You have five years. Build something worth owning.
Every quarter you set a price, decide how many people to employ, and choose what to spend on marketing and R&D. A rival is doing the same. Costs fall as you learn, brand fades if you stop paying for it, and the bank is patient right up until it is not.
How the model works
How demand is split
Each firm has an appeal score built from quality and brand. Divide it by price raised to
an elasticity, and share is your figure over the total.
share = A/P^1.6 ÷ (A/P^1.6 + Ar/Pr^1.6)
Capacity and morale
Every worker makes 1,000 units a quarter at full morale, and as little as 600 when morale
is on the floor. Demand above capacity is simply lost.
capacity = staff × 1000 × (0.6 + 0.4m)
The learning curve
Variable cost falls toward 70% of where it started as cumulative output builds, halfway there at 250,000 units. Experience is cheaper than any other cost saving.
Investment decay
Marketing and R&D both have square-root returns, so doubling the spend buys about 40% more effect. Brand then decays at 11% a quarter and quality at 6%, which means every spending level has a plateau it cannot climb past.
What the rival does
It cuts price when you take more than 52% share and raises it below 42%, while its quality improves steadily whatever you do. It never quits.
How you are scored
Final value is cash, minus debt, plus the trailing year of profit at a multiple of five. A company earning nothing is worth only its balance sheet.
What the model shows
Most business advice is about vision. Most business failure is arithmetic. This simulator is built entirely from the arithmetic, because that is the part you can be taught.
Revenue is not the number that matters
The figure that decides whether a sale helps you is contribution margin: price minus the variable cost of making one unit. At the standard opening you charge $60 against a unit cost of $30, so every sale contributes $30 toward covering everything else.
Everything else is roughly $290,000 a quarter in wages, overhead, marketing and R&D. Divide one by the other and you need about 9,700 units just to reach zero. That is break-even, and it is the single most useful number in the model. Revenue can grow every quarter and still sit below it.
Why discounting is such a reliable way to lose money
Cutting price feels like the obvious lever because share responds immediately. The problem is that the cut applies to every unit while the extra volume arrives only on the marginal ones.
Drop from $60 to $54 and contribution falls from $30 to $24, a fifth of the profit on sales you already had. Volume now has to rise about 25% to leave you no worse off. Whether it does depends on price elasticity of demand, and on the Price war preset it emphatically does not, because your rival can go lower than you and still cover their costs.
Two different reasons scale makes you cheaper
Watch unit cost in the condition panel over a long run. It falls, but two separate things are happening and they behave very differently.
Fixed costs spread over more units is pure arithmetic: overhead per unit halves when volume doubles, and it un-halves the moment volume falls back. The learning curve is different. Variable cost itself drops as cumulative experience builds, and that gain does not reverse in a bad quarter. Only one of these two is a durable advantage, which is why an early volume lead can be worth pursuing at thin margins.
Capacity cuts both ways
Hire too few and demand you already won walks away unserved. Hire too many and you pay $12,000 a quarter each for people producing nothing, while low capacity utilization erodes morale and therefore productivity.
Running above 95% is not free either. The meter turns red because sustained overwork costs you morale, which lowers output per worker, which pushes utilization higher still. It is one of the few true feedback loops in the model, and it punishes anyone who treats headcount as a number to minimize.
Marketing is rent, R&D is a purchase
Both raise appeal, and both have diminishing returns, so doubling either buys about 40% more effect rather than twice as much. The difference is what happens when you stop.
Brand decays at 11% a quarter, so awareness has to be continuously repurchased. Quality decays at 6%, so R&D accumulates into something closer to an asset. Neither is the right answer on its own: a superb product nobody has heard of sells nothing, and a famous mediocre product has to keep paying to stay famous.
What this model leaves out
A great deal. There is no inventory, so you can never be caught with unsold stock. There is no working capital cycle, so customers pay instantly and suppliers wait forever. Only one rival exists and no new entrant ever appears, which removes most of what makes real strategy hard.
Borrowing is automatic and unlimited up to a cliff, which is far kinder than any real lender. And the scoring rewards the trailing year of profit, so a company that spends heavily on R&D in its final quarters is penalized for an investment that would have paid off in year six. Treat that as a feature: short-horizon scoring producing short-horizon behavior is one of the more honest things this model reproduces.
Things to try
Each isolates one mechanism, and each takes a couple of minutes.
Find break-even by hand
Before advancing, raise price one dollar at a time and watch projected profit cross zero. You have just found the break-even price for your current cost base.
Try to buy share
Load Price war and cut to $46 to match the rival. Watch share climb and profit fall. Then replay the same scenario code holding price at $60 and compare final value.
Starve the brand
Set marketing to zero for four quarters and watch brand fall by nearly 40%. Then see how many quarters of spending it takes to win back.
Run it lean and see what breaks
Cut headcount to the minimum that covers demand. utilization hits the red, morale slides, capacity falls, and the shortage feeds itself.
Play the long game
Spend heavily on R&D for the first eight quarters while losing money, then raise price hard once quality clears the rival. Compare against never investing.
Compete against yourself
Copy the link, replay the identical scenario code with a different strategy, and put the two final valuations side by side. Same market, same events, different decisions.
Unfamiliar term? The course glossary defines the fifty this site actually uses, in the sense this site uses them.
Common questions about running a business
Why does cutting price to win market share usually lose money?
Because the price cut applies to every unit you sell while the extra volume only arrives on the marginal ones. If your contribution margin is $30 a unit and you drop price by $6, you have given away a fifth of the profit on all existing sales, so volume has to rise by roughly a quarter just to stand still. Discounting is a bet on price elasticity of demand, and against a rival who can match you it is usually a bet both firms lose.
What is contribution margin and why does it matter more than revenue?
Contribution margin is price minus variable cost, the money each sale contributes toward covering fixed costs. Revenue on its own tells you nothing, because a sale priced below variable cost makes the loss bigger rather than smaller. Only once total contribution exceeds fixed costs does the company make a profit, which is why break-even is measured in units of contribution rather than in sales.
Why do bigger firms have lower costs per unit?
Two separate effects that are easy to confuse. Fixed costs get spread over more units, so overhead per unit falls automatically as volume rises. Separately, a learning curve means the variable cost of production itself drops as cumulative experience accumulates. The first is arithmetic and reverses the instant volume falls. The second is real capability and is much harder for a rival to copy, which is why economies of scale are worth distinguishing from experience effects.
Why does brand fade but product quality stick?
Awareness depends on people currently paying attention, so it decays quickly once the spending stops. That is why marketing behaves more like rent than like a purchase. Quality is built into the product and stays there, so R&D accumulates into an asset. The practical consequence is that heavy marketing behind a weak product is a treadmill, while a strong product with modest marketing tends to compound.
Can teachers use this in a class?
Yes, and the scenario code is there for exactly that. Every run is fully determined by the scenario and its code, so sharing one link gives every student an identical market with identical events in the same order. Any difference in final company value is then attributable to the decisions rather than to luck, which makes the results worth comparing and discussing.
About this model: a two-firm market with one product, no inventory, no working capital cycle, no entry or exit, and a lender who never asks questions until the limit is hit. Real companies fail for reasons this model cannot represent. Use it to build intuition for how price, cost, capacity and investment pull against each other, not as a forecast of any actual business.