Types of Businesses
In this module, you will…
- Learn about different types of businesses
- Think about what type of business you want to create
- Write a mission statement
What is a Business?
Understanding how to start and run a business is a very important part of being an entrepreneur! You’re starting to learn how to build your app and to think about the problem it will solve. Now it's time to think about your business.
What comes to mind when you hear the word 'business'? You might think of a local farm stand, a grocery store, a bank, or even a big social media company like Facebook or WhatsApp. A business is any organization or person that is doing something in exchange for money or another good. Businesses can make, buy, or sell goods (like a company that makes cars), or they can provide services (such as a mobile phone service company).
To run a business, you don’t need a storefront, a lot of employees, or even a physical product to sell. You don’t have to be a grown up to start your own business! There are plenty of young people who have started their own businesses. For example, Maddie Bradshaw started her business at the age of 13. She couldn’t find any school locker decorations she liked, so she decided to make and sell her own. She realized that the best person to understand what young people like and want to buy is another young person!
Different Types of Businesses
Not all businesses have the goal of just making money. Some have different goals such as helping feed hungry people, or providing students with a better education. Making a profit (revenues minus expenses) from their businesses over time, allows them to be sustainable. In this section, you will learn about three types of businesses: for-profits, non-profits, and social enterprises.
Check out the table below to learn more about these three types of businesses.
Earn profit while meeting a consumer or business need in society.
|Make Money & Do Good
Keeps some of the profit earned from doing something good, like social issues.
|Make Money to do Good
Wants to do something beyond making a profit, like dedicated to furthering a particular social issue(or addressing a problem in their community).
|Characteristics||- Maximize profit by selling goods, products, or services to customers.
- May have a social mission (a goal to do good in the community) but it is not operated to maximize that.
|- Can be structured as for-profit or non-profit.
- Maximize social impact and profit for external shareholders.
- Some of them make profit and use that profit to do social good.
|- Making a social impact is the driving force in the business.
- Need money to sustain themselves and pay employees just like any other business.
- Can earn money by selling product and services, accepting donations, or get funding through grants.
|Real Examples||Bank of America||Kiva||UNICEF|
So, if we think of our food cart example in each of these business models, it may look something like:
For-Profit Food Cart: You start your food cart with the main goal of making money by selling delicious food to people. You spend the money you earn on yourself and on improving your business and food quality.
Social Enterprise Food Cart: You start a food cart with the main goal of raising awareness of hunger in your community. You tell your customers that for every three meals you sell, you will give one meal to a person in need. You spend some of the money you earn on improving your business and food quality, some of it on yourself, and some of it on providing the meals for the hungry.
Non-Profit Food Cart: You realized that instead of running a food cart and donating the money you earn to the underserved community, you might make a larger impact if you helped kids from underserved communities run their own successful food carts. You get a donation from a local bank for your program. With this donation, you run a program called “How to Run a Successful Food Cart” in the community and help others succeed.
Social enterprise is a relatively new category for companies, so don’t worry if you're a little confused. For simplicity, think of social enterprise as being in between for-profit and non-profit business. It is up to the business to decide how far they want to lean to either side.
Want to learn more about social enterprises? Watch this video:
Here's a couple more videos about social enterprises:
There are not always clear lines between for-profits and non-profits, but there might be different tax responsibilities depending on how the business is structured and restrictions on how it can spend the money earned. In most countries, all businesses need to pay a tax to the government. The amount of tax they have to pay is greatly impacted by what type of business it is.
For example, in the United States, if you are a non-profit, you do not have to pay as many taxes, and those who donate to you can get a tax break as well. However, it is not enough to just say you are a non-profit or a social enterprise. You will need to follow rules and prove that you are following them. Each country’s law and rules are different. It is out of the scope of this competition to check and follow these rules but they are something that you should keep in mind when starting a business outside of Technovation!
Develop Your Mission Statement
As you develop your business during Technovation, you will likely realize that your company falls somewhere between for-profits and non-profit, with social enterprise being in the middle. That is completely okay. Your company will have the goal of solving the problem that you identify, but you will also want to generate revenue (money) so you can keep the business running or scale it up (grow its size and impact). One thing that will help you stay true to your original goal of your business is to always stay close to your company's mission statement.
A mission statement is a formal summary of the aims and values of a company, organization, or individual. Mission statements help companies determine what is important and what is not, and clearly state who will be served and how. A mission statement is usually short and simple sentence that outlines what the organization’s purpose is and how it accomplishes that.
Create a mission statement for your business with your team and share it with your mentor. Your mission statement can change as your company grows but remember that this is the “heart” of your business. Try to stay true to this statement.
Tip: If you are stuck, look at some other organizations tackling hard challenges. Look at their mission statements and see what you can learn:
- UNICEF: “UNICEF is mandated by the United Nations General Assembly to advocate for the protection of children's rights, to help meet their basic needs and to expand their opportunities to reach their full potential.”
- Kiva: “Kiva’s mission is to connect people through lending to alleviate poverty. We celebrate and support people looking to create a better future for themselves, their families and their communities.”
- Amnesty International: “Our vision is of a world in which every person – regardless of race, religion, ethnicity, sexual orientation or gender identity – enjoys all of the human rights enshrined in the Universal Declaration of Human Rights (UDHR) and other internationally recognized human rights standards.”
- Nike:"To bring inspiration and innovation to every athlete* in the world." The legendary University of Oregon track and field coach, and Nike co-founder, Bill Bowerman said, "If you have a body, you are an athlete."
When you are developing your mission statement consider the questions below and make sure your mission statement addresses all of them.
- What do we do?
- How do we do it?
- Whom do we do it for?
- What value are we bringing?
Decide on a Business Type
Now that you are more familiar with different types of businesses, it is time to start thinking about the business you want to build with your team. Answer the following questions:
- What type of business do you want yours to be? (for-profit, non-profit, or social enterprise)
- What do you want to accomplish by opening your business?
- What do you want the mission to be?
- What is your vision for the business?
- How do you want your profit to support your mission?
- How do you think you can sustain (keep it running) your business?
These are all questions you should ask when developing your business. You don’t need to have the answers to all these questions today but it is important to keep thinking of these as you build your business plan. You can always change the type of business as you further develop your app and business plan!
- Why do you think there are different types of businesses?
- What do you think advantages of different types of business are?
- What type of business do you think will be best in solving the community problem you are trying to tackle?
- How do you think your mission statement can help your business?