Understanding What a Business Is

It's important to keep the following in mind at all times when looking to start a business or fix an existing one. Many of the businesses I've started have failed because I never focused on this concept during the inception of the business.

Peter Theil in his 2017 lecture at Stanford, which you can find on Y Combinator's YouTube channel, had a very simple explanation of what a business does.

A business's goal is to create and capture value

A business creates "X" dollars of values and captures "Y"% of "X"

"X" and "Y" are independent values

If your business does not create value, or fails to capture at least a fraction of that value, you won't be in business very long.

If your organization doesn't capture part of the value it creates, it's not a business but a not-for-profit, hobby or government organization.

If you can capture a percentage of the value you create, that's your revenue. If your expenses to create and capture that value are less than the amount of value you capture, you'll have a profitable business.

Business Creates Value x Captures a % of that Value - Expenses to Create & Capture Value = Profit/Loss

It's a simple concept to understand, but mastering it is a journey.

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