This guide covers what counts as a business, the difference between a customer and a consumer, what a market opportunity is, and how value creation differs from value capture.
The key ideas
What counts as a business
The College Board defines a business as an organization that produces and distributes goods, services, or both. Size is irrelevant. A business can be measured by geographic reach, number of employees, or revenue, and it can serve people face-to-face or online.
So a teenager who charges neighbors to mow lawns is a business, and so is Amazon. Services count just as much as physical goods. Baking cookies for fun and giving them away is a hobby, but the moment you sell them you are running a business.
A student who edits short videos for local restaurants and bills for each one is a business with one employee. Chipotle is a business with thousands. Both produce and distribute something customers pay for.
Customer versus consumer
A customer buys. A consumer uses. They are often the same person, but exam questions love to pull them apart.
When a scenario names two people, ask who paid. That person is the customer. The person who actually uses the product is the consumer. A business can be a customer too, because the definition covers an individual or a business that purchases.
A parent buys a Roblox gift card for her ten-year-old. The parent is the customer and the ten-year-old is the consumer. A friend who uses your gym guest pass is a consumer but never a customer, because nothing was purchased.
Market opportunities and problem-solution fit
Businesses spot a customer problem, need, or want and build something that addresses it. The course calls that gap a market opportunity. When the product really does address the gap, the business has problem-solution fit.
A problem is something going wrong, like a cracked phone screen. A need is something people have to have, like warm coats in a cold climate. A want is something people would enjoy but could live without, like limited-edition sneakers. Any of the three counts. No business can serve everyone, so each one picks which problems and which customers to focus on.
Duolingo goes after people who want to learn a language casually on their phones. It leaves out students who want a classroom and a teacher. Choosing one group over the other is part of finding fit.
Value creation versus value capture
Value is the worth or benefit a product gives the customer. It has nothing to do with how much the product cost to make.
Value creation means building a product that responds to what customers need. Value capture means charging a price higher than the cost of producing it. One is about the product. The other is about price against cost. Scenario questions often describe both at once, so label each part separately.
A bakery develops a gluten-free loaf that tastes good, which creates value for customers who could not eat regular bread. It sells the loaf for $9 when ingredients and labor cost $4, which captures value. A reseller who buys sneakers for $180 and lists them at $300 without changing the shoe is mostly capturing value, since nothing about the product improved.
Key terms
- Business
- an organization that produces and distributes goods and/or services to customers.
- Customer
- an individual or business that buys a good or service.
- Consumer
- whoever ends up using the thing, even if someone else paid for it.
- Market opportunity
- a customer problem, need, or want that a business can address.
- Problem-solution fit
- when a product actually addresses a real customer problem, need, or want.
- Value
- the worth or benefit a product gives to customers.
- Value creation
- making something that solves a problem or gives buyers what they need or want.
- Value capture
- charging customers a higher price than the product cost to produce.