What is a Business?

An expansive question that has surprisingly practical value

Raychan / Unsplash

1

If you ask a regular person what a tree is, they’ll give you a different answer than a biologist will. 

Regular people can tell you that trees are big, tall plants with lots of leafy branches. This is accurate enough for everyday usage. But a biologist will tell you that “tree” is not actually a real taxonomic group—many genetically distant species of plants independently evolved into similar shapes. If you wanted to find a common ancestor between a pine tree and a maple, you’d have to go back millions of years and widen the family group to include thousands of species that are definitely nottrees. To a biologist, trees are simply plants with cellular mechanisms that grow thick main stems capable of bearing significant weight and height, which enables them to successfully compete for sunlight.

Similarly, you can define “business” in a common or technical sense. Regular people can tell you that a business is an organization that makes money by selling things. But we can go much deeper than that. And it is useful to go deeper, because it helps us understand not just the nature of businesses, but of all economic behavior and wealth creation. To the extent we understand these things, we can have more control over them, and increase our odds of success. Definitions determine destiny. The more clearly we can articulate what a business is supposed to do, the more clearly we can see how it should function and accomplish our goals. I've often seen founders get distracted and expand the scope of their business until it dies. We don’t want that!

But, more importantly, learning how things work is just inherently interesting :)

2

If you want to understand the nature of something, it helps to go back to when it originally emerged to understand why. So here’s a passage from The Origin of Wealth that tells the story of the very first business:

“About 2.5 million years ago, Homo habilisbegan to use its relatively large brain to begin making crude stone tools. We can think of these stone tools as the first products, and we can imagine that at some point two of our hominid ancestors, probably from the same band of close relatives, sat in the dust of the savanna and traded tools. We will use this very approximate point of 2.5 million years ago as the market for the beginning of the human ‘economy’.”

Of course we can’t know for sure if any of our pre-human ancestors actually set up shop and formally specialized in making these stone tools to trade for food or other resources. But we do know that they had an incentive to trade. When one person focuses on making tools, and another person focuses on using those tools to hunt, they will collectively outperform a group of “jack of all trades master of none.” 


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