Nobody starts a business expecting to fail — but every entrepreneur is genuinely gambling something, and understanding exactly what's at stake explains why so many people choose not to take the leap at all.
In 1.1.1 you saw how new business ideas come about — a change in technology, a shift in what people want, or an existing product becoming obsolete. But spotting an opportunity is only half the story. Actually acting on it means accepting real risk, in the hope of real reward — and this trade-off is exactly what separates someone who has a good idea from someone who actually becomes an entrepreneur.
This matters because the two aren't equally certain. The risks of starting a business are genuinely likely to happen to some degree — cash flow will be tight, mistakes will be made, income won't be guaranteed. The rewards, by contrast, are only a possibility, dependent on the business actually succeeding. Understanding this imbalance is central to understanding why starting a business takes real courage, not just a good idea.
Some businesses carry more risk than others by their very nature. A business facing seasonal demand — a wedding cake maker, an ice cream stall, a Christmas decorations shop — has to survive quiet months with little income, while a business entering a highly competitive market has to work harder just to win customers away from well-established rivals, on top of every other risk already facing a new business.
Experienced entrepreneurs rarely take risk blindly — they take calculated risks, weighing the upsides against the downsides before committing, using research and planning (which you'll meet properly in 1.2 and 1.3) to make the risk as manageable as possible without ever removing it entirely. Generally, the greater the potential reward on offer, the greater the risk that tends to come with it — a genuinely original, unproven business idea might offer huge potential profit precisely because so few people have been willing to risk trying it first.
This is also a highly personal decision. Someone with significant savings, few financial dependents, and a strong appetite for uncertainty may judge the same business opportunity very differently to someone who can't afford to lose their investment or needs a guaranteed income to support a family — the risk is identical, but what it's reasonable to accept isn't.
Drag each statement into the correct category.
Standalone questions below are typical of Section A — no case study needed. The 6 and 9-mark questions are built around a Source Booklet–style case study, matching how Section B and C actually work in the real exam.
Which one of the following is an example of a reward of starting a business?
A. Financial loss
B. Independence
C. Lack of security
D. Business failure
Answer: B.
Outline one risk a person faces when starting a new business.
Structure guide: two linked points — eg "A new business may fail (1), meaning the owner loses the money they invested in it (1)." Points must connect; unlinked points cap the mark at 1.
Explain one reward to an entrepreneur of starting their own business.
Structure guide: 1 mark identifying a reward, plus 2 further marks developing it — eg "Independence is a reward of starting a business (1), since the entrepreneur can make decisions without needing approval from an employer (1), giving them full control over the direction the business takes (1)."
Analyse the impact on Priya of the seasonal nature of demand for wedding cakes.
Structure guide: application (AO2) and analysis (AO3a) together — eg identify that most demand falls between May and September (AO2), then analyse how this means Priya will need enough savings or other income to cover the quieter autumn and winter months, and that poor cash flow planning around this seasonal gap could put the business at serious risk even if it's popular during peak season (AO3a).
Priya is considering two options: leaving her accountancy job completely to focus on Rowan's Bakes full-time, or keeping her job and running the bakery part-time alongside it. Justify which option Priya should choose.
Structure guide: apply knowledge to Priya's specific situation (AO2), analyse points on both sides (AO3a) — full-time gives more time to grow the business but removes her only guaranteed income entirely, while part-time protects her financial security but limits how much time she can dedicate to a highly seasonal business — then reach a clear, justified choice (AO3b).