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What is Business?

What is Business?

Author: James Howard
Description:

This lesson gives an overview of the basics of business. 

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Hello and welcome to this short tutorial on what is business. Now, as always with these tutorials, please feel free to fast-forward, to pause, or to rewind as many times as you think you need in order to get the most out of the time you spend here.

Now, let me ask you a question. When I say the term, "business," what do you think of? Do you think of businesses in general? Do you think of the study of business, like we're doing now? Do you think of a small mom and pop grocery store down the street? Or perhaps a larger company, like, I don't know, the Levi Strauss Company?

Well, during this tutorial, what we're going to be covering is what is business, answering that question. We're also we looking at some basic business economics and entrepreneurship. Now, the key terms for this lesson are going to be business, profit, loss, the free enterprise system, entrepreneur, microeconomics, and macroeconomics.

So let's get started with business. What is it? Well, a business is simply an organization that attempts to earn a profit through the sale of goods or services. And those goods or services can be practically anything you can think of. What they all have in common, though, is they fulfill a need or a want in our everyday life. A need, like food, clothing, shelter. Or a want, like the brand new Sea-Doo, or the latest model car, or the latest model electronic device, things that we don't necessarily need to survive, but we want.

So what do businesses do? Well, they help create quality of life by providing those goods and services, those wants and needs that we consume every day. They also provide a choice for what it is we want to buy. Do I want to buy an Apple? Do I want to buy a Mac, or do I want to buy a PC, as an example. And they provide opportunities not only for us as consumers, with this wide array of products that we have to choose from, but they provide opportunities for new startup companies to enter the market and exploit a niche in the market, a gap in those want and needs that they see. And they provide opportunities for jobs for people like you and me.

So why study business? What is important about it? Well, the study of business impacts your job and your job search. And this is regardless of the field that you're in. Understanding what's going on around you and the terms of business not only helps you make you a better employee, it also helps make you a more valuable and more sought-after employee also.

It helps you be a better consumer. Understanding the terminology of business can help you understand, hey, am I getting a good deal on this loan? Or maybe I need to look somewhere else.

Profit, now profit in a business is what remains after all business expenses have been deducted. And a loss is exactly the opposite. That's when expenses become larger or greater than sales or revenue. Then there's a loss.

Profits are always good. Losses, as you can probably guess, not so much. A profit means you're being successful, and you're able to pay your employees and grow your business and expand and stay in business. A loss means you may not be in business for very much longer.

Now the free enterprise system is defined as a market system with little control and regulation of the business-- and this is by the government. That's what we're talking about here. In this capitalistic system, consumers are free to choose. They're free to choose what products they want to buy, what wants or needs they want to fulfill, and how they want to fulfill them, how much they want to pay for those services. And by doing this, they help guide something called the invisible hand.

Now, the invisible hand was an idea that was first introduced by a man named Adam Smith in his famous book, The Wealth of Nations. By invisible hand, we mean that hand that guides the market in a free enterprise or capitalistic system. There's no central authority or central planning that tells the market what it produces and where it sells it and for how much. The consumers and the businesses make that choice by signals they get from each other.

Take the humble pencil, for example. Think about what it takes to take a simple pencil and put it in your hand. You have to find the wood, the graphite lead, the rubber the metal for the erasers. You have to find places to process all that stuff, to manufacture it, to deliver it, to sell it. And then you have to have all the support that goes along with all those employees for each individual business. And all this happens without any central authority telling it what to do. It's pretty amazing, if you think about it.

So basic economics of business. Well, the first thing we want to look at here is microeconomics. Now, microeconomics is an area of economic study that focuses on specific markets, choices, and behaviors that affect price, cost and demand.

Think of this as that individual transaction you have with an everyday business. Those small things, like how much can a business charge before the consumer stops buying. How much is a consumer willing to pay? How much of something will they want to buy? And how often will they come back to buy it?

Macroeconomics, on the other hand, is kind of a wider field of study. It's an area of study that focuses on the impact of variables on economic infrastructure in its entirety. Now this can be on a regional, national, or global level.

If you listen to the business news, you'll hear terms thrown around, like the consumer price index, or what the market's doing, or maybe what the Fed wants to do with interest rates, by increasing or decreasing the amount of available money in the market. And these are all things that have to do with the economy of the United States as a whole. And that's that macroeconomic view, that larger picture.

So entrepreneurship-- now, entrepreneurship tends to attract highly creative people that are growth and expansion focused. And what they do is they help fill these unfilled needs and wants within the market. They help drive that invisible hand that we were talking about earlier.

In fact, if we look at the definition of an entrepreneur, what we'll see, it's a person who pursues a business venture with growth and expansion as a primary goal. Just because you start a business, doesn't necessarily mean you're an entrepreneur. Growth and expansion are going to be one of your primary goals, to be called an entrepreneur by this definition.

Levi Strauss and Company was started by a man named Levi Strauss. And he partnered with someone called Jacob Davis. Now, what they identified at the time was a need. And they helped fill that need.

Workers at the time, back in the late 1800s, were going through clothes very rapidly. They were ripping and tearing. And they used denim to patch those holes.

Well, first, they created a set of coveralls. Then they created a set of jeans that lasted much, much longer. They filled that need to have durable clothing. Over time, the company has grown not only to provide a need, clothing, but also to provide a want, that 501 that I have to have.

Another example of an entrepreneur will be Arianna Huffington. Now, she started something called The Huffington Post. Now, again, she found a niche in the market.

In this case, the gap in the marketplace that they found was the Drudge Report was wildly popular, but there wasn't a liberal version of it to take that side of the news. So that's what The Huffington Post became. And they focused on daily trends within the news. And they focused a lot of different articles on those daily trends.

They didn't worry about how many articles, necessarily, that they have, they just threw a whole lot at them. And what they found was they were getting home runs every once in awhile. And they didn't worry so much about the misses because the home runs were what made their name. Basically, they found something that worked, and they put resources into it.

So to recap, what did we talk about? Well first, we looked at what business is. We defined what is this thing we call business. We looked at basic business economics, that micro and macroeconomic view of the economy in general. And we talked about entrepreneurship, those highly creative people who are growth focused, who fill those gaps in the market and help drive our invisible hand.

Well, I want to thank you, a lot, for spending some time with me. I hope you enjoyed it, and I'll see you next time.

TERMS TO KNOW
  • Business

    An organization that attempts to earn a profit through the sale of goods or services.

  • Loss

    When expenses are greater than sales - there is a loss.

  • Free Enterprise System

    A market system with little control and regulation of business (by the government).

  • Entrepreneur

    A person who pursues a business venture with growth and expansion as a primary goal.

  • Microeconomics

    An area of economic study that focuses on specific markets, choices, and behaviors that affect price, cost and demand.

  • Profit

    When revenue and sales are greater than expenses - there is a profit.