ABSTRACT
This chapter focuses on two simple but surprisingly powerful tools that can help managers better take and defend business model decisions: The breakeven analysis and the Margin-SalesRate matrix (MSM). If a business is losing money, it is critical to understand the path to sustainable profitability—that is, understand the firm’s strategy for turning the losses into growing profits. If a business is making money, it is also important to understand how it will sustain profitability and growth. A business’s contribution margin, sales rate, and fixed costs all depend on the choices that the business makes in pursuing the activities to build resources and use them to create, deliver, and monetize benefits to customers. A firm with an innovation that enables it to offer low cost and differentiated products is likely to be a superstar. A business’s position in the MSM also depends on its competitive and macro environments.
