Unit 1: Businesses, Competition, and New Ideas

Business

An organization that produces and distributes goods or services to address customers' problems, needs, or wants. Every business, from a corner shop to a global firm, starts as an idea and seeks to become viable by selling something people will pay for.

Good vs. service

A good is a physical product a customer can hold or use. A service is an activity or benefit provided to a customer. In this course, "product" often means a good, a service, or a combination of the two. The distinction between goods and services matters because they have different cost structures and different ways of reaching customers.

Customer vs. consumer

The customer is the individual or business that purchases a product. The consumer is the individual who uses it, whether or not they are the buyer. They are often the same person, but not always. A parent who buys a toy is the customer, and the child is the consumer, and marketing decisions can hinge on the difference.

Market opportunity

A customer problem, need, or want that a business could address with a product or service. Entrepreneurs then test whether the opportunity is desirable, feasible, and viable. Identifying a real market opportunity is the starting point of the entrepreneurial process and the first task of the Business Canvas Project.

Problem-solution fit

The match between a validated customer problem and a product designed to solve it. Entrepreneurs test for problem-solution fit before investing heavily, because a great product that solves a problem no one has will not sell.

Value creation

Providing something customers find useful or worthwhile. A business creates value when its product genuinely addresses a customer's problem, need, or want.

Value capture

Turning the value a business creates into revenue by charging more for a product than it costs to produce. A business can create real value and still fail if it cannot capture enough of it to survive.

Market

A physical or virtual space where buyers and sellers exchange goods and services. The voluntary exchange in a market generates revenue for sellers and delivers value to buyers.

Revenue

The money a business earns from selling its goods or services. Revenue is the top line of an income statement, and it differs from profit, a distinction the exam tests often.

Profit

What remains after costs are subtracted from revenue. A business can raise profit by increasing revenue, cutting costs, or both, and most strategic decisions come back to one of those levers.

Competitive advantage

A business's ability to outperform rivals in the same market, which can lead to greater market share and higher profits. Businesses pursue it by producing more efficiently, differentiating their product, or building barriers that keep competitors out.

Market share

A business's portion of total sales in its market. Gaining market share is a common goal, and it is one reason a company might accept lower prices or higher costs in the short run.

Differentiation

Making a product meaningfully distinct from competitors' products, whether through quality, features, design, or brand. Differentiation lets a business compete on something other than price.

Commodity

A product that is largely interchangeable with competitors' versions, which tends to force competition down to price. When a product becomes a commodity, differentiation is hard and margins are thin.

Barrier to entry

An obstacle that makes it difficult for new competitors to enter a market, such as high startup costs, intellectual property, or established low prices. Businesses build barriers to entry to protect a competitive advantage.

Monopoly

A market with a single seller of a unique good or service. A monopolist maintains its position largely by sustaining barriers to entry that keep rivals out.

PESTEL factors

The external forces that shape business conditions: Political, Economic, Social, Technological, Environmental, and Legal. Businesses use the PESTEL framework to judge whether a market is attractive and what outside risks it carries. These are all external by definition, a point the exam likes to test against internal SWOT factors.

Internal, market, and external factors

Internal factors come from inside a business, such as employees, costs, resources, or core competencies. Market factors involve customers, competitors, suppliers, substitutes, and industry conditions. External factors are the broader forces outside the business, such as political, economic, social, technological, environmental, and legal changes. Sorting a situation into the right category is a core skill the exam tests throughout the course.

Business viability

A business's ability to survive and earn enough revenue to cover its costs over time. Changes in PESTEL factors, competition, or costs can all threaten viability.

Entrepreneur

A person who starts or develops a business and accepts the risks in exchange for possible rewards. The entrepreneurial process runs from spotting a market opportunity to validating it and bringing a product to market.

Validation

Gathering evidence that a customer problem or product idea is real and worth pursuing, usually through observing, interviewing, or surveying potential customers. Validation turns a hunch into a defensible business decision.

Prototype

An early model or version of a product idea, which may be a sketch, a description, or a working model. Entrepreneurs build prototypes to gather feedback before committing to full production.

Minimum viable product (MVP)

The simplest version of a product that has only its core features, used to test the idea with real customers. The MVP exists to learn quickly and cheaply whether the idea works, not to be the finished product.

Core values and core competencies

Core values are the beliefs and principles that guide a person's or business's decisions, such as transparency or reliability. Core competencies are the capabilities and skills, such as innovation or customer service, that let a business outperform rivals. Businesses weigh both when deciding which opportunities to pursue.

Vision statement vs. mission statement

A vision statement describes what the business hopes to become or achieve over time. A mission statement explains what the business does, whom it serves, and how it intends to reach its goals. Both communicate purpose to employees, customers, and investors.

Business ethics and ethical dilemmas

Business ethics concerns right and wrong conduct in business, and an ethical dilemma is a situation in which values, goals, or stakeholder interests conflict. Businesses encourage ethical behavior through codes of conduct, training, and consequences, partly because ethical conduct affects reputation and profitability.

Internal vs. external stakeholders

Internal stakeholders are inside the business, including owners, managers, and employees. External stakeholders are outside it but affected by its decisions, such as customers, suppliers, regulators, and the community. Ethics questions often turn on whose interests a decision serves.

Social enterprise

A business that seeks profit while also pursuing a social objective, achieving social impact through its products, operations, or financial model. It differs from an ordinary for-profit business in that the social goal is built into its purpose.

Nonprofit organization

An organization that serves a public purpose rather than distributing profits to owners. Any surplus cannot be distributed to owners and is instead retained or used to support the organization's mission, and nonprofits often rely on grants and donations for revenue.

Business structures

The legal forms a business can take: a sole proprietorship (one owner, personal liability), a partnership (shared ownership and risk), a limited liability company or LLC (owners generally shielded from personal liability for many business debts and obligations), and a corporation (owned by shareholders and legally separate from its owners). Each carries different tradeoffs in control, liability, and taxation.

Functional departments

The specialized areas that carry out a business's work, including sales and marketing, research and development (R&D), operations, accounting and finance, and human resources. Each has distinct responsibilities and costs.

Supply chain

The network of people and businesses involved in producing a product and delivering it to customers. Decisions about the supply chain affect cost, speed, quality, and risk.