The purpose of business is to benefit two distinct parties, the seller and buyer of product or services. Businesses succeed if the buyer is benefitted by using the product or services purchased. The owners of the business succeed if the buyers are willing to pay more for the product or services purchased than the business owner’s cost to create and market them.
Businesses can be highly competitive, which is good for the buyers as the price of that being offered is restrained, whereas in the case of monopolies it is not. Competition also encourages business owners to continually attempt to improve their product or services. Improvement can be in the price or novelty.
Buyers are fickle and ever influenced by promises implied and made by competitive businesses. Due to improved means of communications, the effectiveness of marketing efforts has both increased as a percent of the cost of that offered, and in the need for competitors to increase the amount dedicated to persuading prospective customers. The competitive value of the product or service can be overwhelmed by the amount and effectiveness of competitive marketing efforts. Brand has become a vital consideration.
Business owners, their employees and suppliers can all benefit if the company’s customers benefit. Traditionally, only companies which ultimately became profitable survive. Due to the ultimate benefits of owning product-improving intellectual property companies can be financially successful prior to, and in some cases, without ever being profitable, by being acquired. Indeed, the current trend in many early-stage, technology oriented, companies is to plan on being acquired once there is achieved a satisfactory proof of concept, including customer acceptance.
Therefore, as there is little or no value to undeveloped business ideas, the objective of business founders is the need to arrange for the financing of that which is necessary during the period of product or service development. The business founder’s challenge is to retain sufficient ownership of the business, after the bulk of the necessary funds have been provided by investors. This is where the use of revenue royalties can make a meaningful difference in the business founder’s outcome.
The purpose of business is customer service. Profits are earned by business owners by helping their customers. Business founders must create and follow a plan of business recognizing the company’s realistic development time and cost, including marketing requirements and affiliations, while creating a life changing benefit for themselves, and before which, providing a sufficient profitability to meet the needs of risk-taking investors.
Arthur Lipper, Chairman arthurlipper@gamil.com
British Far East Holdings Ltd. 858 793 7100 PST