Week 54: The Personal MBA

Ronan read The Personal MBA - so you didn't have to...

Video version of Book Review

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The Detail

Multiple concepts to help you work through business problems.

You don’t need to know everything - you need to understand a small set of important concepts that provide the most value.

• How business actually works
• How to start a new business
• How to improve an existing business
• How to use business-related skills to accomplish your personal goals

Mental models are concepts that represent your understanding of how something in the world works.

All human relationships are based on power. Power takes one of two fundamental forms: Influence or Compulsion.

The best way to increase your power: Do things that increase your influence and reputation.

The more you emphasise people’s importance the more they’ll value their relationship with you.

The golden trifecta: Appreciation, courtesy and respect.

Earned Regard: The subjective estimate of how much trust you have built with an individual over time. When you demonstrate competence, reliability, good judgement, skill, capacity to deliver positive results.

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 purchasers' needs and expectations and (5) provides the business sufficient revenue to make it worthwhile for the owners to continue operation.

Value Creation

The best businesses in the world are the ones that create the most value for others.

Value Creation - What people need or want

Customer Demand - Attract attention

Transactions - Sales - Prospect to customer

Value Delivery - Deliver what you promise

Profit Sufficiency - Enough money to be worthwhile

Value can’t be created without understanding what people want (Market Research)

Attracting customers requires getting their attention and making them interested (Marketing)

People must trust your ability to deliver on your promise (Value delivery and operations)

Customer satisfaction depends on exceeding expectations (Customer service)

Profit sufficiency - bringing in more money than spent (Finance)

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

All successful businesses sell the promise of some combination of money, status, power, love, knowledge, protection, pleasure and excitement.

10 Ways to evaluate the Market

1. Urgency - How badly do people want this right now?
2. Market size - How many people are purchasing things like this?
3. Pricing potential  - What’s the highest price of a typical purchase?
4. Cost of customer acquisition - What will it cost to acquire new customers?
5. Cost of value delivered - What will it cost to create and deliver?
6. Uniqueness of offer - How unique is your offer vs competing offers?
7. Speed to market - How soon can you create something to sell?
8. Upfront Investment - How much is the initial investment?
9. Upsell potential - What secondary offers can you present?
10. Evergreen potential - How much additional work to continue selling?

Pay very close attention to the things you find yourself coming back to over and over again.

Economic Value - 12 Standard forms of Value

1. Product - Single tangible item or entity
2. Service - Help or assistance
3. Shared resource - Durable asset used by many
4. Subscription - Ongoing/recurring fee
5. Resale - Sell at a higher price
6. Lease - Acquire asset and exchange for a fee
7. Agency - Market/Sell asset you don’t own for a % fee
8. Audience aggregation - Get the attention of a group
9. Loan - Lend money
10. Option - Predefined action for a fixed period of time
11. Insurance - Remove Risk
12. Capital - Purchase an ownership stake

The more hassle a project or task involves, the more people are willing to pay for an easy solution.

Perceived Value

• Satisfy one or more of the prospects Core Human Drives
• Offer an attractive easy to visualise end result
• Command the highest hassle premium by removing end-users involvement as much as possible
• Satisfy the desire for social status - providing status signals

The more valuable a prospect believes your offer is the more likely they’ll buy and pay more for.

Most successful businesses offer value in multiple forms.

Two Primary values: Convenience and Fidelity.

Convenience: Quick, reliable, easy, flexible.

High Fidelity: Quality, status, aesthetics, appeal, emotional impact.

It’s increasingly difficult to optimise for both at the same time.

You must have a firm understanding of how people tend to think and behave.

Business schools don’t create wealthy and well-connected people. They accept them, then take the credit for their success.

Planning Fallacy - Persistent tendency to underestimate completion times.

Convergence: Tendency of groups to become more alike over time.

Incentive-Caused Bias: People with a vested interest in something will tend to guide you in the direction of their interests.

All you need to know is that something you want is possible and you’ll find a way to get it.

Guiding Structure: means the structure of your environment is the largest determinant of your behaviour. Don’t try to change the behaviour - change the structure that supports the behaviour.

Conflicts occur when two control systems try to change the same perception.

Pattern matching: The brain is busy trying to find patterns in what we perceive.

We don’t see things as they are, we see things as WE are.

A Process to Reinterpret Past Events:

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 alternate Interpretations of the memory
5. Realise that your original belief is Interpretation, not reality
6. Choose to reject the original belief as “false”
7. Choose to accept your Reinterpretation as “true”

Motivation: Two Basic Desires. Moving towards desirable things and away from things that aren’t.

In general, “moving away” takes priority over “moving towards.”

Motivation is an emotion, not a logical activity.

Your mind forms associations even between things that aren’t logically connected.

Absence Blindness: Cognitive bias prevents us from identifying what we can’t observe.

Contrast is often used to influence buying decisions.

Akrasia: Knowing or feeling that we should do something/an action that would be in our best interest.

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

Status Signals: Relative status is often tricky to precisely calculate so we rely on status signals.

Learning to recognise status-motivated behaviour - in yourself and others - will help you understand why people tend to act in certain predictable ways.

Loss aversion - explains why threats usually take precedence over opportunities when it comes to motivation.

Loss aversion also explains why uncertainty appears risky.

Dunbar's Number: 150 Beyond this limit we start treating people less like individuals and more like objects.

Priming is a way to influence your brain’s pattern-matching capabilities.

FIVE-FOLD-HOW - Is a way to connect your core desires to physical actions. How would you…

Connect the answers to the “next action”

The “ next action” is the next specific, concrete thing you can do right away to move the project forward.

Ingvar Rule - 1- minutes. What would you do if you only had 10 minutes to get something useful done?

Getting Into Flow: 1. Eliminate potential distractions and interruptions. Eliminate conflicts. 3. Kickstart the process with a “dash” pomodoro (Pomodoro is the 25-minute technique)

Only 4 Ways To Do Something

• Completion
• Deletion
• Delegation
• Deferment

Goals: For best results make sure your goal actions are within your Locus Of Control.

Locus of Control: Being able to separate what you can control (or strongly influence) from what you can’t.

Mystique

It’s easier to like the idea of…

It’s harder to like the fact that…

Example: It’s easier to like the idea of being self-employed.

It’s harder to like the fact that 100% of your income comes from your own effort and that if you screw up there will be consequences.

The more attachment you feel to a particular idea or plan, the more you limit your flexibility and reduce your chances of finding a better solution.

Pricing Power: The ability to increase price over time.

When you compromise, you become a commodity and then you die.

Opportunity cost is the value you give up by making a decision.

Once you understand that people act to control their perceptions, you’ll be better equipped to influence how they act.

A truth of human nature; People are lazy. Being lazy is not a feature, it's a bug.

Every business must capture some percentage of the value it creates in the form of revenue as profit.

Two dominant philosophies behind Value Capture: Maximization and Minimization

4 Methods To Increase Revenue

1. Increase the # of customers
2. Increase the average size of the transaction
3. Increase the frequency of transactions
4. Raise your prices

Value Stream; Set of all steps and processes from start to finish of the delivery of the end result to your customer.

Expectation Effect: A customer's perception of quality relies on two subjective criteria; expectations and performance.

Quality = Performance - expectations.

3 Primary factors that influence Predictability:

• Uniformity - same characteristics every time
• Consistency - same value over time
• Reliability - count on delivery

Don’t focus on competing - focus on delivering even more value.

David A Garvin - 8 Factors to define, measure and improve quality:

1. Performance
2. Features
3. Reliability
4. Conformance
5. Durability
6. Serviceability
7. Aesthetics
8. Perception

Quality Signals: Designed to increase perception in a direct way.

Throughput: The rate at which a system achieves its desired goal. A measure of effectiveness of your value stream

Duplication; The ability to reproduce something of value.

Amplification: Small changes to a scalable system for huge results.

Critical Assumptions are facts or characteristics that must be true in the real world for your business offering to be successful.

Shadow Testing: The process of selling an offering before it exists.

Incremental augmentation: Pick 3 key attributes or features and get these very, very right - and then forget about everything else.

Marketing is about getting noticed. Sales is about closing the deal.

Value Creation: How much help would your probable purchaser find useful?

Intermediation: Useful in complex situations where the purchaser benefits from guidance and help from experts - usually when there are a lot of options or complex negotiations.

The iteration cycle is a process you can use to make anything better over time.

Work your way through each iteration cycle as fast as possible.

A successful business is either loved or needed.

Gall’s Law: A complex system that works is invariably found to have evolved from a simple system that worked.

Complex systems are full of variables and interdependencies that must be arranged just right in order to function.

The performance of a system is always limited by the availability of critical inputs. Alleviate the constraint and the system performance will improve.

Constraints: 5 Focusing Steps

1. Identification - Find the limiting factor
2. Exploration - Resources related to the constraint aren’t wasted
3. Subordination - Redesign the system to support the constraint
4. Elevation - Permanently increase the capacity of the constraint.
5. Reevaluation - After changes - see where the constraint is located.

Feedback loops exist whenever the output of a system becomes one of the inputs in the next cycle.

Changing some aspect of a complex system always introduces “Second Order Effects”

Creating diagrams and flowcharts can help understand how each inflow, process, trigger, conditional, endpoint, and outflows come together.

Entropy:  The natural tendency for complex systems to degrade over time. The environment the system operates within changes over time.

Change: The only thing you can do is increase your flexibility to handle a wide variety of different circumstances.

Modal Bias: In the absence of data, you’ll be forced to do things the boss’s way.

HiPPO: Highest Paid Person's Opinion

Malinvestment: A form of tuition; it’s the price we pay to learn about a topic or area of interest.