Exploring the forms Businesses take in the Modern Economy

Imagine you're an explorer, embarking on a journey to discover the heart of a mysterious land. As you trek through unfamiliar terrain, you're constantly studying the people and their customs, trying to understand their needs and desires.

In a way, this is exactly what business is all about - the journey of discovering what people want and need, and finding a way to provide it to them in a way that they're willing to pay for.

Hi there, welcome?? to another biz series. courtesy of #bizcoffee .

In this newsletter, you’ll get to understand the various forms that businesses exists in and and their unique styles of operation.

This post is a well detailed and packed with loads of useful insights. It promises to be concise and straight to the point??. Let's dive in:

1. Product

This is the most traditional form that business have existed. It simply involves creating a single tangible item or entity, then selling and delivering it for more than what it cost to make it. To run a Product-oriented business, you must:

a.??????Create some sort of tangible item that people want.

b.??????Produce that item as inexpensively as possible while maintaining an acceptable level of quality.

c.??????Sell as many units as possible for as high a price as the market will bear.

d.??????Keep enough inventory of finished product available to fulfill orders as they come in.

A Mercedes-Benz convertible is a good example of a Product. It’s made of hardware parts that had be fabricated, assembled, tested and shipped to various car showrooms where there are then sold...for more than what it cost to be made.

2. Service

Service-oriented businesses are also a timeless form in which businesses operate. This style of business involve performing a task or job, then charging a fee for making it happen.

To create value via Services, you must be able to provide some type of benefit to the user. To operate a successful Service operation, your business must:

a.??????Provide a particular assistance, skill or ability that other people need but can’t, won’t, or don’t want to do themselves. ?

b.??????Have employees capable of performing that task, job or skill

c.??????Ensure that the Service is provided with consistently high quality.

d.??????Attract and retain paying customers.

A good example of a Service business is a Barbershop. The sservice you receive is the series of actions theat the barber or stylist uses to transform your current hairstyle into the one you want.

3. Shared Resource

This involves providing a durable asset or thing of value that can be used by many people, then charging a fee for them to access it. Shared Resources allow you to provide the asset once, then charge your customers for its use. In order to create a successful Shared Resource business, you must:

a.??????Create an asset people want to have access to.

b.??????Serve as many users as you can without affecting the quality of each user’s experience.

c.??????Charge enough to maintain and improve the Shared Resource over time.

Gyms and Fitness Centres are a classic example of a Shared Resource. A fitness centre may purchase treadmills, exercise bikes, free weights, kettlebells, dumb bells and other useful but expensive equipment that lasts a long time. The club’s members benefit by being able to access this equipment without having to purchase it themselves—instead, they pay an access fee, which is much easier for an individual to afford.

4. Subscription

Offer a monetary-valuable benefit on an ongoing basis, and charge a recurring fee. A Subscription program provides predefined benefits on an ongoing basis in exchange for a recurring fee. In order to create a successful Subscription, you must:

a.??????Bill customers on a recurring basis.

b.??????Retain each subscriber as long as possible.

c.??????Provide significant value to each subscriber on a regular basis.

d.??????Build a subscriber base and continually attract new subscribers to compensate for attrition.

Netflix or DSTV satellite television service is a great example of a Subscription. After you sign up, the company will continue to provide television service as long as you make the payments. You don’t have to call up the company every month to buy another thirty days’ worth—the service continues as long as the invoice is paid.

5. Resale

Acquire an asset from a wholesaler, then sell that asset to a retail buyer at a higher price.

Resale is a popular form that most of us are familiar with: they purchase what they sell from other businesses, then resell each purchase for more than it cost. In order to provide value as a reseller, you must:

a.??????Purchase a product as inexpensively as possible, usually in bulk.

b.??????Keep the product in good condition until sale—you can sell damaged goods

c.??????Find potential purchasers of the product as quickly as possible to keep inventory costs low.

d.??????Sell the product for as high a markup as possible, preferably a multiple of the purchase price.

Resellers are valuable because they help wholesalers sell products without having to find individual perchasers.

6. Lease

A Lease involves acquiring an asset, then allowing another person to use that asset for a predefined amount of time in exchange for a fee.

The asset can be pretty much anything: cars, boats, houses, airplanes etc. As long as an asset is durable enough to survive rental to another person and return ready for reuse, you can lease it. In order to provide value via a Lease, you must:

a.??????Acquire an asset people want to use.

b.??????Lease the asset to a paying customer on favorable terms.

c.??????Protect yourself from unexpected or adverse events, including the loss or damage of the leased asset.

Leasing benefits the customer by allowing the use of an asset for less than the outright purchase price. You may not be able to afford to spend millions of naira to purchase a luxury car or a speedboat, but you can certainly lease or rent one for far less the amount needed to but one.

7. Agency

Agency involves the marketing and sale of an asset you don’t own on behalf of a third party, then collectIng a percentage of the transaction price as a fee.

So instead of producing value by yourself, you team up with someone else who has value to offer, then work to find a purchaser. In exchange for establishing a new relationship between your source and a buyer, you earn a commission or fee. In order to run a profitable Agency business, you must:

a.??????Find a seller who has a valuable asset.

b.??????Establish contact and trust with potential buyers of that asset.

c.??????Negotiate until an agreement is reached on the terms of sale.

d.??????Collect the agreed-upon fee or commission from the seller.

The key to Agency is to ensure that your fee or commission is high enough to make the effort worth it. So as an agent, you should spend your time on activities that will result in a completed transaction, and ensure that the commission or fee from that transaction compensates you for the time and effort you put into closing the deal

8. Audience Aggregation

Audience Aggregation revolves around collecting the attention of a group of people with similar characteristics, then selling access to that audience to a third party. In order to provide value via Audience Aggregation, you must:

a.??????Identify a group of people with common characteristics or interests.

b.??????Create and maintain some way of consistently attracting that group’s attention.

c.??????Find third parties who are interested in buying the attention of that audience.

d.??????Sell access to that audience without alienating the audience itself

Since attention is limited and valuable, gathering a group of people in a certain demographic is quite valuable to businesses or groups that are interested in getting the attention of those people.

9. Loan

A Loan involves an agreement to let the borrower use a certain number of resources for a certain period of time. In exchange, the borrower must pay the lender a series of payments over a predefined period of time, which is equal to the original loan plus a predefined interest rate. In order to provide value via Loans, you must:

a.??????Have some amount of money to lend.

b.??????Find people who want to borrow that money.

c.??????Set an interest rate that compensates you adequately for the Loan.

d.??????Estimate and protect against the possibility that the Loan won’t be repaid.

When used responsibly, loans alloww people to benefit from immediate access to products or services that would otherwise be too expensive to purchase out

10. Option

An Option is the ability to take a predefined action for a fixed period of time in exchange for a fee. In exchange for a fee, the purchaser has the right to take some specific action—attend the show, purchase an asset, or buy a financial security at a particular price—before the deadline. In order to provide value via Options, you must:

a.??????Identify some action people might want to take in the future.

b.??????Offer potential buyers the right to take that action before a specified deadline.

c.??????Convince potential buyers that the Option is worth the asking price.

d.??????Enforce the specified deadline on taking action.

Options are valuable because they allow the purchaser the ability to take a specific action without requiring them to take that action. For example, if you purchase a movie ticket, you have the ability to occupy a seat in the theater, but you don’t have to if a better opportunity presents itself. When you purchase the ticket, all you’re purchasing is the right to exercise the Option to see the movie at the time specified—nothing more.

11. Insurance

Insurance involves the transfer of risk from the purchaser to the seller. In exchange for taking on the risk of some specific bad thing happening to the policy holder, the policy holder agrees to give the insurer a predefined series of payments. If the bad thing actually happens, the insurer is responsible for footing the bill. If it doesn’t, the insurer gets to keep the money. In order to provide value via Insurance, you must:

a.??????Create a binding legal agreement that transfers the risk of a specific bad thing (a “loss”) happening from the policy holder to you.

b.??????Estimate the risk of that bad thing actually happening, using available data.

c.??????Collect the agreed-upon series of payments (called “premiums”) over time.

d.??????Pay out legitimate claims upon the policy.

Insurance provides value to the purchaser by protecting them from downside risk. For example, a house can catch fire in any number of ways, and most homeowners don’t have enough cash to purchase another if their home burns to the ground.

Homeowners’ Insurance transfers this risk to the insurer. If the home is destroyed by fire, the Insurance will compensate the homeowner and allow them to purchase a new home. If it isn’t, the insurer gets to keep the premium payments.

12. Capital.

Capital is the purchase of an ownership stake in a business. For parties that have resources to allocate, providing Capital is a way to help owners of new or existing businesses expand or enter new markets. In order to provide value via Capital, you must:

a.??????Have a pool of resources available to invest.

b.??????Find a promising business in which you’d be willing to invest.

c.??????Estimate how much that business is currently worth, how much it may be worth in the future, and the probability that the business will go under, which would result in the loss of your Capital.

d.??????Negotiate the amount of ownership you’d receive in exchange for the amount of Capital you’re investing.

Businesses benefit from Capital investment because it enables them to gather the resources necessary to expand or enter new industries. Angel investing, venture capital, and purchasing stock in publicly traded companies are all examples of providing value via Capital.

At its core, business is a human science, and success depends on understanding the people you're serving. It's about creating a product or service that not only meets their needs, but exceeds their expectations. And in the age of the digital economy, this means embracing a wide range of forms and channels to connect with customers, from social media to mobile apps to virtual reality experiences.

So whether you're a seasoned entrepreneur or just starting out, remember that your customers are your compass, your guide, and your ultimate destination. Study them well, and your business will flourish.

In the?next series, we’ll look at the true job description of an entrepreneur.

If you got valuable insights from what you just read, or perhaps you have a question or contribution to make, please go right ahead and drop them, I’ll be more than happy to hear your opinions and even get to learn a thing or two from you.??

Thanks for reading.

Cheers????