1.1 The Nature of Business - Introduction to Business | OpenStax (2022)

  1. How do businesses and not-for-profit organizations help create our standard of living?

Take a moment to think about the many different types of businesses you come into contact with on a typical day. As you drive to class, you may stop at a gas station that is part of a major national oil company and grab lunch from a fast food chain such as Taco Bell or McDonald’s or the neighborhood pizza place. Need more cash? You can do your banking on a smartphone or other device via mobile apps. You don’t even have to visit the store anymore: online shopping brings the stores to you, offering everything from clothes to food, furniture, and concert tickets.

A business is an organization that strives for a profit by providing goods and services desired by its customers. Businesses meet the needs of consumers by providing medical care, autos, and countless other goods and services. Goods are tangible items manufactured by businesses, such as laptops. Services are intangible offerings of businesses that can’t be held, touched, or stored. Physicians, lawyers, hairstylists, car washes, and airlines all provide services. Businesses also serve other organizations, such as hospitals, retailers, and governments, by providing machinery, goods for resale, computers, and thousands of other items.

Thus, businesses create the goods and services that are the basis of our standard of living. The standard of living of any country is measured by the output of goods and services people can buy with the money they have. The United States has one of the highest standards of living in the world. Although several countries, such as Switzerland and Germany, have higher average wages than the United States, their standards of living aren’t higher, because prices are so much higher. As a result, the same amount of money buys less in those countries. For example, in the United States, we can buy an Extra Value Meal at McDonald’s for less than $5, while in another country, a similar meal might cost as much as $10.

Businesses play a key role in determining our quality of life by providing jobs and goods and services to society. Quality of life refers to the general level of human happiness based on such things as life expectancy, educational standards, health, sanitation, and leisure time. Building a high quality of life is a combined effort of businesses, government, and not-for-profit organizations. In 2017, Vienna, Austria, ranked highest in quality of life, followed by Zurich, Switzerland; Auckland, New Zealand; and Munich, Germany. It may come as a surprise that not one of the world’s top cities is in the United States: seven of the top 10 locations are in western Europe, two are in Australia/New Zealand, and one is in Canada. At the other end of the scale, Baghdad, Iraq, is the city scoring the lowest on the annual survey.1 Creating a quality of life is not without risks, however. Risk is the potential to lose time and money or otherwise not be able to accomplish an organization’s goals. Without enough blood donors, for example, the American Red Cross faces the risk of not meeting the demand for blood by victims of disaster. Businesses such as Microsoft face the risk of falling short of their revenue and profit goals. Revenue is the money a company receives by providing services or selling goods to customers. Costs are expenses for rent, salaries, supplies, transportation, and many other items that a company incurs from creating and selling goods and services. For example, some of the costs incurred by Microsoft in developing its software include expenses for salaries, facilities, and advertising. If Microsoft has money left over after it pays all costs, it has a profit. A company whose costs are greater than revenues shows a loss.

When a company such as Microsoft uses its resources intelligently, it can often increase sales, hold costs down, and earn a profit. Not all companies earn profits, but that is the risk of being in business. In U.S. business today, there is generally a direct relationship between risks and profit: the greater the risks, the greater the potential for profit (or loss). Companies that take too conservative a stance may lose out to more nimble competitors who react quickly to the changing business environment.

(Video) 1.1 WHAT IS BUSINESS? / IB BUSINESS MANAGEMENT / nature of business, economic sectors, startups

Take Sony, for example. The Japanese electronics giant, once a leader with its Walkman music player and Trinitron televisions, steadily lost ground—and profits—over the past two decades to other companies by not embracing new technologies such as the digital music format and flat-panel TV screens. Sony misjudged what the market wanted and stayed with proprietary technologies rather than create cross-platform options for consumers. Apple, at the time an upstart in personal music devices, quickly grabbed the lion’s share of the digital music market with its iPods and iTunes music streaming service. By 2016, Sony restructured its business portfolio and has experienced substantial success with its PlayStation 4 gaming console and original gaming content.2

Not-for-Profit Organizations

Not all organizations strive to make a profit. A not-for-profit organization is an organization that exists to achieve some goal other than the usual business goal of profit. Charities such as Habitat for Humanity, the United Way, the American Cancer Society, and the World Wildlife Fund are not-for-profit organizations, as are most hospitals, zoos, arts organizations, civic groups, and religious organizations. Over the last 20 years, the number of nonprofit organizations—and the employees and volunteers who work for them—has increased considerably. Government is our largest and most pervasive not-for-profit group. In addition, more than 1.5 million nongovernmental not-for-profit entities operate in the United States today and contribute more than $900 billion annually to the U.S. economy.3

Like their for-profit counterparts, these groups set goals and require resources to meet those goals. However, their goals are not focused on profits. For example, a not-for-profit organization’s goal might be feeding the poor, preserving the environment, increasing attendance at the ballet, or preventing drunk driving. Not-for-profit organizations do not compete directly with one another in the same manner as, for example, Ford and Honda, but they do compete for talented employees, people’s limited volunteer time, and donations.

1.1 The Nature of Business - Introduction to Business | OpenStax (1)

Exhibit 1.3 Rescue boat Following Hurricane Irma affected The island of Puerto Rico, the Kentucky and Hawaii National Guard assisted storm victims by donating to disaster relief efforts. Some not-for-profit charities focused aid toward the people of the region, but others delivered care to a different group of sufferers: animals and pets. Although most animal hospitals are not normally a refuge for displaced animals, many facilities opened their doors to pet owners affected by the torrential rains. Why are tasks such as animal rescue managed primarily through not-for-profit organizations? (Credit: Hawaii and Kentucky National Guard /flickr /Attribution 2.0 Generic (CC BY))

The boundaries that formerly separated not-for-profit and for-profit organizations have blurred, leading to a greater exchange of ideas between the sectors. As discussed in detail in the ethics chapter, for-profit businesses are now addressing social issues. Successful not-for-profits apply business principles to operate more effectively. Not-for-profit managers are concerned with the same concepts as their colleagues in for-profit companies: developing strategy, budgeting carefully, measuring performance, encouraging innovation, improving productivity, demonstrating accountability, and fostering an ethical workplace environment.

In addition to pursuing a museum’s artistic goals, for example, top executives manage the administrative and business side of the organization: human resources, finance, and legal concerns. Ticket revenues cover a fraction of the museum’s operating costs, so the director spends a great deal of time seeking major donations and memberships. Today’s museum boards of directors include both art patrons and business executives who want to see sound fiscal decision-making in a not-for-profit setting. Therefore, a museum director must walk a fine line between the institution’s artistic mission and financial policies. According to a survey by The Economist, over the next several years, major art museums will be looking for new directors, as more than a third of the current ones are approaching retirement.4

(Video) What is a Business? | Introduction to Business

Factors of Production: The Building Blocks of Business

To provide goods and services, regardless of whether they operate in the for-profit or not-for-profit sector, organizations require inputs in the form of resources called factors of production. Four traditional factors of production are common to all productive activity: natural resources, labor (human resources), capital, and entrepreneurship. Many experts now include knowledge as a fifth factor, acknowledging its key role in business success. By using the factors of production efficiently, a company can produce more goods and services with the same resources.

Commodities that are useful inputs in their natural state are known as natural resources. They include farmland, forests, mineral and oil deposits, and water. Sometimes natural resources are simply called land, although, as you can see, the term means more than just land. Companies use natural resources in different ways. International Paper Company uses wood pulp to make paper, and Pacific Gas & Electric Company may use water, oil, or coal to produce electricity. Today urban sprawl, pollution, and limited resources have raised questions about resource use. Conservationists, environmentalists, and government bodies are proposing laws to require land-use planning and resource conservation.

Labor, or human resources, refers to the economic contributions of people working with their minds and muscles. This input includes the talents of everyone—from a restaurant cook to a nuclear physicist—who performs the many tasks of manufacturing and selling goods and services.

The tools, machinery, equipment, and buildings used to produce goods and services and get them to the consumer are known as capital. Sometimes the term capital is also used to mean the money that buys machinery, factories, and other production and distribution facilities. However, because money itself produces nothing, it is not one of the basic inputs. Instead, it is a means of acquiring the inputs. Therefore, in this context, capital does not include money.

Entrepreneurs are the people who combine the inputs of natural resources, labor, and capital to produce goods or services with the intention of making a profit or accomplishing a not-for-profit goal. These people make the decisions that set the course for their businesses; they create products and production processes or develop services. Because they are not guaranteed a profit in return for their time and effort, they must be risk-takers. Of course, if their companies succeed, the rewards may be great.

Today, many individuals want to start their own businesses. They are attracted by the opportunity to be their own boss and reap the financial rewards of a successful firm. Many start their first business from their dorm rooms, such as Mark Zuckerberg of Facebook, or while living at home, so their cost is almost zero. Entrepreneurs include people such as Microsoft cofounder Bill Gates, who was named the richest person in the world in 2017, as well as Google founders Sergey Brin and Larry Page.5 Many thousands of individuals have started companies that, while remaining small, make a major contribution to the U.S. economy.

Catching the Entrepreneurial Spirit

StickerGiant Embraces Change

Entrepreneurs typically are not afraid to take risks or change the way they do business if it means there is a better path to success. John Fischer of Longmont, Colorado, fits the profile.

The drawn-out U.S. presidential election in 2000 between Bush and Gore inspired Fischer to create a bumper sticker that claimed, “He’s Not My President,” which became a top seller. As a result of this venture, Fischer started an online retail sticker store, which he viewed as possibly the “Amazon of Stickers.” Designing and making stickers in his basement, Fischer’s start-up would eventually become a multimillion-dollar company, recognized in 2017 by Forbes as one of its top 25 small businesses.

The StickerGiant online store was successful, supplying everything from sports stickers to ones commemorating rock and roll bands and breweries. By 2011, the business was going strong; however, the entrepreneur decided to do away with the retail store, instead focusing the business on custom orders, which became StickerGiant’s main product.

As the company became more successful and added more employees, Fischer once again looked to make some changes. In 2012 he decided to introduce a concept called open-book management, in which he shares the company’s financials with employees at a weekly meeting. Other topics discussed at the meeting include customer comments and feedback, employee concerns, and colleague appreciation for one another. Fischer believes sharing information about the company’s performance (good or bad) not only allows employees to feel part of the operation, but also empowers them to embrace change or suggest ideas that could help the business expand and flourish.

Innovation is also visible in the technology StickerGiant uses to create miles and miles of custom stickers (nearly 800 miles of stickers in 2016). The manufacturing process involves digital printing and laser-finishing equipment. Fischer says only five other companies worldwide have the laser-finishing equipment StickerGiant uses as part of its operations. Because of the investment in this high-tech equipment, the company can make custom stickers in large quantities overnight and ship them to customers the next day.

This small business continues to evolve with an entrepreneur at the helm who is not afraid of making changes or having fun. In 2016, StickerGiant put together Saul the Sticker Ball, a Guinness World Records winner that weighed in at a whopping 232 pounds. Fischer and his employees created Saul when they collected more than 170,000 stickers that had been lying around the office and decided to put them to good use. With $10 million in annual sales and nearly 40 employees, StickerGiant continues to be a successful endeavor for John Fischer and his employees almost two decades after Fischer created his first sticker.

(Video) 1.1.1 The dynamic nature of business GCSE Business

Questions for Discussion

  1. How does being a risk-taker help Fischer in his business activities?
  2. If you were a small business owner, would you consider sharing the company’s financial data with employees? Explain your reasoning.

Sources: “All About StickerGiant,” https://www.stickergiant.com, accessed May 29, 2017; Bo Burlingham, “Forbes Small Giants 2017: America’s Best Small Companies,” Forbes, http://www.forbes.com, May 9, 2017; Karsten Strauss, “Making Money and Breaking Records in the Sticker Business,” Forbes, http://www.forbes.com, January 26, 2016; Emilie Rusch, “StickerGiant Does Big Business in Tiny Town of Hygiene,” Denver Post, April 19, 2016, http://www.denverpost.com; Eric Peterson, “StickerGiant,” Company Week, https://companyweek.com, September 5, 2016.

(Video) Introduction to Business Chapter 1

A number of outstanding managers and noted academics are beginning to emphasize a fifth factor of production—knowledge. Knowledge refers to the combined talents and skills of the workforce and has become a primary driver of economic growth. Today’s competitive environment places a premium on knowledge and learning over physical resources. Recent statistics suggest that the number of U.S. knowledge workers has doubled over the last 30 years, with an estimated 2 million knowledge job openings annually. Despite the fact that many “routine” jobs have been replaced by automation over the last decade or outsourced to other countries, technology has actually created more jobs that require knowledge and cognitive skills.6

Concept Check

  1. Explain the concepts of revenue, costs, and profit.
  2. What are the five factors of production?
  3. What is the role of an entrepreneur in society?

FAQs

What is nature of business in business? ›

The nature of business also refers to the structured technique of describing a company. This idea describes the type of business. It also describes the services it provides. Moreover, the nature of business meaning describes what a company addresses. It describes the major focus of the company's goods or services.

What are the types of nature of business? ›

There are 4 main types of business organization: sole proprietorship, partnership, corporation, and Limited Liability Company, or LLC.

What is business in introduction to business? ›

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or non-profit organizations. Business types range from limited liability companies to sole proprietorships, corporations, and partnerships.

What is the importance of nature of business? ›

It provides a source of income to the society. Business results into generation of employment opportunities thereby leading to growth of the economy. It brings about industrial and economic development of the country.

What is the nature of business example? ›

What is this? The nature of business is a statement about a company's offering to its clients, its industry, legal structure, or any other distinctive qualities of the business. For example, if you say a company in the “private sector”, you evaluate the nature of the company based on its nature to earn profits.

How do you write the nature of a business? ›

To write a complete description of your business, follow these simple suggestions.
  1. Legal Entity and Ownership. Describe the ownership and legal establishment of the company. ...
  2. Identify Your Type of Business. ...
  3. Write a Problem Statement. ...
  4. Describe Your Business Operations.

What is nature and scope of business? ›

Nature and Purpose of Business :

It includes the activities of production or purchase and distribution. It deals in goods and services. It implies regularity of transactions. It aims at earning profits through the satisfaction of human wants. It involves risk; it is not certain that adequate profit will be earned.

What is the nature of business management? ›

Nature of Management:

Goal-Oriented: The most significant aim of all management pursuit is to achieve the purposes of a firm. The aims must be practical and reachable. Supreme in Thought and Action: Managers set achievable goals and then direct execution on all aspects to achieve them.

What is nature of small business? ›

Meaning of Small Business

Small businesses are independently owned organisations that require less capital and less workforce and less or no machinery. These businesses are ideally suited to operate on a small scale to serve a local community and to provide profits to the company owners.

What are the 4 main types of businesses? ›

The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation.

What is the concept of business? ›

A company's business concept is about the direction and form of its operations. If it is apparent to you that the company's success lies in its intangible assets, think carefully about protecting them at an early stage. A business concept is a fundamental prerequisite for the existence of a company.

Why do we study introduction to business? ›

It provides the academic knowledge and skills to pursue global career opportunities and helps you develop a broad understanding of businesses and specific areas such as finance and human resources.

What are the nature of business economics? ›

Usually, Business Economics is normative in nature. It offers suggestions for the application of economic principles while forming policies, making decisions, and planning for the future. However, firms must understand their environment thoroughly to establish decision rules.

What are the nature of business ethics? ›

Based on moral and social values: Business ethics is based on moral and social values. It contains moral and social principles (rules) for doing business. This includes self-control, consumer protection and welfare, service to society, fair treatment to social groups, not to exploit others, etc.

What is nature of product in business? ›

Nature of products must be considered in terms of the total product offering. The term 'product' covers goods, services, ideas and information. In reality, most products are combinations of these items. Service-based products tend to be intangible in nature.

How many types of nature of business are there? ›

Typically, there are four main types of businesses: Sole Proprietorships, Partnerships, Limited Liability Companies (LLC), and Corporations.

What are the three types or nature of business activities? ›

The three main types of business activities are operating, financing, and investing activities. The prime purpose of these classifications comes into highlight while preparing the cash flow statements.

How can I write about my business? ›

What should I include in a company overview?
  1. Basic company information. Consider the company overview like an introduction for your business. ...
  2. Ownership and management team. ...
  3. Company history. ...
  4. Mission statement. ...
  5. Product/service and customer. ...
  6. Future goals. ...
  7. Start with the elevator pitch. ...
  8. Stick to the basics.

How would you describe the nature of work? ›

Nature of work refers to the type of work and duties you may perform at your place of employment. The level of work can showcase your experience and your position in a company. When you observe job openings, you might see the nature of work and the level of work listed as job description and job title, respectively.

What is the role of business? ›

The role of a business is to produce and distribute goods and services to satisfy a public need or demand.

What are functions of business? ›

Business functions are the activities carried out by an enterprise; they can be divided into core functions and support functions. Core business functions are activities of an enterprise yielding income: the production of final goods or services intended for the market or for third parties.

What is a business definition PDF? ›

business as “The regular production or purchase and sale of goods undertaken with an objective. of earning profit and acquiring wealth through the satisfaction of human wants.”

What are the five nature of management? ›

Henry Fayol: According to Fayol, the process of management includes five functions: Planning, Organising, Commanding, Coordinating and Controlling.

What is mean by nature of management? ›

The nature of management involves organizing people in groups and managing them. It requires different levels of empathy, understanding and dynamism. In addition to taking care of social and emotional well-being, the process involves developing, motivating and retaining employees.

What is the nature and scope? ›

nature and scope of the activities means the broad categories of the outputs produced and of the markets to which they are provided; Sample 1Sample 2Sample 3.

How do you manage a business? ›

To give yourself a fighting chance in making a success of your business, you should do the following:
  1. Know your business. ...
  2. Know the basics of business management. ...
  3. Have the proper attitude. ...
  4. Get adequate funding. ...
  5. Manage your money effectively. ...
  6. Manage your time efficiently. ...
  7. Know how to manage people. ...
  8. Satisfy your customers.

What are the 5 types of small business? ›

Small businesses can choose to organize as a sole proprietorship, partnership, corporation, S corporation or limited liability company.

What is the importance of small business? ›

Small businesses are important because they provide opportunities for entrepreneurs and create meaningful jobs with greater job satisfaction than positions with larger, traditional companies. They foster local economies, keeping money close to home and supporting neighborhoods and communities.

How is a business structure? ›

A business structure describes the legal structure of a company that influences the day-to-day operations of a business. A sole proprietorship and partnership are simple to set up since they are not required to meet ongoing requirements such as shareholder meetings and voting.

What is the classification of business? ›

The three classifications of business include primary sector, secondary sector, and tertiary sector business.

What is characteristic of business? ›

The characteristics of business are :- Economic activity: Business is considered as an economic activity since it is carried out with the purpose of earning money. Buying and selling: Business involves buying and selling of goods and services. Goods produced for own consumption is not considered as business.

What is the business answer? ›

Business is an economic activity which results in earning profit. The activities include purchase and production of goods and services for the satisfying the needs of the customers.

What is business and its forms? ›

Business is an enterprise or activity with the intention to make profits. It can be in the form of a company, partnership, organization, sole proprietorship, occupation, or any entity that undertakes commercial, industrial, charitable, or professional activities to earn profits.

What are the goals of business education? ›

The main goals of business education programs are to teach the processes of decision making; the philosophy, theory, and psychology of management; practical applications; and business start-up and operational procedures.

What is a business major? ›

A business major is for students seeking a broad-based education in many areas of business, with the option to specialize. Students will learn how different types of companies function in local and global economies. With a business/commerce general major, students have broad career options.

What is nature of small business? ›

Meaning of Small Business

Small businesses are independently owned organisations that require less capital and less workforce and less or no machinery. These businesses are ideally suited to operate on a small scale to serve a local community and to provide profits to the company owners.

How many types of nature of business are there? ›

Typically, there are four main types of businesses: Sole Proprietorships, Partnerships, Limited Liability Companies (LLC), and Corporations.

What are the three types or nature of business activities? ›

The three main types of business activities are operating, financing, and investing activities. The prime purpose of these classifications comes into highlight while preparing the cash flow statements.

What is nature of product in business? ›

Nature of products must be considered in terms of the total product offering. The term 'product' covers goods, services, ideas and information. In reality, most products are combinations of these items. Service-based products tend to be intangible in nature.

How do you manage a business? ›

To give yourself a fighting chance in making a success of your business, you should do the following:
  1. Know your business. ...
  2. Know the basics of business management. ...
  3. Have the proper attitude. ...
  4. Get adequate funding. ...
  5. Manage your money effectively. ...
  6. Manage your time efficiently. ...
  7. Know how to manage people. ...
  8. Satisfy your customers.

What are the 5 types of small business? ›

Small businesses can choose to organize as a sole proprietorship, partnership, corporation, S corporation or limited liability company.

What is the importance of small business? ›

Small businesses are important because they provide opportunities for entrepreneurs and create meaningful jobs with greater job satisfaction than positions with larger, traditional companies. They foster local economies, keeping money close to home and supporting neighborhoods and communities.

What is nature and scope of business? ›

Nature and Purpose of Business :

It includes the activities of production or purchase and distribution. It deals in goods and services. It implies regularity of transactions. It aims at earning profits through the satisfaction of human wants. It involves risk; it is not certain that adequate profit will be earned.

What is the nature of business management? ›

Nature of Management:

Goal-Oriented: The most significant aim of all management pursuit is to achieve the purposes of a firm. The aims must be practical and reachable. Supreme in Thought and Action: Managers set achievable goals and then direct execution on all aspects to achieve them.

What are the nature of business ethics? ›

Based on moral and social values: Business ethics is based on moral and social values. It contains moral and social principles (rules) for doing business. This includes self-control, consumer protection and welfare, service to society, fair treatment to social groups, not to exploit others, etc.

What are the three types of business explain with examples? ›

The 3 types of business entities that are most common are the sole proprietorship, limited liability company (LLC), and corporation. Each has their own distinct advantages and disadvantages, depending on what you and your business need.

What are the 4 main business activities? ›

Some fundamental operating activities for a business are sales, customer service, administration and marketing. These activities are part of the normal functioning of a business that affects its monthly, quarterly and annual income and profits.

What are the objectives of business? ›

Business objectives are the specific and measurable results companies hope to maintain as their organization grows. Entrepreneurs and business leaders must track performance in every part of their business to make sure they're moving in the right direction.

What is business nature risk? ›

Nature of Business Risk

Business risk arises due to uncertainties. Uncertainty is when it is not known what is going to happen in future. Examples of uncertainties that affect a business are, change in government policy, change in demand, change in technology, etc. 2. Risk is an essential part of the business.

What is the nature of the service? ›

Nature of Services

The definition of service is “any intangible product, which is essentially a transaction and is transferred from the buyer to the seller in exchange for some consideration (or no consideration).

What is the nature of the market? ›

1.1 The nature of markets

A market is any effective arrangement for bringing buyers and sellers together, not necessarily face-to-face, to enable trade to take place. The forces of supply and demand meet and react in a market. Prices are established and buyers and sellers give signals and incentives to each other.

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