Scan barcode
gianouts's review against another edition
informative
medium-paced
3.0
There is lots of good information in the book that is very digestible (and I took lots of notes), but I found I did skim large portions.
hlwilkins's review
5.0
I read a lot of books and I have worked in a corporate business for over 15 years, so when I read this - I realized I knew and/or practiced most of it already! Is this what people pay for MBAs for? Josh is completely correct that you can get the same knowledge from reading and real-life experience. A fancy MBA certificate just costs money.
I never knew what was taught in an MBA, but the sections on behavioral economics and human psychology surprised me with their inclusion- I find this sort of stuff fascinating no matter how many times I read about it. I work in a sales and marketing job so I skimmed a lot of these sections. There were also a bunch of other sections on systems that I personally didn't find useful. Finance is something I know I should learn more about and this has pointed me in the right direction for further reading.
Very easy to read, and dip in and out of, and highlighted in my kindle a lot of stuff I'll return to for further reading. The random words in bold caps got a bit annoying - I know he was trying to highlight key terminology but sometimes it was a bit excessive.
I never knew what was taught in an MBA, but the sections on behavioral economics and human psychology surprised me with their inclusion- I find this sort of stuff fascinating no matter how many times I read about it. I work in a sales and marketing job so I skimmed a lot of these sections. There were also a bunch of other sections on systems that I personally didn't find useful. Finance is something I know I should learn more about and this has pointed me in the right direction for further reading.
Very easy to read, and dip in and out of, and highlighted in my kindle a lot of stuff I'll return to for further reading. The random words in bold caps got a bit annoying - I know he was trying to highlight key terminology but sometimes it was a bit excessive.
vstollen's review against another edition
informative
lighthearted
fast-paced
3.0
The book covers a broad range of topics including things I would classify as soft skills. However, for the topics it touches, it only touches the surface and stays shallow.
Given the title, I expected a more formal introduction to business including "boring" theoretical topics, as well as more concrete pointers on how to learn more about businesses. Both of this was not satisfied by the book.
Given the title, I expected a more formal introduction to business including "boring" theoretical topics, as well as more concrete pointers on how to learn more about businesses. Both of this was not satisfied by the book.
illymally's review against another edition
5.0
Exactly the business 101 I was looking for. It's like an easy to read, well organized and sequenced encyclopedia. It was as helpful for me to realize what I already know and do, and put a name to those things, as it was to learn new concepts and incorporate them immediately to my work.
architr's review against another edition
3.0
The title is a misnomer; it does not teach business concepts. Rather, it's an aggregation of various mental models. Nevertheless, a good starting point. This will have to be supplemented with other books specialising in various domains such as Strategy/ Marketing.
### Chapter 1 - WHY READ THIS BOOK?
The amount of business information being published every day is staggering. As of this writing, the Library of Congress has approximately 1.2 million business-related books in its general collection. Assuming you read at an average speed of 250 words per minute and an average book contains 60,000 words, it would take 528 years of around-the-clock reading to finish the entire collection, 822 years if you allowed yourself the luxury of food and sleep.
According to Bowker, the company responsible for assigning ISBN numbers for the publishing industry, over 11,000 new business books are published worldwide each year, adding to the millions of business books printed since the early 1900s. Amazon.com carries over 630,000 business-related titles, not counting audiobooks, e-books, or materials that are published without an ISBN.
Of course, books aren’t the only source of business information available. Take magazines and newspapers, for example: 527 major business-related periodicals are currently tracked by the Wilson Business Periodicals Index. Every year, the WBPI adds over 96,000 records to its database of 1.6 million entries. That figure doesn’t include blogs: according to Google Blog Search, there are currently over 110 million business-related blog posts on the Internet—a figure that is growing daily. There’s certainly no shortage of business writers in the blog world: the blog search engine Technorati has indexed over 4 million bloggers who write about business-related topics.
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.
Take away any of these things—value creation, customer demand, transactions, value delivery, or profit sufficiency—and you have something other than a business. Each factor is both essential and universal.
As I deconstructed each of those factors, I found additional universal requirements. Value can’t be created without understanding what people want (market research). Attracting customers first requires getting their attention, then making them interested (marketing). In order to close a sale, people must first trust your ability to deliver on what’s promised (value delivery and operations). Customer satisfaction depends on reliably exceeding the customer’s expectations (customer service). Profit sufficiency requires bringing in more money than is spent (finance).
Every business fundamentally relies on two additional factors: people and systems. Every business is created by people and survives by benefiting other people in some way. To understand how businesses work, you must have a firm understanding of how people tend to think and behave—how humans make decisions, act on those decisions, and communicate with others. Recent advances in psychology and neuroscience are revealing why people do the things they do, as well as how to improve our own behavior and work more effectively with others.
Systems, on the other hand, are the invisible structures that hold every business together. At the core, every business is a collection of processes that can be reliably repeated to produce a particular result. By understanding the essentials of how complex systems work, it’s possible to find ways to improve existing systems, whether you’re dealing with a marketing campaign or an automotive assembly line.
In “The End of Business Schools? Less Success Than Meets the Eye,” a study published in Academy of Management Learning & Education, 12 Jeffrey Pfeffer of Stanford University and Christina Fong of the University of Washington analyzed forty years of data in an effort to find evidence that business schools make their graduates more successful. Their hypothesis was remarkably straightforward:
If an MBA education is useful training for business, then the following should be true as a matter of logic: (1) having an MBA degree should, other things being equal, be related to various measures of career success and attainment, such as salary; and (2) if what someone learns in business school helps that person be better prepared for the business world and more competent in that domain—in other words, if business schools convey professionally useful knowledge—then a measure of how much one has learned or mastered the material, such as grades in course work, should be at least somewhat predictive of various outcomes that index success in business.
What Pfeffer and Fong found was astonishing and disturbing: business schools do almost nothing, aside from making money disappear from students’ pockets:
Business schools are not very effective: Neither possessing an MBA degree nor grades earned in courses correlate with career success, results that question the effectiveness of schools in preparing their students. And, there is little evidence that business school research is influential on management practice, calling into question the professional relevance of management scholarship.
The disconnect between the classroom and the working world makes sense when you realize that the concepts, principles, and techniques most business schools teach were designed for a very different world. Graduate schools of business started popping up at the end of the nineteenth century during the Industrial Revolution. The intent of early MBA programs was to train managers to be more scientific in an effort to make large operations more efficient.
Frederick Winslow Taylor, the pioneer of “scientific management” techniques that now form the foundation of modern management training, used a stopwatch to shave a few seconds off the average time a workman took to load iron ingots into a train car. That should give you a good idea of the underlying mind-set of most business school management programs.
Management was thought of mostly as an exercise in getting people to work faster and do exactly what they’re told. The philosopher kings behind what passed for management psychology were Ivan Pavlov and, later on, B. F. Skinner, who believed that if you discovered and applied just the right stimulus, people would behave however you wanted. This mentality led to the widespread use of financial incentives to influence behavior: salary, bonuses, stock options, and so on, in an effort to encourage business professionals and managers to act in the best interest of corporate shareholders.
The introduction of statistics to financial practice simultaneously enhanced analytical capability at the cost of abstraction, increasing opportunities to fudge the numbers without anyone noticing. Over time, managers and executives began using statistics and analysis to forecast the future, relying on databases and spreadsheets in much the same way ancient seers relied on tea leaves and goat entrails. The world itself is no less unpredictable or uncertain: as in the olden days, the signs only “prove” the biases and desires of the soothsayer.
The complexity of financial transactions and the statistical models those transactions relied upon continued to grow until few practitioners fully understood how they worked or respected their limits. As Wired revealed in a February 2009 article, “Recipe for Disaster: The Formula That Killed Wall Street,” the inherent limitations of deified financial formulas such as the Black-Scholes option pricing model, the Gaussian copula function, and the capital asset pricing model (CAPM) played a major role in the tech bubble of 2000 and the housing market and derivatives shenanigans behind the 2008 recession.
In “Upper Mismanagement,” journalist Noam Scheiber explores the reason behind the downfall of American industry:
Since 1965, the percentage of graduates of highly ranked business schools who go 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 a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost
Meanwhile, the widespread practice of using large amounts of debt as leverage16 created enormous companies with even more enormous obligations, amplifying returns in good years but making the firms catastrophically unstable during the slightest downturn. The “leveraged buyout” strategy taught in many business school classrooms—buying a company, financing massive expansion via debt, then selling the business to another company at a premium17—turned formerly self-sustaining companies into debt-bloated monstrosities, and the constant flipping of businesses from one temporary owner to the next turned financial markets into a game of musical chairs.
When financial wizardry and short-term returns trump prudence and long-term value creation, customers and employees suffer. The only people who benefit are the MBA-trained executive-level financiers and fund managers, who extract hundreds of millions of dollars in transaction fees and salaries while destroying previously viable companies, hundreds of thousands of jobs, and billions of dollars of value.
Business is about creating and delivering value to paying customers, not orchestrating legal fraud. Unfortunately for us all, business schools have de-emphasized the former in favor of teaching the latter.
The world is constantly changing, but business schools aren’t changing with it. With the advent of the Internet and the widespread availability of new technologies, successful modern businesses tend to be smaller, require less capital to build, have less overhead, and require fewer employees. 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 (GDP).18 You wouldn’t know that from looking at b-school curricula: based on current standards, it seems that most MBA programs believe huge businesses are the only ventures worth managing.
Mass-market advertising is no longer able to reliably convert pennies to dollars. Inventories (if they exist at all) tend to be smaller, businesses depend on others for critical functions, and markets change and adapt extremely quickly. Speed, flexibility, and ingenuity are the qualities that successful businesses rely on today—qualities that the corporate giants of the past few decades struggle to acquire and retain, and business school classrooms struggle to teach.
The demands of the public market push executives to chase short-term earnings at the expense of long-term stability, creating waves of layoffs and severe budget cuts when times get tight or unexpected events occur. At the same time, more and more employees are looking for a greater sense of autonomy, flexibility, and security from their work—and they’re finding these things outside of the confines of the traditional corporate job. How do you manage someone who doesn’t really want to work for you in the first place?
If you’re more interested in working for yourself or holding down an enjoyable job while having a life, getting an MBA is a waste of time and money. As Dr. Pfeffer says, “If you are good enough to get in, you obviously have enough talent to do well, regardless.”
Let’s say you go ahead and get your MBA. If you’re “lucky,” you may be hired by a big financial services or consulting firm, where you’ll have the privilege of working eighty-plus hours a week for around $100,000 a year. The money is certainly good, but you’ll have a hard time maintaining any sort of life outside of work, and the pressure will be intense and relentless. Even if you don’t like your job, you’d better keep pushing if you want to pay your tuition bills and make your investment “worth it.”
Congratulations: you’ve used your intelligence and drive to condemn yourself to the life of an indentured servant.
If you do a good job, you’ll become an executive, get a raise, and have the privilege of working one hundred-plus hours a week. You’d better not mind enjoying the fruits of your labor alone: top executives consistently have the highest rates of divorce and family relationship issues. As the saying goes: you can have anything you want, as long as you’re willing to pay the price.
If you’re not so “fortunate,” you’ll find a job that pays little more than what you’d be able to command without your MBA. Worse yet, graduating into an iffy job market means that you may graduate with a thousand-dollar-a-month loan payment without a job to foot the bill.
An unforgiving job market won’t make student loan payments go away—in the United States, student loan debt cannot be forgiven, even if you declare bankruptcy. Regardless of how your life works out, your student loans will always be there, and your phone will ring with the calls of debt collectors until they’re repaid.
Deep Finance and Accounting. Learning how to manage money is a very important topic that we’ll discuss in chapter 6, but the ins and outs of managerial accounting and financial analysis are beyond the scope of this book. If you’re interested in exploring these subjects in more detail after learning the fundamentals, I highly recommend Accounting Made Simple by Mike Piper, Essentials of Accounting by Robert N. Anthony and Leslie K. Breitner, The McGraw-Hill 36-Hour Course in Finance for Nonfinancial Managers by Robert Cooke, and How to Read a Financial Report by John A. Tracy.
Quantitative Analysis. Likewise, reading this book won’t help you become a high-flying spreadsheet jockey. Statistics and quantitative analysis are very useful skills when used appropriately, but the analytical techniques themselves are very situational and beyond the scope of this book. If you’re interested in quantitative analysis, I recommend starting with Principles of Statistics by M. G. Bulmer and Turning Numbers into Knowledge by Jonathan G. Koomey.
### Chapter 2 - VALUE CREATION
Roughly defined, a business is a repeatable process that:
1. Creates and delivers something of value . . .
2. That other people want or need . . .
3. At a price they’re willing to pay . . .
4. In a way that satisfies the customer’s needs and expectations . . .
5. So that the business brings in enough profit to make it worthwhile for the owners to continue operation.
It doesn’t matter if you’re running a solo venture or a billion-dollar brand. Take any one of these five factors away, and you don’t have a business—you have something else. A venture that doesn’t create value for others is a hobby. A venture that doesn’t attract attention is a flop. A venture that doesn’t sell the value it creates is a nonprofit. A venture that doesn’t deliver what it promises is a scam. A venture that doesn’t bring in enough money to keep operating will inevitably close.
At the core, every business is fundamentally a collection of five Interdependent (discussed later) processes, each of which flows into the next:
1. Value Creation. Discovering what people need or want, then creating it.
2. Marketing. Attracting attention and building demand for what you’ve created.
3. Sales. Turning prospective customers into paying customers.
4. Value Delivery. Giving your customers what you’ve promised and ensuring that they’re satisfied.
5. Finance. Bringing in enough money to keep going and make your effort worthwhile.
The 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, VENTURE CAPITALIST AND FOUNDER OF NETSCAPE AND NING.COM
Every business is fundamentally limited by the size and quality of the market it attempts to serve. The Iron Law of the Market is cold, hard, and unforgiving: if you don’t have a large group of people who really want what you have to offer, your chances of building a viable business are very slim.
The best approach is to focus on making things people want to buy. Creating something no one wants is a waste. Market research is the business equivalent of “look before you leap.” Books like The New Business Road Test by John Mullins can help you identify promising markets from the outset, increasing the probability that your new venture will be a success.
According to Harvard Business School professors Paul Lawrence and Nitin Nohria, the authors of Driven: How Human Nature Shapes Our Choices, all human beings have four Core Human Drives that have a profound influence on our decisions and actions:
1. The Drive to Acquire. The desire to obtain or collect physical objects, as well as immaterial qualities like status, power, and influence. Businesses built on the drive to acquire include retailers, investment brokerages, and political consulting companies. Companies that promise to make us wealthy, famous, influential, or powerful connect to this drive.
2. The Drive to Bond. The desire to feel valued and loved by forming relationships with others, either platonic or romantic. Businesses built on the drive to bond include restaurants, conferences, and dating services. Companies that promise to make us attractive, well liked, or highly regarded connect to this drive.
3. The Drive to Learn. The desire to satisfy our curiosity. Businesses built on the drive to learn include academic programs, book publishers, and training workshops. Companies that promise to make us more knowledgeable or competent connect to this drive.
4. The Drive to Defend. The desire to protect ourselves, our loved ones, and our property. Businesses built on the drive to defend include home alarm systems, insurance products, martial arts training, and legal services. Companies that promise to keep us safe, eliminate a problem, or prevent bad things from happening connect to this drive.
### Chapter 1 - WHY READ THIS BOOK?
The amount of business information being published every day is staggering. As of this writing, the Library of Congress has approximately 1.2 million business-related books in its general collection. Assuming you read at an average speed of 250 words per minute and an average book contains 60,000 words, it would take 528 years of around-the-clock reading to finish the entire collection, 822 years if you allowed yourself the luxury of food and sleep.
According to Bowker, the company responsible for assigning ISBN numbers for the publishing industry, over 11,000 new business books are published worldwide each year, adding to the millions of business books printed since the early 1900s. Amazon.com carries over 630,000 business-related titles, not counting audiobooks, e-books, or materials that are published without an ISBN.
Of course, books aren’t the only source of business information available. Take magazines and newspapers, for example: 527 major business-related periodicals are currently tracked by the Wilson Business Periodicals Index. Every year, the WBPI adds over 96,000 records to its database of 1.6 million entries. That figure doesn’t include blogs: according to Google Blog Search, there are currently over 110 million business-related blog posts on the Internet—a figure that is growing daily. There’s certainly no shortage of business writers in the blog world: the blog search engine Technorati has indexed over 4 million bloggers who write about business-related topics.
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.
Take away any of these things—value creation, customer demand, transactions, value delivery, or profit sufficiency—and you have something other than a business. Each factor is both essential and universal.
As I deconstructed each of those factors, I found additional universal requirements. Value can’t be created without understanding what people want (market research). Attracting customers first requires getting their attention, then making them interested (marketing). In order to close a sale, people must first trust your ability to deliver on what’s promised (value delivery and operations). Customer satisfaction depends on reliably exceeding the customer’s expectations (customer service). Profit sufficiency requires bringing in more money than is spent (finance).
Every business fundamentally relies on two additional factors: people and systems. Every business is created by people and survives by benefiting other people in some way. To understand how businesses work, you must have a firm understanding of how people tend to think and behave—how humans make decisions, act on those decisions, and communicate with others. Recent advances in psychology and neuroscience are revealing why people do the things they do, as well as how to improve our own behavior and work more effectively with others.
Systems, on the other hand, are the invisible structures that hold every business together. At the core, every business is a collection of processes that can be reliably repeated to produce a particular result. By understanding the essentials of how complex systems work, it’s possible to find ways to improve existing systems, whether you’re dealing with a marketing campaign or an automotive assembly line.
In “The End of Business Schools? Less Success Than Meets the Eye,” a study published in Academy of Management Learning & Education, 12 Jeffrey Pfeffer of Stanford University and Christina Fong of the University of Washington analyzed forty years of data in an effort to find evidence that business schools make their graduates more successful. Their hypothesis was remarkably straightforward:
If an MBA education is useful training for business, then the following should be true as a matter of logic: (1) having an MBA degree should, other things being equal, be related to various measures of career success and attainment, such as salary; and (2) if what someone learns in business school helps that person be better prepared for the business world and more competent in that domain—in other words, if business schools convey professionally useful knowledge—then a measure of how much one has learned or mastered the material, such as grades in course work, should be at least somewhat predictive of various outcomes that index success in business.
What Pfeffer and Fong found was astonishing and disturbing: business schools do almost nothing, aside from making money disappear from students’ pockets:
Business schools are not very effective: Neither possessing an MBA degree nor grades earned in courses correlate with career success, results that question the effectiveness of schools in preparing their students. And, there is little evidence that business school research is influential on management practice, calling into question the professional relevance of management scholarship.
The disconnect between the classroom and the working world makes sense when you realize that the concepts, principles, and techniques most business schools teach were designed for a very different world. Graduate schools of business started popping up at the end of the nineteenth century during the Industrial Revolution. The intent of early MBA programs was to train managers to be more scientific in an effort to make large operations more efficient.
Frederick Winslow Taylor, the pioneer of “scientific management” techniques that now form the foundation of modern management training, used a stopwatch to shave a few seconds off the average time a workman took to load iron ingots into a train car. That should give you a good idea of the underlying mind-set of most business school management programs.
Management was thought of mostly as an exercise in getting people to work faster and do exactly what they’re told. The philosopher kings behind what passed for management psychology were Ivan Pavlov and, later on, B. F. Skinner, who believed that if you discovered and applied just the right stimulus, people would behave however you wanted. This mentality led to the widespread use of financial incentives to influence behavior: salary, bonuses, stock options, and so on, in an effort to encourage business professionals and managers to act in the best interest of corporate shareholders.
The introduction of statistics to financial practice simultaneously enhanced analytical capability at the cost of abstraction, increasing opportunities to fudge the numbers without anyone noticing. Over time, managers and executives began using statistics and analysis to forecast the future, relying on databases and spreadsheets in much the same way ancient seers relied on tea leaves and goat entrails. The world itself is no less unpredictable or uncertain: as in the olden days, the signs only “prove” the biases and desires of the soothsayer.
The complexity of financial transactions and the statistical models those transactions relied upon continued to grow until few practitioners fully understood how they worked or respected their limits. As Wired revealed in a February 2009 article, “Recipe for Disaster: The Formula That Killed Wall Street,” the inherent limitations of deified financial formulas such as the Black-Scholes option pricing model, the Gaussian copula function, and the capital asset pricing model (CAPM) played a major role in the tech bubble of 2000 and the housing market and derivatives shenanigans behind the 2008 recession.
In “Upper Mismanagement,” journalist Noam Scheiber explores the reason behind the downfall of American industry:
Since 1965, the percentage of graduates of highly ranked business schools who go 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 a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost
Meanwhile, the widespread practice of using large amounts of debt as leverage16 created enormous companies with even more enormous obligations, amplifying returns in good years but making the firms catastrophically unstable during the slightest downturn. The “leveraged buyout” strategy taught in many business school classrooms—buying a company, financing massive expansion via debt, then selling the business to another company at a premium17—turned formerly self-sustaining companies into debt-bloated monstrosities, and the constant flipping of businesses from one temporary owner to the next turned financial markets into a game of musical chairs.
When financial wizardry and short-term returns trump prudence and long-term value creation, customers and employees suffer. The only people who benefit are the MBA-trained executive-level financiers and fund managers, who extract hundreds of millions of dollars in transaction fees and salaries while destroying previously viable companies, hundreds of thousands of jobs, and billions of dollars of value.
Business is about creating and delivering value to paying customers, not orchestrating legal fraud. Unfortunately for us all, business schools have de-emphasized the former in favor of teaching the latter.
The world is constantly changing, but business schools aren’t changing with it. With the advent of the Internet and the widespread availability of new technologies, successful modern businesses tend to be smaller, require less capital to build, have less overhead, and require fewer employees. 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 (GDP).18 You wouldn’t know that from looking at b-school curricula: based on current standards, it seems that most MBA programs believe huge businesses are the only ventures worth managing.
Mass-market advertising is no longer able to reliably convert pennies to dollars. Inventories (if they exist at all) tend to be smaller, businesses depend on others for critical functions, and markets change and adapt extremely quickly. Speed, flexibility, and ingenuity are the qualities that successful businesses rely on today—qualities that the corporate giants of the past few decades struggle to acquire and retain, and business school classrooms struggle to teach.
The demands of the public market push executives to chase short-term earnings at the expense of long-term stability, creating waves of layoffs and severe budget cuts when times get tight or unexpected events occur. At the same time, more and more employees are looking for a greater sense of autonomy, flexibility, and security from their work—and they’re finding these things outside of the confines of the traditional corporate job. How do you manage someone who doesn’t really want to work for you in the first place?
If you’re more interested in working for yourself or holding down an enjoyable job while having a life, getting an MBA is a waste of time and money. As Dr. Pfeffer says, “If you are good enough to get in, you obviously have enough talent to do well, regardless.”
Let’s say you go ahead and get your MBA. If you’re “lucky,” you may be hired by a big financial services or consulting firm, where you’ll have the privilege of working eighty-plus hours a week for around $100,000 a year. The money is certainly good, but you’ll have a hard time maintaining any sort of life outside of work, and the pressure will be intense and relentless. Even if you don’t like your job, you’d better keep pushing if you want to pay your tuition bills and make your investment “worth it.”
Congratulations: you’ve used your intelligence and drive to condemn yourself to the life of an indentured servant.
If you do a good job, you’ll become an executive, get a raise, and have the privilege of working one hundred-plus hours a week. You’d better not mind enjoying the fruits of your labor alone: top executives consistently have the highest rates of divorce and family relationship issues. As the saying goes: you can have anything you want, as long as you’re willing to pay the price.
If you’re not so “fortunate,” you’ll find a job that pays little more than what you’d be able to command without your MBA. Worse yet, graduating into an iffy job market means that you may graduate with a thousand-dollar-a-month loan payment without a job to foot the bill.
An unforgiving job market won’t make student loan payments go away—in the United States, student loan debt cannot be forgiven, even if you declare bankruptcy. Regardless of how your life works out, your student loans will always be there, and your phone will ring with the calls of debt collectors until they’re repaid.
Deep Finance and Accounting. Learning how to manage money is a very important topic that we’ll discuss in chapter 6, but the ins and outs of managerial accounting and financial analysis are beyond the scope of this book. If you’re interested in exploring these subjects in more detail after learning the fundamentals, I highly recommend Accounting Made Simple by Mike Piper, Essentials of Accounting by Robert N. Anthony and Leslie K. Breitner, The McGraw-Hill 36-Hour Course in Finance for Nonfinancial Managers by Robert Cooke, and How to Read a Financial Report by John A. Tracy.
Quantitative Analysis. Likewise, reading this book won’t help you become a high-flying spreadsheet jockey. Statistics and quantitative analysis are very useful skills when used appropriately, but the analytical techniques themselves are very situational and beyond the scope of this book. If you’re interested in quantitative analysis, I recommend starting with Principles of Statistics by M. G. Bulmer and Turning Numbers into Knowledge by Jonathan G. Koomey.
### Chapter 2 - VALUE CREATION
Roughly defined, a business is a repeatable process that:
1. Creates and delivers something of value . . .
2. That other people want or need . . .
3. At a price they’re willing to pay . . .
4. In a way that satisfies the customer’s needs and expectations . . .
5. So that the business brings in enough profit to make it worthwhile for the owners to continue operation.
It doesn’t matter if you’re running a solo venture or a billion-dollar brand. Take any one of these five factors away, and you don’t have a business—you have something else. A venture that doesn’t create value for others is a hobby. A venture that doesn’t attract attention is a flop. A venture that doesn’t sell the value it creates is a nonprofit. A venture that doesn’t deliver what it promises is a scam. A venture that doesn’t bring in enough money to keep operating will inevitably close.
At the core, every business is fundamentally a collection of five Interdependent (discussed later) processes, each of which flows into the next:
1. Value Creation. Discovering what people need or want, then creating it.
2. Marketing. Attracting attention and building demand for what you’ve created.
3. Sales. Turning prospective customers into paying customers.
4. Value Delivery. Giving your customers what you’ve promised and ensuring that they’re satisfied.
5. Finance. Bringing in enough money to keep going and make your effort worthwhile.
The 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, VENTURE CAPITALIST AND FOUNDER OF NETSCAPE AND NING.COM
Every business is fundamentally limited by the size and quality of the market it attempts to serve. The Iron Law of the Market is cold, hard, and unforgiving: if you don’t have a large group of people who really want what you have to offer, your chances of building a viable business are very slim.
The best approach is to focus on making things people want to buy. Creating something no one wants is a waste. Market research is the business equivalent of “look before you leap.” Books like The New Business Road Test by John Mullins can help you identify promising markets from the outset, increasing the probability that your new venture will be a success.
According to Harvard Business School professors Paul Lawrence and Nitin Nohria, the authors of Driven: How Human Nature Shapes Our Choices, all human beings have four Core Human Drives that have a profound influence on our decisions and actions:
1. The Drive to Acquire. The desire to obtain or collect physical objects, as well as immaterial qualities like status, power, and influence. Businesses built on the drive to acquire include retailers, investment brokerages, and political consulting companies. Companies that promise to make us wealthy, famous, influential, or powerful connect to this drive.
2. The Drive to Bond. The desire to feel valued and loved by forming relationships with others, either platonic or romantic. Businesses built on the drive to bond include restaurants, conferences, and dating services. Companies that promise to make us attractive, well liked, or highly regarded connect to this drive.
3. The Drive to Learn. The desire to satisfy our curiosity. Businesses built on the drive to learn include academic programs, book publishers, and training workshops. Companies that promise to make us more knowledgeable or competent connect to this drive.
4. The Drive to Defend. The desire to protect ourselves, our loved ones, and our property. Businesses built on the drive to defend include home alarm systems, insurance products, martial arts training, and legal services. Companies that promise to keep us safe, eliminate a problem, or prevent bad things from happening connect to this drive.