Revise What Makes a Business Successful? for Business 4BS1 (O Level) — revision notes and instant AI marking. Free to start.
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Edexcel IGCSE Business
What Makes a Business Successful?
Big idea: A business is "successful" when it hits its own objectives — and those objectives can be about money (profit, revenue, market share) or about people being happy (customers, staff, owners) — while businesses fail mainly because they run out of cash, are managed badly, get hit by outside forces, or grow faster than they can handle.
Quick Summary
Success = achieving objectives, and it's measured in two ways: financial (numbers on a spreadsheet) and non-financial (how happy people are).
The 5 financial measures: revenue, market share, profitability, business growth, shareholder satisfaction.
The 3 non-financial measures: customer satisfaction, employee satisfaction, owner satisfaction.
Businesses fail for 4 broad reasons: financial factors, poor management, external factors, and overtrading.
New businesses fail more often than established ones — usually due to inexperience, cashflow problems, and weak market research.
Making a loss ≠ failing. Many young businesses lose money on purpose early on because they're investing to grow.
1. Measuring Business Success
Here's the first thing to get straight in your head: "success" isn't one single thing. A tiny bakery that just wants to cover its bills and make the owner happy is successful if it does that — even if it never becomes the next McDonald's. A huge public company might be "failing" in the eyes of its shareholders even while making millions, if its competitors are making more. Success is always judged against the business's own objectives.
That means we need two completely different lenses to check whether a business is doing well: a financial lens (does the money add up?) and a non-financial lens (are the humans involved — customers, staff, owners — actually happy?). A business can score well on one and badly on the other, so examiners love asking you to weigh the two up.
Think of it like a school report card
Your grades (financial measures) tell part of the story — but so does your attendance, effort, and how your teachers rate your attitude (non-financial measures). A student could have great grades but be miserable, or be happy but underperforming. A full picture needs both.
Financial Measures of Success
These are the numbers-based indicators — often called Key Performance Indicators (KPIs) because they're the figures managers watch most closely. There are five worth knowing in real depth.
Measure
What it actually means
Revenue
The income earned from selling goods/services (before any costs are taken off). You compare it over time (is it rising year on year?) and against competitors (are we outselling them?). Rising revenue suggests the business is growing and its decisions — pricing, promotion, product choices — are working.
Market share
The business's sales as a % of total sales in that industry. If the whole ice cream market sells $10m worth of ice cream a year and your shop sells $1m of it, you have 10% market share. Growing market share = you're winning customers away from rivals, which strengthens your position and pricing power.
Profitability
Not just "did we make a profit?" but "what proportion of our sales turned into profit?" (i.e. the profit margin). A high margin means the business can cover its costs, reinvest to grow, and reward investors — all three at once.
Business growth
Physical/structural expansion — new shops, new factories, a bigger workforce. Growing businesses can unlock economies of scale (lower cost per unit as you get bigger) and become better known, which feeds back into more sales.
Shareholder satisfaction
Shareholders care about two things: the share price (is my investment worth more?) and dividends (am I being paid a slice of the profit?). Both tend to rise when the business is increasingly profitable or looks set to grow.
Formula you must know — Percentage Change
% change = [ (New amount − Original amount) ÷ Original amount ] × 100
Worked example
A bakery's revenue was $40,000 last year and $46,000 this year.
% change = [(46,000 − 40,000) ÷ 40,000] × 100 = (6,000 ÷ 40,000) × 100 = 15% increase.
That 15% rise is a strong financial signal that the business is succeeding — but remember, you'd still want to check why revenue rose (higher prices? more customers? a new product?) before calling it a full success story.
Practice Question 1
A company's market share was 12% last year and has risen to 15% this year, even though its total revenue only grew slightly. Explain one way this could be good news for the business, and one reason the business shouldn't celebrate just yet.
Practice Question 2
Calculate the percentage change in profit for a business that made $25,000 profit last year and $21,250 this year. What might this tell shareholders?
Non-Financial Measures of Success
Numbers don't capture everything. A business can be profitable and still be a miserable place to work, or delivering an awful customer experience that will catch up with it eventually. That's why non-financial measures matter — and they're especially important for public sector organisations, charities, and non-profits, who might not even be trying to maximise profit in the first place.
Measure
Explanation
Example
Customer satisfaction
Shown through positive reviews/recommendations and a high number of returning customers (repeat business is a strong signal — people don't come back to places they didn't enjoy).
A café rated in a city's top five restaurants on a review site like Tripadvisor.
Employee satisfaction
Shown through low staff turnover (people aren't quitting), high labour productivity (they're motivated to work well), and lots of applications for open vacancies (people want to work there).
A financial services firm rated by its own staff as one of the best places to work in the country.
Owner satisfaction
Business owners often start a business for reasons beyond pure money — providing a good service, earning a satisfactory (not necessarily maximum) income, or gaining recognition. If those personal goals are met, the owner may consider it a success regardless of the scale of profit.
A founder who set out to build a platform offering reliable, high-quality resources so people could build real confidence — success measured in impact, not just income.
Common mistake
Students often assume "successful" automatically means "profitable." Not true! Always ask: successful according to whose objectives? A charity's most important objective might be "help as many people as possible," not "make a surplus." A sole trader might just want a comfortable, satisfying life. Match your answer to the objectives actually stated in the question.
Practice Question 3
A restaurant has seen profit rise by 20% this year, but online reviews show a growing number of one-star complaints about slow service and rude staff. Using both financial and non-financial measures, assess whether this restaurant is truly "successful."
2. Reasons for Business Failure
Business failure isn't rare, and it isn't just a "new business" problem — even long-established firms collapse. In 2021, an average of 8% of businesses in EU countries failed. But that average hides big differences: Estonia had almost one in four businesses fail, while Greece had just over 2% fail. That range should tell you something important: the environment a business operates in (the economy, competition, regulation) massively affects survival odds — it's not purely down to how good the business itself is.
Why New Businesses Are More at Risk
Start-ups fail more often than established firms, and for very understandable reasons:
Lack of management skills / limited experience — first-time owners are learning on the job.
Cashflow problems during start-up — money often goes out (rent, stock, equipment) long before enough money comes in.
Being overwhelmed — a small owner has to be accountant, marketer, HR manager and salesperson all at once.
Weak market research — new owners often can't afford detailed research, or don't have the skills to correctly interpret the findings they do get, so they make decisions based on guesswork.
The Four Main Reasons Businesses Fail
Category
What causes it
Financial factors
Unable to generate enough revenue to sustain operations · costs rising sharply and wiping out profit margins · cash shortages meaning creditors can't be paid · limited access to finance (loans/trade credit), which is especially hard for start-ups with no track record.
Poor management
Lack of experience leading to bad calls on product range, pricing or promotion · decisions made on "hunches" instead of market research · ineffective coordination and planning of operations (e.g. stock ordering, staffing), which drives costs up unnecessarily.
External factors
A slow or absent response to new technology · powerful new competitors entering the market · major economic change (e.g. a recession) · changes in laws or taxation forcing difficult decisions. Crucially, these are things outside the business's direct control.
Overtrading
This happens when a business expands too quickly for its resources to handle. Poor coordination and planning of that rapid growth can lead to diseconomies of scale — where growing bigger actually starts pushing average costs up instead of down.
Analogy: Overtrading
Imagine a small food truck suddenly gets a huge social media boost and decides to open five new locations in one month. It doesn't have enough trained staff, its suppliers can't deliver that much stock reliably, and it hasn't set up proper systems to manage five sites at once. Chaos, wasted stock, and unhappy customers follow — the business grew itself into failure. That's overtrading: too much growth, too fast, without the systems to support it.
Critical exam point
Making a loss does NOT automatically mean a business is "failing." Many businesses deliberately run at little or no profit in their early stages because they're investing heavily (in marketing, stock, staff training) to build up sales — with the goal of becoming profitable later. Examiners specifically reward students who spot this distinction rather than assuming "loss = failure."
Practice Question 4
A clothing retailer opened 8 new stores in 6 months after a viral social media trend boosted demand. Within a year, it had run out of cash and closed most of the new stores. Identify and explain the main reason for this business's failure.
Practice Question 5
Explain why a business with an experienced management team might still fail due to factors beyond its control.
Overtrading = expanding too quickly for the business's resources/systems to cope, often leading to diseconomies of scale
Concepts Checklist
I can explain what "business success" means in relation to objectives
I can name and explain all 5 financial measures of success
I can name and explain all 3 non-financial measures of success
I can calculate percentage change and use it to compare performance over time
I understand why non-profits/charities rely more on non-financial measures
I can explain why new businesses are more at risk of failure than established ones
I can name and explain the 4 main causes of business failure
I understand what overtrading is and how it links to diseconomies of scale
I understand that making a loss does not automatically mean a business has failed
I can apply financial AND non-financial measures together to judge overall success in an exam-style scenario
Exam Tips
Always tie "success" back to objectives. If a question gives you a business's stated goal, judge success against that goal specifically — not against profit by default.
Show your working for percentage change. Mark schemes usually award marks for the correct formula and substitution, even if your final answer has a small error.
Don't confuse "loss" with "failure." This is a classic trap — many exam scenarios describe a young business making a loss deliberately while it invests to grow. Flag this distinction explicitly in your answer to pick up analysis marks.
Distinguish "overtrading" from general financial factors. Overtrading is specifically about growing too fast — examiners want you to spot the growth trigger, not just say "cashflow problems."
For evaluate/assess questions, use both lenses. The strongest answers weigh up financial and non-financial evidence together, and reach a justified conclusion rather than just listing points.
Link causes of failure to real consequences. Don't just name "poor management" — explain what specific bad decision it led to (e.g. wrong pricing, understaffing) and how that caused failure.