Summary

Every business does five things: creates value, markets it, sells it, delivers it, and manages finance. There are 12 forms of value from products to capital, and 9 economic values from efficacy to cost. Marketing is earning attention from probable purchasers through hooks, narratives, and framing. Sales is overcoming five objections—cost, won't work, won't work for me, can wait, too difficult—through trust, education, and risk reversal. Scale comes from systematization, multiplication, and reducing human involvement. No correlation exists between an MBA and career success.

Key Takeaways

Notes

Introduction

• Business:
  • Creates / provides value
  • That other people want / need
  • At a price they’re willing to pay
  • Satisfies their needs, expectations
  • Sufficient revenue for operation
• Additional universal requirements:
  • Market research: what they want
  • Marketing: attention, interest
  • Sales: prospect → paying customers
  • Value delivery: operations, CS
  • Finance: profit sufficiency
• People and systems
• No correlation b/w MBA, career success

1: Value creation

• Maslow’s hierarchy: physiology, safety, belonging, esteem, self-actualization
• ERG: existence, relatedness, growth
• 5 drives: acquire, bond, learn, defend, feel
• 10 ways to evaluate a market: urgency, market size, pricing potential, CAC, cost of value delivery, uniqueness of offer, speed to market, upfront investment, upsell potential, evergreen potential
• Start with competition: proven market
• 12 forms of value: product, service, shared resource, subscription, resale, lease, agency / market, audience aggregation, loan, option, insurance, capital
• Option: eg. deposit, movie ticket
• Capital: investments
• Perceived value: subjective, hassle premium
• Modularity of value
• 9 economic values: efficacy, speed, reliability, ease of use, flexibility, status, aesthetic, emotion, cost
  • Convenience ↔︎ fidelity
• Relative importance testing: trade-offs

2: Marketing

• Earn attention from the right people
• Receptivity: what and when
• Remarkably: be unique, memorable
• Probable purchaser
• Invoke curiosity, surprise, or concern
• 5 levels of awareness: unaware, problem, solution, offer, full
• Focus on end result, not features
• Demonstration
• Qualification: only the right customers
• Point of market entry: right time
• Addressability: ability to reach customer
• Desire: present in relation to existing desire
• Visualization: maximize sensory info
• Framing: emphasizing and minimizing
• Free value → ask for permission to continue
• Hook: phrase conveying primary benefit
• Call to action: sale or permission
• Narrative
• Controversy: need to stand for something
• Reputation: sum total of what others think

3: Sales

• Transaction: exchange of value
• Trust: demonstrate trustworthiness
• Pricing uncertainty principle
• 4 pricing methods: replacement cost, market comparison, discounted cash flow / NPV, value comparison
• Price transition shock: potential profitability, ideal customer characteristics
• Value-based selling: understand needs
• Education-based selling: explain value
• Next best alternative: BATNA
• Exclusivity
• 3 currencies: resources, time, flexibility
• 3 dimensions of negotiation: setup, structure, discussion
• Buffer: use to negotiate w/o direct conflict
• Persuasion resistance: reactance
  • Avoid desperation, chasing
• Reciprocation: return of favors (generosity)
• Damaging admission: enhance trust
• Option fatigue: keep it simple
• Barriers to purchase:
  • 5 objections: cost, won’t work, won’t work for me, can wait, too difficult
• Risk reversal: return policy
• Reactivation: keep pinging

4: Value delivery

• Value stream: all steps of value creation
• Distribution channel: direct, intermediary
• The expectation effect: overdeliver
• 3 aspects of predictability: uniformity, consistency, reliability
• 8 factors of quality: performance, features, reliability, conformance, durability, serviceability, aesthetics, perception
• Quality signals: make quality obvious
• Throughput, duplication
• Multiplication: duplication of entire process
• Scale: ↓ human involvement, ↑ scalable
• Accumulation:
• Amplification: small change to big system
• Barrier to competition: innovate
• Force multiplier: tools
• Systemization:
• Triage: lead scoring, prioritization

5: Finance

• Profit margin:
• Value capture: % of transaction captured
  • Maximization, minimization
• Sufficiency: profit for sustainable business
• Valuation: estimated total worth of company
• Cash flow statement: over time period
• Income statement: profit, amortization
• Balance sheet: net worth at certain time
• Financial ratios: eg. liquidity, debt/equity
• Cost-benefit analysis:
• 4 methods to ↑ revenue: # customers, transaction size, frequency, price
• Pricing power: ability to ↑ pricing over time
• Lifetime value: (LTV)
• Allowable acquisition cost: margin for CAC
• Overhead: min resources (burn rate)
• Fixed and variable cost:
• Incremental degradation: cost saving
• Breakeven:
• Amortization: fixed cost over useful life
• Purchasing power: sum of all liquid assets
• Cash flow cycle: how $ flows thru company
• Segregation of duties: prevents fraud
• Limited authorization: prevent bad actors
• Opportunity cost:
• Time value of money: interest rate
• Compounding: accumulating gains / time
• Leverage: borrowed money → amplification
• Hierarchy of funding: wealth ↔︎ control
  • Cash, personal credit, loans, bonds, receivables, angel, VC, IPO / IB
• Bootstrapping: 100% control
• Return on investment: ROI
• Sunk cost:
• Internal controls: audit, compliance

6: The human mind

• Caveman syndrome: brain and body are not optimized for modern world
• Perceptual control: act to control perception
• Reference level: set point, ranges, error
• Conservation of energy: only if ↑ violated
• Pattern matching: memory = DB of patterns
• Status signals:
• Status malfunction: status → competition
• Loss aversion: eliminate perception of risk
• Threat lockdown: fight, flee, freeze
• Cognitive scope limitation: Dunbar’s #
• Association: marketing brand association
• Absence blindness: avoid traps
• Contrast: comparison, not absolutes
• Scarcity: limited availability, price ↑ or ↓
• Novelty: 30 min max (clock seconds test)

7: Working with yourself

• Akrasia: knowing you should do it without doing it (worse than procrastination)
  • Hyperbolic discounting:
  • Construal level theory: CLT
• Mono-idealism: flow state
• Cognitive switching penalty: batching
  • Maker vs manager schedule
• 4 methods of completion: completion, deletion, delegation, deferral
• Most important tasks: MIT
• Goals: positive, immediate, concrete
• States of being: know your current state
• Priming: training intuition
• Decision: move quick: acquire 40-70% info
• 5-fold why: go deeper
• 5-fold how: complete chain of actions
• Next action: define what done looks like
• Externalization: rubber ducking, 3P view
• Self-elicitation: self Q&A
• Parkinson’s law: Ingvar’s rule: 10 mins
• Doomsday scenario: rational overreactions
• Excessive self-regard: Dunning-Kruger
• Confirmation bias: seek to be wrong
• Hindsight bias:
• Performance load: save time for unexpected
• Energy cycles: “all hours are not fungible”
• Stress and recovery: find breaking point
• Hedonic treadmill: success always relative
• Comparison fallacy: false comparison
• Locus of control: sphere of influence
• Attachment: don’t attach to circumstances
• Personal R&D: budget for improvement
• Limiting belief: growth mindset
• The necessity of choice: essentialism
• The arrival fallacy: waypoint, not dest.

8: Working with others

• 2 forms of power: influence, compulsion
• Comparative advantage: capitalize on strength, not cover weaknesses
• Communication overload: stay lean
• Importance: make people feel important
• Safety: crucial conversations, STATE
• The golden trifecta: appreciation, courtesy, respect
• Commander’s intent: why, not how
• Earned regard:
• Bystander apathy: single someone out
• Forcing function: external limitation
• Referrals: transfer knowing, liking
• Clanning: instill shared objectives
• Convergence, divergence: social circle
• Social proof: testimonials with uncertainty
• Authority: skewed truth → bubble
• Commitment, consistency: force promises
• Incentive-caused bias: thoughtful goals
• Modal bias: assuming you know best
• Attribution error: character vs actions
• Mind-reading fallacy: communicate fully
• Boundary setting: define, enforce
• The principle of charity: assume good faith
  • Fully understand, list agreements, mention learnings, then critique
• Option orientation: state possible solutions, not issues
• 6 principles of management:
  • Recruit smallest group for task
  • Communicate desired result, status
  • Treat with respect: golden trifecta
  • Create a productive environment
  • Acknowledge planning fallacy
  • Measure and experiment
• Performance-based hiring:
  • Based on past performance

9: Understanding systems

• Gall’s law: complex systems built from scratch won’t work - naturally evolved
• Flow: resources in and out
• Stock: resource pool
• Slack: amount of resources in stock
• Constraint: factor limiting throughput
• Feedback loop: balancing, reinforcing
• Auto-catalysis: positive, self-reinforcing ↑
• Selection test: identify in a market
• Entropy: natural degradation
• Uncertainty: unknown unknown, black swan
• Change: fooled by randomness
• Interdependence: tight, loosely coupled
• Counterparty risk: external dependence
• Second-order effects: unintended
• Externality: eg. PII: asset, liability (if hacked)

10: Analyzing systems

• Destruction: triggers, inflows, endpoint
• Measurement: must measure to improve
• KPIs: revenue → 5 forms of business value
• Tolerance: balance with cost of reliability
• Typicality: mean, median, mode
• Correlation, causation: isolate change
• Proxy: derived using proven relationships
• Segmentation: groups for more context

11: Improving systems

• Intervention bias: over-reaction
• Optimization: one variable, not all
• Refactoring: same system more efficiently
• The critical few: Pareto principle
• Diminishing returns: don’t be a perfectionist
• Progressive load: increase demand slowly
• Friction: remove friction
• Automation: system without humans
• The paradox of automation: the more automated the system, the more critical the remaining human roles are
• The irony of automation: the more reliable the system, the harder it is to notice flaws
• Standard operating procedure:
• Checklist: SOP for a task
• Process overhead: keep reevaluating use
• Cessation: stop when counterproductive
• Resilience: vs price
• Fail-safes: insurance
• Stress testing:
• Scenario planning: thought experiments
• Exploration / exploitation:
• Sustainable growth cycle: expansion, maintenance, consolidation