Book notes: The Personal MBA

The Personal MBA by Josh Kaufman book summary.

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The Personal MBA by Josh Kaufman


Synopsis: “Getting an MBA is an expensive choice – one almost impossible to justify regardless of the state of the economy. Even the elite schools like Harvard and Wharton offer outdated, assembly-line programs that teach you more about PowerPoint presentations and unnecessary financial models than what it takes to run a real business. You can get better results (and save hundreds of thousands of dollars) by skipping business school altogether….

The Personal MBA distills the most valuable business lessons into simple, memorable mental models that can be applied to real-world challenges.

True leaders aren’t made by business schools – they make themselves, seeking out the knowledge, skills, and experience they need to succeed. Read this book and you will learn the principles it takes most business professionals a lifetime of trial and error to master.” -Audible

Opening thoughts:

To be honest, I was a bit hesitant about buying this book because it was 13.5 hours long and seemed like some sort of condensed version of business school. Several months back, I was contemplating whether or not I should get an MBA as a means to advance my own career, but decided I might as well see what’s out there in terms of cheaper alternatives that could expose me to what it might be like, or at least some of the concepts I might learn.

From many mentors and successful business people I’ve learned from, most say that business school is taught by people who only know the theory, but most of whom haven’t gone out and built a business themselves. Because of that, I’ve always been hesitant to go to business school. However, I figure it wouldn’t hurt to read a book about one person’s digestion of the main ideas he’s learned from his program.

Key notes:

  • You don’t need to know it all, you just need to understand a few critically important concepts that provide most of the value
  • Mental models are ways of describing how the world works, and education is all about correcting those mental models to be more accurate and help you make better decisions
  • “Business” definition: “Every successful business creates or provides something of value that other people want or need at a price they are willing to pay in a way that satisfies the purchaser’s needs or expectations and provides the business sufficient revenue to make it worthwhile for the owners to continue operation”
    • 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
  • Learning how to use complicated financial formulas isn’t the same as learning how to run a business
    • Understanding what businesses actually do to create and deliver value is essential knowledge, but many business programs have deemphasized value creation and operations in favor of finance and quantitative analysis
  • Speed, flexibility, and ingenuity are the qualities that successful businesses rely on today. Qualities that the corporate giants of the past few shut out to acquire and obtain, and the business school classrooms struggle to teach
  • The single benefit of business schools: The one single significant benefit that business schools do provide is better access to fortune 500 recruiters, consulting firms, large accounting firms, and investment banks via on-campus recruiting and alumni networks
  • If you are 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
    • If you are good enough to get in, you obviously have enough talent to do well regardless
  • The quickest and easiest way to screw up your life is to take on too much debt
  • Chapter 1: value creation
  • Every business is fundamentally a collection of five interdependent processes, each of which flows into the next
    1. Value creation
    2. Marketing: attracting attention building and demand
    3. Sales: turning prospective customers into paying
    4. Value delivery
    5. Finance
  • Any skill or knowledge that helps you create value, market, sell, deliver value, or manage finances is economically valuable
  • ERG Theory: similar to Maslow’s hierarchy of needs
    • Existence, Relatedness, Growth in that order
    • When people have what they need to survive, they move onto making friends and finding mates
    • When they are satisfied with their relationships, they focus on doing things they enjoy and improving their skills in things that interest them
  • 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
    2. The drive to Bond. The desire to feel loved and valued by forming relationships with others, either platonic or romantic
    3. The drive to Learn. The desire to satisfy our curiosity
    4. The drive to Defend. The desire to protect ourselves, Our loved ones, and our property
    5. (Extra) The drive to Feel. The desire for new sensory stimulus, intense emotional experiences, pleasure, excitement, entertainment, and anticipation
  • At the core, all successful businesses sell some combination of money, status, power, love, knowledge, protection, pleasure, and excitement
    • The more clearly you articulate how your product satisfies one or more of these drives, the more attractive your offer will become
  • 10 ways to evaluate a market:
    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 the purchaser would be willing to spend for a solution?
    4. The cost of customer acquisition. How easy is it to acquire a new customer?
    5. The cost of value delivery. How much would it cost to create and deliver the value offered, both in money and effort?
    6. The uniqueness of offer. How unique is your offer versus competing offers in the market? And how easy is it for potential competitors to copy?
    7. Speed to market. How quickly can you create something to sell?
    8. Upfront investment. How much will you have to invest before you are ready to sell?
    9. Upsell potential. Are there related secondary offers that you can 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?
  • You’re better off choosing the market with competition because it means from the start you know there is a market for paying customers for this idea, eliminating your biggest risk
    • The existence of a market proves you’re on the right side of the iron law of the market so you can spend more time developing your offer instead of proving a market exists
  • Don’t try and join a business just for the money because it will always take more effort to start in the beginning, and you will quit if you don’t find an aspect you enjoy
    • That being said, it’s worth investigating ventures that may initially look boring because you may find some aspect of the business that interests you and keeps you engaged
    • 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 mined
  • 12 standard forms of value:
    1. Product. Create a single tangible item or entity, Then sell or deliver it for less than the cost to make
    2. Service. Provide help or assistance, Then charge a fee for benefits rendered
    3. Shared resources. Create a durable asset that can be used by many people then charge for access
    4. Subscription. Offer a benefit on an ongoing basis, and charge a recurring fee
    5. Resale. Acquire an asset from a wholesaler, then sell that ass it to a retail buyer at a higher price
    6. Lease. Acquire an asset then allow another person to use that asset for a predetermined amount of time in exchange for a fee
    7. Agency. Market or sell an asset you don’t own on behalf of a third party, then collect a percentage of the transaction price as a fee
    8. Audience aggregation. Get the attention of a group of people with certain characteristics, then sell access in the form of advertising to another business looking to reach that audience
    9. Loan. Loan a certain amount of money, then collect payments for a predefined period of time equal to the original loan plus a predefined interest rate
    10. Option. Offer the ability to take a predefined action for a fixed period of time in exchange for a fee
    11. Insurance. Take on The risk of some specific bad thing happening to the policyholder in exchange for a predefined series of payments, then pay out claims only when the bad thing actually happens
    12. Capital. Purchase an ownership stake in a business then collect a corresponding portion of the profit as a one-time payout or ongoing dividend
  • Find a way to give people more flexibility, and you may discover a viable business model
  • Hassle premium: people are almost always willing to pay for things they believe are too much of a pain to take care of themselves. Where there’s a hassle, there’s a business opportunity
    • The more hassle you eliminate for your customers, the more you will collect in revenue
  • Perceived value: value is in the eyes of the beholder. This determines how much your customers are willing to pay for what you’re offering
  • The most valuable offers to do one or more of the following:
    1. Satisfy one or more of the prospects for core human drives
    2. Offer an attractive and easy to visualize and result.
    3. Command the highest hassle premium by reducing and user involvement as much as possible
    4. Satisfy the prospect’s status seeking tenancy by providing desirable social signals that help them look good in the eyes of other people
  • Bundling allows you to repurpose the value that you have already created to create even more value. This occurs when you combine multiple smaller offers into a single large offer
  • You don’t have to worry about other people stealing your idea
    • Ideas are cheap, what counts is the ability to translate that idea into reality, which is much more difficult than recognizing a good idea
  • Prototypes are great because they allow for a customer feedback on a tangible thing so you and others can see, evaluate, and improve
  • Iteration has six major steps:
    1. Watch
    2. Ideate
    3. Guess
    4. Which change to make
    5. Act
    6. Measure
  • The key is to make every iteration small, clear, and quick. Base every iteration on what you’ve learned from previous iterations as quickly as possible
  • Tips to maximize the value of the feedback you receive:
    1. Get feedback from real potential customers instead of from friends and family
    2. Ask open ended questions
    3. Steady yourself and keep calm
    4. Take what you hear with a grain of salt
    5. Give potential customers the opportunity to pre-order
  • Trade-offs: a trade-off is a decision that places a higher value on one of several competing options
  • 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
  • 9 common economic values that people typically consider when evaluating a potential purchase:
    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 to?
    4. Ease of use. How much effort does it require?
    5. Flexibility. How many different things does it do?
    6. Status. How does this affect the way others perceive me?
    7. Aesthetic appeal. How attractive 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?
  • Trade-Off by Kevin Maney discusses these common values in terms of two characteristics: Convenience and Fidelity
    • Things that are quick, reliable, easy, and flexible are convenient
    • Things that offer quality, status, aesthetic appeal, or emotional impact are high fidelity
  • As a rule, people never accept trade-offs unless they are forced to make a decision
    • If the perfect option existed, they buy it. Since there’s no such thing as perfect, people are happy to settle for the next best alternative
  • Critical assumptions are facts or characteristics that must be true in the real world for your business or offering to be successful
  • The best way to validate the truth of your critical assumptions is to test them directly
    • It’s much smarter to minimize your risk by testing your offering with real paying customers. Shadow testing is the process of selling an offering before it actually exists
  • A minimum viable offer is an offer that promises and or provides the smallest number of benefits necessary to produce an actual sale
  • Incremental augmentation is the process of using the iteration cycle to add new benefits to an existing offer
    • The intent is to make it a little bit better each time until it is the best it can be
    • Incremental augmentation helps you improve your offering while minimizing the risk that any single iteration will fail catastrophically
  • Using what you make every day is the best way to improve the quality of what you’re offering
    • Nothing will help you find ways to make your offer better than being its most avid and demanding customer
  • Chapter 2: Marketing
    • Marketing is the art and science of finding prospects, people who are actively interested in what you have to offer
    • The best businesses in the world find ways to attract the attention of qualified prospects quickly and inexpensively. The more prospects you enticed, the better off your business will be
  • Marketing and selling are not the same things. Marketing is about getting noticed, sales is about closing the deal
  • Rule number one of marketing is that your potential customers’ available attention is limited. To compensate, you filter your attention because of all the things trying to capture it
  • Obtain the attention from people who are likely to buy from you, and you will inevitably build your business
  • Receptivity is a measure of how open a person is to your message
  • If you design your offer to be remarkable, unique enough to peak your prospect’s curiosity, it’ll be significantly easier to attract attention
    • Great marketers focus on getting the attention of the right people at the right time
  • The best way to break a potential prospects preoccupation is to promote the feeling of curiosity, surprise, or concern
  • It always pays to assume your prospect begins in a state of preoccupation
    • Begin your marketing approach in a way that breaks their preoccupation and earns their attention
  • Marketing is most effective when it focuses on the desired end result, which is usually a distinctive experience or emotion related to a core human drive
  • Qualification is the process of determining whether or not a prospect is a good customer before they purchase from you
  • Point of market entry: If you can get a prospective customers attention as soon as they become interested in what you’re offering, you become the standard by which competing offers are evaluated
  • We only purchase what we already desire on some level
    • The essence of marketing is discovering what people already want then presenting your offer in a way that intersects with that existing desire
  • The most effective way to get people to want something is to encourage them to visualize what their life will be like once they’ve accepted your offer
    • The best way to do this is to expose them to as much sensory information as possible
  • Framing is the active emphasizing the details that are critically important while deemphasizing things that aren’t, either by minimizing certain facts or leaving them out entirely
  • More often than not, offering genuine, free value is a quick and effective way to attract attention
    • For best results, focus on giving away real free value that is likely to attract real paying customers
    • Ask for permission for future follow up
  • A hook is a single phrase or sentence that describes an offer’s primary benefit. Sometimes it’s a title and sometimes it’s a short tagline
  • Emphasize what is uniquely valuable about your offer and why the prospect should care
  • The most effective marketing messages give the recipient or prospect a single, very clear, very short action to take next. This is the call to action
  • Telling a story about people who have already walked the path your prospects are considering is a powerful way to make them interested in proceeding
    • Testimonials, case studies, and other stories are extremely effective in encouraging your prospects to accept your call to adventure
  • Controversy means epically taking a position that not everyone will agree with, approve of, or support
    • Used to constructively, controversy can be an effective way to attract attention
  • When businesses talk about branding, they are really talking about reputation
    • Reputation is what people generally think about a particular offer or company
  • The more your interests are aligned with your customers, The more they will trust your ability to give them what they want
  • Pricing uncertainty principle: all prices are arbitrary and malleable
    • Pricing is always an executive decision. However, you must be able to support your asking price be for a customer will actually accept it
  • 4 ways to support a price on something of value:
    1. Replacement cost
    2. Market comparison
    3. The discounted cash flow or net present value method
    4. Value comparison
  • You can use the other methods as a baseline, but focus on discovering how much your offer is worth to the party you hope to sell to, then set your price accordingly
  • Successful sales people focused on asking detailed questions to get to the root of what the prospect really wants
  • Education-based selling requires an upfront investment in your prospects, but it’s worth it
    • By investing energy in making your prospect smarter, you simultaneously build trust in your expertise and make them better customers
  • If you are the exclusive source of what your prospects want, you win
  • In every negotiation, there are 3 universal currencies:
    1. Resources
    2. Time
    3. Flexibility
  • It’s possible to gain more of any of these currencies by finding appropriate trade-offs between one or more of the others
  • The three dimensions of negotiation:
    1. Set up
    2. Structure
    3. The discussion
  • Persuasion resistance: The feeling that prospects are going to get the hard-sell or be tricked into agreeing on something that’s not in their best interest
  • Present yourself to the prospect as an assistant buyer, to help them make an informed decision about what’s best for them and help them to invest their resources wisely
  • Sending signals of desperation or chasing during any part of the sales process will reduce the number and size of the transaction
  • Being generous is one of the best things you can do to improve your results as a sales person
    • By giving away value and helping others as much as you can, they’ll respect you, it’ll build your reputation, and he will also increase the probability that they will be interested enough when you do present your call to action
  • Counterintuitively, making a damaging admission to your prospects can actually increase their trust in your ability to deliver on what you promised
  • Selling anything is largely the process of identifying and eliminating barriers to purchase, risks, unknowns, and concerns that prevent your prospects from buying what you offer
    • Five standard objections that appear in sales of all kinds:
      1. It costs too much
      2. It won’t work
      3. It won’t work for me
      4. I can wait
      5. It’s too difficult
  • Testimonials for social proof and referrals are powerful to overcome objections 2 and 3
  • Always try to negotiate directly with the decision-maker
    • That way when they refuse your offer, you know that it wasn’t a good fit for them and you can move onto more promising prospects as quickly as possible
  • Risk reversal is a strategy that transfers some if not all of the risk of a transaction from the buyer to the seller
  • Reactivation is the process of convincing past customers to buy from you again
    • Reactivation campaigns are consistently the easiest and most profitable marketing activities you’ll ever try
    • Make it a priority every 3 to 6 months to contact your lapsed customers with an offer to see if you can encourage them to start buying again
  • Chapter 4: Value Delivery
    • The value stream is a combination of the value creation and value delivery processes
    • Try to make your value stream as small and efficient as possible
    • The longer your process the greater the risk of something going wrong. The shorter and more streamlined your value stream, the easier it is to manage and the more effectively you’ll be able to deliver value
    • Intermediary distribution can increase sales, but it requires giving up a certain amount of control over your value delivery process
      • Trusting another party to deliver your offer to your customers frees up your time and energy, but it also increases counterparty risk
  • The expectation effect: Quality = performance – expectations
    • Expectations must be high for the customer to buy from you, but after the purchases made performance must exceed expectations
  • When purchasing something of value, customers want to know exactly what they can expect. They want their experience to be predictable
  • 3 primary factors that influence the predictability of an offer:
    1. Uniformity
    2. Consistency
    3. Reliability
  • Throughput is the rate at which a system achieves its desired goal
    • Throughput is a measure of the effectiveness of your value stream
    • Formula: Throughput = units / time
  • Duplication is the ability to reliably reproduce something of value
    • Multiplication is duplication for an entire process or system
  • As a general rule, the less human involvement required to create and deliver value, the more scalable the business
  • Every benefit you deliver and every customer you serve makes it harder for your competitors to keep up with you
    • Don’t focus on competing. Focus on delivering even more value and your competition will take care of itself
  • By investing in force multipliers, you free up your time, energy, and attention to focus on building your business instead of simply operating it
  • Chapter 5: Finance
    • Finance is the art and science of watching money flowing into and out of a business, then deciding how to allocate it and determining whether or not what you’re doing is producing the results you want
    • Accounting is the process of ensuring the data use to make financial decisions is as complete and accurate as possible
  • Business isn’t about what you make, it is about what you keep.
    • Profit is bringing in more money than you spend
  • Profit margin percentage = (revenue – cost) / revenue x 100
    • Percent markup formula: (price – cost / cost) x 100
  • Value capture is the process of retaining some percentage of the value provided in every transaction
  • Business is not necessarily about maximizing profits. Profits are important, but they are a means to an end: creating value, paying expenses, compensating the people who run the business, and supporting yourself and your loved ones
    • Money is a tool, and the usefulness of that tool depends on what you’re going to do with it
    • Once you reach the point of sufficiency, you are successful, no matter how much or how little you make
  • 4 methods to increase revenue:
    1. Increase the number of customers
    2. Increase the average size of each transaction
    3. Increase the frequency of transactions per customer
    4. Raise your prices
  • Always focused on majority of your efforts on serving your ideal customers: those who buy early, buy often, spend the most, spread the word, and are willing to pay a premium for the value you provide
  • The time value of money: The value of a dollar today is more than the value tomorrow based on what you can do with that money and what you invest it in
  • Compounding is the accumulation of gains over time
  • Leverage is the practice of using borrowed money to magnify potential gains
  • Funding is the business equivalent of rocket fuel, if your business needs additional capacity and is already pointed in the right direction, wise use of financing can help you accelerate the operation’s growth
  • Bootstrapping is the art of building and operating a business without funding
  • It’s never a good idea to throw good money after bad
    • If it’s not worth the additional investment, walk away. You never have to earn back money in the same way you lost it
  • Chapter 6: the human mind
    • Your mind is first and foremost a physical system
    • Often times what we experience as mental fatigue or emotional distress is simply a signal from our body that we are not getting enough something we physically need: nutrients, exercise, or rest
  • Taking care of yourself should be your primary concern if you want to get important things done without burning out
  • Humans are like a thermostat, reacting to a stimulus in order to regulate a condition
    • The action controls the perception, and the action we ultimately take depends on the environment we find ourselves in at the time
    • With a set point, the perception must be above or below a certain level to be under control
    • With a range, the perception must be between two set points to be under control
  • Humans being naturally lazy is a feature, not a bug. We have evolved to avoid expending energy unless absolutely necessary, called conservation of energy
  • Different reference levels will result in different actions
    • Good books, blogs, documentaries, and competitors are valuable if they violate your expectations about what’s possible
      • When you discover that people are doing things that you previously thought was unrealistic or impossible, it changes your reference levels in a very useful way
  • Guiding structure means changing the structure of your environment is the largest determinant of your behavior
    • If you want to successfully change your behavior, don’t try to change the behavior directly
    • Change the structure that influences or supports the behavior, and the behavior will change automatically
  • Re-organization is random action that occurs when a reference level is violated, but you don’t know what to do to bring the perception back under control
    • Quarter or a midlife crisis is a perfect example. You don’t quite know what to do to eliminate the angst you’re feeling, so you start doing things that aren’t normal for you
    • Re-organization is the impulse to consider or try new things to see what works
  • Conflicts can only be resolved by changing reference levels, how success is defined by the parties involved
  • The brain has the ability to automatically learn and recognize patterns
  • Having a large mental database of patterns is what gives experts their expertise
    • The more accurate patterns you have stored in your memory, the more quickly and accurately you can respond to whatever life throws at you
  • Mental simulation is our minds ability to imagine taking a specific action then simulating the probable result before acting
    • Our minds are constantly trying to predict what will happen in the future based on what’s happening around us and what actions we are considering
  • You can break down the experience of motivation into 2 basic desires:
    1. Moving toward things that are desirable
    2. Moving away from things that aren’t
  • Willpower can be thought of as instinctual override, it’s a way to interrupt our automatic processing in order to do something else
  • Loss aversion is the idea that people hate to lose things more than they like to gain them
  • Exercise, sleep, and meditation can calm your mind by metabolizing or counteracting the stress hormones that have been flooding your body
    • Notice the threat signal, then do what you can to prove to your mind that the threat no longer exists and you will break yourself out of 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 be on this limit are likely to splinter into subgroups over time
  • Presenting your prospects with positive associations can influence how they think about what you offer
  • Absence blindness is a cognitive bias that prevents us from identifying what we can’t observe
    • It’s far more difficult for people to notice or identify what’s missing
  • Take advantage of contrast when presenting your offer, and you will increase the odds that your potential customer will view your offer favorably
  • Scarcity is one of the things that naturally overcome our tendency to concern
    • If you want something that’s scarce, you can’t afford to wait without the risk of losing what you want
  • 4 ways to add the element of scarcity to your offer:
    1. Limited quantities
    2. Price increases
    3. Price decreases
    4. Deadlines
  • Novelty: the presence of new sensory data is critical if you want to attract and maintain attention over a long period of time
  • Mono-idealism is simply the state in which you have exactly one thing on your mind with no conflicts
  • A dash is 10 to 30 minutes burst of focused work, which is how long it takes to get into the zone
  • Productive multitasking is a myth
    • The more things you tried to pay attention to at a given time, the more your performance add to all of them suffers
  • Maker schedule versus manager schedule
    • When trying to do creative work, context switching between administrative tasks will kill your productivity
    • The maker schedule consists of large blocks of uninterrupted time
    • The manager schedule is broken up into many small chunks for meetings
  • The 3-10-20 Method: in one day, you have the capacity to finish 3 major tasks and 10 minor tasks, where a major task requires more than 20 minutes of focused concentration, and all other tasks are minor
  • There are only 4 ways to do something, or 4 completion methods:
    1. Completion
    2. Deletion
    3. Delegation
    4. Deferment
  • MIT, most important tasks, is a critical task that will create the most important of results you are looking to achieve
    • The more clearly defined your goal, the easier it is to get excited about doing the things required to get what you want
  • Goals are most useful if they are framed in a positive, immediate, concrete, and specific format
  • Habits are regular actions that support us, such as exercise, hygiene, vitamins, nutrition, keeping in touch with others
    • Most habits take on one of 4 common forms:
      1. Things you want to start doing
      2. Stop doing
      3. Do more of
      4. Do less of
    • Habits are easier to install if you look for triggers that signal when it’s time to act
    • For best results, focus on installing one habit at a time
  • 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
    2. What kind of information you’re looking for
  • Take some time to consciously prime your brain do you notice what’s important to you, and you will inevitably find it
  • A decision is an act of committing to a specific plan of action
  • Make your decisions clearly and consciously
    • Do not have delegate your decision making to someone or something else so you won’t become a victim of circumstance
  • “Five fold why technique”: ask why five times to get to the root cause or reason for your goal
    • Discover the root causes behind your goals, and you will discover new ways to get what you actually want
  • Connect your big goals with small actions you can take now and you will inevitably achieve what you set out to accomplish
    • To keep yourself from feeling overwhelmed, track your projects in tasks separately
  • Externalization: by converting our internal thought processes into an external form, externalization essentially gives us the ability to re-input information into our own brains via a different channel, which gives us access to additional cognitive resources we can use to process the same information in a different way
    • Two different ways: writing and speaking
  • Writing or drawing is the best way to capture ideas, plans, or tasks
    • Not only does it give you the ability to store information in a form you can reference later, it also gives your mind the opportunity to examine what you know from a different angle
    • Challenges can be solved surprisingly quickly after they are put on paper
    • It’s also easier to share with others and to archive for later review
  • The key to vocal externalization is to find a party that is willing to listen patiently and avoids interrupting you as you talk through an issue
  • Self-elicitation is the practice of asking yourself questions, then answering them
    • By doing this or working with someone who asks good questions, you can grasp important insights or generate new ideas very quickly
    • Ask yourself: what are the best questions I could ask myself about this situation?
  • Counterfactual simulation is sort of like applied imagination. Force your brains to run the simulations you want it to run
    • Instead of assuming that what you want isn’t realistic or possible, counterfactual simulation allows you to actually figure out what it would take do you make what you want real
    • You will always come away with a greater understanding of what it takes to do something or what would need to be true in order to make something work
    • A doomsday scenario is a counterfactual simulation where you assume everything that can go wrong does go wrong
  • Excessive self-regard tendency is the natural tendency to overestimate your own abilities, particularly if you have little experience with the matter at hand
    • Cultivate relationships with people who aren’t afraid to tell you when you are making questionable assumptions or going down the wrong path. They are valuable friends indeed
  • Paradoxically, one of the best ways to prove you’re right is to actively to look for information that proves you’re wrong
    • Confirmation bias is the tendency for people to pay attention to information that supports their conclusions and ignores information that doesn’t
  • Hindsight bias is the natural tendency to kick yourself for things you should have known
  • Performance load: above a certain point, the more tasks a person has to do, the more their performance on all of those tasks decreases
    • In order to be productive, you must set limits
    • By keeping some capacity in reserve, you’ll be ready to handle the most important tasks immediately
  • 4 simple ways to work with your body instead of against it:
    1. Learn your patterns by using a notebook or calendar to track how much energy you have during different parts of the day
    2. Maximize your peak cycles
    3. Take a break. When you are in a down-cycle, it is better to rest then attempt to power through it. Rest and recovery are not optional
    4. Get enough sleep. Sleep deprivation will result in a longer down-cycle
  • You are not a robot. Humans need rest, relaxation, sleep, and play in order to function effectively
    • Spend time doing something completely different from your normal activities and responsibilities
    • The less overlap between your hobby and your work, the better
    • Dedicating guilt free time to rest and recover can simultaneously make your life more enjoyable and more productive
  • The happiest and most productive people are always trying new things to see what works
  • Consciously change your approach to one of these areas in your life, and externalize your results.
    • If you find a change useful, keep doing it. If not, stop doing it and try something else. Testing is the best way to ensure your life gets better over time
    • By constantly trying new things, you are learning what works for you and what doesn’t. Over time, you’ll discover patterns of what makes your life better or worse
  • Mystique is a powerful force, A little mystery makes most things appear to be a lot more attractive than they actually are
    • The best way to counteract mystique is to have a real, human conversation with someone who has actually done what you are interested in doing
  • The hedonic treadmill: we pursue pleasurable things because we believe it will make us happy. When we finally achieve or acquire what we are seeking, we adapt to our success in a very short period of time and our success no longer gives us pleasure
  • 5 priorities that will contribute to your long-term happiness in a way that minimizes hedonic adaptation:
    1. Work to make enough money. Money has a positive correlation with happiness up to about $75,000 per year. Once you reach this point, beyond it is diminishing returns
    2. Focus on improving your health and energy. Health is a major contributing factor to happiness. When you feel great, you’re more likely to feel happy
    3. Spend time with people you enjoy. This is one of the single biggest predictors of happiness
      • Spend time with family, friends, and like-minded acquaintances. The context and environments are less important than the people you spend time with
      • Long meals and trips with friends or a great use of time
    4. Remove chronic annoyances. Finding ways to eliminate or reduce chronic stressors or annoyances can generate significant improvement in life satisfaction
    5. Pursue a new challenge
  • Focusing on experiences over material goods goes a long way if you want to step off the hedonic treadmill
  • The comparison fallacy: other people are not you and you are not other people. You have unique skills, goals, and priorities
    • Comparing yourself to other people is silly and there is little to be gained by it
  • The only metric of success that matters is this: are you spending your time doing work you like with people you enjoy in a way that keeps you financially sufficient?
    • If so, don’t worry about what other people are doing
    • If not, focus on making changes that are within your locus of control so you can start moving in the direction you desire
  • Focus most of your energy on things you can influence, and let everything else go
    • Keep your attention on what you’re doing to build the life you want to live, and it’s only a matter of time before you get there
  • Investments in improving your personal skills and capabilities can simultaneously enrich your life and open doors to additional income sources
    • New skills create new opportunities, and new opportunities often translate into more income. Your ability to save is limited. Your ability to earn is not
  • 2 primary ways of looking at the world, 2 mindsets that influence your response to new experiences:
    1. The first basic mindset is that your skills and abilities are fixed
    2. The second basic mindset is that your skills and abilities are malleable
  • Rule of thumb when you’re limiting beliefs prevent you from facing rejection: make the other party tell you “no”
  • Chapter 8: Working With Others
    • All human relationships are based on power, the ability to influence the actions of other people
    • Influence is the ability encourage someone else to want what you suggest
    • Compulsion is the ability to force someone else to do what you command
  • The best way to increase your power is to do things that increase your influence and reputation
    • The more people know your capabilities and respect the repetition you’ve built, the more power you will have
  • Comparative advantage means it’s better to capitalize on your strengths than to shore up your weaknesses
  • Working with others can help you get more done faster, and improve the quality of the end result
  • Communication overhead is the proportion of time you spent communicating with members of your team instead of getting productive work done
    • Keep your team small, between 3 and 8 people, elite and surgical. Small teams tend to be more effective than large groups because communication overhead is reduced
  • Effective communication can only occur when both parties feel safe. As soon as people start to feel unimportant or threatened in a conversation, hey start stonewalling, shutting down communication
    • The threatened party may continue to interact, but they’ve mentally and emotionally withdrawn from the conversation
  • Use the STATE model to communicate without provoking anger or defensiveness:
    1. Share your facts
    2. Tell your story and explain the situation from your point of view
    3. Ask for others paths
    4. Talk tentatively
    5. Encourage testing
  • The golden trifecta is his personal three word summary of how to win friends and influence people:
    • If you want to make others feel important and safe around you, always remember to treat people with appreciation, courtesy, and respect
  • Commanders intent: whenever you assign a task to someone, tell them why it must be done
    • The more your agent understands the purpose behind your actions, the better they’ll be able to respond appropriately when the situation changes
  • Plans are useless but planning is indispensable
    • The value of planning is in the mental stimulation, the thought process required to make the plan itself
    • Use plans but don’t depend on them
  • Given the choice, people always prefer to interact with people they know and like
    • Referrals make it far easier for people to decide to work with someone they don’t know
  • Convergence is the tendency of group members to become more alike over time
    • In business, this tends to be called a company’s “culture”
    • Divergence is the tendency for groups to become less like other groups over time
  • If your social circle isn’t supporting your goals, change your social circle
  • Authority figures are automatically and strongly persuasive
    • In the presence of an authority figure, people will do things they would otherwise do you as reprehensible or wouldn’t consider in the first place
  • Commitments have been used as a way of binding groups together
    • Breaking a promise or commitment can often have a negative impact on social status and reputation, so most people do whatever they can to act in ways that are consistent with previous positions and promises
  • Incentive-caused bias explains why people with a vested interest in something will tend to guide you in the direction of their interest
  • Modal bias is the automatic assumption that our idea or approach is always best
  • Individuals tend to rise to the level of expectations other people have of them. If you don’t expect much from the people you work with, chances are you will not inspire them to perform to the level of their capabilities
    • The Pygmalion Effect is the tendency that explains why our relationships are self-fulfilling prophecies
  • The attribution error means that 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?
    • Focusing your energy on evaluating potential responses, and you will be far more likely to find a way to make things better
  • Management is the act of coordinating a group of people to achieve a specific goal while accounting for ever present change and uncertainty
  • 6 simple principles of effective real world management:
    1. Recruit the smallest group of people who can accomplish what must be done quickly and with high-quality
    2. Clearly communicate the desired end result. Who is responsible for what, and the current status
    3. Treat people with respect. Consistently using that golden trifecta is the best way to make the individuals on your team feel important and respect you as a manager
    4. Create an environment where everyone can be as productive as possible then let people do their work
    5. Refrain from having unrealistic expectations regarding certainty and prediction. Create an aggressive plan to complete the project, but be aware that uncertainty and the planning fallacy mean your initial plan will almost certainly be incomplete or inaccurate
    6. Measure to see if what you are doing is working. If not, try another approach
  • The best managers don’t act like big shot executives, they are more like very skilled assistants whose primary purpose is to keep the people in economically valuable skills focused on improving the five parts of every business
    • That is doing things that directly contribute to the company’s results
  • Golden rule of hiring: the best predictor of future behavior is past performance
  • All complex systems that work evolved from simpler systems that worked
  • The 5 focusing steps to find and alleviate a constraint:
    1. Identification: examining the system to find the limiting factor
    2. Exploitation: ensuring the resources related to the constraint aren’t wasted
    3. Subordination: redesigning the entire system to support the constraint
    4. Elevation: permanently increasing the capacity of the constraint
    5. Reevaluation: after making a change, reevaluating the system to see where the constraint is located
  • Don’t rely on making accurate predictions, things can change at any time
    • Planning for flexibility in response to uncertainty versus scenario planning is far more effective and useful than pretending to be a seer
  • You can make a system less inter-dependent by removing dependencies. A dependency is an input required before the next stage of a process can take place
    • The more dependencies in a system, the higher the likelihood of delay or system failure
  • Chapter 10: Analyzing Systems
    • Deconstruction is the process of separating complex systems into the smallest possible subsystems in order to understand how things work
    • Key performance indicator’s, KPI, are measurements of the critical parts of a system
  • Garbage in, garbage out: put useless and put into a system and you’ll get useless output
  • Context is the use of related measurements to provide additional information about the data you are examining
  • Humanization is the process of using data to tell a story, a narrative, about a real person’s experience or behavior
  • Chapter 11: Improving Systems
  • A null hypothesis: examining what will happen if you did nothing or assume the situation was an accident or an error
  • Optimization is the process of maximizing the output of a system or minimizing a specific input the system requires to operate
    • You can’t reliably optimize a system’s performance across multiple variables at once. Take the most important one, and focus your efforts accordingly
  • Refactoring is the process of changing a system to improve efficiency without changing the output of the system
    • If your goal is to make the system faster on more efficient, refactoring is critically important
  • 80/20 pattern: In any complex system, a minority of the inputs produced a majority of the output
    • “Pattern of persistent nonlinearity,” “The 80/20 Rule” or “The critical few”
  • Optimize and refactor up to the point you start to experience diminishing returns then focus on doing something else
  • Friction is any force or process that removes energy from a system over time
    • Work on removing fiction from your business system where appropriate, and you will generate better results for less effort
  • Automation refers to a system or process that can operate without human intervention
    • The paradox of automation: The more efficient the automated system, the more crucial the contribution of human operators to that system
  • A standard operating procedure (SOP) is a predefined process used to complete a task or resolve a common issue
    • A checklist is an externalized, pre-defined standard operating procedure for completing a specific task
  • Sometimes the best way to improve a system is to stop doing so much
    • Cessation is the choice to intentionally stop doing something that’s counterproductive
  • Resilience is a massively underrated quality in business. Having the toughness and flexibility to handle anything life throws at you is a major asset that can save your skin
    • Planning for resilience as well as performance is the hallmark of good management
    • Think less like a tiger and more like a turtle and your business will be able to withstand pretty much anything
  • A failsafe is a backup system designed to prevent or allow recovery from a primary system failure
  • Scenario planning is the process of systematically constructing a series of hypothetical situations, then mentally stimulating what you would do if they occurred
    • Regularly setting non-negotiable times to step back and plan for the future is always time well spent
  • A healthy business cycles between expansion, maintenance, and consolidation often
  • Self-education, whether it is about business or anything else, is a never ending process

Closing thoughts:

Such a long book, but wow. It definitely answered my questions about if pursuing an MBA, whether it would be worth it and what my alternatives would be. I think this book did a fantastic job summarizing not only why pursuing an MBA is most likely not the right choice for you, but also actual principles you need to know about business from top to bottom.

Out of all the business-related books I’ve read from building a startup, marketing, sales, operations, developing a product, and being a CEO, I say this is the most well-rounded book. Though it doesn’t go super in-depth in any particular topic, the author clarifies that this isn’t his aim for this book. He does give a ton of recommended reads for each topic, which was a great value-add. However, the book pretty much much covered all of bases of what someone needs to know about actually starting and running a business.

If you notice, most of my notes are focused on terms and keywords. The sections were purposefully split up in 10-20 minute reading increments, focused around a particular idea or term. Half of the terms I’ve heard before, but they were broken down and easily digestible to the reader. The other half of the terms were completely new to me.

Overally, would highly recommend a book like this. My top favorite books like The 4-Hour Workweek, Never Eat Alone, and Unshakeable do a great job distilling the best principles in those particular topics and delivering it to the reader in such a clear and easily-actionable way. In my opinion, this format separates a good book from a great one that will actually have a lasting impact on the reader.

Nutshell: Everything you need to know about business, as well as principles of human behavior.

Rating: 5/5

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