Business consultants, MBAs and corporations use to talk business in a foreign language. This was the way they succeeded to get huge amounts of money for things common people couldn’t understand. It was like all the people around you would start to speak in a language you don’t get. They continue to say what they said before in plain English, but with other words. Imagine how frustrated you would feel. The same happens with business and financial jargon. Break-even point, economic value added or EVA, SMART objectives, business strategy, SWOT analysis, critical thinking, marketing mix, entrepreneurial skills, profit margin, profit center, business system, target market are only sophisticated names given to common sense ideas any people with a very basic education could get.
These are concepts and ideas about business that a lot of small entrepreneurs understand very well and use daily without knowing their scholarly names. But finally, what is business? What does it mean to ‘think business’? If you feel scared hearing about learning ‘strategic thinking’, you’ll see how simple this could be! Any business is based on generating profit. Simply put, let’s say John has a small store selling among other things, ice-cream. On hot summer days, people in the area come and buy ice-cream from John’s. It is the same ice-cream they could buy from any hypermarket at a smaller price. So, why would they come and buy from John’s? They prefer to buy from John because his store is close to their homes – they don’t need to lose time going to the hypermarket. Going to the hypermarket to buy ice-cream means them spending more time and having the ice-cream melted until they get home. So, people are willing and ready to pay extra for having the convenience of buying ice-cream in their proximity. That’s how John generates profit. He buys the ice-cream from the supplier for $1 and sells it for $1.50. The extra $0.50 he gets is the money equivalent of the (relevant) service he’s making to his customers. If John would have bought the ice-cream from the hypermarket for $1 and tried to sell it in front of the hypermarket for $1.50, no one would have bought it. Right? People pay only for a meaningful value. Let’s take another example, a famous one. McDonald’s. Do people go to McDonald’s to buy an excellent hamburger? No way! The hamburger is pretty good, but for an excellent one, you have probably to go in other places. Then, why do people give money to McDonald’s? (or, in other words: ‘Where do McDonald’s generate profit?’) People go there to eat quickly. McDonald’s founder, Ray Kroc understood this need and developed a system (a method) of quick service to be easily applied in any store. So, McDonald’s gets extra money for offering quick service. This ‘extra money’ represents the exchange for the relevant value a business produces (generates). And relevant value means what is the business doing interesting for people to pay extra money. When any business makes a sale, it means someone pays for something meaningful, for something valuable. When the number of sales is enough for the business to cover all the expenses, that means it serves (is relevant for) a big enough group of people (the target market) willing and ready to pay ‘extra money’ for something they appreciate. At the moment the business covers all its costs from the money it produces (generates), consultants say ‘the business reaches the break-even point’. From this point on, what the business get is profit, namely gross profit. Why gross profit? Because of this profit, the business has to pay taxes. After paying due taxes, what rests in the net profit. Understanding this idea is the starting point in learning to ‘think business’. Thinking business is the key, the critical step in creating a successful business based on your natural gifts and passions. REMEMBER! To be able to generate profit (to exist!), any business should do something valuable and relevant for a big enough group of customers willing and ready to pay for it. Producing something valuable, the business serves its group of customers. In exchange, the business gets extra money translated into SALES. DO THIS EXERCISE: Try to think about the businesses you get in contact with what for they get the ‘extra money’ (how they generate profit) and take notes about your findings. This is your first step in developing the capacity of ‘thinking business’.
0 Comments
Leave a Reply. |
Archives
February 2021
AuthorWe wait too much for others to accomplish our dreams, and then we are disappointed and frustrated. I think now it is the best time to think about what we really want out of our lives and just get it. I just want to inspire, influence and teach as many people as I can to create the lives of their dreams. If you want to be one of them, I’m waiting for you with open heart. If you’re ready to turn your life around, go subscribe to my list where I keep sending more information on how you can do it in the simplest and easiest way. |