What Is A Business?

Shoe fixing

Cobblers on the street in India photo credit: yumievriwan

You’ll already know some of the things I’m going to tell you, and there’s other stuff that will seem obvious, but there’s plenty you probably will not have heard, and each of you has a different level of understanding and a different set of knowledge, so bear with me.

What is a business? Businesses come in lots of different forms, large, small, private, public, for-profit, not-for-profit, a single person working out of a little hole in the wall on a street in India, to 50,000 people working on designing and building networking equipment in Silicon Valley. What do they all have in common? They take a set of materials – or perhaps immaterials like peoples’ minds – and with those materials create something that is – hopefully – more valuable than the sum of the cost of the materials.

In this case, “value” has a very specific meaning – that someone will pay for it.

So, as an example, think about someone who makes shoes. They take leather and plastic and thread, and the labor of one or more people, and some machines, and turn those into shoes. They then sell them – if they can, if the “market” thinks the shoes are valuable.

A successful business is one where the value of the thing produced – again, as determined by “the market” – is higher than the cost of the materials (and labor) that went into it.

In a law firm, the material is all immaterial – it’s the brains of the attorneys and their minions, and the product is advice, advocacy, etc. The client of a lawyer feels that the value of that advice or advocacy is higher than the value of the money he or she paid for it. How does this occur? For example, the advice could prevent a lawsuit. Or the advocacy could result in the client being paid a significant sum in damages. Or avoid having to pay a significant sum in damages.

There’s the basic concept of a successful business – take some materials and labor, create something with it, and sell it for more than it cost to make.

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