Here are my highlights from The Personal MBA, a fantastic collection of mental models in business and life.
Every successful business:
- Creates or provides something of value that
- Other people want or need
- At a price they’re willing to pay, in a way that
- Satisfies the purchaser’s needs and expectations and
- Provides the business sufficient revenue to make it worthwhile for the owners to continue operation.
Take away any of the above - value creation, customer demand, sales, value delivery, or profit sufficiency - and you have something other than a business. Each factor is essential and universal.
- Value can’t be created without understanding what people want (market research.)
- Attracting customers requires getting their attention, then making them interested (marketing.)
- People must trust your ability to deliver on what’s promised (value delivery.)
- Customer satisfaction depends on reliably exceeding customer expectations (customer service.)
- Profit sufficiency requires bringing in more money than is spent (finance.)
Every business relies of two additional factors: people and systems.
Understand how people think and behave - how humans make decisions, act on those decisions, and communicate with others.
Invisible structures and processes that can be reliably repeated to produce a particular result.
The iron law of the market
Market matters most; neither a stellar team nor a fantastic product will redeem a bad market. Markets that don’t exist don’t care how smart you are.
So often people are working hard on the wrong thing. Working on the right thing is probably more important than working hard.
Ten ways to evaluate a market:
- Urgency - How badly do people want or need this right now?
- Market Size - How many people are actively purchasing things like this?
- Pricing Potential - What is the highest price a typical purchaser would be willing to spend for a solution?
- Cost of Customer Acquisition - How easy it is to acquire a new customer?
- Cost of Value Delivery - How much would it cost to create and deliver the value offered?
- Uniqueness of Offer - How unique is your offer versus competing offers in the market, and how easy it is for potential competitors to copy you?
- Speed to Market - How quickly can you create something to sell?
- Up-Front Investment - How much will you have to invest before you’re ready to sell?
- Upsell potential - Are there related secondary offers that you could also present to purchasing customers?
- 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?
“Stealth mode” diminishes your early learning opportunities, putting you at a huge early disadvantage. It’s almost always better to focus on getting feedback from real customers as quickly as you possibly can.
A prototype represents what you’re offering in a tangible way, so that your potential customers can understand what you’re doing well enough to give you good feedback.
Pick three key attributes or features, get those things very, very right, and then forget about everything else…By focusing on only a few core features, in the first version, you are forced to find the true essence and value of the product.
In order to validate the truth of your Critical Assumptions you will need to test your offering with real paying customers before you fully commit to making it real.
Shadow testing is the process of selling an offering before it actually exists. To shadow test, you need something to sell. A Minimum Viable Offer is an offer that promises or provides the smallest number of benefits necessary to produce an actual sale; it’s a prototype that’s been developed to the point that someone will actually pay for it.
Once your Minimum Viable Offer is selling and you’ve proven your Critical Assumptions are valid, you’ll need to make Incremental Augmentation and add new benefits to the existing offer.
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.
Sales are the only point in the business cycle where resources flow into the business.
It’s critical to determine whether or not you’ve created something valuable to sell before you invest your life savings. Get to the point of first purchase as quickly as you possibly can.
Value-Based pricing and selling
Every business must capture some percentage of the value it creates.
The Value Comparison method focuses on discovering how much your offer is worth to the party you hope to sell it to, then set your price appropriately.
Asking good questions is the best way to identify what your offer is worth to a prospect:
- Understand the situation
- Define the problem
- Clarify the short-term and long-term implications of the problem
- Quantify the benefits the customer would experience after the resolution of the problem
By encouraging your prospects to tell you more about what they need, you increase their confidence in your understanding of their needs and you’ll discover information that will help you emphasize how valuable your offer is.
Present yourself with confidence: in a way that signals your offer is valuable, is a good fit for the prospect, and will be a wise investment of the prospect’s money.
The Human Mind
Gifts are never free: they bind the giver and receiver in a loop of reciprocity.
Providing Free value builds your social capital, making it more likely the people you benefit will Reciprocate when you make an offer down the road.
By giving away value and helping others as much as you can, they’ll respect you; it will build your reputation, but it will also increase the probability that they will be interested enough when you do present your Call-To-Action.
Conservation of Energy
The fundamental principle of human action is that men seek to gratify their desires with the least exertion.
Sources of information that change your Reference Levels are valuable in prompting action. For example, when you read that people have done what you’ve previously thought impossible. The more you learn about what people did to make it possible, the more you’ll want to make it a reality for yourself.
All you need to know is that something you want is possible, and you’ll find a way to get it.
Guiding Structure & Willpower Depletion
Your environment will eat your goals and plans for breakfast.
If you want to successfully change a behaviour, don’t try to change the behaviour directly. Change the structure than influences or supports the behaviour, and the behaviour will change automatically.
If you don’t want to eat ice cream, don’t buy it in the first place.
Our reserves of Willpower are limited and deplete with use. The best way to use your limited reserves of willpower is to change the structure of your environment.
By removing your ice cream from your environment, no willpower is required.
Your memory is a monster; you forget - it doesn’t. It simply files things away. It keeps things for you, or hides things from you ** and summons them to your recall with a will of its own. You think you have a memory; but it has you!
Our brains are Pattern Matching machines. The brain is constantly trying to find patterns in what we perceive, then associating new patterns with other patterns that are stored in memory. This process happens automatically, without conscious effort.
Patterns get stored, waiting to be used to determine responses to new or uncommon situations. The more patterns you learn, the more options you have when solving new problems. Having a larger mental database is what gives experts their expertise.
The feeling that we should do something or that an action would be in our interest…but we don’t it.
Whenever you “should” do something, but resist doing it, you’re experiencing Akrasia. There are many sources of resistance:
- You can’t define what you want.
- You believe the task will bring you closer to something you don’t want.
- You can’t figure out how you’re going to get from where you are right now to where you want to be.
- You idealize the desired end result to the point that your mind estimates a low probability of achievement.
- The “should” was established by someone else, not you, prompting Persuasion Resistance.
- A competing action in the current environment promises immediate gratification.
- The benefits of the action are abstract and distant.
Akratic situations can take many forms: browsing the web vs exercising.
Flow and The Maker’s Schedule
Focus on the full powers of your energy and attention on a single subject at a time. No distractions, no interruptions, no self-judgements, no doubts.
Minimize cognitive switching by working in large blocks of uninterrupted time.
We are what we repeatedly do. Excellence, then, is not an act, but a habit.
Habits are regular actions that support us. Due to the power of Accumulation, small Habits can add up to huge results over time.
Set a Guiding Structure to reduce the Willpower needed to create a habit. Focus on one at a time.
Don’t feel you need to have all of the information before you decide - the world is too complicated to make accurate predictions. Once you’ve acquired 40-70% of the available information, go with your gut.
Failure to make a decision is itself a decision.
Go as far as you can see; when you get there you’ll be able to see farther.
If we attend continually and promptly to the little that we can do, we shall ere long be surprised to find how little remains that we cannot do.
The Next Action is the next specific concrete thing you can do right away to move a project forward. You don’t need to know everything that must be done to make progress on a project - all you need to know is the very next thing you can do to move the project forward.
Words are a lens to focus one’s mind.
By converting our internal thought processes into an external form, Externalization gives us the ability to reinput 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.
Capturing your ideas on paper lets you store information you can reference later and share it with others. Rubberducking also works for solving problems.
Work expands so as to fill the time available for its completion.
We all have times when we think more effectively, and times when we should not be thinking at all.
Learn your patterns, maximize your peak cycles, and take breaks.
Locus of Control
Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.
Trying to control things that aren’t actually under your control is a recipe for internal frustration.
The better you’re able to separate what you can control from what you can’t, the happier and more productive you’ll be. Focus most of your energy on things that you can influence, and let everything else go.
Treat people with appreciation, courtesy, and respect.
- Appreciation: express your gratitude for what others are doing for you, even if it’s not quite perfect.
- Courtesy: be polite.
- Respect: acknowledge other individuals.
When others screw up, we blame their character. When we screw up, we attribute the situation to circumstances.
A truly good book teaches me better than to read it. I must soon lay it down, and commence living on its hint. What I began by reading, I must finish by acting.
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