The Personal MBA - Kaufman, Josh  ## Metadata - Author: **Kaufman, Josh** - Full Title: The Personal MBA - Category: #books - Tags: #business ## Highlights - Business Angst.The feeling that you “don’t know much about business” and therefore could never start your own company or take more responsibility in your current position. Better to maintain the status quo than face the fear of the unknown. (Location 82) - Politics and turf wars are an inescapable part of the daily experience of working for a large company. (Location 201) - According to Buffett, Charlie’s mental-model-centric approach to business is a major contributing factor in the success of Berkshire Hathaway and Buffett’s status as one of the world’s wealthiest business owners: “Charlie can analyze and evaluate any kind of deal faster and more accurately than any man alive. He sees any valid weakness in sixty seconds. He’s the perfect partner.” (Location 290) - What you need is a latticework of mental models in your head. And, with that system, things gradually fit together in a way that enhances cognition. (Location 297) - Every successful business (1) creates or provides something of value that (2) other people want or need (3) at a price they’re willing to pay, in a way that (4) satisfies the purchaser’s needs and expectations and (5) provides the business sufficient revenue to make it worthwhile for the owners to continue operation. (Location 327) - Every business fundamentally relies on two additional factors: people and systems. Every business is created by people and survives by benefiting other people in some way. To understand how businesses work, you must have a firm understanding of how people tend to think and behave—how humans make decisions, act on those decisions, and communicate with others. (Location 338) - I highly recommend Accounting Made Simple by Mike Piper, Essentials of Accounting by Robert N. Anthony and Leslie K. Breitner, The McGraw-Hill 36-Hour Course in Finance for Nonfinancial Managers by Robert Cooke, and How to Read a Financial Report by John A. Tracy. (Location 645) - If you’re interested in quantitative analysis, I recommend starting with Principles of Statistics by M. G. Bulmer and Turning Numbers into Knowledge by Jonathan G. Koomey. (Location 649) - Make something people want . . . There’s nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you’ve found a gold mine. —PAUL GRAHAM, FOUNDER OF Y COMBINATOR, VENTURE CAPITALIST, AND ESSAYIST AT PAULGRAHAM.COM (Location 671) - The best businesses in the world are the ones that create the most value for other people. Some businesses thrive by providing a little value to many, and others focus on providing a lot of value to only a few people. Regardless, the more real value you create for other people, the better your business will be and the more prosperous you’ll become. (Location 678) - Roughly defined, a business is a repeatable process that: 1. Creates and delivers something of value . . . 2. That other people want or need . . . 3. At a price they’re willing to pay . . . 4. In a way that satisfies the customer’s needs and expectations . . . 5. So that the business brings in enough profit to make it worthwhile for the owners to continue operation. (Location 685) - A venture that doesn’t attract attention is a flop. A venture that doesn’t sell the value it creates is a nonprofit. (Location 693) - At the core, every business is fundamentally a collection of five Interdependent (discussed later) processes, each of which flows into the next: 1. Value Creation. Discovering what people need or want, then creating it. 2. Marketing. Attracting attention and building demand for what you’ve created. 3. Sales. Turning prospective customers into paying customers. 4. Value Delivery. Giving your customers what you’ve promised and ensuring that they’re satisfied. 5. Finance. Bringing in enough money to keep going and make your effort worthwhile. (Location 695) - Any skill or knowledge that helps you create value, market, sell, deliver value, or manage finances is Economically Valuable—accordingly, (Location 721) - Market matters most; neither a stellar team nor fantastic product will redeem a bad market. Markets that don’t exist don’t care how smart you are. —MARC ANDREESSEN, VENTURE CAPITALIST AND FOUNDER OF NETSCAPE AND NING.COM (Location 725) - What if you throw a party and nobody shows up? In business, it happens all the time. (Location 727) - The problem wasn’t that the product was poorly designed—the technology that makes the Segway work is extremely sophisticated, and the benefits are significant: the Segway is a convenient, green urban car replacement. The problem was that very few people cared enough to spend $5,000 on a goofy-looking alternative to walking or riding a bike—the massive market that Kamen expected didn’t exist. (Location 734) - Every business is fundamentally limited by the size and quality of the market it attempts to serve. (Location 739) - The best approach is to focus on making things people want to buy. Creating something no one wants is a waste. Market research is the business equivalent of “look before you leap.” Books like The New Business Road Test by John Mullins can help you identify promising markets from the outset, increasing the probability that your new venture will be a success. (Location 741) - The Drive to Acquire. The desire to obtain or collect physical objects, as well as immaterial qualities like status, power, and influence. (Location 753) - The Drive to Bond. The desire to feel valued and loved by forming relationships with others, either platonic or romantic. (Location 756) - The Drive to Learn. The desire to satisfy our curiosity. (Location 758) - The Drive to Defend. The desire to protect ourselves, our loved ones, and our property. (Location 761) - The Drive to Feel. The desire for new sensory stimulus, intense emotional experiences, pleasure, excitement, entertainment, and anticipation. (Location 765) - At the core, all successful businesses sell some combination of money, status, power, love, knowledge, protection, pleasure, and excitement. (Location 770) - Urgency—How badly do people want or need this right now? (Location 781) - Market Size—How many people are actively purchasing things like this? (Location 783) - Pricing Potential—What is the highest price a typical purchaser would be willing to spend for a solution? (Location 785) - Cost of Customer Acquisition—How easy is it to acquire a new customer? On average, how much will it cost to generate a sale, in both money and effort? (Location 786) - Cost of Value Delivery—How much would it cost to create and deliver the value offered, both in money and effort? (Location 789) - Uniqueness of Offer—How unique is your offer versus competing offerings in the market, and how easy is it for potential competitors to copy you? (Location 791) - The existence of a market means you’re already on the right side of the Iron Law of the Market, so you can spend more time developing your offer instead of proving a market exists. (Location 814) - Becoming a Mercenary doesn’t pay: don’t start a business for the money alone. Here’s why: starting and running a business always takes more effort than you first expect. (Location 826) - In all the excitement, it’s easy to forget that there’s often a huge difference between an interesting idea and a solid business. In your optimism, forget ye not prudence: changing the world is difficult if you can’t pay the bills. (Location 845) - Gyms and fitness clubs are a classic example of a Shared Resource. A fitness club may purchase forty treadmills, thirty exercise bikes, six sets of free weights, a set of kettlebells, and other useful but expensive equipment that lasts a long time. (Location 922) - Resale is the acquisition of an asset from a wholesale seller, followed by the sale of that asset to a retail buyer at a higher price. Resale is how most of the retailers you’re familiar with work: they purchase what they sell from other businesses, then resell each purchase for more than it cost. (Location 956) - The human species, according to the best theory I can form of it, is composed of two distinct races: the men who borrow and the men who lend. —CHARLES LAMB, ESSAYIST (Location 975) - Audience Aggregation revolves around collecting the attention of a group of people with similar characteristics, then selling access to that audience to a third party. (Location 1016) - An Option is the ability to take a predefined action for a fixed period of time in exchange for a fee. Most people think of Options as financial securities, but they’re all around us: movie or concert tickets, coupons, retainers, and licensing rights are all examples of Options. (Location 1057) - retainers, and licensing rights are all examples of Options. In exchange for a fee, the purchaser has the (Location 1059) - In order to provide value via Options, you must: 1. Identify some action people might want to take in the future. 2. Offer potential buyers the right to take that action before a specified deadline. 3. Convince potential buyers that the Option is worth the asking price. 4. Enforce the specified deadline on taking action. (Location 1061) - Insurance involves the transfer of risk from the purchaser to the seller. In exchange for taking on the risk of some specific bad thing happening to the policy holder, the policy holder agrees to give the insurer a predefined series of payments. If the bad thing actually happens, the insurer is responsible for footing the bill. If it doesn’t, the insurer gets to keep the money. (Location 1080) - Perceived Value determines how much your customers will be willing to pay for what you’re offering. The higher the perceived value of your offering, the more you’ll be able to charge for it, which significantly improves your chances of succeeding. (Location 1125) - Great things are not done by impulse, but by a series of small things brought together. —VINCENT VAN GOGH, ARTIST (Location 1137) - The benefit of making your offers small and Modular is that it allows you to take advantage of a strategy called Bundling. Bundling allows you to repurpose value that you have already created to create even more value. (Location 1154) - The classic MBA product development model is shrouded in secrecy and mystique: develop the offering in private, make everyone involved sign non-disclosure agreements,2 raise millions of dollars in venture capital, spend years making it perfect, then unveil your creation to the astonishment of the world and the thunderous sound of ringing cash registers. Unfortunately, this mentality ruins careers and empties bank accounts. On their own, ideas are largely worthless—discovering whether or not you can actually make them work in reality is the most important job of any entrepreneur. (Location 1171) - Ideas are cheap—what counts is the ability to translate an idea into reality, which is much more difficult than recognizing a good idea. (Location 1178) - I have not failed. I’ve just found 10,000 ways that won’t work. —THOMAS A. EDISON, PROLIFIC INVENTOR (Location 1195) - Iteration has six major steps, which I call the WIGWAM method: 1. Watch—What’s happening? What’s working and what’s not? 2. Ideate—What could you improve? What are your options? 3. Guess—Based on what you’ve learned so far, which of your ideas do you think will make the biggest impact? 4. Which?—Decide which change to make. 5. Act—Actually make the change. 6. Measure—What happened? Was the change positive or negative? Should you keep the change, or go back to how things were before this iteration? (Location 1203) - Getting useful Feedback from your potential customers is the core of the Iteration Cycle. Useful Feedback from real prospects helps you understand how well your offer meets their needs before development is complete, which allows you to make changes before you start selling. (Location 1238) - Get Feedback from real potential customers instead of friends and family. Your inner circle typically wants you to succeed and wants to maintain a good relationship with you, so it’s likely that they’ll unintentionally sugarcoat their Feedback. For best results, be sure to get plenty of Feedback from people who aren’t personally invested in you or your project. (Location 1241) - Ask open-ended questions. When collecting Feedback, you should be listening more than you talk. Have a few open-ended questions prepared to give the conversation a bit of structure, but otherwise encourage the other person to do most of the talking. Short who/ what/when/where/why/how questions typically work best. Watch what they do, and compare their actions with what they say. (Location 1244) - Steady yourself, and keep calm. Asking for genuine Feedback (the only useful kind) requires thick skin—no one likes hearing their baby is ugly. Try not to get offended or defensive if someone doesn’t like what you’ve created; they’re doing you a great service. (Location 1247) - Take what you hear with a grain of salt. Even the most discouraging Feedback contains crucial pieces of information that can help you make your offering better. The worst response you can get when asking for Feedback isn’t emphatic dislike: it’s total apathy. If no one seems to care about what you’ve created, you don’t have a viable business idea. (Location 1249) - Tags: #favorite - Give potential customers the opportunity to preorder. One of the most important pieces of Feedback you can receive during the iteration process is the other person’s willingness to actually purchase what you’re creating. It’s one thing for a person to say that they’d purchase something and quite another for them to be willing to pull out their wallet or credit card and place a real order. You can do this even if the offer isn’t ready yet—a tactic called Shadow Testing (Location 1252) - Economic Values that people typically consider when evaluating a potential purchase. They are: 1. Efficacy—How well does it work? 2. Speed—How quickly does it work? 3. Reliability—Can I depend on it to do what I want? 4. Ease of Use—How much effort does it require? 5. Flexibility—How many things does it do? 6. Status—How does this affect the way others perceive me? 7. Aesthetic Appeal—How attractive or otherwise aesthetically pleasing is it? 8. Emotion—How does it make me feel? 9. Cost—How much do I have to give up to get this? (Location 1315) - book Trade-Off: Why Some Things Catch On, and Others Don’t, Kevin Maney (Location 1324) - Things which matter most must never be at the mercy of things which matter least. —JOHANN WOLFGANG VON GOETHE, NINETEENTH-CENTURY DRAMATIST, POET, AND POLYMATH (Location 1340) - It is better to be roughly right than precisely wrong. —JOHN MAYNARD KEYNES, ECONOMIST (Location 1379) - Shadow Testing is the process of selling an offering before it actually exists. As long as you’re completely up front with your potential customers that the offering is still in development, Shadow Testing is a very useful strategy you can use to actually test your CIAs with real customers quickly and inexpensively. Real paying customers are always different from hypothetical customers. Shadow Testing allows you to get a critical piece of customer feedback you can get in no other way: whether or not people will actually pay for what you’re developing. (Location 1419) - If you’re not embarrassed by the first version of your product, you’ve launched too late. —REID HOFFMAN, FOUNDER OF LINKEDIN (Location 1436) - Pick three key attributes or features, get those things very, very right, and then forget about everything else . . . By focusing on only a few core features in the first version, you are forced to find the true essence and value of the product. —PAUL BUCHHEIT, CREATOR OF GMAIL AND GOOGLE ADSENSE (Location 1466) - Marketing is the art and science of finding “prospects”—people who are actively interested in what you have to offer. The best businesses in the world find ways to attract the attention of qualified prospects quickly and inexpensively. (Location 1525) - Tags: #marketing - In an attention economy (like this one), marketers struggle for attention. If you don’t have it, you lose. —SETH GODIN, BEST-SELLING AUTHOR OF PERMISSION MARKETING, PURPLE COW, AND TRIBES (Location 1532) - When you’re seeking someone’s attention, it’s useful to take a moment to remember that you’re competing against everything else in their world. (Location 1542) - You want the attention of prospects who will ultimately purchase from you—otherwise, you’re wasting your time. (Location 1546) - Advertising is the tax you pay for being unremarkable. —ROBERT STEPHENS, FOUNDER OF GEEK SQUAD (Location 1577) - Screening your customers can help you filter out the bad customers before they do business with you. (Location 1664) - The most effective way to get people to want something is to encourage them to Visualize what their life would be like once they’ve accepted your offer. (Location 1755) - The best way to help your customers Visualize is to expose them to as much sensory information as possible—the (Location 1759) - Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth. —MARCUS AURELIUS, ROMAN EMPEROR AND PHILOSOPHER (Location 1763) - If you want to attract Attention quickly, give something valuable away for Free. (Location 1796) - Most compelling Narratives around the world follow a common format. The world-renowned mythologist Joseph Campbell called this prototypical storyline “The Hero’s Journey” or the “monomyth.” People all over the world respond very strongly to this story motif, and you can use this basic format to craft and tell your own stories. (Location 1898) - If you expect people to pay you perfectly good money to buy what you’re offering, you must be able to provide a Reason Why the offered price is worth paying. (Location 2043) - Price is what you pay. Value is what you get. —WARREN BUFFETT (Location 2101) - Neil Rackham describes the four phases of successful selling: (1) understanding the situation, (2) defining the problem, (3) clarifying the short-term and long-term implications of that problem, and (4) quantifying the need-payoff, or the financial and emotional benefits the customer would experience after the resolution of their problem. (Location 2117) - Flexibility is the third universal currency—one that is usually quite underrated. Becoming a salaried employee isn’t a straightforward exchange of resources for effort—you’re also giving up a certain amount of flexibility. (Location 2189) - The first thing to decide before you walk into any negotiation is what to do if the other fellow says no. —ERNEST BEVIN, FORMER BRITISH SECRETARY OF STATE FOR FOREIGN AFFAIRS (Location 2205) - Who is involved in the negotiation, and are they open to dealing with you? ▶ Who are you negotiating with, and do they know who you are and how you can help them? ▶ What are you proposing, and how does it benefit the other party? ▶ What’s the setting—will you present your offer in person, by phone, or by some other means? ▶ What are all of the Environmental factors around the deal—do recent events make this deal more or less important to the other party? (Location 2215) - Tags: #negotiation - What exactly will you propose, and how will you Frame your proposal to the other party? ▶ What are the primary benefits of your proposal to the other party? ▶ What is the other party’s Next Best Alternative, and how is your proposal better? ▶ How will you overcome the other party’s objections and Barriers to Purchase? ▶ Are there Trade-offs or concessions you’re willing to make to reach an agreement? (Location 2227) - A Buffer is a third party empowered to negotiate on your behalf. Agents, attorneys, mediators, brokers, accountants, and other similar subject-matter experts are all examples of Buffers. Buffers who have expertise in specific types of negotiations can be extremely valuable in helping you get the best deal possible. (Location 2258) - Every company’s greatest assets are its customers, because without customers there is no company. —MICHAEL LEBOEUF, BUSINESS PROFESSOR AND AUTHOR OF HOW TO WIN CUSTOMERS AND KEEP THEM FOR LIFE (Location 2406) - Reactivation is the process of convincing past customers to buy from you again. (Location 2410) - A Distribution Channel describes how your form of value is actually delivered to the end user. (Location 2486) - Direct-to-user distribution works across a single channel: from the business directly to the end user. Services are a classic example: when you get a haircut, the value is provided by the business itself directly to you, with no intermediary. (Location 2488) - Throughput is a measure of the effectiveness of your Value Stream. Throughput is measured in the formula [rate/time]. The more results you create per unit of time, the higher the Throughput. (Location 2579) - Satisfaction Throughput is a measure of how much time it takes to create a happy, satisfied customer. (Location 2587) - Ut sementem feceris, ita metes. (You reap what you sow.) —MARCUS TULLIUS CICERO, ANCIENT ROMAN STATESMAN AND ORATOR (Location 2635) - In nature, there are neither rewards nor punishment—there are consequences. —ROBERT G. INGERSOLL, POLITICAL LEADER AND ORATOR (Location 2680) - Amplification: making a small change to a scalable System produces a huge result. The effect of any improvement or system optimization is Amplified by the size of the system. The larger the system, the larger the result. (Location 2689) - Don’t compete with rivals—make them irrelevant. —W. CHAN KIM, BLUE OCEAN STRATEGY (Location 2701) - The very best businesses create a virtuous cycle: they create huge amounts of value while keeping their expenses consistently low, so they make more than enough money to keep going without capturing too much value. (Location 2794) - You can get anything you want in this life if you help enough other people get what they want. —ZIG ZIGLAR, SALES GURU (Location 2822) - Value Capture is the process of retaining some percentage of the value provided in every Transaction. (Location 2826) - The purpose of a customer isn’t to get a sale. The purpose of a sale is to get a customer. —BILL GLAZER, ADVERTISING EXPERT (Location 2948) - Lifetime Value is the total value of a customer’s business over the lifetime of their relationship with your company. The more a customer purchases from you and the longer they stay with you, the more valuable that customer is to your business. (Location 2955) - Beware of little expenses; a small leak will sink a great ship. —BENJAMIN FRANKLIN, EARLY AMERICAN POLITICAL LEADER, SCIENTIST, AND POLYMATH (Location 3005) - Overhead represents the minimum ongoing resources required for a business to continue operation. This includes all of the things you need to run your business every month, regardless of whether you sell anything: salaries, rent, utilities, equipment repairs, and so on. The lower your Overhead, the less revenue the business requires to continue operation, and the more quickly you’ll reach your point of financial Sufficiency. (Location 3009) - Cutting costs that are wasteful or unnecessary is certainly a good idea, but Diminishing Returns (discussed later) always kick in—be careful not to throw the baby out with the bath water. (Location 3055) - Breakeven is the point where your business’s total revenue exceeds its total expenses—it’s the point where your business starts creating wealth instead of consuming it. (Location 3071) - Opportunity Cost is important because it’s hidden. As we’ll discuss later in Absence Blindness, humans have a hard time paying attention to what’s not present. Paying attention to what you’re giving up by making a Decision helps you consider all of your options accurately before making a decision. (Location 3171) - Leverage is the practice of using borrowed money to magnify potential gains. (Location 3231) - Amplification—it magnifies the potential for both gains and losses. When your investment pays off, Leverage helps it pay off more. When your investment tanks, you lose more money than you would otherwise. (Location 3241) - Money often costs too much. —RALPH WALDO EMERSON, ESSAYIST AND POET (Location 3250) - For best results, Bootstrap as far as you can go, then move up the Hierarchy of Funding only as needed. Having 100 percent ownership and control of a profitable, self-sustaining business is a beautiful thing. (Location 3341) - Return on Investment (ROI) is the value created from an investment of time or resources. (Location 3348) - Sunk Costs are investments of time, energy, and money that can’t be recovered once they’ve been made. No matter what you do, you can’t get those resources back. Continuing to invest in a project to recoup lost resources doesn’t make sense—all that matters is how much more investment is required versus the reward you expect to obtain. (Location 3381) - Guiding Structure means the structure of your Environment is the largest determinant of your behavior. If you want to successfully change a behavior, don’t try to change the behavior directly. Change the structure that influences or supports the behavior, and the behavior will change automatically. (Location 3649) - Loss Aversion is the idea that people hate to lose things more than they like to gain them. There are very few relationships that psychology is able to quantify, but this is one of them: people respond twice as strongly to potential loss as they do to the opportunity of an equivalent gain. (Location 3925) - Scarcity makes people understand that they’ll lose something valuable if they wait, making it more likely they’ll choose to act immediately if they desire what is being offered. (Location 4162) - Priming is a method of consciously programming your brain to alert you when particular information is present in your Environment. (Location 4443) - Confirmation Bias is the general tendency for people to pay Attention to information that supports their conclusions and ignore information that doesn’t. (Location 4766) - Hindsight Bias is the natural tendency to kick yourself for things you “should have known.” If you lose your job, you “should have known it was coming.” (Location 4792) - Power represents your ability to get things done through other people—the more power you have, the more things you can do. (Location 5068) - Comparative Advantage means it’s better to capitalize on your strengths than to shore up your weaknesses. (Location 5089) - Communication Overhead is the proportion of time you spend communicating with members of your team instead of getting productive work done. (Location 5116) - The Planning Fallacy means that people have a persistent tendency to underestimate completion times. (Location 5290) - An Autocatalyzing System produces the inputs necessary for the next cycle as a by-product of the previous cycle, Amplifying the cycle. (Location 5805) - Every action has a consequence, and those consequences have consequences, which are called Second-Order Effects. Think of a line of dominoes—a single push causes a chain of events to occur. Once the chain starts, it’s difficult (if not impossible) to stop or reverse the cascade of cause and effect. (Location 5979) - Optimization and Refactoring are affected by the Critical Few as well—a few small changes can produce enormous results. After you’ve picked the “low-hanging fruit,” further Optimization can cost more in effort than you’ll reap in returns. That’s a good point to stop. Perfectionism is a trap for the unwary. Optimize and Refactor up to the point you start experiencing Diminishing Returns, then focus on doing something else. (Location 6502)