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Nature of Business Meaning – Examples & Types

Nature of Business

Business success and a positive trajectory depend on many external factors. These include market dynamics, level of competition strength and internal strengths and weaknesses. All choices made by a business, big and small, will impact the type of company it will become and what it looks like. This leads us on to the nature of business.

What is the Nature of a Business?

The nature of business defines the core identity of a company – what it does, how it operates, and its place in the market. Getting to grips with this concept provides valuable insight for entrepreneurs, investors and other stakeholders when evaluating a business.

Put simply, the nature of business refers to the fundamental characteristics that shape a company’s purpose, offerings and market approach. It encompasses aspects like:

  • Legal structure – e.g partnership, private limited company
  • Products and services – what the business sells or provides to customers
  • Target market – the customer segments the business caters to
  • Business model – how the company generates revenue and profit

So for example, an online retailer has a very different nature of business compared to a bricks-and-mortar supermarket, even though both sell groceries. Understanding these traits helps stakeholders make informed assessments about a company’s identity and potential value.

Business Nature Components

Purpose: Every business starts with a purpose. It’s the foundation, answering why the entity exists. For some it’s selling products, for others providing services, and many it’s solving market problems. This purpose becomes the guiding North Star for all activities and decisions.

Activities: Businesses have set operations like people have daily tasks. This could include designing products, sourcing materials, manufacturing, marketing and sales. These activities fulfil the business’s purpose.

Scale: Business scale varies. Some operate locally like mom-and-pop shops. Others are huge enterprises spanning countries and continents. Scale dictates reach, operations and complexities.

Stakeholders: Businesses involve stakeholders like owners, employees, customers, suppliers and communities. Each has a role, interest and expectation.

Economic Contribution: A business contributes via job creation, taxes, trade and innovation. It plays a key economic role.

Risks & Challenges: The landscape is dynamic with competition, trends, regulations and events posing risks. Recognizing and navigating challenges is vital.

Legal Structure: Businesses operate within legal frameworks. Structures like sole proprietorships, partnerships and corporations define responsibilities, benefits and limitations.

In summary, a business’s nature blends purpose, functions, size, relationships, economic contribution, challenges and legal standing. These interplaying components form the intricate mosaic of business.

Nature of Business Examples

NatureFunction
TransportationMoves people and goods from one place to another
ManufacturingMakes products
AgricultureCultivates crops and raises animals
EntertainmentCreates and distributes creative content
ConstructionErects buildings and infrastructure
ServicesProvides intangible offerings
FreelancingProvides services as an independent contractor
Real EstateBuys, sells, and leases properties
Mining/DrillingExtracts natural resources from the earth
Research & DevelopmentConducts research and develops new products/processes
HospitalityRuns lodging, food/beverage, events and tourism
RetailSells to end consumers
EducationProvides teaching and training
HealthcareOffers medical treatment and promotion of health
WholesaleSells in bulk to businesses
UtilitiesDelivers essential services like power and water
Financial ServicesOffers financial products like banking and insurance
Information TechnologyDevelops and provides IT products and services
E-CommerceSells goods and services online
Non-ProfitOperates to advance social, environmental or other causes

What Impacts The Nature Of Business?

Legal Structure

A company’s legal structure has implications for ownership, financing, taxes and operational processes. Common structures include:

  • Sole proprietorships – owned and run by one individual who has unlimited liability
  • Partnerships – tow or more co-owners who share financing, profits and operational duties
  • Private limited companies – separate legal entities that limit owners’ liability to their investment amount
  • Public Limited companies – can trade shares publicly and often have access to great financing
  • Non-profit organisations – focus on social impact rather than profits

Choosing an appropriate legal structure depends on the founders’ growth ambitions, target customers, financing needs and appetite fr personal liability. An eco-friendly startup might begin as a partnership before transitioning later toa private limited company structure to attract investor funding.

Products & Services

A company’s offering encompasses what it sells to customers – whether physical goods, services, digital technologies or even ideas. The specifics here characterise the business’ core purpose. For example, a bakery sells artisanal bread and cakes, a web design agency sells bespoke websites and a charity sells the idea of positive social change through donations.

Over time, businesses may adapt or expand their offerings to pursue new opportunities or reach to market changes but the original core products and services tend to shape ongoing business identity and purpose.

Target Market

The specific customer groups a company sells to dictate much of its branding, proposition development and communications tactics. Market segmentation by demographics, geography, behaviours and values allow organisations to match products/services to buyer preferences.

For example, a specialty pet food company that prides itself on using the finest ingredients may focus its marketing on targeting affluent urban dog owners who are more likely to pay a higher price for the knowledge that better ingredients are used.

Industry Sector

The industry sector that a business operates in directly impacts its competitive environment, distribution channels and regulatory obligations. Knowing that industry landscape is key to analysing a company’s market positioning and potential.

Business Model

Every company’s business model encompasses how it generates sales revenues and profits from its offerings. The main areas of a business model usually include:

  • Value proposition – products/services offering value to customers
  • Target market – the selected customer segments
  • Distribution channels – how deliverables reach customers
  • Revenue streams = where sales income is generated
  • Cost structure – the expenses required to operate
  • Margin model – how the profits are produced from revenue

The Internal & External Factors Influencing The Nature Of Business

Internal Factors

  • Ownership Model – Group owned businesses rather than sole proprietorships often have wider financing options available to them but the downside is, having multiple people to run decisions past, can slow down decision making timelines.
  • Management culture – Visionary leaders can create strong innovative work cultures whereas prudent leaders tend to create steadier, less risky operations.
  • Company size – Large organisations benefit from economic scale but small operations tend to be more agile when it comes to customer interactions.
  • Technology used – Digitally driven companies are fundamentally different from traditional manual operations. As digital revolutions continue to happen, back office processes transform to provide customers with better front end experiences and personalisation.
  • Staff Skills – The skills available across employees will make or break your business. If you can’t get the talent required in house, then small firms may need to outsource specialist areas.
  • Purpose Alignment – Workforce diversity, community development and social justice can also reshape business nature. Younger workers choose employers that can demonstrate genuine commitment to moral causes rather than simple virtue signalling.

External Factors

  • Economic Landscape – Thriving economies provide more opportunities, whereas recessions force consolidation and cuts
  • Geography – Rural businesses often focus on community values whereas city-based firms can afford to follow consumer trends
  • Environmental Obligations – With climate change and ecological threats prominent, sustainability conscious customers will want to see greener practices in businesses they support. For example, petroleum companies investing in renewable energy sources would be an example of environmental obligations shaping the nature of business.
  • Regulations – Plenty of industries have specific compliance rules to follow which can fundamentally shape operations
  • Competitors – Start-ups in crowded marketplaces must be able to disturb, whereas monopolies control captive customer bases.
  • Market Globalisation – Trading across borders requires adaptations to make in branding, trading partnership and supply chains.
  • Investor demands – When investors are expecting results, companies may feel under pressure to scale up quickly
  • Customer expectations – Customer focused businesses must continue to adapt to the needs and demands of consumers. Those who fail to continually increase the value they offer to their customers face displacement by others who will.

These internal and external factors are constantly evolving and changes here will inevitably impact the strategies and processes required within the business. In some cases, this may lead to a change in the overall nature of business.

Types Of Businesses and their Nature

Legal structures and ownership models have a big impact on the taxes, liabilities and grow strategies available to organisations. Here is an overview of the main types available in the UK:

Sole Proprietorships

A sole proprietorship is a business owned and run by a single individual. This is one of the easiest business structures to set up and manage, only requiring a unique business name. The owner then has complete control over strategy, operations and liability. This means that personal assets can be pursued to settle business debts as there is no distinction between the owner and the business.

This type of business tends to work well for solo entrepreneurs with specialist professional skillets such as photography, consultants or tradespeople. Many people love the simplicity, autonomy and low start up costs, but lack of work during slow periods, financial protections, and difficulty if operations come to a standstill reflect the downsides of this type of business.

Partnerships

Partnerships allow two or more co-owners to set up and operate a business. All parties will contribute financing, decision making and operational oversight whilst splitting any profits made. This type of business structure allows for owner-operator involvement whilst knowledge and resources are pooled to greater business impact.

Partnerships tend to open up wider funding opportunities, diverse skill sets and expansion opportunities across several locations. All costs, responsibilities and liabilities are shared too. For this to work, an excellent collaborative approach is required which involves communications and transparency over financials and performance.

Disagreements can quickly derail partnerships but this type of set up is common in professional services such as legal firms, medical practices and architecture firms. Overall, partnerships encourage contribution to the business whilst avoiding some of the limitations faced by sole proprietors.

Private Limited Companies

A private limited company creates a legal structure that is separate from its owners. This means the company is owned by shareholders in accordance with their initial investments but that their liability is also limited to the amount invested. The benefit of this set up is that personal assets cannot be pursued to settle company debts.

The independent legal entity of the business means company ownership can be transferred more easily through the buying and selling of shares, and limited companies are also able to access favourable tax efficiencies in several areas.

The downside of a limited company is the higher volume of administrative work required to operate. Including extensive financial reporting, annual government filings and statutory obligations; They must follow regulations around hiring, workforce policies and contracts.

Public Limited Companies

Public limited companies (PLCs) can raise funds by trading shares openly though stock exchanges. Doing this opens up the business for the biggest investment to fund projects and fuel growth. To do this, a business must meet strict reporting and operational standards.

The separation of ownership from management requires non-executive directors and structured leadership teams. PLCs operate with greater public scrutiny of salaries, diversity policies and carbon footprints and underperformers will face pressure to make changes to strategy or leadership.

Non-Profit Organisations

Rather than maximising profits for owners, non-profit organisations focus on social impact and community benefit. To do this, most require donations and public sector funding to fund and are also reliant on volunteers to make up a proportion of their workforce.

Any profits cannot be divided between owners, but must stay within the company. Examples of these kinds of businesses include wildlife conservation groups, universities, medical research charities and cultural institutions. Spending is constrained and should be purposeful to reassure donors that their money is being used wisely and for the good intentions of the operation rather than internal functions. Successful non-profit companies have strong community support who engage emotionally with their causes.

The Evolving Nature Of Business

Whilst most businesses will carry their original purpose and niche with them, the nature of business may evolve over time as the company grows or responds to external or internal forces impacting it.

The Role Of Stakeholders

Within business environments, internal and external stakeholders will always have an influence over an organisation’s direction.

Employees

Staff and unions that lobby for higher pay, improved working conditions and greater work-life balance can modify company behaviour over time.

Communities

Neighbouring communities affected by business operations advocate for social programs, environmental protections and local economic opportunities which will feed into corporate policies.

Business Partners

Suppliers will always request increased margins and better terms of trading while distributors request support in pushing products. The negotiations required for these relationships will inevitably shape operations.

Wrapping Up

The nature of business refers to the key characteristics of an organisation that shape its operations, identity and competitive landscape. Understanding these things ensures that entrepreneurs, inventors and other stakeholders make informed decisions about business potential, investment decisions and the timeframe that they might see a return on their investment.

The exact makeup of a business will depend on leadership, sector, strategic choices and where the company is in its cycle, but market focus, deliverables, capabilities and growth ambitions will all shape the way the business runs.

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