Business 101: How business works

Business 101: How business works

Finally! Graduated! Now what!? If you want to make a living, you are going to be working for a business, even if it is a non-profit business. Too bad it’s not a subject that they cover in school. Which is why so many people search for “how does business work” and “how to understand business.” It’s a mystery. 

And don’t think you can learn it from movies and TV shows, which tend to reflect show business, not the majority of businesses. I’ve spent some years in the entertainment industry, and found it to be more ego-driven and cutthroat than many other industries. What you see on your screens doesn’t reflect the reality of most businesses. 

So what is business? 

Let’s start with the absolute, total reality: a business is a person or group of people who join together to provide something useful for other people, something that people will be willing to pay for. 

If that something is good, people will buy it again, and tell others about it. 

If not, the business will fail. 

So you can’t have a business without customers, and you can’t stay in business if those customers are unhappy. This is more true than ever, thanks to social media, reviews, and discussion groups. Anyone who has had an unhappy experience can share their disappointment with other potential customers. If a company is treating customers badly or turning out inferior products, other customers are going to hear about it. It’s way harder to hide bad behavior than it used to be. 

There is a false perception floating around in the world, which says that business is inherently bad; that it’s all about greed and fat old men smoking cigars and mistreating their employees and customers. This is absolutely, positively false. I did some research on the last census—2004—and determined that more than 95 percent of the businesses in the United States had 9 or fewer employees! 

Think about it . . . you drive through town and there are small businesses all over the place. And there are now millions of small companies doing business virtually; that number has exploded since 2004. Companies started by people in their 20’s or 30’s, people who have a solution to a problem, people brave enough to set out on their own and be their own bosses. 

Another false perception is that business is all about greed. Sure, there are people out there who are only interested in money and open up a business to get rich, and there are people inside very large corporations who get paid amazing sums of money.  But remember that 95 percent statistic. Most of the businesses where you will get a job are smaller and they really do care about taking care of their employees and customers. 

How do I know this? Because I have worked with literally hundreds of businesses, mostly small to medium-sized, and the majority of them were started by kind people who wanted to make a positive difference in the world. 

Did they make mistakes? Absolutely. Are they perfect? Of course not. But they’re not jerks.

Yes, there are jerks in the world, and some of them own businesses. And you really don’t want to work for a jerk, if you can avoid it. 

Fortunately there are ways to figure out if the boss is a jerk before you take the job. Go to Glassdoor and see if the company is listed there. Don’t pay too much attention to one disgruntled commenter; see if there is a common thread of positivity or negativity as you read what people say about working there. 

If you can, ask the other employees what it’s like working there. Observe the boss when he or she is talking to the other employees. Do they treat those employees with kindness and respect? Or do they talk down to them? 

In other words, as you are being interviewed for the job, keep your mind and eyes open. It’s just as important that you are OK with what you’re getting into as it is for them to evaluate you. 

Now let’s talk more about how businesses work. 

Profit. What is profit? It’s such a dirty word out there in the world. But a business cannot survive without it. Profit is simply what is left over after all the people and the other expenses are paid.

“Gross revenue” is what they call all the money coming in; “net profit” is what they call what is left over after the bills are paid. Most businesses keep track of this “money in and money out” activity month by month, then every 3 months they look at the quarter, and every 12 months, they look at the year. It’s all just a way of making sure that 1) The business is bringing in enough to pay all the employees and all the other expenses and 2) That the owner has enough left over to pay himself or herself. 

If the owner is making enough to pay for him or herself, that will include: Their own living expenses; business and personal income taxes; property taxes; paying the owners back for whatever they put into the business (many businesses are not profitable until one or two years after they’ve started), and savings. 

Business expenses that might not be obvious include computing equipment and software; an accountant and bookkeeper; legal advice; government fees; the price of complying with regulations (paperwork and documenting things takes time and effort); business insurance; employment taxes and benefits; repayment of loans and credit cards; marketing expenses; rent; communication expenses; equipment required to provide services or manufacture products; training and research; and conferences and travel. 

Running a business takes money, and the business must make enough to pay for itself. 

Promotability. Let’s say you start out at the bottom of the ladder in a company—doing something clerical or repetitive. What will ensure that you won’t stay at that level forever? One thing only: how much you apply yourself to the job, physically and mentally. Physically, in the sense that you show up on time and you work hard when you’re working. Mentally in the sense that you keep thinking while you’re working. “Man, this sure is inefficient. I could save an hour a day if I just consolidate these two tasks.” Then think about how you can make this suggestion to your superiors. 

This is how a good manager thinks. Effective managers are always looking around, thinking about how to make things easier and faster. Thinking this way will help you gain recognition from your bosses. It will also help you if you do end up starting your own business one day; constantly searching for ways to improve opens you up to more opportunities, and, if you have customers, will help you attract more customers to your business. 

They call it “work” for a reason. Working is just that: buckling down and getting to work. Working with others successfully. Being courteous and aware of what is going on around you. Understanding what the business needs to do to succeed, and helping the business be more successful. 

Learn to Earn More. Things change fast in our digital world. We all need to be constantly learning new apps, new methods, and new skills. The more you learn, the more you will earn. That’s where success comes from in the working world. Sure, there are people who have inherited their wealth and who do not work for a living. But they are very rare. Most of the people in the world need to work in order to survive; to support themselves and their families; to meet their own goals; and to find ways to make a difference in the world. 

People who failed to learn the new digital ways of working are being left behind. Once you learn how to do something, that’s good, but it’s not enough. That thing you learned how to do will change, and even become obsolete, faster than you’d expect. Once a skill is no longer needed, those who learned that skill will no longer be hired. 

Always be learning. It’s the main characteristic of a successful working life.

Become a Student of Management. It’s a really good idea to become a student of management, too. Watch the more successful managers and figure out what they do. The tools they use; the way they make decisions; when they press forward and when they back off; how they treat people; when they make fast decisions and what they do when the decisions are more critical and require more information; the systems they set up and how they utilize them. 

Managing is a tough job, much more difficult than non-managers assume. It’s easy to criticize a manager. It’s a lot harder to be one. One thing people don’t realize is how isolated a manager can become. Managers often don’t hear the full story, especially if someone is trying to hide a mistake they made or if they are trying to convince the boss to do something. So decisions can be made without seeing the whole picture. 

Managers also have to deal with many forces, such as the board of directors, or legal requirements, or customer preferences.  

The best managers explain their actions clearly to those who work for them, so that everyone understands all the issues that had to be considered as part of making a decision. 

And making good decisions is about 90 percent of what a good manager does. Those working for the manager will work on their projects until they run into a snag; then they turn to the manager to get help. A strong manager will listen and understand the situation, then make a decision. If the decision is good, the issue will be resolved to everyone’s satisfaction, and everyone will be able to go back to work. 

If a manager makes bad decisions, the issue will not be resolved, and the work will become even harder to complete. Bad decisions usually come from 1) Not understanding the full picture 2) Making a decision based on some kind of hidden agenda (the manager wants more power or is hiding the truth from himself or others) or 3) Making a decision that is comfortable/safe/familiar when this new situation requires a new type of decision. 

So another way to become more promotable is to start learning how to make good decisions in your own life, in preparation for making good decisions as a manager. 

The reality of advancement in life is this: The sooner you behave as the type of person you’d like to be, the sooner you will become the person you’d like to be. 

People just getting out of school with no management experience often tell interviewers, “I want to be in a position of management.” But you can’t be there until you behave like you belong there. Bosses recognize when someone is ready to be a manager, and will only give you managerial responsibility when you behave like a manager. 

There’s a lot more to learn about business, but what I’ve said so far—if you put it to good use—will get you on the right track. 

As always, I wish you the best.

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