Anyone who wants to start a new business is confronted with a variety of different questions. These range from very pragmatic questions such as “What do I have to do to formally set up a company and e.g. open a bank account for it?” to fundamental questions such as “Is my idea any good? Does it already exist?”, "How big is my market?" and ”Given my idea, which competitors am I actually up against?” And, and, and ... The list of questions goes on and on. But before I embark on the “adventure” of setting up a company with a new business, I should first develop as detailed an understanding as possible of what I'm getting myself into. The three-realms/four-perspective model presented below can be used to systematically assess the viability of a business.
Those who are faced with the task of managing an existing company also ask themselves similar questions - not necessarily exactly the same questions, as the formal foundation has already been completed, for example. But at least variations of the fundamental questions mentioned, albeit from the perspective of the company that is already operating. To them questions raised sound more like: “Is my product still relevant? How can I improve it?”, ”How is my market changing? Can I increase my turnover? Can I reduce my costs?” And “Are new competitors emerging? What are they doing differently and how can I hold my own against them?” Or the questions asked are specifically related to current trends such as “What impact will AI have on my business? Can I also use it? How will it change my business?”
All of these questions can be answered if you have an in-depth and systematically structured understanding of your own business. This series of articles is about showing how to achieve such a structured understanding of your own business based on a business concept. This includes the questions
- What is a Business concept?
- What are the constituent elements of the business, what are their defining characteristics, and what are the consequences of these characteristics? (Realms of business concepts)
- From which Perspectives must one view a business in order to gain a comprehensive understanding of it?
- How do you combine the perspectives and levels into an overall view? (Realms-Perspectives-Model or 3-4-Model)
- How do you conduct an Analysis of a business concept?
Before looking at business concepts, you first need to clarify the question: What is a “business” anyway?
A business is the provision of a contribution or service that attempts to
help someone to accomplish a task or
fulfill a specific function for the recipient in a specific context,
with the aim of being adequately compensated for doing so.
1 A contribution or service can be the production of a concrete tangible product, for example a car. However, the car is not bought so that you have a car, but because you can transport something with a car. You can do certain things with it that you can't do otherwise. It's about the task of transportation, which is the focus of the purchase. And it's about what the task is in the specific individual case, as well as what requirements are placed on the fulfillment of the task. This in turn determines which car you actually buy. If I only want to transport myself, e.g. on the way to work, then a small car will do. If I want to transport my family, then the car needs to be bigger. Do I need a lot of or a little space for things that I want to transport in addition to people? This determines how much storage space the car needs to offer in addition to the number of seats. Do I want to be particularly comfortable? Do I want to enjoy the fresh air around me? Do I want to be the envy of others? The transportation performance requirements determine which car model and even whether I buy the product “car” at all.
The contribution can also be a service. The service can again be concrete, such as a meal in a restaurant, the care of a person, the help of a craftsman or the performance of a play. But the service is also about me not being able or willing to do something myself. I'm hungry but can't or don't want to cook. Someone needs care, something needs to be repaired or built, or I want to be entertained. However, the service can also be a purely virtual service, such as the provision of Wikipedia, a search engine or another algorithm. I want to look something up, find something. So I use Wikipedia or a search engine.
In summary, this means that the focus of a business is not a specific “product” that a company “produces”, but always the task that needs resolving or the function that needs fulfilling. The aim of the business can be to enable the task to be performed at all, to make it easier or to perform the task completely for someone else so that they have the result directly at their disposal.
Incidentally, this idea is not really new. In his seminal article „Marketing Myopia“ in 1960, Theodore Levitt argued that many managers wrongly define their business in terms of their products rather than the services that their companies provide or enable. Much later, (late 2000's) this idea was taken up again by Clayton Christensen and marketed as his own “jobs-to-be-done” approach.
2. In the aforementioned definition, the term "someone" was introduced. For what reason? In the simplest case, the "someone" in question is a paying customer. However, this need not be the case. It is also possible for there to be more than two parties involved in a business. In addition, the recipient of assistance may be a third party, who receives a particular function or utilizes the offered service for their own benefit. It is also possible for the third party to be an individual with no connection to the person who is ultimately responsible for paying for the service in question. The individual searching for information on Wikipedia is not necessarily the same individual who provides financial support to sustain the platform of Wikipedia. The term "someone" is therefore a more neutral and comprehensive term, emphasizing that transactions invariably involve at least two parties. These include the individual who is offering assistance and the "someone" who receives the help or benefits from the fulfilled function. However, that also makes clear, that in a business there are always one or more transactions involved.
3. Whoever creates the contribution or provides the service pursues the goal of being appropriately compensated for it. But the compensation does not have to be monetary and it does not necessarily have to come from the third party receiving the service. It can, but does not have to. The parties themselves also decide what is appropriate. Moreover, the definition says nothing about the success or even the desired success.
To summarize, there are three essential points about what a business is:
1. A business is always about a task or function to be fulfilled.
2. There are at least two parties involved, the one operating the business and someone else. But, there can also be more parties involved.
3. There is always at least one transaction matching a contribution and a compensation.
In one important respect, this definition differs from the standard definition of a “business” in common parlance and in economics. The German Duden dictionary defines “business” as a “profit-oriented [commercial] undertaking, [commercial] transaction”. The definition used here is therefore more comprehensive and does not assume a commercial, profit-oriented intention of the activity under consideration.
The background to this deviation is that non-profit organizations also operate a “business” and follow a “business concept”. For a new approach to be universal applicable, it must provide the inherent capability to systematically analyze such businesses and develop their business concepts just as well. The same applies to anaylzing and defining the business concepts of social impact organizations.
The broader definition of a "business" is of crucial importance for established companies. It is important to recognise that competition for one's own business can come from a variety of sources - not only other businesses. Even private citizens and non-profit organizations such as Wikipedia have the potential to pose a challenge to established businesses. Almost all publishers of encyclopedias have experienced this first-hand. While they have survived as online editions with subscription models or pivoted to other business concepts, they are no longer the dominant force in the knowledge publishing industry. As a manager, to ensure the continued success of my company, it is essential to have a broader understanding of the evolving landscape of business. This requires a perspective that extends beyond the limitations of traditional economics.
But what is a business concept?
Sources:
Theodore Levitt, "Marketing Myopia, Harvard Business Review 2004, reprint of the Original from 1960
Clayton Christensen "Competing against Luck", Harper Business, 2015, ISBN 13-978-0062435613
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