1.1 - What Is a Business?
Business, Customers, and Consumers
A business is basically any organization that produces and distributes products. Those products can be goods, meaning physical items you can touch, or services, meaning intangible activities or benefits. Businesses come in all shapes and sizes: they vary in how big they are, how far their reach goes (local, regional, national, or global), how many people they employ, and how much money they bring in. They can also serve people either in person, like at a store or office, or virtually, through websites and apps.
In this course, the word product covers both goods and services. A bakery sells goods (bread, cakes), a barber sells a service (haircuts), and plenty of businesses sell both: a restaurant gives you food (a good) plus cooking and table service (a service). Size varies just as much. A one-person dog-walking business that serves a few neighborhoods and a global company with thousands of employees and billions in revenue are both businesses.
It's worth knowing the difference between a customer and a consumer. The customer is whoever actually buys the good or service. The consumer is whoever actually uses it. These can be different people. Think about a school district buying laptops for students. The district is the customer since they're the ones paying, but the students are the consumers because they're the ones using the laptops.
A customer can also be a business, not just a person. When a restaurant buys flour from a supplier, the restaurant is the customer. Knowing who the customer and the consumer are matters because a business often has to win over both. A cereal brand, for example, designs fun flavors and packaging for the kids who eat it (the consumers), but it also points out the nutrition and the price to the parents who pay for it (the customers).
Customer Problems, Needs, Wants, and Market Opportunities
There are three related ideas here worth separating out. A problem is an issue or inconvenience someone wants fixed, like struggling to carry groceries on public transit. A need is something essential to basic functioning, like clean drinking water. A want is something that's nice to have but not necessary, like a fancy water bottle that shows the temperature.
A market opportunity shows up when people have one of these problems, needs, or wants, and the current solutions out there are missing, inconvenient, overpriced, or just not good enough. Businesses look for these gaps and then build goods and services to fill them.
When a business's product actually solves a real problem someone has, that's called problem-solution fit. For example, if commuters need a fast, healthy breakfast they can eat on the go, and a business creates prepackaged nutritious breakfast bars for exactly that situation, that's a solid problem-solution fit.
One important thing to remember: no business can make everyone happy. They only have so much money, time, staff, and production capacity, and different customer groups want different things. So businesses have to make choices about which problems, needs, and wants they'll focus on, and which groups of customers they'll actually try to serve.
For example, a new gym can't be everything to everyone. It might focus on beginners who feel nervous at big gyms, with small classes and coaches who explain every move, instead of also trying to serve competitive bodybuilders who want rows of heavy equipment. Picking which customers to serve shapes everything the business does next. Unit 2 goes deeper into choosing target customers.
Value, Value Creation, and Value Capture
Value is basically the worth or benefit a product gives to a customer. It can come from solving a problem, saving time or money, making someone more comfortable, boosting their status, improving their health or safety, or just making life more convenient.
Value creation happens when a business's product actually responds well to what customers need or want. A good example is a language-learning app that genuinely helps someone speak a new language more confidently. That app is creating value because it's solving a real problem for its users.
Value capture is different. It happens when a business can charge more for its product than what it costs to make and deliver. So if it costs a business $20 to make and deliver something, and they sell it for $35, they've captured $15 of value per unit, before any other expenses come into play. Capturing value is what lets a business stay sustainable, stay profitable, and keep growing.
Value capture adds up across every sale. If that business sells 1,000 units, it captures 1,000 × $15 = $15,000. That money still has to cover the business's other costs, like rent and advertising, and whatever is left after that is profit.
How Value Creation and Value Capture Work Together
A business has to create value first, meaning it needs to actually make something people find useful or desirable. Only after that can it capture value, by pricing that product above its cost while customers are still willing to pay. If a business creates value but can't charge enough to cover its costs, it won't last. And if it tries to capture too much value by pricing way above what people think it's worth, customers just won't buy it.
Here's a quick way to picture it. Say customers feel a product is worth up to $50 to them, and it costs the business $20 to make and deliver. Any price between $20 and $50 works for both sides: customers still feel they're getting a good deal, and the business keeps something on each sale. At $35, the business captures $15 per unit. Charge $60 and almost nobody buys, because the price is more than the product is worth to them. Charge $18 and customers are thrilled, but the business loses $2 on every sale.
Compare | Value creation | Value capture |
Who it's about | The customer | The business |
Question it answers | Does the product solve a real problem, need, or want? | Can the business charge more than the product costs to make? |
Language app example | Users actually get better at speaking a new language | The app charges $10 a month and serving each user costs it $3 a month, so it captures $7 per user each month |
Without it | Nobody wants the product, so there's nothing to capture | The business can't cover its costs and eventually shuts down |