Glossary
Business frameworks and terms glossary
Plain-language definitions of the frameworks and metrics that come up in MBA classes, cases and interviews — with when to use each one.
Frameworks are thinking aids, not answers. Each entry says what the term means and when it actually helps.
Structuring and problem-solving
MECE — mutually exclusive, collectively exhaustive. A way of splitting a problem so the parts do not overlap and nothing is left out. Revenue = price × volume is MECE; "online and young customers" is not, because the groups overlap.
Issue tree — a diagram that breaks a question into sub-questions, each of which can be answered with analysis. Useful whenever a problem feels too big to start on.
Hypothesis-driven approach — starting with a best guess at the answer and testing it, rather than collecting all possible data first. Saves time when you are willing to change your mind.
Pyramid principle — communicating the answer first, followed by the supporting arguments, followed by the evidence. The standard shape for consulting slides and executive emails.
80/20 rule (Pareto principle) — the observation that a small share of causes often drives a large share of results. A prompt to look for concentration, not a law.
Strategy
Porter's five forces — a way to judge how attractive an industry is by looking at rivalry among competitors, the threat of new entrants, the threat of substitutes, and the bargaining power of buyers and of suppliers. Useful for market-entry questions; less useful for diagnosing one company's falling profits.
SWOT — strengths and weaknesses (internal), opportunities and threats (external). Good for organising a discussion; weak as an analysis on its own because it rarely forces a decision.
Value chain — the sequence of activities a company performs to deliver a product, from sourcing to after-sales service. Helps locate where cost or advantage comes from.
Ansoff matrix — four growth routes: sell more of existing products in existing markets (penetration), new products in existing markets, existing products in new markets, or new products in new markets (diversification). Risk generally rises in that order.
Economies of scale — falling cost per unit as volume rises, usually because fixed costs are spread across more units.
Marketing
4Ps — product, price, place (distribution) and promotion. A checklist for a go-to-market plan.
STP — segmentation, targeting and positioning: dividing a market into groups, choosing which to serve, and defining how you want to be seen by them.
TAM, SAM, SOM — total addressable market (everyone who could ever buy), serviceable available market (the part your product and channels can reach), and serviceable obtainable market (the share you can realistically win).
CAC — customer acquisition cost: marketing and sales spend divided by new customers acquired.
LTV (CLV) — lifetime value: the gross profit a customer generates over their whole relationship with the company. Compare it with CAC to judge whether growth is profitable.
Finance and accounting
Revenue, gross profit, EBITDA, net profit — sales; sales minus direct costs; profit before interest, taxes, depreciation and amortisation; and profit after everything.
Contribution margin — price minus variable cost, often expressed as a percentage of price. The key input to break-even analysis. See the break-even calculator.
Fixed vs variable costs — costs that do not change with volume in the short run (rent) versus costs that do (raw materials).
CAGR — compound annual growth rate. See the CAGR calculator.
Working capital — current assets minus current liabilities; roughly, the cash tied up in running day-to-day operations.
NPV — net present value: the value today of future cash flows, discounted at a required rate of return, minus the initial investment. A positive NPV means the project earns more than that required rate.
Payback period — how long it takes to recover an investment from its cash flows. Simple, but ignores everything after payback.
Operations
Bottleneck — the step in a process with the lowest capacity, which limits the output of the whole process.
Capacity utilisation — actual output as a share of maximum possible output.
Inventory turnover — how many times inventory is sold and replaced in a period. Higher usually means less cash tied up in stock.