Example 1.1: Apple

In 1976 Steve Jobs and Steve Wozniak created their first computer, the Apple I.^[1] They invested a mere $1,300 and set up business in Jobs’ garage. Almost four decades later, their business—Apple Inc.—has become one of the world’s most influential and successful companies. Jobs and Wozniak were successful entrepreneurs: those who take the risks and reap the rewards associated with starting a new business enterprise.

Why has Apple flourished while so many other young companies fail? How did it grow from a garage start-up to a company generating revenues of $394 billion in 2022?^[2] How was it able to transform itself from a nearly bankrupt firm to a multinational corporation with locations all around the world? You might conclude that it was the company’s products, such as the Apple I and II, the Macintosh, or more recently its wildly popular iPod, iPhone, and iPad. Or, you could decide that it was its dedicated employees, management’s wiliness to take calculated risks, or just plain luck—that Apple simply was in the right place at the right time.

Before drawing any conclusions about what made Apple what it is today and what will propel it into a successful future, you might like to learn more about Steve Jobs, the company’s cofounder and former CEO. Jobs was instrumental in the original design of the Apple I and, after being ousted from his position with the company, returned to save the firm from destruction and lead it onto its current path.

Growing up, Jobs had an interest in computers. He attended lectures at Hewlett-Packard after school and worked for the company during the summer months. He took a job at Atari after graduating from high school and saved his money to make a pilgrimage to India in search of spiritual enlightenment. Following his India trip, he attended Steve Wozniak’s “Homebrew Computer Club” meetings, where the idea for building a personal computer surfaced.^[3] “Many colleagues describe Jobs as a brilliant man who could be a great motivator and positively charming. At the same time his drive for perfection was so strong that employees who did not meet his demands [were] faced with blistering verbal attacks.”^[4] Not everyone at Apple appreciated Jobs’ brilliance and ability to motivate.

Nor did they all go along with his willingness to do whatever it took to produce an innovative, attractive, high- quality product. So at age thirty, Jobs found himself ousted from Apple by John Sculley, whom Jobs himself had hired as president of the company several years earlier. It seems that Sculley wanted to cut costs and thought it would be easier to do so without Jobs around. Jobs sold $20 million of his stock and went on a two-month vacation to figure out what he would do for the rest of his life. His solution: start a new personal computer company called NextStep. In 1993, he was invited back to Apple (a good thing, because neither his new company nor Apple was doing well).

Steve Jobs was definitely not known for humility, but he was a visionary and had a right to be proud of his accomplishments. Some have commented that “Apple’s most successful days occurred with Steve Jobs at the helm.”^[5]

Jobs did what many successful CEOs and managers do: he learned, adjusted, and improvised.^[6] Perhaps the most important statement that can be made about him is this: He never gave up on the company that once turned its back on him. With Jobs being one of the most admired CEOs of all time, Tim Cook, Apple’s current CEO, had big shoes to fill when he took over from Jobs in 2011. Despite doubt from many, Apple has released popular products under Cook’s leadership, such as the Apple Watch and AirPods, with Apple becoming the first company to achieve a market-cap of more than $3 trillion, which it reached at the end of June 2023.^[7]

Introduction to Business

Today is an interesting time to study business. Advances in technology are bringing rapid changes in the ways businesses produce and deliver goods and services. The Internet; other improvements in communication, such as smartphones, video conferencing, and social networking; and artificial intelligence (AI) now affect the way we do business. Companies are expanding international operations, and the workforce is more diverse than ever. Corporations are being held responsible for the behavior of their executives, and more people share the opinion that companies should be good corporate citizens. Because of the role they played in the worst financial crisis since the Great Depression, businesses today face increasing scrutiny and negative public sentiment.^[8]

Economic turmoil that began in the housing and mortgage industries as a result of troubled subprime mortgages quickly spread to the rest of the economy. In 2008, credit markets froze up and banks stopped making loans. Lawmakers tried to get money flowing again by passing a $700 billion Wall Street bailout, however now-cautious banks became reluctant to extend credit. Without money or credit, consumer confidence in the economy dropped and consumers cut back on spending. Unemployment rose as troubled companies shed the most jobs in five years, and 760,000 Americans marched to the unemployment lines.^[9] The stock market reacted to the financial crisis and its stock prices dropped by 44 percent while millions of Americans watched in shock as their savings and retirement accounts took a nosedive. In the fall of 2008, even Apple, a company that had enjoyed strong sales growth over the previous five years, began to cut production of its popular iPhone^[10] and experienced a 50 percent drop in its stock price.^[11] Apple eventually recovered and continued to grow, reaching an all-time high stock price of $194.48 in June 2023.^[12]

Getting Down to Business

A business is an organization that provides goods or services to consumers for the purpose of making a profit. Be careful not to confuse the terms revenue and profit. Revenue represents the funds an enterprise receives in exchange for its goods or services. Profit is what’s left (hopefully) after all the bills are paid. When Steve Jobs and Steve Wozniak launched the Apple I, they created the Apple Computer in Jobs’ family garage in the hope of making a profit.

Before we go on, let’s make a couple of important distinctions concerning the terms in our definitions. First, whereas Apple produces and sells goods (Mac, iPhone, iPod, iPad, Apple Watch), many businesses provide services. Your bank is a service company, as is your Internet provider. Hotels, airlines, law firms, movie theaters, and hospitals are also service companies. Many companies provide both goods and services. For example, your local car dealership sells goods (cars) and also provides services (automobile repairs). Second, some organizations are not set up to make profits. Many are established to provide social or educational services. Such not-for-profit (or nonprofit) organizations include the United Way of America, Habitat for Humanity, the Boys and Girls Clubs, the Sierra Club, the American Red Cross, and many colleges and universities. Most of these organizations, however, function in much the same way as a business. They establish goals and work to meet them in an effective, efficient manner. Thus, most business principles also apply to nonprofits.

One of the most fundamental principles of business is risk, or the potential to lose time and money or otherwise not be able to accomplish an organization’s goals. Without enough blood donors, for example, the American Red Cross faces the risk of not meeting the demand for blood by victims of disaster. Businesses such as Microsoft face the risk of falling short of their revenue and profit goals. When a company such as Microsoft uses its resources intelligently, it can often increase sales, hold costs down, and earn a profit. Not all companies earn profits, but that is the risk of being in business. In U.S. business today, there is generally a direct relationship between risks and profit: the greater the risks, the greater the potential for profit (or loss). Companies that take too conservative a stance may lose out to more nimble competitors who react quickly to the changing business environment.

Business Participants and Activities

Let’s begin our discussion of business by identifying the main participants of business and the functions that most businesses perform. Then we’ll consider the external factors that influence a business’ activities.

Participants

Every business must have one or more owners whose primary role is to invest money in the business. When a business is being started, it’s generally the owners who polish the business idea and bring together the resources (money and people) needed to turn the idea into a business. The owners also hire employees to work for the company and help it reach its goals. Owners and employees depend on a third group of participants—customers. Ultimately, the goal of any business is to satisfy the needs of its customers in order to generate a profit for the owners.

Stakeholders

Consider your favorite restaurant. It may be an outlet or franchise of a national chain or a local “mom and pop” without affiliation to a larger entity. Whether national or local, every business has stakeholders—those with a legitimate interest in the success or failure of the business and the policies it adopts. Stakeholders include customers, vendors, employees, landlords, bankers, and others (Figure 1.2). All have a keen interest in how the business operates, in most cases for obvious reasons. If the business fails, employees will need new jobs, vendors will need new customers, and banks may have to write off loans they made to the business. Stakeholders do not always see things the same way— their interests sometimes conflict with each other. For example, lenders are more likely to appreciate high profit margins that ensure the loans they made will be repaid, while customers would probably appreciate the lowest possible prices. Pleasing stakeholders can be a real balancing act for any company.

Functional Areas of Business

The activities needed to operate a business can be divided into a number of functional areas. Examples include: management, operations, marketing, accounting, and finance. Let’s briefly explore each of these areas.

Management

Managers are responsible for the work performance of other people. Management involves planning for, organizing, leading, and controlling a company’s resources so that it can achieve its goals. Managers plan by setting goals and developing strategies for achieving them. They organize activities and resources to ensure that company goals are met and staff the organization with qualified employees and managers lead them to accomplish organizational goals. Finally, managers design controls for assessing the success of plans and decisions and take corrective action when needed.

Operations

All companies must convert resources (labor, materials, money, information, and so forth) into goods or services. Some companies, such as Apple, convert resources into tangible products—Macs, iPhones, Apple Watch, etc. Others, such as hospitals, convert resources into intangible products—e.g., health care. The business function that designs and oversees the transformation of resources into goods or services is called operations management, or simply operations.

Marketing

Marketing consists of everything that a company does to identify customers’ needs (i.e., market research) and design products to meet those needs. Marketers develop the benefits and features of products, including price and quality. They also decide on the best method of delivering products and the best means of promoting them to attract and keep customers. They manage relationships with customers and make them aware of the organization’s desire and ability to satisfy their needs.

Accounting

Managers need accurate, relevant and timely financial information, which is provided by the accounting function. Accountants measure, summarize, and communicate financial and managerial information and advise other managers on financial matters. There are two fields of accounting. Financial accountants prepare financial statements to help users, both inside and outside the organization, assess the financial strength of the company. Managerial accountants prepare information, such as reports on the cost of materials used in the production process, for internal use only.

Finance

Finance involves planning for, obtaining, and managing a company’s funds. Financial managers address questions such as the following: How much money does the company need? How and where will it get the necessary money? How and when will it pay the money back? What investments should be made in plant and equipment? How much should be spent on research and development? Good financial management is particularly important when a company is first formed, because new business owners usually need to borrow money to get started.

External Forces That Influence Business Activities

Apple, Microsoft, and other businesses don’t operate in a vacuum; they’re influenced by a number of external factors. These include the economy, government, consumer trends, technological developments, public pressure to act as good corporate citizens, and other factors. Collectively, these forces constitute what is known as the macro environment—essentially the big picture world external to a company over which the business exerts very little if any control.

An example of an industry that is affected by all these factors is the fast-food industry. Companies such as Taco Bell, McDonald’s, Chick-fil-A and others all compete in this industry. A strong economy means people have more money to eat out. Food standards are monitored by a government agency, the Food and Drug Administration. Preferences for certain types of foods are influenced by consumer trends, for example, fast food companies are being pressured to make their menus healthier. Finally, a number of decisions made by companies in the industry result from their desire to be good corporate citizens. For example, several fast-food chains have responded to environmental concerns by eliminating Styrofoam containers.^[13]

Chapter Review

Optional Resources to Learn More 

	Books
	The Visual MBA by Jason Barron https://www.thevisualmbabook.com/
	Podcasts
	Planet Money https://www.npr.org/podcasts/510289/planet-money
	Marketplace https://www.marketplace.org/shows/marketplace/
	Websites
	Morning Brew https://www.morningbrew.com/daily
	Harvard Working Knowledge https://hbswk.hbs.edu/

Chapter Attribution

This chapter incorporates material from the following sources:

Chapter 2 of Skripak, S. J. & Poff, R. (2023). Fundamentals of business (4th ed.). VT Publishing. https://pressbooks.lib.vt.edu/fundamentalsofbusiness4e/chapter/chapter-2-the-foundations-of-business/. Licensed with CC BY-NC-SA 4.0.

Chapter 1 of Gitman, L. J., McDaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. C. (2018). Introduction to business. OpenStax. https://openstax.org/books/introduction-business/pages/1-introduction. Licensed with CC BY 4.0.

Media Attributions

Figure 1.1: Yohe, M. (2010, June 8). Steve Jobs [Photograph]. Wikimedia Commons. https://commons.wikimedia.org/wiki/File:Steve_Jobs_Headshot_2010-CROP.jpg. Licensed with CC BY-SA 3.0.

Figure 1.2: Hoopes, C. (2023). Stakeholders. Licensed with CC BY-NC-ND 4.0.