The Concept of Risk & Reward (OCR GCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
The Implications of Risk and Reward
Entrepreneurs balance risk and reward when they set up and run businesses
Key risks and rewards for entrepreneurs
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Case Study
GreenTech Ltd
GreenTech Ltd, a manufacturer of solar panels in South Wales, was established in 2018 by twins Rhian and Jos Jones, who spotted the potential to manufacture small, easy-to-install panels for domestic use
Rhian and Jos had worked for a major engineering company since graduation, but were made redundant when it relocated its operations to Germany following the Brexit vote
Despite their family's concern that they had never set up a business before, they decided to invest their redundancy compensation to set up the business
They chose to form a private limited company that initially operated from Rhian's garage, working 14-hour days, initially and managing all business tasks themselves
Early risks and rewards
GreenTech Ltd quickly secured a contract to supply a major green housing construction company
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The risks and rewards of growth
In early 2020, housebuilding came to an abrupt halt with the arrival of the global Covid pandemic
Greentech's customers postponed solar panel orders, and its workers were prohibited from attending work
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The risks fail to pay off
Sales reached a peak in early 2022 when the government announced incentives to build green housing
A further twelve production staff were recruited to allow for 24-hour production, and the factory doubled in size
In late 2022, though, a further disaster struck when interest rates rose rapidly, causing housebuilding to come to a standstill once more as sales of new homes plummeted
GreenTech's main customer collapsed, owing hundreds of thousands of pounds, and several smaller customers cancelled their solar panel orders.
Greentech quickly found itself in financial trouble. With mounting debts, Rhian and Jos made the difficult decision to liquidate the company
All thirty staff were made redundant
Rhian and Jos were forced to sell their homes to fulfil the terms of the bank loan and were left with significant personal debts
Some conclusions
Despite the challenges Rhian and Jos faced, they continued to take risks
They took financial risks, including:
Investing their own capital to establish and grow the business
They used their personal assets - their houses - to ensure business survival
They risked the security of paid employment, and their lifestyles undoubtedly changed as they needed to work 14-hour days initially
They risked their personal reputations, setting up the business despite the concerns of their family
Although the business ultimately failed, Rhian and Jos enjoyed some significant rewards, including:
They received significant financial rewards as a result of the business making healthy profits
They won industry awards, which would have given them personal satisfaction
The siblings were able to enjoy flexibility - Rhian was able to take part in a charity expedition and Jos chose to work part-time
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