Topic 1.1 · What Is a Business?

What Is a Business?

Businesses exist to solve customers' problems, needs and wants. They create value for customers and capture some of it as profit.

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Learning objectives

1.1.AIdentify ways businesses address customers’ problems, needs, and wants.
1.1.BDistinguish between value creation and value capture.

Objective statements © College Board, quoted from the Course and Exam Description.

Every business, from a lemonade stand to a global technology company, starts with the same question: what problem, need or want can we solve for someone? A business is an organization that produces and distributes products: physical goods, services, or both.

Size doesn't define a business. A one-person tutoring service and a corporation with 100,000 employees are both businesses. Some serve customers face-to-face and others operate entirely online.

Customers vs. consumers

These two words sound alike, but the AP course treats them differently:

Term	Who it is	Example
Customer	The person or business that buys the product	A parent who pays for a video-game subscription
Consumer	The person who uses the product (may or may not be the buyer)	The teenager who actually plays the game

Problems, needs and wants

Businesses look for market opportunities: problems, needs and wants that customers have and that no one is fully solving yet. When a product genuinely addresses one, the business has achieved .

Key terms

Business: An organization that produces and distributes products (goods and/or services). Businesses can be any size and can serve customers in person or online.
Customer: An individual or business that purchases a good or service.
Consumer: An individual who uses a good or service, whether or not they are the one who bought it.
Market opportunity: A customer problem, need or want that a business could address with a product.
Problem-solution fit: The match achieved when a business's product actually addresses a real customer problem, need or want.
Value: The worth or benefit of a product to customers.
Value creation: Providing a product that responds to customers' problems, needs and wants.
Value capture: Charging customers a price higher than the cost of producing the product, so the business keeps part of the value as profit.

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