Business Fundamentals

MattThomasMattThomas Posts: 2subscriber
edited February 2009 in Thought Leadership
Hello everyone. About two months ago, I read the book "The Art of Learning" by, Josh Waitzkin. Wonderful book and highly recommended.
In the book, Josh strongly recommended that one masters the core fundamentals of any practice in order to gain any solid foundation of your topic of study.
This got me to start thinking about the core fundamentals of business, thinking that if we can identify these core fundamentals and thoroughly understand them and their applications, we can learn a lot more about business just by identifying how these fundamentals are applied in various examples.
To be honest I could only think of one core fundamental, although it has a ton of applications: to turn inputs into more valuable outputs.
Can you think of any examples how this applies? Profit is one obvious example, but there are plenty other ways that this can apply such as the importance of reducing waste and defectives.
One more question: can you think of any other core fundamentals of business, or rules that cannot be broken in order for a business to be considered a business?
Thanks, and I look forward to the discussion!
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Comments

  • MattTurpinMattTurpin Posts: 22subscriber
    The core fundamental of business is economic power.
    A business is an organization that makes money.An organization is a group of people working together toward a common goal.Money is the symbol that represents your economic power, so that you don`t have to carry your goats, submarines, or weapons grade plutonium around in your back pocket to make a deal.A business is a group of people working together to be more powerful than the people not working with them.Money is power, and power is everything.Business is everything.I hope that`s a start.MattTurpin2/25/2009 3:51 AM
  • MattThomasMattThomas Posts: 2subscriber
    So I`d propose that before laying out business fundamentals, it might do well to explain the basic concept of business in general. What is business?

    I suppose that is more or less what I am asking. What is business, and what are the core concepts that surround a business that actually make it one?MattThomas2/25/2009 5:10 PM
  • MattThomasMattThomas Posts: 2subscriber
    The core fundamental of business is economic power.
    A business is an organization that makes money.
    An organization is a group of people working together toward a common goal.
    Money is the symbol that represents your economic power, so that you don`t have to carry your goats, submarines, or weapons grade plutonium around in your back pocket to make a deal.
    A business is a group of people working together to be more powerful than the people not working with them.
    Money is power, and power is everything.
    Business is everything.
    I hope that`s a start.

    Interesting, but businesses don`t necessarily need to make money in order to be considered a business. Before the concept of money was even invented, we still had businesses, only businesses thrived on trade. The point here is that one business traded with another business because they felt the item that they were receiving was of greater value to them than what they traded away. So I think the more appropriate phrasing would be: A business is an organization that generates value.
    Also, in regards to "people working together" what if a business is only a one-person operation? How can we tie in collaboration as a business fundamental? Would it be different parties working together (ie: business and customer)?
    @mfackrell: So, in regards to profits, in essence it would be to convert inputs into more valuable outputs, correct?
    However, in order to do this effectivly, you are arguing that a
    business needs the right systems, controls and people that is best
    suited for the type of business and culture, correct?MattThomas2/25/2009 5:13 PM
  • MattTurpinMattTurpin Posts: 22subscriber
    Oh, you`re right. I didn`t think about one person businesses. I guess a few lines of my definition, which, on reading it again, really seem to apply more to the corporation than business in general.
    Business is an entity that aims to increase its economic power by offering something it has for something it wants. Economic power can be money, goats, bead necklaces, or whatever people put value to. Usually a business aims to be mutually beneficial in these exchanges, but this isn`t a requirement. A powerful business has more sway to strong-arm an exchange, for example.
  • MattThomasMattThomas Posts: 2subscriber
    You seem to have nailed my idea of value (instead of money representing value) pretty well. So I guess we are all in agreement that money isn`t a requirement, but value is.
    Craig, you said something interesting about a buyer taking OWNERSHIP of something. Is this really the case for a service business? If someone comes to your house and cleans it once a week, is there really anything you are taking ownership of?
    Something I want to throw out there for discussions sake, just to more fully explore the topic: is it at all possible to have a business (or have a business-like operation) with only one party?
  • MattThomasMattThomas Posts: 2subscriber
    I see. So could we say that for a business transaction to work, there must be consideration on both ends?
    You could argue that the seller would also take ownership: of the cash that is paid to them. So there would have to be an exchange of value (or ownership?) in order for a business transaction to take place, correct?
  • MattThomasMattThomas Posts: 2subscriber
    The concept of exchange of value vs. creating value, I think is a very important distinction, and I`m glad this was brought up.
    I for one was a bit confused by it since you can, in many ways draw parallels to business and survival. The biggest distinction, however is that there has to be an EXCHANGE.
    If there is an exchange, this suggests trading, commerce, etc. If there is a generation of value, this is just subsistence, or perhaps one sub-division of a business (ie: manufacturing).
    But businesses have to create value also, don`t they? If they couldn`t create value, they`d have nothing to trade. So would it be most accurate to say that a business must both create value, then exchange this valuable item for something of equal or greater value?
    I think what Mark was pointing out is that the NET effect of a business activity should represent a creation of value for the owners?
    Craig, I think your suggestion about learning the fundamentals of business by dropping the concept of money is an excellent idea. We have such a strong association with business and money, yet business can exist without money; and has for quite some time.
  • MattThomasMattThomas Posts: 2subscriber

    "Crime" would presumably be the taking of a value without fair exchange. Sort of like the US Government, these days.

    I just have to throw something in there about this. I had a professor who once had a very insightful comment about thieves. He argued that thieves, while lacking in ethics are extremely rational human beings. They are looking to gain something of value for the least amount possible. Is this all that different from business? Of course I`m not saying that business is thievery, just that there is an interesting parallel. MattThomas2/28/2009 3:57 PM
  • MattThomasMattThomas Posts: 2subscriber
    The two kinds of value are a) intrinsic value, and b) perceived value.
    It`s true, and I agree that a business provides added value.

    So if a business adds value, they MUST create this value to add. If a business converts a raw material into a finished product, they are creating this value during the production chain.
    Consumers agree to the exchange because they feel that the business is providing a value that is unique. If they are offering a product that anyone can complete in no time at all, the business wouldn`t be profitable for very long.
    Thus, whether it is a unique product, or just saving the customer time, the business must produce some sort of value if it is to be demanded and traded.
  • MattThomasMattThomas Posts: 2subscriber
    When you say people, are you referring to the people working in the business?
    Because if that is the case, then the people inside the business are creating the value to be sold/exchanged. These people are creating this value under the mantle of the business.
    Maybe quite literally the people are assembling the products or supervising the machines that do, but they are doing so under guise of the business. So couldn`t you say that the business is using its resources (staff, equipment, etc) to create value? Did I miss your point?
  • MattThomasMattThomas Posts: 2subscriber
    I think that values are very much subject. My understanding of value is that it is ultimately based upon supply and demand. If something is scarce but is in high demand, it will be given a higher average value. However, each individual`s demand for a given item is ultimately different. So while one person might greatly want or need an object and subsequently assign it a greater value, another might not want the same item that badly, and ultimately not value it as high.
    Try dropping a pile of diamonds and a bottle of water in the middle of a desert and see what a stranded person would go for first.
    In regards to the business as an entity debate. Firstly, yes, this is about business fundamentals, but I think coming to a better understanding of the debate of: do businesses create value is very important to comprehension of the fundamentals of business.
    Firstly, yes it is the people inside the business that actually create the value, but they are doing so as work FOR the business. These people are filling positions--they can easily quit and be replaced in a matter of minutes. A guitarist could put down his guitar and leave the band, but someone else could be instantly recruited and start playing, and under the same band name that they were originally playing under.
    Entity or not, the business provides the incentives and means for people to produce this value. These employees aren`t producing the value for fun or hobby, but for work FOR the company. And while I can understand how a business isn`t considered an entity, it IS, in many ways, an organization of entities working together for a common goal. This can, in way way make a business sort of a "Super" entity.
    Just because you could break a business down into smaller, value producing units, doesn`t mean that the business itself doesn`t produce value. That`s like saying a human being isn`t alive because we can be broken down into smaller and smaller living units. However, just as cells become organs and enzymes and bones, people make up departments and ultimately businesses. This doesn`t mean that it doesn`t create value.
  • MattThomasMattThomas Posts: 2subscriber
    Instead of the band example, consider a 100 person orchestra. Would the orchestra be THAT irrevocably different if one violinist left and were replaced?
    Are the Rockettes not the Rockettes if one of them leaves and is replaced?
    About value, and the customer`s participation in creating value...hadn`t we agreed in another thread that customers/the market accepts prices, NOT set prices?
    I see your point that if values were completely subjective, any revenues would be luck. However, the fact is that we, as humans are more similar than we are different. So I`m willing to guess our perceived value for certain goods and services are very similar because of the values, needs and wants we all individually have are similar to one another.
    Or perhaps value is a function of some combination of subjectivity and objectivity. But then I ask you, who or what really is "objective" in this case?
  • MattThomasMattThomas Posts: 2subscriber
    So let me clarify this, to make sure we are on the same page. Are you saying that businesses can add value to a product or service by including certain attributes?
    The attributes allow the market to assign value and thus, products or services are required to have attributes in order to justify a certain markup?
  • MattThomasMattThomas Posts: 2subscriber
    I agree that that the term delivering is better than highlighting. Highlighting suggests (to me at least) that they are making their efforts of providing value known to the customer...doesn`t necessarily mean they are doing it. Delivering, however, doesn`t suggest that they are creating the value, but they are providing it to the customer to take advantage of, consume, whatever.
    Okay, so we have determined a goal of a business: for the value of its outputs to exceed the value of its inputs and we have defined what IS a business: something that exchanges value. We have also defined that in order to justify a higher markup, businesses must deliver attributes with market-perceived value.
    Are there any fundamentals? Perhaps not definitions but the basics that improve the operations of business?
    I think by understanding the concept behind justifying a higher markup has very great learning implications for how to price a product or service. But there are other elements to business than pricing and the actual exchange, aren`t there? For example there is customer acquisition or marketing, there is production (even if the production is as simple as gathering). What are some of the fundamentals behind these processes?
  • MattThomasMattThomas Posts: 2subscriber
    Well, I think those ARE the fundamentals, right? What do you mean "are there any fundamentals?"

    I might have used poor wording. I forgot to insert "OTHER"..."Are there any other fundamentals?"
    Instead of using the term fundamentals, maybe we can get a little broader. Essential disciplines maybe? Essential processes?
    We got some of the core basics down, but maybe we should move away from "existence" a bit, as that will only take us so far.
    What are some essential practices businesses must do in order to acquire customers? What about marketing? Production? Perhaps identifying the essentials behind these process, then we can break them down to their "fundamentals" to fully understand them.
    I think this is important because I honestly learned a lot behind the "delivering" of attributes to justify higher markup. I think we always understand the real life applications of this, but I think understanding the fundamentals behind the practice reveals why something works the way it does, and may help us think of new and creative ways to do something that still satisfies these fundamentals. MattThomas3/7/2009 3:49 PM
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