This document defines key concepts related to businesses, including what a business is, common business activities, and types of businesses. It explains that businesses aim to be both effective in meeting customer needs and efficient in their operations. The document also discusses factors like entrepreneurship, small businesses, risks, and what leads to business failures or successes. Overall it provides a broad overview of foundational business concepts.

1. Business Characteristics

2. What is a Business?
 Organization that produces or
distributes a good or service for profit
 Profit – difference between a
business’ revenue (income) and
expenses (costs)

3. Business Activities
 Each business participates in at least
three major activities
1. Production – making a product or
producing a service
 Manufacturing firms – produce goods (ex.
Ford Motor Company)
 Service firms – provide assistance to
accomplish specialized needs (ex. doctor,
real estate agent)

4. Business Activities (cont’d)
2. Marketing – how goods and services
are exchanged between producers
and consumers
3. Finance – money matters involved in
running a business

5. Types of Businesses
1. Industrial – produce goods used by
other businesses or organizations to
make things (ex. company that
produces medical products that are
used by hospitals)
 Industrialized nations (ex. U.S., Japan,
Germany) produce thousands of products
compared to the number of products
produced by third world nations
 Third world nations – few manufacturing
firms and relatively poor

6. Types of Businesses (cont’d)
2. Commercial – engaged in one of the
following activities
 Marketing (ex. wholesalers and retailers)
 Finance (ex. banks and investment
companies)
 Services (ex. doctors, fitness facilities,
and lawn care) – intangible products
that use primarily labor to satisfy
consumer needs

7. Industry
 Refers to all businesses within a category
 The Occupational Outlook Handbook breaks
down industries by occupations
 Ex. Business and Financial Operations
Occupations
 Click on this link to see the number of people
employed in certain occupational categories and
the individual occupations under each category

8. As Business Changes
 Constantly changing
 Businesses have advanced in many ways
 Ex. computers, used for many key business
functions
 Countries have become more industrialized
 Ex. U.S now purchases many goods from other
countries
 Growth in certain industries
 Ex. Services and retail trade has grown, while
wholesale trade and manufacturing has
remained unchanged

9. Effectiveness and Efficiency
 Effectiveness – making the right
decisions about what products or
services to offer customers and how
to produce and deliver them
 Efficiency – producing needed goods
and services quickly and at low cost
 Good managers focus on both

10. Achieving Effectiveness
 Knowing what your customers want
 Choice has increased over the years
 Domestic goods – products made by firms in the
U.S.
 Foreign goods – products make by firms in other
countries
 Information is gathered about customers to
determine what they like – market research
 Also want high quality products
 Total quality management (TQM) – commitment
to excellence that is accomplished by teamwork
and continual improvement

11. Achieving Efficiency
 Measure by output –
quantity produced within
a given time
 Productivity – producing
the largest quantity in
the least amount of time
by using efficient
methods and modern
equipment

12. Achieving Efficiency (cont’d)
 Three ways
 Specialization of effort – workers learn a
specific skill/task (Ex. Dell Computers –
putting the hard drive into the computer)
 Mass production – effectiveness can also be
improved this way; using up-to-date
equipment and assembly line methods to
produce large quantities of identical goods
 Better technology and innovation
 Reorganization of the company

13. Gross Domestic Product
 Often referred to as the GDP
 First measure of a nation’s economic
wealth
 Total market value of all goods and
services produced in a country in a
year
 Click this link to see a ranking of the
GDP for the U.S. and other countries
around the world

14. Individual Well-Being
 Second measure of a nation’s wealth
 GDP helps in judging the overall growth of
an economy; tells little about the economic
worth of individuals
 Increase income improves the level of living
of an average family
 Ex. number of families living in home they own,
number of adults receiving education after high
school

15. Entrepreneurship
 Entrepreneur – starts, manages, and
owns a business
 Growth of business within the U.S.
resulted from
 Individuals wanting to own their own
businesses
 Easy to start a business

16. Small Business
 Any business that is operated by one
or a few individuals
 Few small businesses produce goods
since it is costly
 Many are one-person or family
operations
 Examples – restaurants, gas stations,
consultants working from home with
the use of a computer

17. Franchise Business
 Franchise – legal agreement in which a distributor
buys the right to sell the franchising company’s
product or service under the company’s name and
trademark
 Examples – Subway, Bruster’s
 Franchisor – parent company of a franchise
agreement that provides the product or service
 Franchisee – distributor of a franchised product or
service
 5 to 10 percent of franchised businesses fail; much
lower than non-franchised businesses

18. Risks of Business Ownership
 Success depends on managerial
effectiveness
 Risk is the possibility of failure
 Competition from other businesses
 Changes in prices
 Changes in style
 Competition from new products
 Changes that arise from economic
conditions

19. Causes of Business Failures
 Almost two-thirds of businesses fail from
economic causes
 Industry weakness, low profits, and low sales
 Other causes of business failure include
 Finance causes (ex. expenses/debts)
 Disaster and fraud (ex. hurricanes/theft)
 Neglect causes (ex. poor work habits)
 Strategy causes (ex. overexpansion)
 Experience causes (ex. inadequate planning)

20. Intrapreneurship
 Intrapreneur – employee who is given
funds and freedom to create a special unit
or department within a company in order to
develop a new product, process, or service
 Largest corporations provide these types of
opportunities; valuable employees provide
the company with innovative products and
services
 Example of Company – 3M that makes
Post-It Notes

21. Reference
Evarard, Kenneth E., Burrow, James L.
(2001). Business Principles and
Management. Mason, OH: South-
Western.