If you have an existing business, does it currently qualify as a real business? Or would it be considered more of a hobby?
That all depends on your definition of a business. So, what defines a business?
If you are looking to start a new business, what exactly does it take to own a business vs. just having a hobby?
How would you define a business in general? What are the vital components that make up every business? What are the commonalities that every business has?
One definition of a business that I’ve heard is:
A business solves problems for people for a profit.
Now while that is concise, technically accurate and makes a good sound bite, it just isn’t quite enough to fully describe what a business truly is.
According to serial entrepreneur and commercialization expert Paul Freet we get:
A business is a repeatable process that makes money. Everything else is a hobby.
Which I think is a pretty reasonable definition, but it still seems a little simplistic and with something missing, because some forms of investment, and even technically a savings account would qualify as a business under that definition, so not quite what we are looking for.
So again I ask:
What Defines A Business?
The best and most comprehensive definition I could come up with is the following:
An entity that delivers goods and/or services in exchange for money to enough customers on a consistent basis in order to make a big enough profit for the owner(s) so they continue doing business.
I think that seems to cover all the basis, don’t you?
A business must provide enough value to enough customers that make purchase on a consistent basis and for a high enough prices, that the owner(s) of the business consider it worth their time, energy and effort to remain in business.
Now in order for that definition to be true of any and every business, then at a fundamental level, all businesses activities have a set of commonalities at their core that can be boiled down into these 5 categories:
- Discovery & Creation – Figuring out what your prospective customers want or need and then either finding that thing of value or creating it for them.
- Marketing – Educating and Informing your prospective customers that the solution to their problem exists, and that you can provide them with that solution as well as creating a demand for your particular solution.
- Sales – Turning prospective customers into paying customers by completing the transaction.
- Deliver Value – Provide something of Value to the customer, the solution to their issue or fulfillment of a desire, and then ensuring that they are satisfied with their purchase.
- Money – Being paid for the Value you are providing as well as managing all the financial aspects of your business.
A business must discover what its customers and prospective customers want and/or need, something that they find valuable enough to pay for. Something that will solve a problem for them or fulfill a want or desire that they have.
The business then needs to create, build or acquire that something of value that the prospective customer is looking for.
Then the business needs to inform its prospective customers that the solution to their problem exists, this is the marketing component and that you can provide it to them at a price that they consider reasonable relative to the value that they will receive.
The conclusion to a successful marketing campaign is then a sale of the solution that the prospective customer is looking for. Turning them from prospective customer into paying customer.
The sale is then followed up with fulfilling the “contract” of the sale by delivery of the purchased value, the solution itself. The business needs to get that solution into the hands of the customer that purchased it.
And finally collecting payment for the sale and managing the finances and accounting for the business in such a way that provides profit enough to the owner(s) that they consider their time, energy and effort worth while and they want to continue doing business.
Now depending on the particular product or service and your business model, sometimes the order of the 5 components can be slightly different, like the collection could happen before the delivery in the case of pre-paid goods and services, but all aspects of every successful business can still be broken down into the 5 categories of activities.
So, did that help you to determine What defines a business?
If you are looking for more details on the 5 Critical Elements of Every Business, you can check out my eBook on the topic.
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Have A Prosperous Day!