Unit 1: Businesses, Competition, and New Ideas

22 terms. Say what each one means, then open the card to check.

• Profit

  What is left of a business’s revenue after all of its expenses are paid. If expenses are larger than revenue, the result is a loss.

  Example. A fictional snow-cone stand takes in 2,600 dollars in July and spends 1,900 dollars on ice, syrup, cups and the stall fee, so its July profit is 700 dollars.

• Factors of production

  The four kinds of resources used to make goods and services: land (natural resources), labor (people’s work), capital (tools, machines and buildings) and entrepreneurship.

  Example. A fictional orchard uses its hillside and rainwater (land), pickers (labor), tractors and a cider press (capital) and an owner who takes the risk (entrepreneurship).

• Limited liability

  A rule that generally caps an owner’s possible loss at the money put into the business, so lenders usually cannot take the owner’s personal savings or home to pay business debts.

  Example. A fictional bakery set up as an LLC closes owing 40,000 dollars. Its owners signed no personal guarantees, so they lose what they invested, but lenders cannot take their own houses or cars.

• Sole proprietorship

  A business owned by one person who keeps all the profit and makes every decision but has unlimited liability: the owner personally owes all of the business’s debts.

  Example. Ana runs a fictional dog-walking business on her own name, with no separate company, so her savings are at stake if the business cannot pay its bills.

• Competitive advantage

  Something that lets a business serve its customers better, or more cheaply, than its rivals, in a way the rivals cannot easily copy.

  Example. A fictional ferry company owns the only dock permit on an island, so rivals cannot offer the same short crossing.

• Market share

  One company’s sales as a percentage of the total sales of every seller in the same market over the same period.

  Example. If all the yoga studios in a fictional town sell 5,000 classes a month and one studio sells 750 of them, its market share is 15 percent.

• Oligopoly

  A market with only a few large sellers, where each one watches and reacts to the others’ prices and moves. High start-up costs often keep new sellers out.

  Example. In a fictional country, three phone networks carry almost all mobile calls; when one cuts the price of its data plans, the other two follow within weeks.

• Unique selling proposition

  A short statement of the one benefit that sets a product apart from its competitors and gives customers a reason to choose it.

  Example. A fictional laundry service says, “Dropped off by 9, folded and back at your door by 6, the same day.”

• PESTEL analysis

  A scan of six kinds of outside forces a business cannot control: political, economic, social, technological, environmental and legal. Each can be an opportunity or a threat.

  Example. A fictional ski resort lists warmer winters (environmental), rising household incomes (economic) and a new lift-safety rule (legal).

• Minimum viable product

  The simplest version of a product that real customers can use or buy, built to test whether they want it before more money is spent.

  Example. Before building an app, a fictional tutor sells homework help through a simple sign-up form and a shared calendar to see if parents will pay.

• Patent

  A government grant that lets an inventor stop others from making, using or selling an invention for a limited time, in return for describing it publicly. A U.S. utility patent lasts up to 20 years from filing.

  Example. A fictional engineer patents a hinge that lets a laptop stand fold flat, so rivals cannot sell the same hinge without her permission.

• Trademark

  A name, logo, slogan or other sign that identifies one company’s goods and that the law protects against confusing copies.

  Example. A fictional hot-sauce maker registers its flame-shaped logo so that rival brands cannot put a look-alike flame on their bottles.

• Vision statement

  A short description of the future a business hopes to create or become, long-term and inspiring rather than tied to a deadline.

  Example. A fictional bike-share company: “A city where nobody needs a car to get to work.”

• Mission statement

  A statement of what a business does now, for whom and why. It guides daily choices, while the vision describes the future it is working toward.

  Example. A fictional pharmacy: “We fill prescriptions fast and explain every medicine clearly to the families of Dunmore.”

• SMART goal

  A goal that is specific, measurable, achievable, relevant to the mission and time-bound, so that anyone can tell whether it was met.

  Example. A fictional bookshop sets this goal: raise online orders from 300 to 450 a month by December 31 by adding a same-day pickup option.

• Stakeholder

  Any person or group affected by a business’s decisions: customers, employees, owners, suppliers, lenders, the local community and government.

  Example. When a fictional mill plans to close a plant, its stakeholders include the workers, the town that collects its taxes and the shops near the plant.

• Corporate social responsibility

  Actions a business takes, beyond what the law requires, to benefit its workers, community or environment.

  Example. A fictional grocery chain gives its unsold but safe food to local food banks every night, though no law asks it to.

• Conflict of interest

  A situation in which a person’s private interest, such as a family tie or a gift, could sway a decision they make for their employer.

  Example. A fictional school’s buyer is choosing a bus contractor, and one bidder is owned by her uncle; she should tell her boss and step aside.

• Span of control

  The number of employees who report directly to one manager. A wide span means fewer managers and a flatter organization.

  Example. At a fictional call center, each team leader has 12 agents reporting to her, so her span of control is 12.

• Chain of command

  The line of authority in an organization that shows who reports to whom, from the top manager down to front-line workers.

  Example. At a fictional hotel, a housekeeper reports to the head housekeeper, who reports to the general manager.

• Just-in-time inventory

  Keeping very little stock and having supplies delivered just as they are needed. It cuts storage costs but leaves the business exposed if a delivery is late.

  Example. A fictional sandwich shop gets fresh bread delivered every morning and keeps almost none in storage.

• Vertical integration

  Owning more steps of one’s own supply chain: backward toward suppliers or forward toward customers.

  Example. A fictional juice company buys the orange groves that supply its fruit (backward) and opens its own juice bars (forward).