Business
A businss is a legally recognized enterprise or organized activity that obtains, creates or manufactures products or services and then sells them to customers on a continuing basis. Running a business requires leadership and includes management of finances, personnel, procurement, manufacturing, marketing and sales. This is true for a large corporation, as well as a one-person operation.
If you are an entrepreneur, business owner or manager, you need to know how to run your organization effectively to expand or grow the business. The purpose of these lessons is to give you a start at improving your business skills.
After completing the lessons, you should be able to operate your business in a way that you will have greater profits, reduced costs, and a competitive advantage, such that you can become a champion in your field. If you have any questions,
Definitions of Basic Business Terms
If you are involved in business, there are various words and terms used in business that you should understand. The following list defines major business terms. The list is by no means comprehensive, but it gives a good background on what certain words mean in business. It is worthwhile to understand the terms used, when studying business.
Questions you may have include:
• What are the basic terms?
• What do they mean?
• How are they used?
Basic terms
A business is an enterprise or entity that provides products or services to customers. Business is doing commercially viable and profitable work. Commerce is buying and selling products or services.
A business: A legally recognized organization or organized effort that operates with the objective of earning a profit from the sale of goods or services
Alliance: Close association of groups or businesses
Business: The activity in which you participate in order to earn money (i.e. "I'm in the computer business.")
Client: A regular customer that receives your professional services
Commerce: The buying and selling of goods
Company: Usually considered a business that has employees.
Contract: A formal agreement to do work for pay
Consultant: A person hired to give advice to business management
Contractor: One who agrees to do perform a service or deliver a product for a fee
Customer: The person or company that purchases and pays for product or service; note that the customer may not be the user of the product; also note that some companies think in terms of internal and external customers
Delivery: When the product is delivered to the customer or the job is completed
e-Commerce: Buying and selling done over the Internet
Employee: A person working for a company
Enterprise: An industrious, systematic activity, especially when directed toward profit; A business organization
Firm: A commercial partnership of two or more people, especially when unincorporated
Internal customer: The person or department within a company that provides you or your area with money in exchange for delivery of products or services
Marketing: The commercial functions involved in transferring goods from producer to consumer
Product: Something produced; goods
Proposal: A formal document given to customer that outlines proposed work to be done by the business
ROI: Return-on-investment; how much money a business gets from a capital investment that is intended to improve profits
Service: Work done for others; changing the state of a product, which is then delivered; for example, cleaning a dirty floor results in "delivering" a clean floor to the customer
Supplier: The person or company that provides goods or services needed to do your job
User: The person or company that uses a purchased product or service; could also be called the consumer
Basic Steps in Starting a Business
by Ron Kurtus (3 October 2004)
A business is an organized activity to sell a product or service to various customers on a regular basis. To start a business enterprise, you first need a good idea and a plan of action. Then you must implement your plan by gaining financing, getting the product or service to sell, finding prospects, selling and making the exchange.
Questions you may have about this are:
• What is the criteria for being in business?
• How do you get a good idea?
• How do you implement your plan of action?
Criteria for a business
The criteria for being in business is that you provide a product and/or service on a regular basis to a number of customers.
Selling on regular basis
A person selling a car or other property is involved in a business activity, but since it is a one-time operation, it is not considered a business enterprise. If the selling is done on a fairly regular basis, it can then be classified as a business.
Selling to more than one person
With providing services in exchange for money, a person usually does it on a regular basis. For example, a boy who mows lawns during the summer in his neighborhood is in business. On the other hand, if the boy is mowing the lawn of only one neighbor, he is no longer in business. Instead, he has a job.
Idea
Every new business starts with a great idea. Usually, the entrepreneur is motivated by wanting to run his or her own business and making a lot of money. There may be other personal motivations such as self-expression or wanting to make a difference in society.
Typically, the entrepreneur hears about something in an area of interest and skill that triggers the idea of a product or service that would be in demand.
Henry Ford saw others making cars and felt he could do it better and cheaper. Steve Jobs saw some of the new personal computers and got the idea of making his own version of user-friendly computer. Michael Dell saw how personal computers were being made and thought it would be a good business to get into.
Plan of action
The next phase in starting a business is to develop a plan of action. In many cases--especially when substantial funding is required--a formal business plan is written. But there are many businesses that start with informal plans that may change as the situation requires.
Next the plan is implemented.
Funding
Some entrepreneurs get funding to begin their businesses from their own savings. Others may present their business plan to venture capitalists to get seed money.
Get product or service
The product may be purchased or built. The entrepreneur may make him- or herself or hire others to make the product.
The service may be done by the entrepreneur or people may be hired to perform the service.
Get prospects
Marketing efforts are required to find prospective buyers and make them aware that the product or service is available, as well as the benefits and advantages of the goods.
It is necessary to meet with the prospects to demonstrate the product and convince them to buy.
Make exchange
Once the customer is convinced and a price is negotiated, you make the exchange. You deliver the product or service and they pay for it.
Repeat process
Some of the profits will pay for more products and marketing efforts, resulting in more demonstrations and sales. The business is up and running.
Measuring Your Business
by Ron Kurtus (revised 9 August 2000)
To improve your business, you must be able to truly verify that improvement. Some companies have a large amount of business but yet show diminishing profits. Others have such a great profit margin that they are pricing themselves out of business. What is needed is a good means of measurement. As quality guru W. Edwards Deming once said, "What you measure, you improve."
When to measure
Measuring how your business is doing should be made both before and after any improvement program. Obviously, the exact same measurement method and conditions should be used in both cases.
Do not assume the present company performance metrics are valid. Often they are skewed or overlook not-so-obvious areas for improvement.
Broad metrics
First look at very broad metrics for your business, such as cost and customer satisfaction.
Cost
How much does your product cost you? This includes the cost to make or purchase the product plus sales, delivery, service and repair costs. These are hard figures that are caused by many factors that can be improved.
Often companies do not include the cost to service and repair their products in the overall cost. Of course your profit is what the customer pays less your overall cost.
Customer satisfaction
How satisfied is the customer with the product? Will the customer buy from you again? Does the customer refer your company or business to others, giving you word-of-mouth advertising?
This measurement is often a soft metric, depending on opinions and surveys. Often the truth is difficult to determine. The amount of advertising necessary to get in business is an indirect measure of customer satisfaction in many cases.
Ask your customers if they are happy with your products and services. Find out where customers heard about you. Keep track of how much business is repeat business, as opposed to new business.
Specific metrics
Within the broad metrics there are more specific metrics that can be taken. These will point to areas where improvements can be made.
Costs from suppliers
The cost of goods from suppliers should be measured. Comparison of the prices for goods versus key items should be made:
• Timeliness - do you deliver when promised?
• Turnaround time to deliver goods
• Reliability of supplier to deliver
• Reliability and quality of product
• Percentage of rejected or unacceptable product
Cost of workers
Workers are essentially internal suppliers. A similar list of metrics apply to them:
• Timeliness
• How fast do they work?
• How reliable is the worker?
• What is the quality of his product?
• How must time and material does he waste?
Cost of process
The same metrics that apply to your suppliers apply to your business with respect to your customers. Much of this has to do with your internal processes and how you run your business.
Organizing Your Business
by Ron Kurtus (revised 14 February 2000)
A first step in improving your business is to make sure it is well organized. It is surprising how many businesses have been careless about this step. Some such companies may be mildly successful, but they could be even more profitable if they paid attention to the basics of organization.
Questions you may have about this are:
Starting point
Whether you are starting a new company or improving an existing one, it is important to have a business mission, concept, and vision.
You need to define the purpose or mission of your business. Much of this has to do with the motivations of the leadership. Then you must have a business concept, model, or terrific idea of some product or service that will sell. Finally, in order to improve, you must have a vision or goal of where you want to end up.
Organization methods
Once you have established or re-defined the groundwork for your business, you can use various methods and standards to improve the operation and organization of your business.
ISO 9000 standards
A very good way to organize the way your business operates is by following the ISO 9000 standards. You do not necessarily have to become certified in ISO 9000, but you can still use the standards as a guide in how to effectively operate your business.
(Details are explained in later lessons in: Organize Your Business with ISO 9000.)
Re-engineering
Re-engineering has been a management fad in recent years. Unfortunately, it has been misapplied and used as a way to eliminate workers. A business or company that has been in existence for a while usually has an operation structure in place. It may be necessary to drastically alter that structure and re-organize and become more effective.
Benefits
Organizing is a form of planning. It has been shown that setting a good structure can make any organization more effective and efficient.
Good organization results in reducing losses due to duplicate work or unclear objectives. All personnel do better work, because they know what they should be doing and what their place is in the scheme of things.
A well-run company is in a stronger position in the competitive marketplace. Not only are profits higher, but repeat business is enhanced.
