The Personal MBA by Josh Kaufman

Personal MBA

RATING: 10/10…READ: August 28, 2011

A short but comprehensive guide on all there is to know about business. If you want to learn the fundamentals of business, start with this book.

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Notes:

One of the beautiful things about learning any subject is the fact that you don’t need to know everything—you only need to understand a few critically important concepts that provide most of the value. Once you have a solid scaffold of core principles to work form, building upon your knowledge and making progress becomes much easier.

Whoever best decides the problem is the one most likely to solve it. (Dan Roam)

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.

According to the 2010 U.S. News & World Report business school rankings, each of the top fifteen MBA programs charge $40,000 to $50,00 per year for tuition.

According to a Pfeffer and Fong’s study, it doesn’t matter if you graduate at the top of your class with a perfect 3.0 or at the bottom with a barely passing grade—getting an MBA has zero correlation with long-term career success. None

Since 1965, the percentage of graduates of highly ranked business schools who into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that’s the problem…Most of GM’s top executives in recent decades hailed from finance rather than an operations background.

According to the U.S. Small Business Administration, small businesses represent 99.7 percent of all employer firms in the United States, employ half of all private sector workers, have generated 64 percent of net new jobs over the past fifteen years, and create more than 50 percent of U.S. nonfarm gross domestic product.

The one significant benefit that business schools do provide is better access to Fortune 50 recruiters, consulting firms, large accounting firms, and investment banks via on-campus recruiting and alumni networks.

The quickest and easiest way to screw up your life is to take on too much debt. The primary reason people spend decades working in jobs they despise is to pay off their creditors.

When you first start to study a field, it seems like you have to memorize a zillion things. You don’t. What you need is to identify the core principles—generally three to twelve of them—that govern that field. The million things you thought you had to memorize are simply various combinations of the core principles. (John T. Reed)

VALUE CREATION ########

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)

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 worth while for the owners to continue operation.

Core of every business:

  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

Iron Law of the Market: 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) ie. Segway

Core Human Drives:

  1. The drive to acquire: the desire to obtain or collect physical objects, as well as immaterial qualities like status, power, and influence. (retailers, investment brokerages, political consulting companies)
  2. The drive to bond: the desire to feel valued and loved by forming relationships with others, either platonic or romantic. (Restaurants, conferences, dating services)
  3. The drive to learn: (academic programs, book publishers, training workshops)
  4. The drive to defend: the desire to protect ourselves, our loved ones, and our property. (home alarm systems, insurance, legal services)
  5. The drive to feel: the desire for a new sensory stimulus, intense emotional experiences, pleasure, entertainment. (movies, games, concerts)

At the core of all successful businesses sell some combination of money, status, power, love, knowledge, protection, pleasure, and excitement.

So often people are working hard at the wrong thing. Working on the right thing is probably more important than working hard. (Caterina Fake)

10 ways to evaluate a market (score 0-10)

  1. Urgency—how badly do people want or need this right now?
  2. Market Size—how many people are actively purchasing things like this?
  3. Pricing Potential—what is the highest price a typical purchaser would be willing to spend for a solution?
  4. Cost of Customer Acquisition—how easy is it to acquire a new customer?
  5. Cost of Value Delivery—how much would it cost to create and deliver the value offered, both in money and effort?
  6. 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?
  7. Speed to Market—how quickly can you create something to sell?
  8. Up-Front Investment—how much will you have to invest before you’re ready to sell?
  9. Upsell Potential—are there related secondary offers that you could also present to purchasing customers?

10. Evergreen Potential—once the initial offer has been created, how much additional work will you have to put into it in order to continue selling?

When you’re done with your assessment, add up the score. If the score is 50 or below, move on to another idea—there are better places to invest your energy and resources. If the score is 75 or above, you have a very promising idea—full speed ahead. Anything between 50 and 75 has the potential to pay the bills, but won’t be a home run without a huge investment of energy and resources, so plan accordingly.

Hidden benefits of competition: When any two markets are equally attractive in other respects, you’re better off choosing to enter the one with competition. Here’s why: it means you know from the start there’s a market of paying customers for this idea, eliminating your biggest risk.

The trick is to find an attractive market that interest you enough to keep you improving your offering every single day. Finding that market is mostly a matter of patience and active exploration.

If you find a way to make a necessary but dull market interesting enough to pursue, you may have discovered a hidden vein of gold waiting to be minded.

Some ideas don’t have enough of a market behind them to support a business, and that’s perfectly okay. That doesn’t mean you should ignore them: side projects can help you expand your knowledge, improve your skills, and experiment with new methods and techniques. BUT don’t count on them to produce income.

12 standard forms of value:

  1. Product:
  2. Service
  3. Shared Resource: create a durable asset that can be used by many people, then charge for access. ++The tricky part about offering a shared resource is carefully monitoring the usage levels. If you don’t have enough users, you won’t be able to spread out the cost of the asset enough to cover up-front costs and ongoing maintenance. I.e. gyms & fitness clubs
  4. Subscription
  5. Resale
  6. Lease
  7. Agency
  8. Audience Aggregation: i.e. magazines
  9. Loan

10. Option: Offer 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.

11. Insurance

12. Capital

Focus on creating forms of value that require the least end-user effort to get the best possible end result—they will have the highest perceived value.

Bundling: i.e. mobile phones bundled with subscription or buy one get one offers

Unbundling: taking one offer and splitting it up into multiple offers. i.e. single MP3 downloads instead of a full album

Beneath the finished surface of the Mona Lisa, you’ll find layer upon layer of draft sketches, false starts, and major alterations.

Iteration has six major steps, 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?

Give potential customers the option 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 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.

When making decisions about what to include in your offering, it pays to look for Patterns—how specific groups of people tend to value some characteristic in a certain context. The decisions you make about what to include and what to leave out will never make everyone happy, so perfection shouldn’t be your goal.

As you develop your offering, one of your first priorities should be to find out what your potential customers value more than the buying power of the dollars in their wallets.

Economic values:

  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?

Things that are quick, reliable, easy, and flexible are convenient. Things that offer quality, status, aesthetic appeal, or emotional impact are high-fidelity.

Almost every improvement you make to an offer can be thought of in terms of improving either convenience or fidelity. It’s incredibly difficult to optimize for both fidelity and convenience at the same time, so the most successful offerings try to provide the most convenience or fidelity among all competing offerings.

–If you’re craving pizza, a table at the original Pizzaria Uno in Chicago is high-fidelity; Domino’s home delivery is convenient.

As a rule, people never accept trade-offs unless they’re forced to make a decision. If the perfect option existed, they’d buy it.

Instead of asking to rank 0-10, show something like this:

  1. Orders delivered to table in five minutes or less
  2. Most entrée prices under $20
  3. Appealing restaurant décor
  4. Large variety of menu options

After this set is shown, the participant is asked the following questions.

  1. Which of these items is most important?
  2. Which of these items is least important?

Once the participant answers the questions, another set is shown:

  1. Unique entrees I can’t get anywhere else
  2. Knowing I can always order my favorite dishes
  3. People are impressed that I dine here
  4. Large portions

It is better to be roughly right than precisely wrong (John Maynard Keynes)

Shadow testing: 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 (critically important assumptions) with real customers quickly and inexpensively.

Incremental Augmentation is the process of using the iteration cycle to add new benefits to an existing offer. The process is simple: keep making and testing additions to the core offer, continue doing what works, and stop doing what doesn’t.

MARKETING #######

The cardinal marketing sin is being boring (Dan Kennedy)

Marketing is the art and science of finding “prospects” –people who are actively interested in what you have to offer.

Marketing is about getting notices; Sales is about closing the deal

Attention doesn’t matter if people don’t care about what you’re doing. If all you’re looking for is attention, don’t bother with all of this business stuff: skipping down the street in a pink bunny suit while yelling at the top of your lungs will get you all the attention you’ll ever want.

You want the attention of prospects who will ultimate purchase from you—otherwise you’re wasting your time.

Receptivity: they say it takes 7 exposures to a product ad before you’ll want to buy it, but after 8,743 spam emails from Viagra, I still don’t want it. (Erin Pavlina)

Advertising is the tax you pay for being unremarkable. (Robert Stephens)

There are 6 billion people on this planet. 99.999% of them would rather not give you their money. (Hugh Macleod)

You may think that what you have to offer is the creates thing since sliced bread—that doesn’t change the fact that it’s not right for everyone. Whatever you’re offering, I can guarantee you that most of the people in this world don’t—and never will—care about what you’re doing. Harsh but true.

Skilled marketers don’t try to get everyone’s attention—they focus on getting the attention of the right people at the right time.

Most women don’t buy a $20 tube of lipstick for its color alone. They buy it because they believe it will make them more beautiful and desirable.

Marketing is most effective when it focuses on the END RESULT, which is usually a distinctive experience of emotion related to a Core Human Drive.

The product that will not sell without advertising will not sell profitably with advertising. (Albert Lasker)

Not every customer is a good customer: customers who require more time, energy, attention, or risk than they’re worth to your bottom line aren’t worth attracting in the first place.

Accessibility: sensitive or embarrassing topic tend to have a low addressability, even if there’s a huge need. i.e. chronic medical conditions such as herpes. ++Doctor’s on the other hand, are more addressable.

Your job as a marketer isn’t to convince people to want what you’re offering: it’s to help your prospects convince themselves that what you’re offering will help them get what they really want.

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.

Framing is the act of emphasizing details that are critically important while de-emphasizing things that aren’t, by either minimizing certain facts or leaving them out entirely.

Selling to people who actually want to hear from you is more effective than interrupting strangers who don’t. (Seth Godin)

The best way to get permission is to ask for it. Whenever you provide value to people, ask them if it’s okay to continue to give them more value in the future.

Before asking your prospects for permission to follow up, make it clear what they’ll be getting and how it’ll benefit them.

Hook: IPod—1,000 songs in your pocket / The 4-Hour Work Week

Attracting a prospect’s attention doesn’t help if they disappear: if you want to make a sale, you need to direct your prospects to take some kind of action.

If you’re encouraging someone to enter their e-mail address to sign up for a newsletter, say that verbatim multiple times, and make it immediately clear WHERE the e-mail address field is, WHY they should fill it out, WHAT to click once they’ve entered their e-mail, and WHAT they can expect to happen when they do. If you think you’re being too obvious, you’re doing it right.

The best Calls-To-Action ask directly either for the sale or for the permission to follow up.

If your position is agreeable to everyone, it becomes so boring that no one will pay attention to you.

Reputation: like it or not, the market’s perception becomes your reality (Howard Mann)

SALES ########

People don’t like to be sold, but they love to buy. (Jeffery Gitomer)

A compromise is the art of dividing a cake in such a way that everyone believes he has the biggest piece. (Ludwig Erhard)

Common ground is a state of overlapping interest between two or more parties. Think of your available options as a circle that surrounds you. Your prospects have a circle of available options as well. Your job is to find exactly where those circles overlap, which is much easier if you understand what your probable purchasers want or need.

Pricing Uncertainty: all prices are arbitrary and malleable. Pricing is always an executive decision.

There are four ways to support a price on something of value: (1) replacement cost, (2) market comparison, (3) discounter cash flow/net present value, and (4) value comparison.

Market comparison: how much are other things like this selling for?

Discounted Cash flow (DCF)/ Net Present Value (NPV): how much is it worth if it can bring in money over time.

By calculating the NPV of the house you could rent for $2000 a month for a period of ten years with a 95 percent occupancy and you could earn 7% on your money by choosing the next best alternative, you’ll have a supportable estimate what the house is worth.

Value comparison: who is this particularly valuable to?

Imagine that you provide an ongoing service to a Fortune 50 corporation that increases their annual revenues by $100 million. Is your service worth $10 million a year? Sure—after all, what company would give up $90 million in ongoing revenue. Does it matter if providing this valuable service doesn’t cost you much money? absolutely not.

Value based selling: the process of understanding and reinforcing the reason why your offer is valuable to the purchaser.

4 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.

Instead of barging in with a premature hard sell, successful salespeople focus on asking detailed questions to get to the root of what the prospect really wants.

Upgrade your user, not your product. “Value” is less about the stuff and more about the stuff the stuff enables. Don’t build better cameras—build better photographers. (Kathy Sierra)

If you are selling a product that costs $100, you are selling against the next best thing that they could do with that $100.

In every negotiation, the power lies with the party that is able and willing to walk away from a bad deal. In almost every case, the more acceptable alternatives you have, the better your position.

Time will take your money, buy money won’t buy time.

In every negotiation, there are three universal currencies: resources, time, and flexibility.

Flexibility is the third universal currency—becoming a salaried employee isn’t a straightforward enhance of resources for effort—you’re also giving up a certain amount of flexibility.

The first thing to decide before you walk into any negotiation is what to do if the other fellow says no.

Most people think of negotiation as sitting down across from the other party and presenting offers and counteroffers. But that’s the last phase of the process, the other two happen well before you ever sit down at the negotiating table.

The three dimensions of negotiation are setup, structure, and discussion.

Setup: 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 your 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?

Structure: 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 alternatives, and how is your proposal better?

-How will you overcome the other party’s objections and barriers to purchase?

-Are there trade-offs of concessions you’re willing to make to reach an agreement?

Discussion: actually presenting the offer to the other party. The discussion is where you actually talk through your proposal with the other party.

A buffer is a third party empowered to negotiate on your behalf. Agents, attorneys, mediators, brokers, accountants, and other similar subject-matter experts.

Agents are typically compensated on a commission basis, so it pays to be wary if you’re using them on the buy side of a deal.

If at all possible, worth with a Buffer who is willing to accept a flat fee in exchange for services rendered, whether or not the deal happens.

Gifts are never free, they bind the giver and receiver in a loop of reciprocity. (Marcel Mauss)

Making a damaging admission to your prospects can actually increase their Trust in your ability to deliver what you promise.

Barriers to purchase: (1) it costs too much. (2) it won’t work. (3) it won’t work for me. (4) it’s too difficult.

Objection (1) best addressed via framing and value based selling

Objections (2) and (3): are best addressed via social proof, i.e. referrals or testimonials.

Objections (4) and (5): best addressed by education based selling

Make it a priority every three to six months to contact your lapse customers with another offer to see if you can encourage them to start buying again, and you’ll be amazed by the results.

VALUE DELIVERY #######

A satisfied customer is the best strategy of all (Michael Leboeuf)

Value delivery involves everything necessary to ensure that every paying customer is a happy customer: order processing, inventory management, delivery/fulfillment, troubleshooting, customer support, etc.

Toyota engineers make over 1 million improvements to the Toyota Production System each year.

Direct-to-user distribution: works across a single channel: from the business directly to the end user. i.e. haircut

Intermediary Distribution: works across multiple channels; i.e. store products

A customer’s perception of quality relies on two criteria: expectations and performance. You can characterize this relationship in the form of a quasi-equation, or Expectation Effect: Quality = performance – expectations

Contractors are notoriously unpredictable: they often show up late, take too long, do sloppy work, and have bad attitudes. The secret of Aaron and Pat’s success is Predictability—they do great work every single time, deliver on schedule, and they’re pleasant to work with. As a result they’re booked solid—an impressive achievement, particularly in a soft construction industry.

Thoughtput is the rate at which systems achieves its desired goal.

Dollar thoughtput: a measure of how quickly your overall business system creates a dollar of profit.

Unit thoughtput: a measure of how much time it takes to create an additional unit for sale.

Satisfaction thoughtput: a measure of how much time it takes to create a happy satisfied customer.

The problems of this world are only truly achieved in two ways: by extinction or duplication. (Susan Sontag)

Products are typically easiest to duplicate while shared resources (gyms) are easiest to multiply.

Services are typically difficult to Scale, since they tend to rely heavily on the direct involvement of people to deliver value.

Don’t compete with rivals—make them irrelevant. (W. Chan Kim)

The more time and energy you spend following your competition, the less time and energy you have to actually build your business.

As a general rule, the only good use of debt or outside capital in setting up a system is to give you access to Force Multipliers you would not be able to access any other way.

If you can’t describe what you are doing as a process, you don’t know what you’re doing. (W. Edwards Deming)

FINANCE #######

Profit margin is the difference between how much revenue you capture and how much you spend to capture it, expressed in percentage terms—if you spend $1 to get $2, that’s a 100 percent profit margin.

Value capture is the process of retaining some percentage of the value in every transaction. If you’re able to offer another business something that will allow them to bring in $1 million of additional revenue and you charge $100,000, you’re capturing 10 percent of the value created by the Transaction.

Four methods to increase revenue:

  1. Increase the number of customers you serve
  2. Increase the average size of each transaction by selling more
  3. Increase the frequency of transactions per customer
  4. Raise your prices.

The moment you make a mistake in pricing, you’re eating into your reputation or your profits. (Katharine Paine)

The purpose of a customer isn’t to get a sale. The purpose of a sale is to get a customer. (Bill Glazer)

Any business can buy incremental unit sales at a negative profit margin, but it’s simpler to stand on the corner handing out $20 bills. (Morris Rosenthal)

If the lifetime value of a customer is $24,000, how much could you spend to attract a new customer?

Allowable Acquisition Cost (AAC) is the marketing component of lifetime value. The higher the average customer’s lifetime value, the more you can spend to attract a new customer, making it possible to spread the word about your offer in new ways.

To calculate your market’s allowable acquistion cost, start with your average cusomter’s lifetime value, then subtract your value stream costs—what it takes to create and deliver the value promised ot that customer over your entire relationship with them.

–Then substract your overhead divided by your total customer case, which represents the fixed costs you’ll need to pay to stay in business over that period of time.

–Multiply the result by 1 minus your desired profit margin (if you’re shooting for a 60% margin, you’d use 1.00 – 0.60 = 0.40, and that’s your allowable acquistion cost.

i.e. avg customer value = 2,000 over 5 years, value delivery cost $500 thus revenue per customer = $1,500 —assuming overhead expenses are $500,000 over the same 5 year period and you have 500 customers, your fixed costs are $1,000 per customer, which leaves $500 in revenue before marketing expenses. If you want a 60% profit margin, you can afford to spend 40% on marketing or $200 per customer.

Amortization is the process of spreading the cost of a resource investment over the estimated useful life of that investment. i.e. buying adobe inDesign for projects, if you can generate more money than the software costs, it might make sense to buy it.

Purchasing power is the sum total of all liquid assets a business has at its disposal. That includes your cash, credit, and any outside financing that’s available. More purchasing power is always better, as long as you use that power wisely.

The cash flow cycle describes how cash flows through a business. Think of your business’s bank account like a bathtub. If you want the water in the bathtub to rise, you add more water and keep it from leaking out via the drain. The more water that flows in and the less that flows out, the higher the level of water in the tub. Revenues and expenses work the same way.

The time value of money can help you figure out the maximum you should be willing to pay for a business that earns $200,000 in profit each year. Assuming an interest rate of 5 percent, no growth, and a foreseeable future of ten years, the “present value” of that series of cash flows is $1,544,347. If you pay less than that amount, you’ll come out ahead as long as your assumptions are correct.

Improve by 1% a day, and in just 70 days, you’re twice as good.

Leverage: let’s assume you have $20,000 you’d like to invest in real estate. You could use that money as a 20% down payment on a $100,000 property, borrowing $80,000, but that ties up all your money in a single investment.

OR you could take the same pool of money and invest in four $100,000 properties, each with a down payment of $5,000. That strategy requires borrowing $95,000 four times—a total of $380,000 in loans.

Leverage is a form of 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.

Hierarchy of funding:

-Personal Cash /

Personal Credit /

Personal Loans /

Unsecured Loans (made by banks and credit unions) /

Secured Loans (require collateral) /

Receivables Financing (special type of secure lending unique to businesses) /

Angel Capital (private investor, 1 to 10% of company, consulting and advice, but little control) /

Venture Capital (millions+, own a large stake in company, has a significant portion of control)

Public Stock Offering

Return on Investment (ROI): the value created from an investment of time or resources. Most people think of ROI in terms of currency: if you invest $1,000 and you collect $100 in profit, that’s a 10 percent return on your investment: ($1,000 + $100) / $1,000 = 1.10, or 10 percent. If your ROI is 100 percent, you’ve doubled your initial investment.

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.

Don’t continue to pour concrete into a bottomless pit—if it’s not worth the additional investment, walk away. You never have to earn back money in the same way you lost it. If the reward isn’t worth the investment required to obtain it or the risk, don’t invest.

THE HUMAN MIND #######

When in doubt, consider how your ancient ancestors lived, and act accordingly.

Think of the brain as an onion—at the core is a structure called the hindbrain which is especially responsible for keeping you alive. The hindbrain is responsible for all of the physiological functions necessary for survival.

–Located at the base of the brain, the hindbrain is sometimes called the “Lizard brain,” because this basic neurological structure appears in all of our biological precursors, including reptiles and amphibians.

–Above your hindbrain is the midbrain, which is responsible for processing sensory data, emotion, memory and pattern matching.

–Sitting just above the midbrain is a thin, folded layer of tissue—the forebrain. This small sheet of neural matter is responsible for the cognitive capabilities that make us distinctly human: self-awareness, logic, deliberation, inhibition, and decision.

A few moments of quiet mediation every day can be the difference between feeling scared and overwhelmed and feeling in control of your destiny.

Perception Control: the thermostat controls the temperature of the room by comparing the perceived temperature against the set point, then taking an action if and only if that perception is “out of control.” Once the action brings the perception under control, the system stops acting until the set point is violated once again.

Action comes about if and only if we find a discrepancy between what we are experiencing and what we want to experience. (Philip J. Runkel)

Reference level: a range of perceptions that indicate the system is “under control.”

When you’re so tired that it feels like you’re about to kick the bucket any second, physiologically, you’re not even remotely close to actually dying. The signals your brain is sending to your body are a ruse that serves as a warning, prompting you to keep some energy in reserve, just in case energy is needed later.

People only start to expand effort if their Reference Levels are violated in some way, so if their expectations aren’t violated, they simply don’t act.

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. If you don’t want to eat ice cream, don’t buy it in the first place.

Reorganization is random action that occurs when a reference level is isolated but you don’t know what to bring the perception back under control. The “quarter-life” or midlife crisis many experience is a perfect example.

Even though it’s sometimes tempting to try to convince yourself that everything is okay, resisting or repressing the impulse to try something different slows down your learning.

The significant problems we face cannot be solved at the same level of thinking we were at when we created them. (Albert Einstein)

In the case of procrastination, conflict can be ended by scheduling firm times for work and rest, ensuring enough of each. In the New Habit, Neil Fiore recommends creating an “unschedule” that prioritizes rest over work.

We don’t see things as they are. We see things as we are. (Anais Nin)

Since you’re not omniscient, your mind never has complete data, so it automatically fills in missing pieces by interpreting what you sense via the patterns you have stored in memory. In the absence of any other information to the contrary, you’ll “jump to conclusions” by relying on the interpretation your mind creates.

Eliminate the inner conflicts that compel you to move away from potential threats, and you’ll find yourself experiencing a feeling of motivation to move toward what you really want.

Kids with a greater power to “defer gratification” were more successful in school, as well as later in life. Overriding our instincts can often make it possible to collect larger rewards later—spending is easy, but saving is not, even if the latter is more beneficial over time.

—Freedom for Mac: cuts internet connectivity

If you’re ever in the unfortunate situation of having to lay off workers, it’s best to do it quickly, cleanly, and all at once. It’s best to make cuts swiftly, then reassure remaining employees that no more cuts will be made. Rumors of layoffs or workers constantly wondering “if I’ll be next” is a recipe for a threat lockdown.

According to Robin Dunbar, a British anthropologist, humans have the cognitive capacity to keep track of somewhere around 150 close personal connections. Beyond this limited circle, we start treating people less like individuals and more like objects, and groups of people beyond this limit are likely to splinter into subgroups over time.

The “newspaper rule” is a simulation of the following: assume your decision was publicized on the front page of tomorrow’s New York Times, and your parents and/or significant other read it. What would they think? Imagining the personal consequences of your decisions in this way is a much more accurate way to evaluate the impact of short-term decisions.

Absence blindness: a cognitive bias that prevents us from identifying what we can’t observe.

Scarcity: Limited Quantities / Price Increases (price will go up in future) / Price Decreases (current discount will end) / Deadlines

He plans his class in modules that last no more than ten minutes. Each module starts with a Hook—an interesting story or anecdote, followed by a brief explanation of the key concept.

WORKING WITH YOURSELF #######

Monoidealism: the state of focusing your energy and attention on only one thing, without conflicts.

First : Depending on the level of cognitive activity required to complete your work, it’ll take ten to thirty minutes before your mind becomes absorbed in what you’re doing.

Second: eliminate inner conflicts

Third: do a dash—Pomodoro Technique: set a kitchen timer for twenty-five minutes, your job is to focus on a single task for the entire duration.

Productive multitasking is a myth. According to several neurological studies, the more things you try to pay attention to at any given time, the more your performance at all of them suffers.

There are really only four ways to “do” something: completion, deletion, delegation, and deferment.

What are the two or three most important things that I need to do today? What are the things that—if I got them done today—would make a huge difference?

Setting a vague goal is like walking to a restaurant and saying, “I’m hungry I want some food.” You’ll stay hungry until you order something. (Steve Pavlina)

We are what we repeatedly do. Excellence, then, is not an act, but a habit. (Will Durant)

Priming is a method of consciously programming your brain to alert you when particular information is present in your environment.

Taking a few minutes before you start reading to figure out (1) why you want to read this material and (2) what kind of information you’re looking for.

Don’t wait until you have enough facts to be 100 percent sure, because by then it is almost too late…Once [you’ve acquired 40 to 70 percent of the available information], go with your gut. (Colin Powell)

Five Fold Why: keeping asking why you want something until you get to the truth.

Five Fold How: Same as five fold why, but how.

GTD Fundamental Process:

  1. Write down a project or situation that is most on your mind at this moment.
  2. Now describe in a single written sentence your intended desired outcome for this problem or situation. What needs to happen to mark this “done”?
  3. Next, write down the very next physical action step required to move the situation forward.
  4. Put those answers in a system you trust.

There are two primary ways to externalize your thoughts: writing and speaking.

To be able to ask a question clearly is two-thirds of the way to getting it answered. (John Ruskin)

Parkinson’s Law: work expands as to fill the time available for it’s completion.

Founder of IKEA: “If you split your day into ten-minute increments, and you try to waste as few of those ten-minute increments as possible, you’ll be amazed at what you can get done.”

Doomsday Scenario: What if your plan doesn’t work? What if you lose everything? What if they all laugh at you?

“I never had done any of this stuff before, I never built a computer, I never built a company. I had no idea what I was doing. But I was going to do it, and so I did.” (Steve Wozniak)

Unconsciously incompetent: don’t know they’re incompetent—they know so little about the subject that they can’t fully appreciate how little they actually know.

Conscious incompetence: you know you don’t know what you’re doing.

Conscious competence: the state of knowing what you’re doing—takes experience, knowledge, and practice—you know the limits of your knowledge and can accurately assess your abilities.

Cultivate relationships with people who aren’t afraid to tell you when you’re making questionable assumptions or going down the wrong path—they’re valuable friends indeed.

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. (Mark Twain)

Finish each day and be done with it. You have done what you could. Some blunders and absurdities no doubt crept in; forget them as soon as you can. Tomorrow is a new day; begin it well and serenely and with too high a sprit to be encumbered with your old nonsense.

It is impossible to know how much your capable of until you decide to push your limits. The knowledge you gain will help you make better choices in the future about what projects to take on and how much is too much.

Testing —–

Observations: What are you observing in your life or business that you want to improve?

Knowns: What have you learned from past experiments that might be related to your observations.

Hypothesis: based on what you’ve observed, what situations or factors might cause or contribute to your observations?

Tests: what will you try or change to improve your situation? Which hypothesis will this experiment test?

Results: what happened after each test? Does it support or disconfirm the hypothesis?

What would it look like if you set aside a few hundred dollars a month as a Personal R & D budget?

–That money can then be used guilt free for purchasing books, taking courses, acquiring equipment, or attending conferences: anything that will improve your skills and capabilities.

WORKING WITH OTHERS ######

Take away my people but leave my factories, and soon grass will grow on factory floors. Take away my factories but leave my people, and soon we will have a new and better factory. (Andrew Carnegie)

The use of power typically takes one of two fundamental forms: influence or compulsion. Influence is the ability to encourage someone else to want what you suggest. Compulsion is the ability to force someone else to do what you command.

Be a first-rate version of yourself, not a second-rate version of someone else. (Judy Garland)

It’s better to capitalize on your strengths than to shore up your weaknesses.

Diverse teams consistently outperform homogeneous teams.

Having a wide variety of team members with different skills and backgrounds is  a major asset: it increases the probability that one of your teammates will now what to do in any given circumstance.

If you’re responsible for working with a group of more than 5 to 8 people, at least 80% of your job will inevitably be communicating effectively with the people you work with. Objectives, plans, and ideas are worthless unless everyone involved understands them well enough to take action.

STATE – for group meetings

  1. Share your facts
  2. Tell your story
  3. Ask for other’s paths
  4. Talk tentatively
  5. Encourage testing

The Golden Trifecta (How to Win Friends and Influence People): appreciation / courtesy / respect

Never tell people how to do things. Tell them what to do, and they will surprise you with their ingenuity. (General George S. Patton)

Whenever you assign a task to someone tell them WHY it must be done.

(1) always personally step up and take responsibility, unless relieved by a more experienced professional, and (2) always direct commands or requests very clearly to ONE specific individual at a time.

Convergence can be useful if you consciously choose to spend time with people you’d like to become more like over time.

The most effective testimonials tend to follow this format: “I was interested in this offer, but skeptical. I decided to purchase anyway, and I’m very pleased with the end result.

Even small commitments make it more likely that individuals will take actions consistent with those commitments in the future.

By compensating their salespeople on a salary basis and giving generous bonuses based on long-term performance, Brodsky and Burlingham encouraged them to focus on making profitable sales versus sales at any cost.

In the absence of data, you’ll ultimately be forced to do things the boss’s way—HIPPO (Highest Paid Person’s Opinion)

Individuals tend to rise to the level of other people’s expectations of them. In general, people tend to perform up to the level that others expect them to perform. If you don’t expect much from the people you work with, it’s likely you won’t inspire them to perform to the limits of their capabilities. Let them know you expect great things from them, and more often than not, you’ll find that they perform well.

Attribution Error: when others screw up, we blame their character; when we screw up, we attribute the situation to circumstances.

Instead of dwelling on the problem, focus on your options. Ruminating on the issue doesn’t solve anything what are you going to do about it? By focusing your energy on evaluating potential responses, you’re far more likely to find a way to make things better.

Management:

  1. Recruit the smallest number of people who can accomplish what must be done quickly and with high quality.
  2. Clearly communicate the desire end result, who is responsible for what, and the current status. People must know why it is important.
  3. Treat people with respect.
  4. Create an environment where everyone can be as productive as possible.
  5. Measure to see if what you’re doing is working—if not, try another approach.

UNDERSTANDING SYSTEMS ######

If you want to build a system that works, the best approach is to build a simple system that meets the environments current selection tests first, then improve it over time. Over time, you’ll build a complex system that works.

Inflows: resources moving into a system. Water into a sink. Money into a bank account. Raw materials into an assembly line. New hires into a company

Outflows: are resources flowing out of a system. Water training from a sink. Money flowing out of a bank account. Etc.

A man with surplus can control circumstances, but a man with a surplus is controlled by them, and often has no opportunity to exercise judgment. (Harvey S. Firestone)

Slack is tricky to manage: too much, and you’re wasting time and money; too little and your system faces the risk of running out of the resources necessary to continue operating.

Constraint:

  1. Identification (finding the limiting factor)
  2. Exploitation (making sure resources aren’t wasted related to the constraint)
  3. Subordination (redesigning the entire system)
  4. Elevation (permanently increasing the capacity of the constraint)
  5. Revaluation

An autocatalyzing system produces the inputs necessary for the next cycle as a by-product of the previous cycle, amplifying the cycle. i.e. Facebook

It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. (Charles Darwin)

The more complex a system is and the longer it operates, the more likely it is to suffer a major failure. It’s not a matter of if—it’s a matter of when. Be watchful for system failure, and be prepared to respond to it quickly.

ANALYZING SYSTEMS ######

If you can’t understand it, you can’t change it. (Eric Evans)

It’s important not to lose sight of interdependence when using isolation to deconstruct a system, since each subsystem is part of a larger system. Indentifying triggers and endpoints—the parts of the system that interact with other subsystems—is just as important. Triggers teach you what makes a subsystem start operating, and endpoints show you what makes the system stop.

What gets measured gets managed (Peter Drucker)

It is better to have an approximate answer to the right question than an exact answer to the wrong question. (John Tukey)

KPIs (Key Business Inputs):

  1. Value Creation: how quickly is the system creating value? What is the current level of inflows?
  2. Marketing: How many people are paying attention to your offer? How many prospects are giving you permission to provide more information?
  3. Sales: How many prospects are becoming paying customers? What is the average customer’s lifetime value?
  4. Value Delivery: how quickly can you serve each customer? What is your current returns on complaints rate?
  5. Finance: What is your profit margin? How much purchasing power do you have? Are you financially sufficient?

Try to limit yourself to only three to five KPIs per system.

If you don’t understand something, it’s because you aren’t aware of its context (Richard Rabkin)

Useful Ratios to Track:

Return on Assets: for every $1 you invest in equipment, how much revenue do you collect?

Return on Capital: for every $1 you borrow or take on in investment, how much revenue do you collect?

Return on Promotion: for every $1 you spend in advertising, how much revenue do you collect?

Profit per employee: For every person you employ, how much profit does your business generate?

Closing Ratio: For every prospect you serve, how many purchase?

Returns/Complaints Ratio: For every sale you make, how many choose to return or complain?

Correlation is not causation. Even if you notice one measurement is highly associate with another, that does not prove that one thing caused the other. i.e. money w/ happiness.

Web site analytics: using mouse cursor tracking to track attention.

3 common ways to segment customer data: Past performance, demographics, and psychographics (attitudes, worldviews, etc.)

Don’t just present data—tell a story that helps people understand what’s happening, and you’ll find your analysis efforts made more useful.

IMPROVING SYSTEMS ######

You can’t reliably optimize a system’s performance across multiple variables at once. Pick the most important one and focus your efforts accordingly.

Elegance is necessarily unnatural, only achievable at great expense. If you just do somethig, it won’t be elegant, but if you do it and see what might be more elegant, and do it again, you might, after an unknown iterations, get something that is very elegant.

Refactoring: process of changing a system to improve efficiency without changing the outputs of the system. i.e. computer programming –making a program more efficient, quicker, less lines of code, etc.

80/20: you wear less than 20% of the clothing in your closet 80% of the time

–You spend over 80% of your time communicating with less than 20% of your personal contacts.

The last 10% of performance generates one-third of the cost and two-thirds of the problems. (Norman R. Augustine)

–Focus on doing a few simple things that will produce most of the results you’re looking for, then call it a day.

Paradox of Automation: the more efficient the automate system, the more crucial the contribution of the human operators of that system. When an error happens, operators need to identify and fix the situation quickly or shut the system down—otherwise, the automated system will continue to Multiply the error. i.e. Toyota Prius Gas Pedal issue.

–the more reliable the system, the less human operators have to do, so the less they pay attention to the system while it’s in operation

–keep your automated system’s operators mentally engaged, and they’ll be far more likely to notice when errors inevitably occur.

The measure of success is not whether you have a tough problem to deal with, but whether it’s the same problem you had last year. (John Foster Dulles)

Instead of wasting valuable time and energy solving a problem that has already been solved many times before, a predefined SOP (Standard Operating Procedure) ensures that you spend less time thrashing and more time adding value.

A resilient 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-safes/backup systems for all core processes

“Always” and “never” are two works that you should always remember never to use. (Wendell Johnson)

By the time you need a fail safe it’s too late. Fail-safes must be developed before you need them.

Stress testing: the process of identifying the boundaries of a system by simulating the specific environmental conditions. Stress testing inverts your mind-set into “demon mode.” What would it take to break what you’ve built?

Scenario Planning: What would I do if…

Most of what Buffet does on a daily basis is read financial reports and learn new concepts looking for new ways to increase the value of his company.