Access To The Internet

Business is the process of taking raw materials, goods or services from a beginning point and adding value along the way to the final user.

It is the added value by the entrepreneur that entitles him to profit. Every venture must have the opportunity to add value or it is not a feasible enterprise. Generally there are five categories of business ventures where adding value can be measured.

The first is the retail sector, a category where the entrepreneur adds value by investing his money, providing a facility to sell products, making available inventory from many suppliers, having the facility open to the public and providing staff and methods that allow customers to purchase these products. Often these retail stores are in malls or strip centers but they can also be web-site retailers, home based or network marketing entrepreneurs providing the same retail sales opportunity.

Next is the manufacturing and assembling category. Value is added by investment in equipment, facilities and employees to utilize raw materials in making something for sale; or assembling operations that may take intermediate products and assemble them into a product for sale. Beside the investment in equipment and facilities, the creative process of design of products and other related functions adds value.

The third category includes distributors, jobbers, commission agents, independent representatives and other similar type “middlemen”. They provide the marketing function for those who do not or cannot afford to provide direct marketing to their customer. These entrepreneurs represent one or several suppliers of products and sell to one or several classes of customers either in the retail, industrial or commercial sectors of business. Some maintain inventories, provide credit, warehousing while others merely facilitate the sale between customer and supplier. The margins involved represents the amount of added value performed by the “middleman”. Importers and Exporters often are included in this category and the added value includes the knowledge of the foreign markets and suppliers as well as the various customs procedures involved in the export/import commercial world.

The fourth category is natural resources. The added value is taking the natural resource and performing whatever tasks are necessary to convert them into saleable products for the ultimate consumer. Obvious examples include farming, fishing, cattle raising, hunting, mining and wildcatting for oil or gas. The amount of added value is a function of the cost of converting them into saleable products and bringing them to market.

The final category is the service category. Education, skills and experience of individuals or firms represent added value. Included in this category are doctors, lawyers, entertainers, consultants, construction and tradesmen, beauticians, fashion designers, engineers and architects, accountants and other service providers. The added value includes the cost and time of education, knowledge, experience, reputation, training and providing facilities to render these services.

Most small business enterprises fit one or several of the above categories. What is important is that the entrepreneur understands the added value they contribute to the process. It is the added value that entitles them to profit from their venture. Too often some undervalue their contribution while at the other end of the spectrum some grossly overvalue their contribution. In our complex market economy, every contribution is valued and market prices are set to reflect the added value performed by efficient contributors. Each entrepreneur must understand how much value he or she contributes and insure that their performance is equal to the most efficient producer in the marketplace. This is necessary in order to survive and enjoy well-earned profits.

If you are already in business, it is important that you take some time to understand how you add value and to compare your business to your competitors insuring your position in the marketplace.

For those of you contemplating starting your own business, you must carefully describe how you propose to add value in your selected enterprise. The better you understand how you add value, the more rewarding will be your business. It is those, unfortunately, who do not understand where or how they add value or what their added value is worth in the market place, that soon find themselves out of business. It is worth the effort to understand that concept now.

“Ed” McMahon’s career includes the small business and corporate world. With degrees from Villanova Univ., an MBA from the City University of New York and completed postgraduate work at the Stanford University. He is the author of the book” UnderstandingSmallBusiness (http://www.Understandingsmallbusiness.com)
Ed has extensive small business experience. He has counseled several hundred small business prospects in the principles of small business.
He drafted the FTC disclosure statement for a major convenience store chain currently operating.
He has held senior posts as executive vice president of a mid-size oil company, headed up the polymer division of a major chemical company and was taught “UNDERSTANDING SMALL BUSINESS” workshops employed as an officer of a major consulting company.

Ed has taught Small Business workshops at the business college level, and for the past 11 years.
For 6 years his monthly column on small business has been published in a regional business journal. He can be reached at USB@houston.rr.com.