1. Taking a calculated risk
Lesson 1.12 Edexcel GCSE Business Studies

2. Taking a calculated risk What has happened at this store?
You might get quite a wide range of suggestions:
- The store has been ram-raided - The store has been targeted by demonstrators - A customer has tried to leave the store without using the front door…
and you may also get the correct answer.
The store in question is an Apple store during 2010 which used an innovative shop window sticker to promote the iPod Hi-Fi (specifically how loud the iPod Hi-Fi is!). It was a classic example of guerrilla marketing.

3. Title: Taking a calculated risk We are learning to...
(Read these aloud as a class. Do not copy them down.) 1
Understand the principle of taking a calculated risk. 2
Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome viability of a start-up. 3
Appreciate that seeing mistakes is part of the process of learning to succeed. 4
Apply your knowledge of taking calculated risks to a business scenario 5
Analyse and evaluate a real-life business scenario, make reasoned judgements and present appropriate conclusions.

4. Taking a calculated risk What is risk?
The chance of loss or damage
The probability that something goes wrong leading to a loss
When a hoped-for outcome does not happen 1
Understand the principle of taking a calculated risk. (AO1)

5. Taking a calculated risk What could go wrong for the entrepreneur?
Business will fail & lose investment
Possibly liable for debts (unlimited liability)
Harder to find work or start again
Stigma of failure 1
Understand the principle of taking a calculated risk. (AO1)

6. Taking a calculated risk Why are start-ups risky?
Even business giants like Coca Cola get it wrong sometimes....
High rate of business failure for start-ups
Difficult to test a new business idea without trading
Easy to be over-optimistic in the business plan
Competitor response is often aggressive
Easy to underestimate the effort and persistence required to be successful
Dasani was Coca Cola’s doomed foray into the lucrative bottled water market. Yet, in March 2004, only five weeks after its multi million pound UK launch, red-faced Coke executives were forced to take Dasani off the shelves in the UK. Why? Because it turned out not to be purified water but nothing more than purified tap water! 1
Understand the principle of taking a calculated risk. (AO1)

7. Taking a calculated risk Three main reasons start-ups fail
Insufficient customer demand
Poor market research & unrealistic plan
Competitor response – e.g. price –cuts or extra promotion
Good idea, but poor execution
Wrong people; poor management
Growth is too quick (overtrading) or too slow
Failure to manage cash flow
External shocks
Economic change (e.g. credit crunch, oil prices)
Legal, social & technological change
Dasani was Coca Cola’s doomed foray into the lucrative bottled water market. Yet, in March 2004, only five weeks after its multi million pound UK launch, red-faced Coke executives were forced to take Dasani off the shelves in the UK. Why? Because it turned out not to be purified water but nothing more than purified tap water! 1
Understand the principle of taking a calculated risk. (AO1)

8. Taking a calculated risk Your turn! 10 minutes
Add timer to this page 4
Apply your knowledge of taking calculated risks to a business scenario AO2

9. Taking a calculated risk What is a calculated risk?
A risk that has been given thoughtful consideration and for which the potential costs and potential benefits have been weighted and considered 2
Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome viability of a start-up. AO1

10. Taking a calculated risk Rewards of enterprise
Financial
Profits
Dividends
Capital growth
Non-financial
Satisfaction
Control
Contribution 2
Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome viability of a start-up. AO1

11. Taking a calculated risk Financial rewards
Profits – usually reinvested into the business in the early years
Dividends – taking profits and cash out of the business
Capital growth – an increase in the value of the business 2
Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome viability of a start-up. AO1

12. Taking a calculated risk Non-financial rewards
A sense of satisfaction
Building something
Being in control
Making that first sale
Opening a new location
Employing more people
Getting an industry award or good publicity
Getting great feedback from customers 2
Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome viability of a start-up. AO1

13. Taking a calculated risk Learn from your mistakes
In 1985, Steve Jobs was fired from Apple Computer, the company he founded as a college dropout. After some less successful forays into computing at NeXT, and some highly successful trips into animation at Pixar, Steve was hired back as the CEO of Apple Computer, now a struggling PC company with a bloated model line.
The next decade saw Steve Jobs completely redesign Apple, shredding away the uninspiring 90s image and bringing in a new focus on clean design and slick usability. From successes in computing with the iMac in the late 1990s to even bigger successes in music with the iPod in the early 2000s, Apple Inc. has gone from strength to strength since Steve’s return. 3
Appreciate that seeing mistakes is part of the process of learning to succeed. AO1

14. Thinking creatively Answer questions 1 to 4 in your exercise book. 3
For those students who require extension work they can complete this activity. They should write out their answers in essay form. 3
Analyse and evaluate a real-life business scenario, make reasoned judgements and present appropriate conclusions.
AO3
Analyse/evaluate evidence, make/present reasoned judgements
Grade
A-B effectively/accurately | C-D satisfactorily/some | E-F simple/some

15. Taking a calculated risk Plenary - Write me a Facebook style update about something you’ve learnt today
Write your Facebook update in this box, starting with your name... 1
Understand the principle of taking a calculated risk. (AO1) 2
Understand that weighing up the risks and the rewards of a new business idea is an important part of the process of judging outcome viability of a start-up. (AO1) 3
Appreciate that seeing mistakes is part of the process of learning to succeed. (AO1) 4
Apply your knowledge of taking calculated risks to a business scenario (AO2) 5
Analyse and evaluate a real-life business scenario, make reasoned judgements and present appropriate conclusions. (AO3)