21.1 What Interviewers Mean by “Business Judgment”
Business judgment means understanding the practical implications of your analysis.
If a price increase improves margin mathematically, for example, strong judgment means also considering whether customers may leave, competitors may respond, or sales teams may struggle to implement it.
Good business judgment: Combine quantitative logic with an understanding of customers, competition, economics, capabilities, and execution.
Interviewers are not expecting perfect industry knowledge. They want to see whether your conclusions are commercially sensible.
21.2 Learning How Businesses Make Money
For any company, begin with a basic question: How does this business generate revenue and profit?
Understand:
- Who pays: Customer, advertiser, subscriber, government, or another party.
- What they pay for: Product, service, access, transaction, usage, or outcome.
- How often they pay: One-time purchase, recurring subscription, or repeat transactions.
- What drives profit: Price, volume, mix, utilization, retention, or cost efficiency.
Practice habit: When you encounter a company, try to describe its business model in two or three sentences.
21.3 Understanding Customers
Customers determine whether a business ultimately succeeds. Ask who buys, why they buy, what alternatives they have, and what causes them to choose one provider over another.
Useful customer questions include:
- What problem does the product solve?
- How important are price, quality, convenience, brand, and service?
- How easy is it to switch providers?
- How frequently does the customer purchase?
Key insight: Different customer segments may behave very differently, so avoid treating all customers as identical.
21.4 Understanding Competitors
Competitors matter because a client rarely makes decisions in isolation.
Consider who competes with the client, how they differ, what advantages they possess, and how they might respond to the client’s actions.
Example: A price cut may attract customers, but if competitors match it immediately, the result could be lower industry profitability rather than lasting market-share gains.
Think about competition dynamically rather than simply comparing current market shares.
21.5 Understanding Costs
Learn what typically drives costs in different business models.
Manufacturers may have significant materials, labor, equipment, and logistics costs. Software businesses may have relatively low incremental delivery costs but high product-development and sales expenses. Airlines face aircraft, fuel, labor, airport, and maintenance costs.
Useful question: “Which costs change with volume, and which remain relatively fixed?”
This distinction is important for profitability, pricing, breakeven, and capacity cases.
21.6 Understanding Incentives
People and organizations respond to incentives. This can explain behavior that initially seems surprising.
A salesperson paid mainly on revenue may discount aggressively. A distributor earning higher margins on a competitor’s product may promote that product instead. Customers may change behavior when prices or rewards change.
Practical habit: When behavior seems unusual, ask what economic or organizational incentive might explain it.
21.7 Understanding Channels
Channels describe how a product reaches the customer. Examples include direct sales, retail stores, distributors, marketplaces, websites, and mobile apps.
Channels affect customer access, margins, pricing control, data ownership, and service quality.
Example: Selling through distributors may expand reach quickly but reduce margins and control over the customer relationship.
In growth and market-entry cases, ask not only what the company will sell, but how customers will actually buy it.
21.8 Understanding Capacity and Operations
Businesses cannot sell unlimited quantities simply because demand exists. They must have enough capacity to produce, deliver, or serve customers.
Think about equipment, labor, facilities, inventory, throughput, and bottlenecks.
Example: A factory operating at 98% utilization may not be able to support a major sales increase without additional shifts, process improvements, outsourcing, or investment.
Always test whether an attractive strategy is operationally feasible.
21.9 Understanding Industries You Know Nothing About
Unfamiliar industries are common in case interviews. Do not panic or pretend to know more than you do.
Return to basic questions:
- Customers: Who buys and why?
- Revenue: How does money enter the business?
- Costs: What resources are required?
- Competition: What alternatives exist?
- Operations: What must happen to deliver the product or service?
Principle: Basic business logic travels well across industries.
21.10 Using Analogies Carefully
Analogies can help you reason about an unfamiliar business by comparing it with one you understand.
For example, you might recognize that a hotel and an airline both have perishable capacity: an unsold room or seat cannot be stored for tomorrow.
Usefulness: Analogies can suggest relevant drivers such as utilization, pricing, and demand management.
But do not assume two industries behave identically. Use the analogy to generate questions, then verify whether the similarities actually apply.
21.11 How to Build Business Intuition Before Interviews
Business intuition develops through repeated exposure rather than memorizing hundreds of facts.
A practical routine is to regularly choose a company or industry and answer five questions:
- Revenue: How does it make money?
- Customers: Why do customers buy?
- Costs: What are the largest expenses?
- Competition: What determines who wins?
- Economics: What variables most strongly drive profit?
You can apply this exercise to airlines, supermarkets, software companies, banks, restaurants, manufacturers, hospitals, or almost any other business.
Final principle: Business intuition is not mysterious. It comes from repeatedly asking practical questions about customers, economics, competition, incentives, and operations. The more often you practice identifying what drives a business, the faster you will recognize the important issues when an unfamiliar case appears.
