What a business is
Definition
Business
An organisation that brings resources together to produce goods or supply services that satisfy the needs and wants of customers.
- Every business, from a one-person window cleaner in Cardiff to a chain the size of Tesco, exists because somebody has a need or a want that is not being met.
- To meet it, the business brings together resources and turns them into a good or a service that customers are willing to pay for.
The five reasons a business is set up
- To produce goods: the business makes a physical product that customers take away and own.
- Warburtons bakes bread, JCB builds diggers, and a local joiner makes fitted kitchens.
- To supply services: the business carries out an activity for the customer rather than handing over an object.
- A hairdresser cuts hair, Barclays looks after money, and Spotify streams music.
- To distribute products: the business does not make anything itself, but moves goods from the producer to the customer.
- Wholesalers, shops, Amazon's warehouses and Deliveroo riders all exist because a product is worth nothing to a customer who cannot get hold of it.
- To fulfil a business opportunity: somebody notices a need that no existing business is meeting properly and sets up to meet it.
- To provide a good or service to benefit others: the aim is social rather than financial, so any surplus goes back into the cause instead of into an owner's pocket.
- Charity shops, community sports clubs and social enterprises are all set up for this reason.
Example
- A Greggs shop shows four of the five reasons at once.
- It produces goods, because the sausage rolls and pasties are baked in the shop.
- It supplies a service, because part of what you pay for is being served in under a minute.
- It distributes products, because it puts food on high streets and in stations where commuters already are.
- It fulfilled an opportunity, because it spotted that people wanted hot food quickly and cheaply rather than a sit-down lunch.
Fulfilling a business opportunity: spotting the gap in the market
Definition
Gap in the market
A customer need or want that no existing business is meeting, or is meeting badly.
Definition
Business opportunity
A chance to meet a customer need at a price customers will pay and that covers the cost of supplying it.
- A gap appears when customers are unhappy with what is on offer, when a new technology makes something possible, or when tastes change faster than existing firms react.
- Ben Francis started Gymshark in 2012 in Birmingham, screen-printing gym vests in his parents' garage, because young gym-goers could not buy fitted training kit that looked the way they wanted.
- Spotting a gap is not the same as filling it, because the business still has to organise the money, the stock, the staff and the selling.
Common Mistake
- Do not treat every idea you like as a business opportunity.
- An opportunity only exists if enough customers want the product and are willing to pay a price that covers your costs.
Providing a good or service to benefit others
- In these organisations the person who pays and the person who benefits are often not the same, so the trading raises money that is then spent on somebody else.
- The Big Issue sells a magazine like any other publisher, but vendors keep a share of the cover price, so the trading exists to give people an income rather than to enrich shareholders.
- These organisations still have to cover their costs and still need customers who choose them over a rival, so being set up to benefit others does not make the money side stop mattering.
Note
How not-for-profit organisations differ legally from a sole trader or a private limited company belongs to the business ownership topic.
Exam technique
Say what customer need the named business spotted, not what the owner enjoyed doing, because enjoying the work is an objective of the entrepreneur rather than a reason the business exists.
Self review
- What is a business?
- Name the five reasons a business may be started.
- What is the difference between producing goods and distributing products?
- What is a gap in the market?
- What happens to the surplus of an organisation set up to benefit others?
