Today’s world is a fast-paced and rapidly changing one where information is everything.
But what use is any information if you cannot make sense of it? With terms like Gross Domestic Product (GDP), Return on Investment (ROI), Customer segmentation and several others flying around in the news and on business websites, aspiring entrepreneurs need to understand and deal with them.
To survive in today’s world of modern business, you must understand the basic concepts and speak the language.
Apart from the personal benefits of understanding these concepts, they will also help you in the short and long term as you progress on your entrepreneurial journey.
Nobody expects every entrepreneur to have a Master of Business Administration (MBA) or a business background. But everybody will expect you to know the basics of business. Here are five fundamental concepts that would be critical to succeed as an wannabe entrepreneur.
Customer
Yes, first things first. The term ‘customer’ (or ‘consumer’) is so commonly used nowadays that every aspiring entrepreneur needs to have clear understanding of what it means.
The customer is always the most important part of any business. It does not matter if you have rented an impressively-furnished glass office, hired MBA employees and manufactured a beautiful product. If there are no customers buying the product or service you are selling, you have no business.
Supply and Demand
In every market, there are two key groups of people: buyers (demand) and sellers (supply). Suppliers alone cannot make a market; neither can buyers. All entrepreneurs and business people are suppliers by nature.
If you are in business, you must be supplying (selling) something; a product (like fruits, vegetables, and electronics) or service (like a consulting or taxi business). For a supplier to make any money and remain in business, customers must be willing to buy the product or service they are selling.
Competition
Most of the world now operates a ‘free market economy’ where anybody with the means can start a business and prices of goods and services are determined, not by a single business or individual, but by the interaction of supply and demand in the market.
Simply put, the market is a race and every business is trying to outrun the other to win more customers.
Every day you wake up as a business owner, there is another business somewhere that is trying to compete against you and run ahead of you. And what is the prize businesses compete for? Customers! Remember, customers are the most important element in every business.
Return on investment
Yes, let us get a bit more technical with the terms. ‘Return on Investment’ or ROI is a popular term with investors, bankers and professional business people.
ROI is commonly used when an investor or entrepreneur is considering several business or investment options.
ROI is one of the effective tools that can help business people and entrepreneurs choose the best and most rewarding option out of a number of options. And don’t be scared, the calculation for ROI is quite simple.
Fixed and Variable costs
Businesses incur costs as they go about their dealings and an aspiring entrepreneur needs to understand these because they impact the bottom line.
Fixed costs (also known as ‘overhead costs’) are costs that do not change regardless of the quantity of products or services a business does. Rent and equipment/machines are two of the most common fixed costs.
Variable or ‘marginal’ costs (as the name implies) are costs that change with the level of business activity. If you sell more products or deliver more services, this type of cost will increase and vice versa.
