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A review by hammo
The Personal MBA: Master the Art of Business by Josh Kaufman
4.0
Profit margin = percentage of sale price which is profit
Markup = percentage increase in price from purchase to sale
There are two philosophies for value capture: minimization and maximization
Point of succiciency can be target monthly revenue (TMR).
The hierarchy of funding is a useful reference.
ERG Theory is a variant of Maslow’s Hierarchy: existence, relatedness, growth. First people make sure they can sustain their existence, then that they can maintain relations with other people, then that you can grow into the person you want to be.
Core human drives:
- Drive to acquire (things or status; retail)
- Drive to bond (restaurants, dating services)
- Drive to learn (education)
- Drive to defend (insurance, martial arts)
- Drive to feel (movies)
Twelve standard forms of value:
1. Product
2. Service
3. Shared resource (which you charge for access to)
4. Subscription
5. Resale
6. Lease
7. Agency (market or sell an asset you don’t own on behalf of another entity)
8. Audience aggregation (get the attention of a group then sell it)
9. Loan
10. Option (sell the ability to take an action)
11. Insurance
12. Capital
One kind of business is intermediation: acting as a middleman between entities who can exchange value. Another is disintermediation: removing an unnecessary middle man from an exchange.
The flaw of user testing: talk is cheap, so users will say that all benefits are very important but that it’s important that the offer has every conceivable feature, and that it be free.
Relative importance testing is a technique for uncovering what’s _really_ important to consumers by presenting them with sets of four or five options and asking them which is most and least important.
Progressive Insurance will ask you a series of questions when you call them, and if they think you sound like a profitable customer to have they’ll give you a quote and encourage you to buy insurance from them. If you sound like a costly customer (or perhaps just not worth the opportunity cost) then they’ll tell you you can get a better price elsewhere and funnel you to competitors.
Point of market entry (or exit): when you get pregnant you enter the “baby” market.
Four pricing methods:
- Replacement cost: how much would it cost to replace the asset (eg, rebuild a house)
- Market comparison
- Discounted cash flow (or Net Present Value): how much money will this asset bring in
- Value comparison: how much is the sale actually worth to the target buyer
Kaufman describes a business he consulted that they quadruple their price. This turned away the bad customers and only left the polite customers who took the really valued the profit. Profit increased and staff were happier.
Often it’s better to commission an agent with a flat fee rather than a percentage commission. If they’re on a percentage commission, it’s in their best interest to make a sale as quickly as possible and move on. Whereas if the party is on commission, then they will want to maximise profit to improve their reputation.
To avoid option fatigue, offer two or three archetypical versions of the product, then allow staggered options to deviate from this archetype.
Risk reversal: when a customer buys something, they’re taking the risk that it’s a dud. You can reverse this risk by offering free returns. Some customers will take advantage of this, but you should still make more money with volume. As the seller, you’re dealing with many more transactions so can spread the cost of returns more thinly.
It’s expensive to acquire new customers. Instead, try to reactivate old customers.
Selling your product to shops is called securing distribution. This introduces counter-party risk. Eg, if the supermarket doesn’t handle your cookies well and they always get crushed, people will think your cookies are bad.
Apparently some electric cars play engine noises through the speakers as a quality signal. Similar with bubbles in dish detergent or soap from a sudsing agent.
At Toyota, everyone in the assembly line is encouraged to make tweak recommendations. This results in more than 1M improvements to the Toyota Production System every year.
Some companies like Amazon have a market cap 100x the most recent annual dividend, and some are below liquidation value of current assets.
Types of accounting:
- Cash accounting: Create cash flow statement. Money in minus money out. This is simple and transparent.
- Accural accounting: Create income statement (aka profit & loss statement, operating statement, earnings statement). Sales and expenses should be matched up on the same statement (called the “matching principle”). Accountants spend most of their time making judgement calls on how to match sales and expenses. Loss statement, income statement, earnings statement. If the benefits of some capital are realised over a long time, then its costs are amortised over its lifetime.
A balance sheet is a snap shot of the company’s net worth. Assets minus liabilities.
When crocs were at their peak they bought a factory in China to ramp up production. When they turned out to be a fad, they were left with lots of expensive and useless capital.
Internal controls are necessary to make sure everything is running correctly internally. Eg, no embezzlement or capital falling into a sinkhole in the middle of the factory. External auditors are useful for this as they are somewhat protected from internal conspiracy. Internal controls also let you compare yourself to your competition (such as via risk management association [RMA] data) to see how well you’re doing and where you could improve.
There are three kinds of reference levels:
- set-points, minimum or maximum, thermostat style
- ranges
- errors, set-points at zero
As well as the 24-circadian rhythm, there is also the 90 minute ultradian rhythm
Rule of thumb: don’t rule out getting something out of someone until the other party has explicitly told you “no”.
Modal bias is the inclination to over-believe one’s own opinions and under-believe others’ opinions.
In the absence of data, decisions are made by the Highest Paid Person’s Opinion (HiPPO)
“Adult business deal”: you never have to ask permission for adult activities like going to the dentist as long as you get your work done
Gall’s Law: all complicated systems have to be iteratively evolved from more simple systems, they cannot be created from first principles
A system with moving parts can be understood in terms of flows (stuff moving form one place to another) and stock (stuff stuck in one place)
Slack is the stock of resources
Any system is limited in its output by at least one constraint.
Increasing the slack in an input stock can alleviate a constraint. Eg, increasing the stock of engines at one point in a car assembly line.
Autocatalysis is a process which outputs catalysts for the process
Between 1850 and 1950, the Cuyahoga Ricer which runs through Cleveland Ohio kept catching fire due to industrial waste.
80% of the time when an element of an interface was visited by a cursor, it was also visited by eyes.
Automation increases the correlation between outputs. If a robot in a high speed assembly line goes rogue, then it can break components at superhuman speed, resulting in a black swan cost.
The paradox of automation: the more automation, the more crucial become the human operators.
Markup = percentage increase in price from purchase to sale
There are two philosophies for value capture: minimization and maximization
Point of succiciency can be target monthly revenue (TMR).
The hierarchy of funding is a useful reference.
ERG Theory is a variant of Maslow’s Hierarchy: existence, relatedness, growth. First people make sure they can sustain their existence, then that they can maintain relations with other people, then that you can grow into the person you want to be.
Core human drives:
- Drive to acquire (things or status; retail)
- Drive to bond (restaurants, dating services)
- Drive to learn (education)
- Drive to defend (insurance, martial arts)
- Drive to feel (movies)
Twelve standard forms of value:
1. Product
2. Service
3. Shared resource (which you charge for access to)
4. Subscription
5. Resale
6. Lease
7. Agency (market or sell an asset you don’t own on behalf of another entity)
8. Audience aggregation (get the attention of a group then sell it)
9. Loan
10. Option (sell the ability to take an action)
11. Insurance
12. Capital
One kind of business is intermediation: acting as a middleman between entities who can exchange value. Another is disintermediation: removing an unnecessary middle man from an exchange.
The flaw of user testing: talk is cheap, so users will say that all benefits are very important but that it’s important that the offer has every conceivable feature, and that it be free.
Relative importance testing is a technique for uncovering what’s _really_ important to consumers by presenting them with sets of four or five options and asking them which is most and least important.
Progressive Insurance will ask you a series of questions when you call them, and if they think you sound like a profitable customer to have they’ll give you a quote and encourage you to buy insurance from them. If you sound like a costly customer (or perhaps just not worth the opportunity cost) then they’ll tell you you can get a better price elsewhere and funnel you to competitors.
Point of market entry (or exit): when you get pregnant you enter the “baby” market.
Four pricing methods:
- Replacement cost: how much would it cost to replace the asset (eg, rebuild a house)
- Market comparison
- Discounted cash flow (or Net Present Value): how much money will this asset bring in
- Value comparison: how much is the sale actually worth to the target buyer
Kaufman describes a business he consulted that they quadruple their price. This turned away the bad customers and only left the polite customers who took the really valued the profit. Profit increased and staff were happier.
Often it’s better to commission an agent with a flat fee rather than a percentage commission. If they’re on a percentage commission, it’s in their best interest to make a sale as quickly as possible and move on. Whereas if the party is on commission, then they will want to maximise profit to improve their reputation.
To avoid option fatigue, offer two or three archetypical versions of the product, then allow staggered options to deviate from this archetype.
Risk reversal: when a customer buys something, they’re taking the risk that it’s a dud. You can reverse this risk by offering free returns. Some customers will take advantage of this, but you should still make more money with volume. As the seller, you’re dealing with many more transactions so can spread the cost of returns more thinly.
It’s expensive to acquire new customers. Instead, try to reactivate old customers.
Selling your product to shops is called securing distribution. This introduces counter-party risk. Eg, if the supermarket doesn’t handle your cookies well and they always get crushed, people will think your cookies are bad.
Apparently some electric cars play engine noises through the speakers as a quality signal. Similar with bubbles in dish detergent or soap from a sudsing agent.
At Toyota, everyone in the assembly line is encouraged to make tweak recommendations. This results in more than 1M improvements to the Toyota Production System every year.
Some companies like Amazon have a market cap 100x the most recent annual dividend, and some are below liquidation value of current assets.
Types of accounting:
- Cash accounting: Create cash flow statement. Money in minus money out. This is simple and transparent.
- Accural accounting: Create income statement (aka profit & loss statement, operating statement, earnings statement). Sales and expenses should be matched up on the same statement (called the “matching principle”). Accountants spend most of their time making judgement calls on how to match sales and expenses. Loss statement, income statement, earnings statement. If the benefits of some capital are realised over a long time, then its costs are amortised over its lifetime.
A balance sheet is a snap shot of the company’s net worth. Assets minus liabilities.
When crocs were at their peak they bought a factory in China to ramp up production. When they turned out to be a fad, they were left with lots of expensive and useless capital.
Internal controls are necessary to make sure everything is running correctly internally. Eg, no embezzlement or capital falling into a sinkhole in the middle of the factory. External auditors are useful for this as they are somewhat protected from internal conspiracy. Internal controls also let you compare yourself to your competition (such as via risk management association [RMA] data) to see how well you’re doing and where you could improve.
There are three kinds of reference levels:
- set-points, minimum or maximum, thermostat style
- ranges
- errors, set-points at zero
As well as the 24-circadian rhythm, there is also the 90 minute ultradian rhythm
Rule of thumb: don’t rule out getting something out of someone until the other party has explicitly told you “no”.
Modal bias is the inclination to over-believe one’s own opinions and under-believe others’ opinions.
In the absence of data, decisions are made by the Highest Paid Person’s Opinion (HiPPO)
“Adult business deal”: you never have to ask permission for adult activities like going to the dentist as long as you get your work done
Gall’s Law: all complicated systems have to be iteratively evolved from more simple systems, they cannot be created from first principles
A system with moving parts can be understood in terms of flows (stuff moving form one place to another) and stock (stuff stuck in one place)
Slack is the stock of resources
Any system is limited in its output by at least one constraint.
Increasing the slack in an input stock can alleviate a constraint. Eg, increasing the stock of engines at one point in a car assembly line.
Autocatalysis is a process which outputs catalysts for the process
Between 1850 and 1950, the Cuyahoga Ricer which runs through Cleveland Ohio kept catching fire due to industrial waste.
80% of the time when an element of an interface was visited by a cursor, it was also visited by eyes.
Automation increases the correlation between outputs. If a robot in a high speed assembly line goes rogue, then it can break components at superhuman speed, resulting in a black swan cost.
The paradox of automation: the more automation, the more crucial become the human operators.