What is Business?

In earlier blogs, we explored some fundamental questions like: What is money? Where is money? These may sound simple, but understanding them helps us see how the world operates. And once we begin to grasp how the world works, it becomes much easier to understand how the stock market works too.

At the heart of the stock market are businesses. So, a natural next question is:

What is a business?

I’m not asking for a dictionary definition—you can find that anywhere. I’m asking you to think about it in your heart.

Here’s a simple way to see it:
If you buy something for $8 and sell it for $10, you have the potential for a business. But it’s not a true business until you can do this repeatedly, and consistently, to a group of customers. Once you can do that, you have a business.

Of course, there’s much more to building a real business, but this is the core idea. This is exactly how Warren Buffett started as a child. He would buy 10–15 newspapers and deliver them house to house, making a small profit on each one. By the age of 9 or 10, he was already learning how business works—and that understanding was key to his future success.

When we invest in the stock market, it’s essential to understand what business a company is in, and whether that business has a future.

Again, what is a business?
Buying something for $8 and selling it for $10 is a start, but it isn’t a monopoly or a defensible business since you are simply reselling something you didn’t create. Anyone else can potentially do the same thing.

Now, compare that to a restaurant that creates a unique biryani from scratch and sells it. It isn’t a true monopoly (others can also make biryani), but if your recipe creates loyal customers, you have something unique—a small moat around your business.

Contrast this with a liquor store or a shoe store, where you’re buying and reselling products without adding much unique value. It’s not as defensible, and competition can easily undercut your prices. However, even these “simple” businesses require skill, capital, and hard work. It’s not easy.

In fact, running a business is incredibly difficult:

• 1 million businesses shut down in the U.S. every year.

• 1.2 million new businesses open annually, showing the spirit of entrepreneurship, but many fail:

  • 20% fail within the first year.

  • 50% within five years.

  • 65% within ten years.

Why do so many businesses fail? Because expenses are relentless and profit margins are thin.

Think for a moment: Can you list five common business expenses?
If you can, you already have a decent understanding of how businesses operate.

Some of these expenses include:

• Salaries for employees

• Rent for your store or warehouse

• Utility bills (electricity, internet, etc.)

• Insurance

• Office supplies

• Marketing costs

• Accounting and tax services

And there are many more.

If your business isn’t adding unique value, your margins will stay small. If you buy something for $8, you may only be able to sell it for $10 or $11. If you try to sell it for $12, competitors will undercut you quickly, limiting your pricing power.

This is why many businesses fail.

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Now, shifting gears back to the stock market, let’s talk about understanding businesses at a high level.

Most businesses operate in one of two ways:
1️⃣ They sell products (physical goods).
Examples: Nike sells shoes. Coca-Cola sells beverages.

2️⃣ They sell services (non-physical offerings).
Examples: Netflix offers a subscription streaming service. Uber provides ride services.

A few exceptional businesses do both, and these are often stronger investments:

• Apple sells you an iPhone (product) and then offers Apple Music, iCloud, and other subscriptions (services).

• Tesla sells cars (product) and also offers software subscriptions for self-driving features (service).

• Home Depot sells home improvement products and offers installation services.

• Best Buy sells electronics and provides installation and support through Geek Squad.

Businesses that can combine products and services often have stronger, more resilient business models and can create additional revenue streams while building customer loyalty.

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Thank you for reading (or listening). Understanding what a business truly is, and how it survives and grows, will make you a much better investor—and will help you see the stock market not just as numbers on a screen, but as a collection of living, breathing businesses you can understand, evaluate, and potentially own for the long term.