Solving Business Problems and Value Creation
Businesses exist to solve customer problems and create value by delivering solutions that meet their needs. For a business to thrive, it must identify valuable solutions and determine how to sell them and provide them effectively to customers.
This raises the question of whether there are enough prospective clients with a sufficiently significant problem that you can solve who would be willing to invest in your solution.
This ability to solve problems and turn those solutions into revenue is fundamental to any successful enterprise.
Running a Business
The core purpose of any business is to fulfil customer needs and create value. One way to better understand the business basics is the Five-line Business Framework (and model), which outlines the essential elements:
- Revenue— from product/service sales, which must exceed costs.
- Cost to make or buy the product/service, labour, materials, contractors etc.
- Cost of selling—marketing, advertising and selling costs to reach customers.
- Cost of running the business, rent, insurance, utilities, administration, etc.
- Profit—revenue less costs.
Understanding the five lines is crucial for any business. Revenue must exceed costs and expenses to generate profit, the ultimate goal. Profits then fund further growth and innovation.
Moving from Employee to Entrepreneur
Working in a large organisation shields professionals from many business operational aspects. When these professionals consider self-employment, they must become aware of the tasks they need to handle themselves, such as finding clients, marketing the business, facilitating growth, and managing finances and operations.
Success typically takes longer than anticipated, requiring perseverance and patience as the entrepreneur learns while building the enterprise from the ground up. The shift from employee to business owner necessitates a mindset change and acquiring new skills and technical expertise.
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For a small business to succeed, it must do more than identify problems and devise products or services to solve them. It must convert those solutions into revenue by figuring out how to sell and deliver them cost-effectively.
The Five-line business framework/model outlines revenue from product sales, costs of production, marketing and operations, and profit. Monitoring these financial metrics helps businesses adjust and maximise value creation for customers while staying viable.
The Rewards of Entrepreneurship
For professionals with the drive to build something of their own, small business offers an outlet for applying expertise in a self-directed way by making a difference through the practical act of value creation for customers through problem-solving, innovation, and service.
Future articles on Fridays will explore the five lines as a framework and later as a model for a better understanding of how a business works.
Entrepreneurs, marketing and business models
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