The Personal MBA (Josh Kaufman)

Business definition
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
Most important processes
1. Value Creation
2. Marketing
3. Sales
4. Value Delivery
5. Finance
Value Creation
Value is
1. Product
2. Service
3. Shared Resource
4. Subscription
5. Resale
6. Lease
7. Agency
8. Audience aggregation
9. Loan
10. Option
11. Insurance
12. Capital
Market Evaluation
1. Urgency
2. Market size
3. Pricing potential
4. Cost of customer acquisition
5. Cost of value delivery
6. Uniqueness of offer
7. Speed to market
8. Up-front investment
9. Upsell potential
10. Evergreen potential (selling a book)
Critically Important Assumption
 This must be true for the business not to bust
Core Human Drives
1. The Drive to acquire
2. The Drive to bond
3. The Drive to learn
4. The Drive to defend
5. The Drive to feel
Solution Iteration cycles – WIGWAM
1. Watch
2. Ideate (brainstorm)
3. Guess
4. Which? (make a decision)
5. Act
6. Measure
Feedback
 Give potential customers opps to pre-order
Economic Values
1. Efficacy (how well does it do what it is supposed to do)
2. Speed
3. Reliability
4. Ease of use
5. Flexibility
6. Status
7. Aesthetic appeal
8. Emotion
9. Cost

Shadow Testing
 Create a website/prototype to show customers what the value is and observe response

Marketing
Definitions
 Marketing: getting noticed
 Sales: closing the deal
Receptivity
 Consider world view gap
Remarkability
 Free advertising
Opinion: not all customers are good
 One's that are too much work you shouldn't bother
Points of market entry
 Pay attention to key milestones
Hook
 Single phrase that describes an offer's primary benefit
Call to action
 Make it clear what you want the customer to do
Narrative (storytelling(
 Pay attention to key milestones
 Use "The Hero's Journey" method of storytelling
 Ordinary World: This step refers to the hero's normal life at the start of the story, before the
adventure begins.
 Call to Adventure: The hero is faced with something that makes him begin his adventure. This
might be a problem or a challenge he needs to overcome.
 Refusal of the Call: The hero attempts to refuse the adventure because he is afraid.
 Meeting with the Mentor: The hero encounters someone who can give him advice and ready him
for the journey ahead.
  Crossing the First Threshold: The hero leaves his ordinary world for the first time and crosses the
threshold into adventure.
 Tests, Allies, Enemies: The hero learns the rules of his new world. During this time, he endures
tests of strength of will, meets friends, and comes face to face with foes.
 Approach: Setbacks occur, sometimes causing the hero to try a new approach or adopt new ideas.
 Ordeal: The hero experiences a major hurdle or obstacle, such as a life or death crisis.
 Reward: After surviving death, the hero earns his reward or accomplishes his goal.
 The Road Back: The hero begins his journey back to his ordinary life.
 Resurrection Hero - The hero faces a final test where everything is at stake and he must use
everything he has learned.
 Return with Elixir: The hero brings his knowledge or the "elixir" back to the ordinary world, where
he applies it to help all who remain there. 

Controversy
 Generating mild controversy is good

Sales
Overview
 Make the person aware of what's important and convince them you are capable of delivering
Common ground
 A compromise is the art of dividing a cake in such a way that everyone believes they have the
biggest piece
 Overlapping interests

Pricing uncertainty principle

 You can charge anything you want if you can provide a good reason why
Pricing methods
1. The Replacement Cost
a. Typically a "cost-plus" calculation
2. Market comparison
3. Discounted cash flow / Net present value
a. How much is it worth if it can bring in income over time?
4. Value comparison
a. Who is this particularly valuable to?
b. Typically optimum method
Value based selling
1. Understand the situation
2. Define the problem
3. Clarify short term and long term implications of that problem
4. Quantifying the need-payoff, or the financial and emotional benefits the customer would
experience after the resolution of their problem
Education – based selling
 Process of making your prospects better, more informed customers
Next best alternative
 What you do when you can't find common ground
 Understand what the Next Best Alternative for the customer is (what else would they do with the
$$)
Three universal currencies
1. Time
2. Resources
3. Flexibility
Three Dimensions
1. Setup
a. Who is involved in the negotiation, and are they open to dealing with you?
b. Who are your negotiations with, and do they know who you are and how you can help
them?
c. What are you proposing, and how does it benefit the other party?
d. What's the setting – will you present the offer in person or some other means?
e. What are all the Environmental factors around the deal – do recent events make the deal
more or less important to the other party?
2. Structure (Terms of the proposal)
a. What exactly will you propose, and how will you frame your proposal to the other party?
b. What are the primary benefits of your proposal to the other party?
c. What is the other party's Next Best Alternative and how is your proposal better?
d. How will you overcome the other parties objections and Barriers to Purchase?
e. Are there Tradeoffs or concessions you're willing to make to reach an agreement?
3. Discussion (actually making contact)

Buffer
For when one parties gain is another's loss
 Third party negotiating on your behalf
o Look for buffers who don't charge on commission
Reciprocation
 Think Hari Krishna flowers
Damaging Admission
 Being honest about (small) faults
Barriers to Purchase
Below always come up
1. It costs too much
a. Framing and value based selling
2. It won't work
a. Social proof (people like them, stories, testimonials)
3. It won't work for ME
a. Social proof
4. I can wait
a. Education based selling
5. It's too difficult
a. Education based selling
Risk Reversal
 "Take the puppy home" strategy
Reactivation
 They probabily already know your business, trust you (thus cost of customer acquisition)

Value Delivery
Value Stream
 The set of all steps and all processes from the start of your Value Creation process through to the
delivery of the end result to your user
Distribution Channel
1. Direct to user distribution (eg. Services)
 2. Intermediary distribution
a. Loss of control (counterparty risk)
The Expectation Effect
 Quality = performance – expectations
Predictability
1. Uniformity (same characteristics)
2. Consistency (same value)
3. Reliability (able to count on)
Throughput
 Rate at which a system achieves its desired goal (rate/time)
1. Dollar throughput
2. Unit throughput
3. Satisfaction throughput
Duplication
 Use 1 model to create 1000 figurines
Multiplication
 Is duplication of an entire system

Scale
 Being able to duplicate/multiply process as demand increases
Accumulation
 Toyota's approach based on concept of kaizen, which emphasises the continual improvement of a
system by eliminating waste via a lot of very small changes
Amplification
 Rollout of small change to entire system
Barrier to competition
 Redefine markets
Force mutiplier
 High capital (?), normally better returns

Finance
Value Capture
 Process of retaining some percentage of the value provided in every transaction
o Maximisation: capture as much as possible (quick, big profit)
o Minimisation: capture as little as possible (create strong patronage)
Sufficiency
 Enough profit that the people who are running the business find it worthwhile to continue
Four methods to increase revenue
1. Increase # of customers
2. Increase the average size of each transaction by selling more
3. Increase frequency of transactions per customer
4. Raise your prices
Lifetime value
 Total value of a customer's business over the lifetime of their relationship with your company
Allowable acquisition cost (AAC)
 AAC = (Lifetime value – Value Stream – Overhead)*(1 – Profit Margin)
Overhead
 Minimum ongoing resources
Breakeven
 When total revenue exceeds total expenses
Amortization
 Process of spreading the cost of a resource investment over the estimated useful life of that
investment
o Key factor: accurate assessment of useful life
Purchasing power
 Sum total of all liquid assets a business has at it's disposal (cash, credit, outsider financing)
Cash flow cycle
 Borrowing $1 to make $10 is a good trade. It's even better if you're able to do that 6 months before
the first bill comes due
Opportunity Cost
 is the value you're giving up by making a decision
Time value of money
 Using interest rates to know how much money will be worth in future
Leverage
 The practice of using borrwed money to magnify potential gains
 Rather than putting $20,000 down payment on one property, but $5000 on 4 properties. If things
go well, you could get 4 x return. Or 4 x worse
Hierarchy of Funding
1. Personal Cash
2. Personal credit
3. Personal loans
4. Unsecured loans
o From banks, credit unions
o Don’t ask for collateral if small amount loam
o Expect higher interest rates than credit card/secured loam
5. Secured loan
 Require collateral
o Bonds
 Debt sold to individual lenders
 Complicated regulatory process
o Receivables financing
 The collateral for the loan is control over business receivables
o Angel capital
 Individual GIVES $10k-$1m -> GETS 1-10% ownership business typically
o Venture capital
 Funding happens in rounds
o Public stock offering
 Investment bank sell partial ownership of company to investors on open market
 IPO – Initial public offering
 Common for angels and VC’s to push companies to go public so they can cash out
Return on Investment
 Value created from investment of time or resources
Sunk Cost
 Don’t continue to pour concrete into a bottomless pit
The Human Mind
Perceptual Control
 Actions are not controlled they are varied so as to cancel the effects that unpredictable
environmental disturbances would would otherwise have on controlled perceptions.
 Organism controls not its own behaviour, nor external environmental variables, but rather its own
perceptions of those variables
Reference Level
1. Set point (min, max)
2. Range – between two points
3. Error
a. Only perception that’s not zero is out of control
Guiding Structure
 Idea is that environment is largest determinant of behaviour. You should control your environment
to get best results in changing habit, etc
Conflict
 Two or more control systems try to control the same perception
Interpretation and reinterpretation
1. Identify the undesirable pattern
2. Name the underlying belief
3. Identify the source of the belief in memory, including as much sensory detail as possible
4. Describe possible alternative interpretations of the memory
5. Realise that your original belief is an interpretation, not reality
6. Consciously choose to reject the original belief as “false”
7. Consciously choose to accept your reinterpretation as “true”
Willpower depletion
 Blood glucose very important
Loss Aversion
 Hate to lose more than we like to gain
Cognitive Scope Limitation
 Dunbar’s number (cognitive capacity for 150 close personal connections, after that think of people
more like objects)
 Personalise things for different perspective
Absence blindness
 Doing nothing is psychologically uncomfortable
o Would rather see visible effort, even it is due to a person’s incompetence
Scarcity
1. Limited quantities
2. Price increases
3. Price decreases
4. Deadlines
Novelty
 Use 10 minute modules to get through 1 hour lecture

Working with Yourself

Monoidealism (focus on one thing)
1. Eliminate potential distractions
2. Eliminate inner conflicts
3. “Do a dash” – 10-30 minutes hard core work
Cognitive switching penalty
 don’t multitask
Four methods of completion
1. Completion
2. Deletion
3. Delegation
a. If someone else can do it 80% as well, delegate
4. Deferment
Most Important Tasks (MIT)
 Create MIT’s at start of each day (2-3)
o Do as quickly as possible
Goals
Should be PICS…
 Positive
 Immediate
 Concrete
 Specific
States of Being
 Treating these as goals is recipe for frustration (i.e “Be Happy”
Purpose Setting
 Before you do anything (say reading for example), first think
o Why do I want to read material?
o What kind of information am I looking for?
Five fold why
 Technique to discover what you really want
Example: “I want to be a millionaire”
 Q. Why do I want $1m
o A. Because I don’t want to be stressed about money
 Q. Why don’t you want to be stressed?
o A. So I don’t feel anxious
 Q. Why don’t you want to feel anxious?
o A. So I feel secure
 Q. Why do you want to feel secure?
o A. So I feel free.
 Q. Why do you want to feel free?
o A. Because I want to feel free
Five fold how
 Now consider other ways that becoming a millionaire that will make you feel free
Externalisation
 “rubberducking the problem”
Self – Elicitation (asking yourself questions)
Antecedent
 When did it happen?
 Whom were you with?
 What were you doing?
 Where were you?
Behaviour
 What were you saying to yourself?
 What thoughts did you have?
 What feelings were you having?
 What actions were you performing?
Consequences
 What happened as a result?
 Was it planned or unpleasant?
Counterfactual simulation
 Asking what if questions
Parkinson’s Law
 Go into a task assuming it will take 10 minutes, (even if it will realistically take a lot longer) and
begin
Doomsday Scenarios
 Consider these
Excessive Self Regard Tendency
 Be wary

Working with Others

Power
Methods
1. Influence
2. Compulsion – forcing
Comparative Advantage
 Be a first rate version of yourself, not a second rate version of someone else
Communication Overhead
8 Symptoms of Bureaucratic Breakdown
1. The Invisible Decision
2. Unfinished business
3. Coordination paralysis
4. Nothing new – no innovation
5. Pseudo-problems
6. Embattled centre
7. Negative deadlines
8. Input domination
Golden Trifecta
1. Appreciation
2. Courtesy
3. Respect
Commander's Intent
 Tell someone why a task must be done
 Make intent very clear
Clanning
 It's a more inspring battle cry to scream, "Die, vicious scum!" Instead of "Die, people who could
have been just like me but grew up in a different environment"
Convergence and Divergence
 Opinion: "you are the average of the five people you spend the most time with"
Incentive-caused bias
 Incentive with exclusively $ per sale OR pay salary and generous bonus for long term performance
Pygmalion Effect
 Let others know you expect great work from them and they'll do their best to live up to your
expectation
Attribution Error
 Rare is the person who can weigh the faults of others without putting their thumb on the scale
 When others screw up, we blame their character; when we screw up, we attribute the situation to
circumstances
Management (best practice)
1. Smallest team possible to get task done at required pace with required quality
2. Clearly communicate end result, who is responsible for what, and the current status
 3. Treat people with respect
4. Create productive environment
5. Don't have unrealistic expectations re: certainty and prediction
6. Measure what is happening
Understanding Systems
Gall's Law
 A complex system that works is invariably found to have evolved from a simple system that worked
Stock and Slack
 Money can be tied up in inventory
Constraints – to eliminate...
1. Identification (eg. Factory is waiting on car engines)
2. Exploitation constraint (shift work)
3. Subordination (redesign entire system to support the constraint)
4. Elevation (increase capacity of the constraint)
5. Re-evaluation
Feedback loop
 Outputs become inputs
Autocatalysis
 It's a reaction whose output produces the raw materials necessary for an identical reaction
Selection test
 "death of the unfit"
Interdependence
 Be wary when dealing with tightly coupled systems
Counterparty risk
 Possibility people you're relying on won't deliver
Second – order effects
 Consequences of consequences
Analysing Systems
Deconstruction
 Don't forget about interdependence
KPI's
Ideally 3-5 KPI's per system
1. Value creation
a. How quickly is system creating value?
2. Marketing
a. How many people paying attention to your offer?
b. How many prospects giving you permission to provide more information?
3. Sales
a. How many prospects becoming paying customers?
b. What is average customers lifetime value?
4. Value delivery
a. How quickly can you serve each customer/
b. What is current returns and complaints rate?
5. Finance
a. What is current profit margin?
b. Are you financially sufficient?
Sampling
Ratio
 Return on Assets
 o For every $1 you invest in equipment, how much revenue do you collect?
 Return on capital
o For every $1 you borrow or take on in investment, how much revenue do you collect?
 Return on promotion
o For every $1 you spend in advertising, how much revenue do you collect?
 Profit per employee
o For every person you employ, how much profit does your business generate?
 Closing ratio
o For every prospect you serve, how many purchase?
 Returns/complaints rate
o For every sale you make, how many choose to return or complain?
Easy measuring
1. Mean
2. Median
3. Mode
4. Midrange
Correlation and causation
 Causation: complete chain
 Correlation: highly associated, but not necessarily chain
Norms
 Seasonality: compare data related to date
Proxy
 Measures one quantity by measuring something else
Segmentation
Split data into predefined groups
1. Past performance
a. Compare new with old
2. Demographics
a. Age, gender, income, nationality and location
3. Psychographics
a. Internal psychological characteristics (surveys, assessments, focus groups)
Humanisation
 Process of using data to tell a story (Narrative) about a real person's experience or behaviour

Improving Systems
Refactoring
 Process of changing a system to improve efficiency without changing the output of the system
Diminishing returns
The Paradox of Automation
 The more efficient the Automated system the more crucial the contribution of the human
operators of that system
Standard Operating Procedure
 Review every 2-3 months
Cessation
 Sometimes the best way to improve a system is to stop doing so much
Resilience (best practice)
Massively underrated quality in business
 Low (preferably zero) outstanding debt
 Low overhead fixed costs, and operating expenses
  Substantial cash reserves for unexpected contingencies
 Multiple independent products/industries/lines of business
 Flexible workers/employees who can handle many responsibilities well
 No single points of failure
 Fail-safe/backup systems for all core processes
Stress Testing
 Process of identifying the boundaries of a system by simulating specific environmental conditions
Scenario planning
 Futures are financial contracts obligating the buyer to purchase an asset (or the seller to sell an
asset), such as a physical commodity or a financial instrument, at a pre-determined future date and
price)
Forty-nine questions to improve your results
How do I use my body optimally?
 What is the quality of my current diet?
 Do I get enough sleep?
 Am I managing my energy well each day?
 How well am I managing daily stress?
 Do have good posture and poise?
 What can I do to improve my ability to observe the world around me?
How do I know what I want?
 What achievements would make me really excited?
 What "states of being" do I want to experience each day?
 Are my priorities and values clearly defined?
 Am I capable of making decisions quickly and confidently?
 Do I consistently focus my attention on what I want versus what I don't want?
What am I afraid of?
 Have I created an honest and complete list of the fears I'm holding on to?
 Have I confronted each fear to imagine how I would handle it if it came to pass?
 Am I capable of recognising and correcting self-limitation?
 Am I appropriately pushing my own limits?
Is my mind clear and focused?
 Do I systematically externalise (write or record) what I'm thinking about?
 Am I making it easy to capture my thoughts quickly while I have them?
 What has my attention right now?
 Am I regularly asking myself appropriate guiding questions?
 Do I spend most of my time focusing on a single task, or am I constantly flipping between multiple
tasks?
 Do I spend enough time actively reflecting on my goals, projects, and projects?
Am I confident, relaxed and productive?
 Have I found a planning method that works for me?
 Am I "just organised enough"?
 Do I have an up to date list of all my projects and active tasks?
 Do I review all of my commitments on a regular basis?
 Do I take regular, genuine breaks from my work?
 Am I consciously creating positive habits?
 Am I working to shed non-productive habits?
 Am I comfortable with telling other people "no"?
How do I perform best?
 What do I particularly enjoy?
  What am I particularly good at doing?
 What environment(s) do I find most conductive to doing good work?
 How do I tend to learn most effectively?
 How do I prefer to work with and communicate with others?
 What is currently holding me back?
What do I really need to be happy and fulfilled?
 How am I currently defining my "success"?
 Is there another way of defining "success" that I may find more fulfilling?
 How often do I compare myself with my perceptions of other people?
 Am I currently living below my means?
 If I could only own one hundred things, what would they be?
 Am I capable of separating necessity and luxury?
 What do I feel grateful for in my life and work?