The role of business enterprise

A business is an organisation that supplies goods or services to customers, usually in exchange for payment. Its main purpose is to produce goods or services that meet customer needs. Without businesses, customers would have to make or find these goods and services themselves.

Goods, services or both

A business may produce goods, which are physical items you can touch and take away, such as a printed hoodie or a loaf of bread. It may produce services, which are activities done for you, such as a swimming lesson or a tennis coaching session. Many businesses do both: a garden centre sells plants and tools (goods) and also offers a planting-up service where staff pot your chosen plants for you (a service). Services are still products, even though you cannot hold them.

Meeting customer needs

Customer needs are the requirements customers have for a good or service to be suitable or satisfactory. A customer buying a school bag needs it to be strong enough for heavy books, comfortable on the shoulders and the right size for a locker. If a business provides something that meets those requirements, customers find it suitable and are more likely to buy from that business rather than a competitor.

Meeting needs matters because customers have choices. If a bakery's bread is stale by lunchtime, or a phone repair shop keeps devices for three weeks, customers may switch to a rival. When that happens, the business sells fewer products, so its revenue falls and it may struggle to cover its costs. Meeting needs well can also bring repeat custom and recommendations. These are cheap to gain but easy to lose if customers stop finding the business suitable.

Meeting needs is not the same as being the cheapest. A customer might pay more at a shoe shop where staff measure a child's feet properly and check the fit, because shoes that fit well matter more to them than saving a few pounds. The business that understands this can charge a fair price and still keep customers coming back.

Adding value means making a good or service more valuable to customers than the inputs used to make it. Added value is the difference between the cost of the inputs used and the selling price of the finished good or service.

For example, a small business buys plain cotton aprons for £2 each and spends £1 on fabric paint and a patch to customise them. It sells each apron for £12. The added value is £9 per apron (£12 − £3). The customisation makes the apron more appealing, so customers will pay more than the cost of the plain materials.

Added value is not profit

Profit is what is left after all business costs are paid. It takes account of costs such as rent for a market stall, wages for staff and advertising, as well as the inputs. If the apron business has £5 of these other costs per apron, its profit is £4, even though its added value is £9. A business can add value but still make a loss if its other costs are too high.

How businesses add value

A business can add value by increasing the price customers are willing to pay, reducing input costs, or both. The main ways to do this are branding, design, quality, convenience and a unique selling point (USP). Adding value helps a good or service stand out from competitors.

Each method works by changing what customers are willing to pay or what the inputs cost.

Convenience adds value by making it easier or quicker for customers to access or buy a good or service. Customers value saving time and effort, so a business that removes hassle can attract more sales, win customers from slower rivals, or charge a little more.

Businesses can offer convenience in different ways: opening early or staying open late, letting customers order online in a few taps, or choosing a location that is simple to reach. What matters is that the customer spends less time or effort than they would with a rival.

How convenience adds value

For example, a high street print shop prints and binds a school project while a customer waits. It charges £9 for a bound copy ready in an hour, while an online printer charges £4 but takes five days to deliver. A customer working to a deadline will gladly pay the extra £5, because the shop saves them days of waiting and the risk of missing the deadline. The convenience has added value because the customer pays £5 more, which is more than the extra cost to the shop of keeping staff and machines ready to print on the spot.

The convenience must be worth the extra price to the customer. If the shop charged £30, or still needed a week, customers would send their files to the online printer instead. Convenience only adds value when the time and effort saved feel worth paying for.

An entrepreneur is a person who starts and runs a business. They often come up with the idea, set the business up and stay involved in running it, rather than just putting money in and leaving others to manage it.

Entrepreneurs organise resources. A business needs money, staff, equipment and materials before it can trade, and the entrepreneur brings these together. For example, someone setting up a weekend street-food stall selling wraps might use their savings to buy a second-hand trailer, a griddle and serving equipment, pay a weekly pitch fee at a local market, and pay a friend to help serve during the lunchtime rush. The entrepreneur decides which resources are needed, how much to spend and where they come from.

Entrepreneurs also make business decisions. They choose what the business will produce and how it will operate. In the street-food example, the owner decides which fillings to put on the menu, what to charge for each wrap, whether to trade on Saturdays, Sundays or both, and how to advertise on social media. These decisions shape how the business runs day to day and how it competes with the other food vans at the market.

Finally, entrepreneurs take risks. Starting a business means putting money and time into something that might not work. If the wrap stall does not attract enough customers, the owner could lose the money spent on the trailer and equipment and the pitch fees already paid, and the stall may close. Unlike an employee, who is paid a wage for their time whatever happens, an entrepreneur earns profit only if the business succeeds, and may lose what they invested if it fails.