What is a Business?

Bob Vinson
November, 2022

What IS a business?  We all know what a business is; or do we?  Is a non-profit a business?  Is a charity a business?  Is a government agency a business?  I would say yes to all of those.

A business is a collaboration intended to produce value in the face of risk.

Very straight forward, yes?  No.  The problem is, what is valuable?  Who determines value?

Value creation occurs when the acquired outputs from a particular process exceed the value of the inputs.  Generally this produced value is in the form of products or services intended to be consumed by other than the producer.  These consumers then determine the end values delivered.

This implies a chain of differing values from the supplier to the producer and from the producer to the consumer.

It has been pointed out that it is the willingness of an organization to take on risk that justifies its existence.  Here is the primary business risk.  Producers pay for value in the form of inputs, ostensibly add value through their production processes, and then offer what they hope to be the value-added output to customers.  However, customer values constantly fluctuate and there are no guarantees that customers will value a particular producer’s products.

In part it is the variability of consumer values that drives the creation and introduction of new products and services.  Conversely, new products and services can induce changes in values in the consumer ranks.  Just recently such things as audio and video streaming, electric automobiles, the internet of things (IoT), mobile devices, home food delivery, have had major impact on the consumer values map.

However, there also is a long history of producers offering products that no one wanted.  For instance:

  • New Coke – Introduced in 1985 and cancelled within the same year.
  • United States Football League (USFL) – Founded in 1982, discontinued in 1985.
  • Ford Motor Company’s Edsel – Introduced in 1957, ceased production two years later.
  • Crystal Pepsi – Lasted two years.
  • Apple Lisa – 1983-1985
  • Many more

 For various reasons, none of these expensively developed and marketed products from big producers offered a value proposition sufficient to entice consumers.

There are really three groups driving the changes in consumer values: the consumers themselves; the producers; especially through marketing and advertising, and the competition among producers to come out with new and/or improved products that entice more of the market.  It is this three-way, self-reinforcing set of influences among consumers, producers and competitors that forces increased value production in the market.