Worked decision examples
Worked business decision examples: pricing, expansion, partners
Start with a business question. Get a recommendation, the reasons behind it, what history shows, and what would change the answer.
The situations are invented. Historical quotes come from each person’s own published account — open “Read the source” to see them.
Example 1 — Falling sales: should I cut prices?
Example situation
A small manufacturer’s sales have fallen for three months and it has about four months of cash left. The owner is considering a broad, permanent price cut to win back volume.
Recommendation
Don’t cut the price of your main product across the board yet. First find out why sales fell. If price really is the reason, choose one of two narrower moves: test a discount on a single offer, or launch a simpler, cheaper version. With four months of cash, set a cash-loss limit before trying either.
Why
- Sales can fall because of price, a weaker product, a competitor’s new offer or delivery problems. A price cut only fixes the first.
- A discount on every sale has to be paid back by extra volume. In the numbers below, a 10% cut needs 34% more units just to stand still.
- A cheaper version can win price-sensitive buyers without lowering what your current customers already pay.
What history shows
In 1905–06 Henry Ford’s sales fell to 1,599 cars. He judged that his cars were too expensive. He did not discount his $1,000 and $2,000 models. After first securing control of the company, he dropped touring cars and launched three runabouts and roadsters priced $600–$750, built with largely the same processes and parts. He reports selling 8,423 cars the next year — nearly five times his previous best.
The lesson: Ford changed the product to fit a lower price instead of cutting the price of the old product.
Read the source
Henry Ford and Samuel Crowther, My Life and Work, chapter III, “Starting the Real Business” — Project Gutenberg edition 7213.
“In 1905-1906 we made only two models--one the four-cylinder car at $2,000 and another touring car at $1,000, both being the models of the previous year--and our sales dropped to 1,599 cars.”Ford and Crowther, chapter III
“I thought it was because our cars were too expensive--they did not appeal to the 95 per cent. I changed the policy in the next year--having first acquired stock control. For 1906-1907 we entirely left off making touring cars and made three models of runabouts and roadsters, none of which differed materially from the other in manufacturing process or in component parts, but were somewhat different in appearance.”Ford and Crowther, chapter III
“The big thing was that the cheapest car sold for $600 and the most expensive for only $750 … We sold 8,423 cars--nearly five times as many as in our biggest previous year.”Ford and Crowther, chapter III
Check the numbers (example figures)
A product sells for $100, costs $60 per unit to make and deliver, and sells 100 units a month. Contribution — what is left after costs that rise with each sale — is (100 − 60) × 100 = $4,000.
Cut the price 10% and each unit contributes $30. To keep $4,000 you need 4,000 ÷ 30 = 133.3, so 134 units — 34% more. At 120 units, revenue rises to $10,800 but contribution falls to $3,600: busier, and less profitable. Method: OpenStax contribution margin.
What would change the answer
- Lost customers say price isn’t the problem → fix the product, delivery or sales approach instead.
- Most discount buyers would have paid full price anyway → orders rise but profit falls; stop the discount.
- You need to clear old stock for cash → a one-off clearance can make sense even at a lower margin. That is a different decision from a permanent cut.
- The test pushes cash below what you need for essential bills → stop it.
Next step
Ask five to ten recent lost customers why they stopped buying. Work out how many extra units your proposed discount needs, as in the numbers above, using your real costs, including fees and returns. If price is the problem, run one time-limited offer or cheaper version with a preset cash-loss limit. Judge it by profit and cash collected, not just orders.
Example 2 — Should I borrow to expand?
Example situation
A business has an expansion opportunity, but the supplier wants an upfront payment larger than the cash on hand. The new sales that would justify it are possible but not guaranteed.
Recommendation
Don’t pay the full supplier deposit yet. First try to change the terms so money goes out as money comes in: staged payments, payment on delivery or customer deposits. Borrow only if two things hold: even with customers paying late, you still have cash for essential bills; and the expansion’s expected profit is worth the loan’s full cost.
Why
- Paying the supplier now and collecting from customers later creates a cash gap, even if the order is profitable in the end.
- Loan payments come out of cash, not out of forecast sales. One slow-paying customer can make an installment unaffordable.
- Better payment terms reduce both how much you need to borrow and how much you lose if sales disappoint.
What history shows
As a young railway employee, Andrew Carnegie was offered an eighth share in T. T. Woodruff’s sleeping-car venture after Woodruff contracted to place two cars on the line. The cars were paid for in monthly installments after delivery. Carnegie borrowed his first share, $217.50, from a local banker. He reports that the cars were a great success and that their monthly receipts paid the monthly installments.
The lesson: the payments started after delivery, in monthly amounts that the cars’ own income could cover. Don’t copy how he committed: he accepted first, “trusting to be able to make payments somehow or other.”
Read the source
Andrew Carnegie, Autobiography of Andrew Carnegie, chapter VII, “Superintendent of the Pennsylvania” — Project Gutenberg edition 17976.
“I promptly accepted his offer, trusting to be able to make payments somehow or other. The two cars were to be paid for by monthly installments after delivery.”Carnegie, chapter VII
“I boldly decided to apply to the local banker, Mr. Lloyd, for a loan of that sum.”Carnegie, chapter VII
“The sleeping-cars were a great success and their monthly receipts paid the monthly installments.”Carnegie, chapter VII
Check the numbers (example figures)
After receiving the loan and paying the supplier, you have $6,000. Next month customers pay you $8,000. Operating and other existing bills total $10,000, and the new loan payment is $2,000. Month-end cash: 6,000 + 8,000 − 10,000 − 2,000 = $2,000.
Money out ($12,000) is larger than money in ($8,000). If you need at least $3,000 on hand for essential bills, you are $1,000 short. If a large bill falls due before customers pay, the mid-month low point is worse. Method: cash-flow statement guide.
What would change the answer
- A customer deposit or staged supplier terms cover most of the gap → you may not need to borrow.
- Demand is already contracted and customers pay on reliable dates → waiting may cost you a good order; move faster.
- The loan needs a personal guarantee or an essential asset as security → your downside reaches beyond the business; keep a much wider safety margin.
- One late customer payment makes an installment unaffordable → reduce or defer the commitment.
Next step
List every payment in and out by date, from the supplier deposit to the last customer payment and loan installment. Run it twice more: once with customers paying a month late, and once with lower sales. Find the lowest cash point. Ask the supplier for staged or on-delivery terms before you talk to a lender. Then check that the expansion’s extra profit exceeds the loan’s interest and fees.
Example 3 — Should I buy out my business partner?
Example situation
You and your partner each own half of the company and disagree about expansion and control.
Recommendation
Don’t start with a buyout. A disagreement about expansion can often be settled by agreeing who decides what, or by running a limited expansion trial. Consider buying out your partner only if all of these are true: you stay deadlocked on essential decisions; there is an agreed or legal process to follow; the business can run without your partner; and you can afford the full price with cash to spare.
Why
- A dispute over one project is different from a partnership that can no longer make decisions.
- Buyouts often cost more than expected, and the business may lose your partner’s clients, skills or labor.
- Fixing the process and your maximum price before you negotiate stops you from bidding past what you can afford.
What history shows
In 1865 John D. Rockefeller’s oil-refining partnership was dissolved. Cash was collected and debts were paid; the plant and goodwill were then auctioned among the partners. Rockefeller wanted to run the oil business “actively on a larger scale” and had arranged financing in advance. Bidding climbed past $50,000, which he says was “much more than we supposed the concern to be worth,” to the point where he “almost feared” he could not pay. He won at $72,500. Mr. Clark then let him pay at his convenience, and the firm of Rockefeller & Andrews was established.
The lessons: arrange financing before negotiating; expect the price to rise above your estimate; get your own adviser — his partners brought a lawyer, he did not; and payment terms matter as much as the price. One difference: this was a partnership selling its assets, not a sale of half a company’s shares, so today’s legal steps differ.
Read the source
John D. Rockefeller, Random Reminiscences of Men and Events, chapter IV, “Some Experiences in the Oil Business” — Project Gutenberg edition 17090.
“In 1865 the partnership was dissolved; it was decided that the cash assets should be collected and the debts paid, but this left the plant and the good-will to be disposed of. It was suggested that they should go to the highest bidder among ourselves.”Rockefeller, chapter IV
“My partners had a lawyer in the room to represent them, though I had not considered having a legal representative; I thought I could take care of so simple a transaction.”Rockefeller, chapter IV
“I had made up my mind that I wanted to go into the oil trade, not as a special partner, but actively on a larger scale … I had already arranged to get financial accommodation to an amount that I supposed would easily pay for the plant and good-will.”Rockefeller, chapter IV
“the amount gradually rose until it reached $50,000, which was much more than we supposed the concern to be worth. Finally, it advanced to $60,000, and by slow stages to $70,000, and I almost feared for my ability to buy the business and have the money to pay for it. At last the other side bid $72,000. Without hesitation I said $72,500.”Rockefeller, chapter IV
“No,” Mr. Clark said, “I’m glad to trust you for it; settle at your convenience.”Rockefeller, chapter IV
Check the numbers (example figures)
The business has $9,000 a month left after operating costs, tax and existing debt payments. Today each partner draws $3,000. After a buyout, your partner’s draw stops. But you pay $2,000 a month to replace their work and $5,000 a month on the buyout loan: 9,000 − 3,000 (your draw) − 2,000 − 5,000 = −$1,000 a month, before one-off legal and transaction costs.
Even at a fair price, this deal does not pay for itself. Also check whether company cash may legally pay a loan you took out personally to buy the shares. Checklist: selling a business (rules vary by country).
What would change the answer
- Your partner agrees to split decision rights or to run a trial → no buyout needed.
- The business depends on your partner’s clients, licenses or skills → a negotiated exit, including selling your own half, may be better.
- Your partnership agreement restricts transfers or sets a price formula → follow it first.
- Financing is uncertain → don’t name a price.
Next step
Write down the one decision you cannot agree on. Compare three paths side by side: a written decision-rights agreement, a buyout, and selling your own half. For the buyout, list what you would be buying, all debts and guarantees, who replaces your partner’s work, and the most you could pay while keeping a cash buffer. Have a local lawyer check the structure before you make any binding offer.