived. This note covers why people start businesses, the order a sensible founder works in, and the traps waiting at each step.
📚 What you need to know
People start businesses for financial reasons (necessity, profit maximisation, profit satisficing) and non-financial ones (a gap in the market, ethics, independence, flexibility).
Profit maximisation means pushing profit as high as possible; profit satisficing means earning enough and stopping there.
Business ideas come from personal experience, work experience and observation of unmet needs.
A sensible start-up sequence runs: essentials → market research → business plan → legal checks → finance → test the market → launch.
A business plan raises finance and forces the founder to think the venture through in a structured way.
The most common start-up problems are lack of finance, no real demand, established competition and cash flow.
Why people start businesses
Split the motives into financial and non-financial. The split matters because it predicts how the owner will behave later — someone who started a business for freedom will resist an investor who wants control, even if the money is good.
Motive
What it means
What it predicts about the owner
Necessity
Redundancy, relocation or a change at home forces a new source of income
Cautious, focused on stability rather than fast growth
Profit maximisation
Building the largest possible return for the owner and any investors
Will accept outside investment and rapid expansion
Profit satisficing
Earning a comfortable, sufficient profit and choosing not to chase more
Common in small firms; owner may refuse growth that costs weekends
Gap in the market
A customer need nobody local is meeting
Strong on the product, sometimes weak on the numbers
Ethical stance
Building the business around a social or environmental commitment
Will trade some profit for the principle, and expects staff to share it
Independence
Wanting control over the work and no boss
Reluctant to delegate, which can cap growth
Flexibility
Working from home or around caring responsibilities
Deliberately keeps the business small
Profit satisficing sounds like a lack of ambition, and students often write it that way. Frame it better: it is a rational choice when the extra profit costs more in hours, stress or risk than it is worth to that particular owner. That framing reads as evaluation rather than judgement.
Where ideas come from
Personal experience. A hobby, a frustration with an existing product, a problem the founder had to solve for themselves.
Work experience. Years in an industry reveal what customers keep asking for and nobody supplies. This is the most common source, and the strongest.
Observation. Spotting a change — a new housing estate with no cafe, a regulation about to create demand for compliance advice.
The steps in launching a business
The order is not arbitrary. Each step is cheap protection against a much more expensive mistake later.
Skipping a step rarely saves time. It usually moves the cost further down the line, where it is larger.
Why the business plan earns its place
Students often treat the plan as paperwork for the bank. It does two separate jobs, and only one of them is external.
External: lenders and investors will not commit without forecasts, an explanation of the market and a repayment schedule. No plan usually means no funding.
Internal: writing it forces the founder to turn a hopeful idea into numbers. Many plans die on the founder’s own kitchen table, which is by far the cheapest place for a bad idea to die.
It also becomes the benchmark. Once trading, actual results can be compared against the forecast, which is where variance analysis begins.
Evaluation point: a business plan is a forecast, not a prophecy. It rests on assumptions about demand and prices that may be wrong, and a founder who follows an outdated plan too rigidly can be worse off than one who never wrote it. Say this and you are evaluating rather than describing.
Problems a new business faces
Problem
Why start-ups are especially exposed
A realistic response
Lack of finance
No trading history, so lenders see high risk and charge more or refuse
Start smaller, lease rather than buy, take a personal guarantee only if the sums work
Cash flow
Stock and wages are paid before customers pay; profitable firms still run out of cash
Forecast cash monthly, negotiate supplier credit, chase invoices hard
No real demand
The founder loved the idea and never tested it on strangers
Test the market with a limited range before committing capital
Established competition
Rivals have brand recognition, scale economies and supplier deals
Compete on a niche, on service, or on something big firms cannot be bothered to do
Hiring and keeping people
Cannot match the pay, security or benefits of larger employers
Offer responsibility, flexibility and a share in the upside
Legal complexity
Employment, safety and consumer rules are wide and unfamiliar
Budget for professional advice early; fines cost more than fees
Doing everything at once
One person is finance, marketing, operations and HR simultaneously
Outsource what is routine, keep what is the actual competitive edge
If a case study start-up is in trouble, check cash before anything else. A business can be profitable on paper and still close because it cannot pay wages this Friday. That single distinction — profit is not cash — carries more marks in this course than almost anything else.
Worked examples
WORKED EXAMPLE
Calculating the start-up funding gap
Tomas is opening a bicycle repair workshop. He needs a premises deposit of $6,000, tools and a workstand costing $14,500, opening stock of parts worth $3,200, and $4,800 of working capital to cover the first two months. He has $11,000 in savings, a family loan of $5,000, and has been awarded a local enterprise grant of $2,500. Calculate the funding gap and state one way to close it.
Step 1: total what he needs6,000 + 14,500 + 3,200 + 4,800 = 28,500Step 2: total what he has11,000 + 5,000 + 2,500 = 18,500Step 3: the gap28,500 − 18,500 = 10,000A funding gap of $10,000One way to close it: lease the workstand and tools rather than buying them outright. That cuts the up-front $14,500 sharply, though it raises monthly fixed costs and total cost over time. Note also that the working capital line is the one founders most often leave out — and the one that sinks them.
WORKED EXAMPLE
Which step was skipped?
For each failing start-up, identify the launch step that was missed.
(a) A meal-kit service signs a 5-year lease on a large kitchen, then discovers only 40 households in the area will pay its prices. (b) A clothing brand sells out in month one but cannot pay its fabric supplier, because customers pay 60 days late. (c) A tutoring agency is fined for employing tutors without the required background checks. (d) A gift shop orders 4,000 units of a single design; 300 sell.
(a) Meal-kit serviceStep 2 — market researchCommitted to a long lease before establishing that demand existed at that price.(b) Clothing brandStep 3 — the business planSpecifically the cash flow forecast. Selling out is a demand success and a cash failure at the same time.(c) Tutoring agencyStep 4 — legal constraintsEmployment and safeguarding requirements were never checked.(d) Gift shopStep 6 — test the marketA limited first order would have revealed the design’s popularity for a fraction of the cost.Name the step, then say what it would have prevented
💡 Exam tip
Split motives into financial and non-financial and give at least one of each. Questions almost always want the range.
Learn profit satisficing properly. It appears often and is regularly explained wrongly as “making little profit”.
For any “problems facing a start-up” question, put cash flow in your answer. It is the single most common real cause of failure.
When recommending a business plan, give the internal benefit as well as the funding one. Most candidates only give the funding one.
Apply the steps to the named business in the case study, in order, and say which one it got wrong.
Use test the market as a low-risk recommendation. It is cheap, sensible and easy to justify.
⚠️ Common mix-up
Profit satisficing means low profit. No — it means enough profit, deliberately chosen over chasing the maximum.
Confusing the funding gap with a loss. The gap is finance still to be raised before trading starts, not a trading result.
Treating the business plan as only a bank document. Its internal discipline is at least as valuable.
Forgetting working capital in a start-up cost list. Equipment gets remembered; the money to survive month two does not.
Assuming strong sales solve everything. Rapid growth consumes cash faster than slow growth, which is why fast-growing firms fail too.
Listing “hard work” as a problem. Examiners want business problems — finance, demand, competition, legal, staffing — not personal ones.
Up next: Unit 1.2 — The Private Sector and the Public Sector, where the founder has to choose a legal form of ownership, and that choice decides who owns the business, who controls it, and who is liable when things go wrong.
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