business-fundamentals

name	business-fundamentals
description	Master business domain knowledge - understand business models, unit economics, revenue mechanisms, metrics, profitability, financial analysis. Use for evaluating business cases, prioritizing features by business value, and understanding financial impact.
allowed-tools	Write
metadata	{"version":"2.0","claude-code":{"context":"fork","agent":"Explore","user-invocable":true}}

Business Fundamentals for BA

Every requirement has business impact. Understand the math.

What is Business Domain Knowledge?

Definition: Understanding how the business makes money, generates value, and measures success - the financial and operational foundations.

Why it matters:

• Bad prioritization: Build features nobody will pay for
• Missed opportunities: Don't recognize high-value features
• Weak business cases: Can't justify investment to executives
• Wrong metrics: Measuring vanity metrics, not real impact

When to Use:

• ✅ Evaluating business case for initiative
• ✅ Prioritizing features by business value
• ✅ Understanding customer economics
• ✅ Analyzing financial impact
• ✅ Setting success metrics tied to business

---

3 Core Business Model Concepts

1. How Does the Company Make Money?

Different business models, different priorities:

Subscription/SaaS:

• Key metric: MRR (Monthly Recurring Revenue)
• Priorities: Reduce churn, increase ARPU (Average Revenue Per User)
• Customer lifetime value matters more than acquisition cost

Transactional (Marketplace):

• Key metric: GMV (Gross Merchandise Volume)
• Priorities: Increase transaction volume, take rate
• Liquidity (supply + demand) matters most

Freemium:

• Key metric: Conversion rate (Free → Paid)
• Priorities: Maximize free user base, conversion funnel
• Balance: Too aggressive → low adoption, Too passive → no revenue

Advertising:

• Key metric: CPM (Cost Per Mille), CTR (Click-Through Rate)
• Priorities: Maximize time-on-site, ad placements
• User experience vs ad density trade-off

See: references/business-models.md

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2. Unit Economics (The Math That Matters)

Every business needs this math to work:

For SaaS Business:

Customer Acquisition Cost (CAC): $500
  = Sales + Marketing spend / New customers

Monthly Subscription Price: $100
Gross Margin: 80%
  = Revenue - COGS / Revenue

Monthly Churn Rate: 5%
  = (Customers lost / Starting customers) / Month

Lifetime Value (LTV): $1,600
  = (Monthly Price × Gross Margin) / Monthly Churn

LTV/CAC Ratio: 3.2
  = $1,600 / $500

Rule of Thumb: LTV/CAC should be ≥ 3
Status: ✓ Unit economics work!

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3. Business Metrics vs Vanity Metrics

Not all numbers matter equally.

VANITY METRICS (Make you feel good, don't drive decisions):
❌ Total users (if they're inactive)
❌ Downloads (if mostly one-time)
❌ Page views (if low engagement)
❌ Revenue (if losing money)

ACTIONABLE METRICS (Drive decisions and behavior):
✅ Daily active users (engagement)
✅ Customer retention rate (satisfaction)
✅ Feature adoption rate (value delivery)
✅ Customer acquisition cost (efficiency)
✅ Gross profit (sustainability)
✅ Customer lifetime value (long-term value)

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5 Key Business Concepts BA Must Know

1. Value Proposition

Why would customers choose you?

Framework:

TARGET CUSTOMER:
- Who specifically? (not "everyone")
- What's their problem?
- Why do they care?

YOUR SOLUTION:
- How do you solve it?
- Why better than alternatives?
- What's unique?

ECONOMIC VALUE:
- How much time/cost do you save?
- How much more money do they make?
- What's it worth to them?

EXAMPLE:
Target: Marketing managers managing 5+ campaigns
Problem: Spending 20+ hours/week on manual reporting
Your solution: Automated reporting dashboard
Value: Saves 15 hours/week = $1,500/month (at $100/hr)

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2. Total Addressable Market (TAM)

How big is the opportunity?

TAM ESTIMATION (Top-Down):
- Total market: "How many companies worldwide?"
- Industry data: "Average spend on our category"
- TAM = Total companies × Avg spend

Example: HR Analytics
- Companies worldwide: 5M
- Spend on HR analytics: $10K/year average
- TAM = $50 Billion

Does it justify your business?
- If 1% market share = $500M revenue = worth pursuing
- If max is 0.01% = $5M = riskier bet

See: references/market-sizing.md

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3. Competitive Positioning

Why would customers choose you vs competitors?

POSITIONING QUADRANT:

                  PREMIUM
                     |
    HIGH QUALITY  |  ● Us
                  |  ○ Competitor A
    ────────────────┼────────────────  PRICE
    LOW QUALITY  |  ○ Competitor B
                  |
                  BUDGET

Questions:

• Where are we positioned? (High quality/price? Low quality/price?)
• Is that sustainable? (Can we compete there?)
• How do we differentiate? (Not just cheaper copy)

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4. Customer Economics

Understanding your customer's business:

If customers are Enterprise Companies:
├─ What drives their revenue? (Products/Services)
├─ What are major costs? (Salaries, infrastructure)
├─ What's their profit margin? (Revenue minus costs)
├─ How do we improve their business?
│  └─ Increase revenue? (Sell more)
│  └─ Reduce costs? (Save money)
│  └─ Reduce risk? (Avoid losses)
└─ What's it worth to them? (Quantify impact)
   └─ "You save $100K/year" = Max price ~$30K/year

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5. Financial Sustainability

Can this business survive?

UNIT ECONOMICS MUST WORK:
├─ Gross Margin > 50% (ideally >70%)
│  └─ Revenue - Cost of Goods Sold / Revenue
│  └─ For SaaS: hosting, support, payment processing
│
├─ CAC Payback < 12 months
│  └─ How long until customer value pays for acquisition?
│  └─ If CAC=$1000, Monthly margin=$200, payback = 5 months ✓
│
├─ Positive LTV/CAC (ideally > 3)
│  └─ Customer lifetime value should be 3x acquisition cost
│  └─ Ensures business is profitable
│
└─ Path to profitability clear
   └─ How do we get from current to sustainable?
   └─ At what revenue/user base do we break even?

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How BA Uses Business Knowledge

Scenario 1: Prioritizing Features

Feature A: Saves users 1 hour/week
  Impact: Improves engagement, reduces churn 2%
  Business value: $100K/year (at current LTV)
  Effort: 2 weeks
  ROI: $100K / (2 weeks × engineer salary) = High

Feature B: Requested by early adopters
  Impact: Improves engagement for 5% of users
  Business value: $5K/year
  Effort: 3 weeks
  ROI: $5K / (3 weeks × engineer salary) = Low

Decision: Build A first, B second

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Scenario 2: Evaluating New Business

Should we build premium tier at $500/month?

Current: 1,000 users at $100/month = $100K MRR
Projected: 10% convert to premium = 100 premium users

Premium revenue: 100 × $500 = $50K MRR
Premium churn: +2% higher (riskier, more demanding)

Impact: $50K more revenue, but higher support cost (+$5K/month)
Net: +$45K MRR

Effort: 4 weeks
Decision: Worth doing

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Tools & Templates

• 📋 Business Case Template: assets/business-case-template.md
• 📋 Unit Economics Calculator: assets/unit-economics-calculator.md
• 📋 TAM Analysis Worksheet: assets/tam-analysis-worksheet.md
• 📋 Feature Value Assessment: assets/feature-value-template.md
• 📋 Financial Impact Template: assets/financial-impact-template.md

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Usage Examples

/business-fundamentals "SaaS B2B" "Trying to understand why feature A matters more than B"
/business-fundamentals "Marketplace" "Evaluating pricing strategy impact on GMV"
/business-fundamentals "Freemium" "Should we restrict free tier to improve conversion?"

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BA Standards & References

Based on:

• Financial Analysis: Understanding business metrics and unit economics
• Business Strategy: Business models and competitive positioning
• Product Management: Feature prioritization by business value
• Startup Finance: Metrics that matter for sustainability

Detailed Frameworks:

• 📚 references/business-models.md - SaaS, marketplace, freemium, advertising models
• 📚 references/unit-economics.md - CAC, LTV, gross margin, payback period
• 📚 references/market-sizing.md - TAM, SAM, SOM calculation methods
• 📚 references/financial-impact.md - Quantifying business impact of features
• 📚 references/competitive-positioning.md - Differentiation and competitive strategy