A Business, Defined

As a marketing and business development consultant and entrepreneur myself, I deal with a lot of small businesses, start-ups and fellow entrepreneurs. In doing so most recently, I’ve learned a few lessons that should have been more obvious to me over the years. One lesson in particular is the definition of a “business” and the key ‘value components’ to creating, having, owning, and sustaining one.

According to BusinessDictionary.com, the official definition of a business is:

An organization or economic system where goods and services are exchanged for one another or for money. Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit. Businesses can be privately owned, not-for-profit or state-owned. An example of a corporate business is PepsiCo, while a mom-and-pop catering business is a private enterprise.

Let’s dissect this definition and take a close look:

So a business needs a product and or service to offer – that’s pretty obvious. In some cases I’ve seen businesses start with simply a great idea or concept on piece of paper or a napkin. Every business requires some form of investment. I presume that can mean money, time and/or sweat equity. Businesses need to produce output. So there are process, people and infrastructure to perform and do so on a consistent basis. This points to the fact that the business, therefore, needs to ‘run’ and be somewhat sustaining. Different kinds of businesses exist. The most important pieces of this definition, however, and the true understanding of a business, in my opinion, distill down to customers, transactions, revenues and profit.

Customers

You cannot have or sustain a business without customers. I would go so far as to further say “You cannot have or sustain a business without customer relationships.” And, I’d add to that in saying “You cannot have or sustain a business without profitable customer relationships.” Customers are those that have decided that your product or service can satisfy a need of theirs. Customers provide proof of your product or service concept. Validation of your business. Customers have accepted your offer and completed an exchange. Sometimes the exchange, or the relationship, is a simple one-time kiss whereas in other instances it’s a long lasting marriage with your company, and your company’s products and services.

Customer relationships have value; value in their potential to make additional exchanges with your company; value in their influence among other customers; and, value in who they are and the information they represent. Customers, and the measured value of your customer relationships not just in the value of their last transaction or transactions for the year, but their potential lifetime value, are vital to a business.

A business cannot sustain itself on relationships alone. I’ve learned this one the hard way. Customers might have accepted your product or service offering and agreed to provide an exchange. They might have even formalized this with an agreement or contract. Yet, without revenue producing activity for your business, unless you can parlay that relationship into outside investment, the burden and risk to sustain that business will increase. In other words, revenue-producing contracts from customer relationships, preferably those that are profitable, are more valuable to a business than simply contracts, relationships and even barter exchanges.

Revenues

As part of the validation and proof of concept for your business’ products and/or services is an exchange from a customer. Exchanges for your products/services come in various forms such as: customer information, in-kind referrals and case studies, marketing reach/exposure for back-end revenue share, and barter of other products and services, to name a few. It’s revenues, or “numbers on the books” that add the most value to your business and attractiveness to an outside investor. To sum this up, there’s no better proof of concept and potential for going bigger than one customer agreeing to pay a profitable sum for a specific product or service that you offer. It can be assumed that this process (the transaction for money exchange) can be replicated and potentially brought to greater scale. That assures and, in my opinion defines, a business.

It’s All Math

Ask any investor to valuate your business and they will closely look at the product/service potential with the market, the company’s revenues to date and the value of any customer relationships.

In going back to the definition of a business and the prioritized key components of one, I’d have to further simplify the value components with the following equation:

A Business = Viable Product/Service + Profitable Customer Relationships + Revenues

How does yours stack up here? Do you have some or all three of these? The value of each will likely determine the level of success of your business now and in the future.

About the Author

Angelo Biasi is General Manager of SMART Marketing Solutions, LLC, a leading full-service integrated marketing company in Florida and New York since 2001. He has helped create and execute marketing plans and integrated marketing solutions for companies such as Playtex, Bic, Rogaine, Tauck, and over 35 colleges and universities, to name a few. Angelo has an MBA in Marketing from the University of Connecticut and teaches Marketing at New York University where he has for over six years. He has been quoted and/or featured in USA Today, Mobile Marketer magazine, Mobile Commerce Daily, Luxury Marketing magazine, BNET TV and Business Currents magazine, to name a few. For more information or to learn more, email him at abiasismartmarketingllccom  (abiasismartmarketingllccom)  , visit www.smartmarketingllc.com, call him at 239.963.9396 and follow him on Twitter @angbiasi.