What a business is
Definition
Business: an organisation that produces goods or supplies services to 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 currently satisfying, or is satisfying badly.
Business opportunity: a chance to earn revenue by supplying a good or service that customers want and are willing to pay for.
- 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
- The question here is usually explain one reason why somebody may want to start a business.
- Use AQA's own wording for the reason and then carry it through to what the business actually did, because the phrase itself is the thing being tested.
- To fulfil a business opportunity, because they had spotted a gap that no other local business was filling.
- 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?
