Gennaro Cuofano's Blog, page 219

September 12, 2019

Email Marketing And Automation: 4 Strategies Worth The Effort

In this day and age, there are about a gazillion ways to make a business thrive, each one promising better results than the next, each one doing things slightly differently than the previous one…

But what is the best way to make a business grow and have a steady income?

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(Source)

Email marketing comes as a close second to SEO, which is more than understandable, seeing as email marketing is one of the most cost-effective strategies. Now, let’s see which are the email marketing and automation strategies that are worth the effort and are bound to boost your CRO.

Welcome the newbies!

Why would you enter a website, if not to check it out? This shows your interest clearly, sure, but does this mean that you’d buy on that very same moment?

I don’t think so… So, the best thing to do is to get your visitors to subscribe to your email list. It saves the visitors the commitment and sounds more appealing. It’s practically a step that not too many feel uncomfortable with, especially if signing up contains something like a discount code.

And once you’ve got your newbie, it’s time to send them a welcome email!

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Source: Saucey

This email is simple yet powerful and has got a very contemporary vibe about it. And if you visit the website, the sign-up form looks like that:

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So, there’s clear value upfront. Score $10 off, sign up, you’re all over and done with it!

It’s an easy email that doesn’t require too many visuals or too much copy-mind you, going overboard will be confusing to the reader in the end.

One well-placed “Take me to the website” button is enough-or in our example, “Let’s order”. This button can lead to a carefully created landing page or the website itself, whatever helps increase conversion!

Why content matters so much?

Content is king! And should be treated as such.

You see, you don’t want your customers to have a one-time relationship with you. You actually need them to have something more, something meaningful, something like recurring orders!

But how many people would order from a brand that doesn’t speak to them?

You see, people nowadays don’t buy products, they buy answers. And if your brand’s tone isn’t answering any questions, then you’ve lost the game.

What you could do, would be to send out an email that will be interactive, have beautiful, playful imagery in it and will help users engage. It could be a cart abandonment email, or perhaps a re-activation email.

You could even make a game out of it, by making the email interactive and encouraging users to find the hidden discount!

Their opinion=Your growth

First and foremost, you need to sit down and understand, by checking your data, what kind of people your customers are. What their likes and dislikes are. In general, what makes them tick.

Once you manage to analyze your data, create your buyer personas, ie the depictions of your ideal customer, and you’ll be good to go!

But you can’t just rely on analyzing your theoretical ideal customer. You need to take some much-needed action as well. And how are you going to do that?

But by asking your subscribers what they think of you directly, of course!

By sending out a survey, you can collect plenty of data that will help your company grow in ways you wouldn’t even know. And no question is too weird or too personal. You can ask everything, from what they think of your interface to how they’d rename the brand if needed.

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Source: bellroy

And you must definitely not forget the most important question: How likely is it that your customer would recommend your brand to a friend?

This question will give you your Net Promoter Score (NPS) as an answer. And NPS is one of the most important metrics out there.

By asking all the right questions, you can grow quickly, easily and cost-free, seeing as you won’t need any guesswork or advertising experts to tell you what’s what.

You’re turning your own fans into “co-workers”, or better yet, into branding experts and that’s really saying something to them, seeing as you’re making things more personal that way.

Nurture your leads

No matter how hard you may try, not every follower wants to be a loyal customer and not every order has to be a recurring one.

But what you can do, is maximize the number of leads that would be interested in becoming loyal customers by nurturing them. This will definitely bring you more revenue and keep your resources intact.

Just set up and send out a campaign to valued customers. This could contain a little discount, a free sample-if you’ve got them-or a free consultation session. Anything to show your repeaters how much you appreciate the fact that they’re… Well, you know. There.

Take it one step further by providing a little bit of extra discount for referrals and definitely send follow-up emails in case they don’t take advantage of the offer you’ve got to give them!

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(Source)

You see, you don’t need to spend too much time and effort on the how, you just need to focus on what you’ve already got first, and help it grow.

Lead nurturing will do just that, seeing as you won’t need to find new followers, which equals new ad campaigns and is way more costly.

And over to you!

There are plenty more strategies that you can pick and choose from, such as setting up drip campaigns or sending birthday emails, but I think that the previous four are the basics that you need to use, in order to maximize revenue and see your business grow.

So, what say you? Is there anything else you’re already using or would like to add?

Please tell us in the comments and don’t forget to share the knowledge!

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Published on September 12, 2019 12:59

10 Technological Trends In Business To Watch Out In The Next Five Years

When a new technology trend shows up, all industries are affected by it. Just think about the way smartphones changed everything. The evolution they brought about is still active.

From July 2019, Google made mobile-first indexing a standard. When the original iPhone showed up back in 2007, the tech world assumed it would influence our lives. But smartphones came far, and no one ever assumed that.

If we look at the latest technological trends, it’s fun to assume where they will take us. Can we use them as a foundation to predict future technology?

We can make an attempt. Let’s focus on a short period of five years, so we can come back to this article and see if we got something right.

Voice Control

We already use it to control different devices in our homes, but this technology will grow more sophisticated. It will be more conversational. As the programs are getting more advanced, we’ll feel like talking to real people.

That moment is not far away. Voice control will be implemented across all devices and networks we use in our home: kitchen appliances, entertainment, lighting, security, work stations, and more.

Robotics

This is not new. Robotics has been part of the latest technological trends for a few years now, but they are getting more sophisticated. To be more precise, they are becoming more autonomous.

There’s a lot of buzz around autonomous cars, agriculture vehicles, appliances, and more advanced drones.

Can you imagine a drone collaborating with a farming robot?

Currently, car manufacturers are big about producing connected vehicles, so that the base could identify faults and recommend fixes. But in the future, autonomous robotics will go far beyond simple connectivity.

Quantum Computing

As another prominent trend of future technology, quantum computing is not easy to explain. Here’s how Shohini Ghose explained it in her TED talk: “A quantum computer is not just a more powerful version of our current computers, just like a light bulb is not a more powerful candle…A quantum computer is a new kind of device, based on the science of quantum physics, and just like a light bulb transformed society, quantum computers have the potential to impact so many aspects of our lives, including our security needs, our health care, and even the Internet.”

Today, we already have physical quantum computers. However, they are extremely loud and far from perfect. But there’s a lot of potential in this new technology, and we should have our eye on it.

Security Risks on IoT Devices

If your security system is connected to the Internet, it’s a target for hackers. As we start using more IoT devices in our homes and business environments, the need for enhanced security will be higher. IoT security will become a huge field for tech geeks to explore.

Big Data Is Becoming HUGE Data

All those devices in our home collect data, so they get smarter as they learn from it. The Internet is getting suffocated with data, which will reach proportions we can’t even imagine. Data overload is a real thing, and it can become a problem.

Small businesses are already having troubles with big data. They are getting so much information from their users that they cannot be efficient in classifying it. When they don’t analyze it well, it leads to the wrong decisions.

Data is not the problem. It’s still really useful. We only need more sophisticated analytics, and that’s the focus of future technology.

Blockchain Will Take Us Places

Cryptocurrencies transactions will become an essential part of the banking system. Blockchain is a transparent and secure technology, so governments and financial institutions will use it for tracking all transactions.

When we realize how blockchain can revolutionize the financial system in a positive way, we can’t help but wonder: why are banks not using this new technology yet? They still don’t have the proper network. But we expect to see a change there. When the network comes, the entire banking industry will change.

Digital Twin Technology

The digital twin is a realistic model of a real system, process, or object. The concept has been around since 2002, but we’re yet to see big progress. In a simple explanation, the physical world will get its twin in the digital world, which will monitor systems and analyze data to prevent issues from occurring.

NASA is already using digital twins (or a digital copy of a physical device) that integrate sensor data from the vehicles that integrate historical and fleet data, as well as maintenance history and on-board sensor data. Through this system, they can predict and prevent issues.

Function-As-A-Service Platforms

This software design pattern is also known as “serverless architecture.” Instead of server software, and hardware management, the developers will host their apps through third-party services.

The application code will be broken upon individual functions, which will be individually processed by virtual servers from cloud providers. The developers take care of their code and they stop caring about server management.

AR, VR, and MR

Who said video games weren’t useful? Augmented, virtual, and mixed reality will be an integrated part of future technology. They originated in gaming, but soon found their use in space exploration, medical care, interior design, engineering, and other industries.

When these technologies are mixed with the global trend of remote work, it’s easy to imagine the virtual workplace of the future. Imagine this new technology enabling you to collaborate with your colleagues not only through a computer but through an experience that’s closer to the real engagement you get from the office space.

Chatbots

I know you hate them. When you see a chatbot, you know it’s only going to give you something from the FAQ. You already went through those answers and you didn’t find what you needed. You hoped to talk to an agent and the bot drives you nuts.

But don’t ditch this form of AI just yet. It’s getting better, and it’s one of the most important new technological trends to watch. Chatbots are the future of customer service. They will make this aspect more affordable for businesses since they will hire fewer agents.

As the bots get more effective, the customers will benefit, too. They will quickly get the solutions they need. If it’s not possible for the bot to solve an issue, it will direct them to the right agent from the customer support department.

Key takeaway

The technology depicted in Matrix used to look so sci-fi! Now, it’s close to the reality we’re already experiencing. The movie showed technology as an extension of the self. Are we heading in that direction? Well, that’s a bit too sci-fi… for now. But trends like VR, digital twins, robotics, quantum computing, and big data seem exciting!

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Published on September 12, 2019 12:40

September 11, 2019

How China’s Digital Economy Works With Jeffrey Towson

https://fourweekmba.com/wp-content/uploads/2019/09/china-digital-economy.mp3

For this episode, we have with us Jeffrey Towson, a keynote speaker on Digital China and Asia tech trends, a business professor at Peking University and author of a great book, which is really a great reading to have a deeper understanding about China, very quickly. The book is called the One-Hour China Book.

Let’s dive into China’s economy and more particularly into China’s digital economy.

How did you get to study the Chinese market economy?

Jeffrey Towson: I’m just an international business guy doing a lot of deal stuff out of the Middle East and slowly started doing more with Asia. This is good 15 years ago and I was sort of half in the developing world and half in the US and it was pretty clear that Asia was the place to be early on and China and Asia was just going to be a huge story.

So I was kind of on the ground and it’s pretty obvious what’s going to happen. So I started focusing more and more on China and Asia, and I’ve been doing that ever since. I still keep about half my time in China, half my time in the US which is just an endless opportunity because there’s always new stuff to do and it’s also pretty enjoyable life.

That’s where I settled, there’s one foot in China, one foot in the US which is, gets more and more interesting every single year.

Gennaro Cuofano: In the book, you actually mentioned six megatrends that shaped and actually are still shaping China and the Chinese economy.

What are the six mega-trends that shaped and are shaping China’s economy?

Jeffrey Towson: Me and my co-author Jonathan Woetzel of McKinsey highlighted those six mega-trends. China is confusing and there’s a lot going on. It’s a big place. It’s very complicated. What we did is we pointed, look,

There’s six at least major economic trends happening that are longterm. These are 30, 40-year trends. If you can understand those, a lot of the chaos becomes a lot more understandable.

The trends we started to look at were things that were driving the revenue or the cost structures of companies. Out of that, we identified six:

Number one is urbanization. Just the fact that when China reopened to the world in 1980, about 80% of the population was in the farms and 20% in the city, which is usually pretty much the inverse of most developed countries.

So there’s just been a steady movement of people into cities, which is still happening today, that creates a lot of economic drive.

We also looked at things like manufacturing scale,
A lot of money, capital,
Rising Chinese consumers, which is something that’s really become important in the last five to 10 years.
Digital China (the Internet)
And then what we call Brainpower Behemoth, which is just, you know, there are more and more people with advanced degrees. China’s not like it used to be in 1990. I mean it’s engineers and PhDs and artists and a lot of advanced skills now.

So we looked at those six trends and that’s held up pretty well over time, this little model we used. Most of the major companies you see are writing one or two of those trends. So so far, it’s held up. It’s been about four to five years, so we’ll see.

But I think it’s pretty solid. Most of those things are going on for at least another decade, if not longer. And then we’ll see.

What are those trends that you see are losing momentum and which ones are the ones that are really gaining momentum?

Jeffrey Towson: The ones that were easier to predict where urbanization, manufacturing, capital, just a lot of money because that’s just been steadily growing. I mean it’s literally a linear line to just drive from 1980 to today and it’s just a straight line.

The ones that were a little bit more unpredictable were rising Chinese consumers, which they were not really an economic factor 10 years ago. People didn’t talk about Chinese consumers 10 years ago. They weren’t buying much even though they had income and savings. Well, that’s changed dramatically in the last five to 10 years.

Now, they’re the world’s largest market for auto, for gaming, offline gaming, cinema, movies. I mean just one industry after the next, they’ve become the largest marketplace or in the top two.

That one is a late bloomer, and then Digital China, which is one of our six is the most unpredictable because crazy stuff happens all the time.

Most of China, the digital consumer stories are really about consumers. Most of the digital China story is mostly about consumers. That’s where things are really happening fast.

Alibaba, Tencent, social media, all that. That’s a lot of China consumers who turn out are almost entirely digital creatures.

You can’t talk about Chinese consumers without talking digital anymore. Everything happens on a smartphone. That’s probably the most unpredictable one, but it’s moving quick.

Gennaro Cuofano: You said at the beginning, and I think this is very important to stress out because still for many people, China is a huge block, but as you said it is a very complex country, which is a made up of many clusters also as you highlight in the book.

Did this digital megatrend change the way China looks like in terms of society, consumers?

Jeffrey Towson: I mean everyone knows there’s a lot of them. That’s not a big surprise. Everybody knows that they’re rising in their wealth. I think the part that gets underappreciated is how complicated they are.

China is arguably the world’s most complicated consumer market now.

I mean you can look at 30 million Chinese consumers live in caves. You can find Chinese consumers in the far West where you’ve got several hundred million of them that looked like a different country.

You go to downtown Beijing, you get more billionaires in Beijing than New York City.

So there’s a huge fragmentation and complexity to them and it’s just getting more so because one, there’s a lot of them.

So when you get a lot of anything, you’re going to get a lot of complexity, and two, you still get this big spread between very, very developed market behavior like Beijing and Shanghai and behavior that’s out in the fields and in the mountains.

So it’s just this hugely complicated subject and the only way you can really understand Chinese consumers at this point is you have to go small. You have to study micro populations, Chinese moms, sports enthusiasts, inland consumers, dads. You just have to break it up that way and you find out people are very, very different.

Gennaro Cuofano: In the book, actually you also highlight one point which I found very interesting and it’s how actually people consume content. The consumption of the internet it’s really more intense for Chinese especially young people compared to Westerners.

How is the Internet affecting modern China?

Jeffrey Towson: Everyone knew there was going to be a lot of people with smartphones in China. That was pretty predictable. We’re seeing the same thing in India in the news and places like that. I think what surprised people was how enthusiastic they are. They just adopt things faster than in other countries.

Mobile apps take off like crazy and they spend more time online than other consumers in other countries. They contribute more. They post more. They add content more. So it just turns out they are some of the world’s most enthusiastic netizens are Chinese. That wasn’t necessarily predictable but it’s true.

The other thing to keep in mind is there’s a difference between regular consumers who go down to the supermarket and buy apples and online consumers because the online consumers effectively operate as a network. It’s not just one person. That person is sharing what another person is sharing. They’re interconnected.

If you have 300 million Americans or 350 million Americans, there’s a certain number of connections you’d get between them. When you have a billion Chinese consumers, it’s actually exponentially larger.

So digital China effectively operates like a network and it’s a very rapid and very vibrant.

That part is showing itself. When you see a new app take off in China, it goes from nothing to 100 million users in two months, three months. We don’t see that anywhere else that I’ve seen.

Gennaro Cuofano: One interesting thing is also that in China there is the phenomenon of super apps, which is something that we didn’t yet see in the West. In short, it seems that China is now at the stage where it’s creating its own innovations.

How did the Internet evolve in China compared to the US?

Jeffrey Towson: Most people in say the United States, they got on the internet by PC. You sit at home, you have your laptop, you have your desktop, they discovered Gmail. Then a couple of years later they discovered YouTube and then they slowly adapted to various tools over time.

That didn’t happen in China. People basically joined around 2009, 2010 only on their smartphones mostly.

There were some users before that was very small and they got all these tools at once. They went from nothing to I’ve got a smartphone, I can do messaging, I can do online video, I can do online gaming.

So they kind of jumped in the deep end of the pool and they only know the internet on smartphones.

The difference between a smartphone and a PC is one, you work on at home or your office and then you leave but the other one, you carry with you all day long. So they carry these around all day. They message, they take photos, they watch videos, all of that.

One of the things that were different early on was people don’t use email. I mean you send an email to someone in China, you better wait a week because they’re probably not going to check their email. It was all about messaging. So it started out with messaging with QQ (an instant messaging software part of Tencent) and that led to WeChat.

Then from there, they added payment, which was Alipay and WeChat Wallet. Once you had messaging and WeChat or mobile payments set up, that enabled E-commerce to happen on your phone anywhere you happen to be during your day.

That was the basis of the super app. It turns out people just live on their smartphones. It becomes the operating system for your life.

But we didn’t see any of those three steps in the US. People weren’t living on WhatsApp as much, although they are now. They were using email.

They didn’t adopt mobile payments because they were using credit cards which works fine, not awesome, but they were functional, and then E-commerce was something you did on your PC, not necessarily on Amazon, on your smartphone.

So we didn’t really see the super app emerge in the US at all although Facebook is trying it right now. We saw it in China and then we started to see it in Southeast Asia. Grab and Gojek are working on this. People are trying to build it in India in a lot of towns right now, but it emerged out of China first, and it’s not clear to me it’s going to emerge out of the US at all.

Facebook is basically copying WeChat right now. They’re consolidating their messengers, which is WhatsApp, Instagram, and Facebook Messenger first, and then they’re going to try and add mobile payment, which is Calibra, and then they’re going to try and add E-commerce. They’re basically trying to copy WeChat, but I doubt it will work.

Gennaro Cuofano: You also mentioned the importance of word of mouth as a way of consuming things. So Chinese, as you say, are very, in general, skeptical (from official sources). So this is interesting because it helps us better understand how Chinese people think.

How has (digital) word of mouth influenced the way the Chinese digital economy is evolving?

Jeffrey Towson: I mean word of mouth has been the way China has operated for a long, long time. Up until recently, the news was mostly government created, state-owned broadcast or state-owned media so people didn’t necessarily believe that at face value.

Similarly, a lot of the information comes from corporations. Well, they don’t necessarily believe that either.

In China, the way things have worked for 50 years is you ask your friend who’s a good doctor, what’s a good product, how good is that washing machine. The whole country has worked on word of mouth for a long time. When QQ and WeChat came along, that just basically moved it all online.

Even today when social and chat is a big part of e-commerce and other things in China, you chat with people about what you’re going to buy and online influencers, these people that talk about products on Youku and such, that’s the same phenomenon.

It’s okay, I don’t understand what this product is. I don’t trust anyone. I don’t trust the commercial, but I trust this one person I listened to on my channel because she seems like a pretty okay person.

That’s a version of word of mouth as well. It’s kind of a who do you trust. People trust who they know. That’s been a long-running thing within China. The internet just made it a lot faster.

You get these online influencers with just millions of followers as they talk about what handbags and lipstick to buy and discussion forums and things like that really are pretty vibrant in China.

You have so many people chatting about everything all day long that there’s a very energetic online conversation happening in China that didn’t exist 30 years ago. 30 years ago, if you lived in Beijing, you didn’t know people in Guizhou or Kunming. There wasn’t communication. There weren’t phones.

The country was very, very fragmented with the vast majority of people living in villages in farms up until 1980, 1990. So the internet kind of stitched everyone together for the first time. China has this ongoing discussion online. That’s a new thing for the country. That’s never existed before. So it’s interesting to watch.

Has the Internet also affected Chinese government influence on the economy?

Jeffrey Towson: I mean there’s a couple of levels to this. Definitely there’s a system of controls in the media and in some conversation. That definitely exists. Part of that is because of politically sensitive topics, which is what people tend to report on.

But there’s another level of it where the government does view it as it’s role to have healthy conversations, things that aren’t considered bad for society.

If you watch TV, people don’t have tattoos. They don’t smoke on TV because those things are not considered terribly good for society. So it’s not just about, controlling. It’s also about encouraging other types of topics, encouraging respect for your family, respect for your elders.

There’s a lot of this that is not as controlling as people like to think. It’s more about just a belief that there should be a healthy level of conversation that should be positive. You know, I think there’s a lot of value in some of that.

I think that’s a lot of bad behavior like if people are playing internet games too much, it adds… or too much about just showing naked women or almost naked women. That does get stopped because it’s not considered terribly good for the country. Which is it’s not a bad argument.

A lot of this has just been the evolving nature of the Chinese internet and definitely in the last couple of years, the level of let’s say transparency and control of the online world in China has dramatically increased.

So things that existed in 2009 would exist today. So yeah. But the tech has advanced pretty rapidly on all of these government’ish tools.

A lot of them aren’t run by the government. A lot of them are run by tech companies or run by media houses or run by people who make movies, and they know what they can include and what they can. I mean it’s a pretty complicated system, but it’s definitely getting more sophisticated tech-wise.

What tech companies are you following right now?

Jeffrey Towson: The big five or six. The Alibaba, Tencent, ByteDance, Baidu, Didi, Meituan. Those are the big giants by market cap. I also look at the telco players a bit. So Huawei, ZTE, China Mobile, China Unicom.

I focus mostly on software on the digital side. I mean software and data. But the hardware world is becoming more software’ish. You know, as networks become smart, as drones become smart, as refrigerators become smart, that really means adding software.

So more and more I’m looking at those more equipment type companies as they move towards software. Obviously, Huawei is in the news a lot this year. And then the AI companies that are just roaring up right now.

Most of them aren’t public yet, but there’s a good number of these almost purely AI companies like Megvii, SenseTime, Hikvision, things like that. They’re pretty interesting what they’re doing. It’s the same ones you see in the paper more or less.

How does voice search look like in China?

Jeffrey Towson: The big question is natural language processing. Can a computer hear you and understand it, and it turns out that’s actually pretty difficult. Computer vision is much more advanced commercialized, but Chinese companies especially like Baidu, which is the big search engine, they’ve been on this for a long time.

It has a lot to do with the fact that it’s actually pretty hard to type in Chinese on a cellphone. You can type on a smartphone or a PC in English quite easily but drawing the Chinese characters is actually kind of a pain. So people switched over to voice or started thinking about it much earlier.

So the accuracy levels, the numbers you read about it, it’s usually Baidu that they have a high accuracy level for Chinese inputted voice higher than English and that’s because it’s hard to type and draw the characters. That’s where it’s going. I’m not totally sure Alibaba is all over that situation with their team on Genie.

Xiaomi has an AI assistant that’s moving pretty quick, so does Baidu. So I mean these are the equivalents of Alexa and Google for the West, but we’re seeing three or four different companies in China doing this. Yeah, I think it’s going to move pretty quick but yeah, the recognition aspect is problematic. It actually turns out it’s pretty difficult. So we’ll see.

Can it get past basic understanding or is it going to be stuck at this sort of rudimentary understanding for a long time, which could be the case. I don’t know. We’ll see how it plays out, but it’s pretty tough. The AI assistants are a big deal right now in China.

For anyone trying to expand and build a digital business in China, what suggestions do you have?

Jeffrey Towson: Most of the cool digital stuff in China is consumer-focused. The B2B side, the enterprise side is actually pretty slow and it’s not as advanced as the US or the West. So the consumer side is where China is really the frontier of a lot of things.

Within that, probably the most important thing is to understand digital marketing and social media because it’s very aggressive in China. If you’re not doing that, you can’t sell anything to anyone.

So what you see is a lot of big fortune 500 companies studying their teams in China in terms of digital marketing and then taking those lessons and applying them in the rest of the world.

That’s the area I’d start focusing on. Things are moving really fast and probably more advanced than just about anywhere you’ll find mostly. So digital marketing, social media, stuff like that.

What’s the “coolest” thing right now in the digital marketing space in China?

Jeffrey Towson: Probably the coolest thing I think is how content is driving e-commerce that we had these KOLs, these online influencers come up, and they’re basically content creators.

They create videos, traveling through Paris, looking for handbags and then they use that to sell their own stuff, buy my handbag. But they’re also contracting with major brands to promote their stuff.

Brands are doing this in a large part as a replacement for hiring celebrities or spokespeople because the KOLs (Key Opinion Leaders) can move more items.

It’s turning out that content is a very powerful and authentic way to drive e-commerce and it’s got a depth of content and thinking and an authenticity that is really quite powerful. That’s something that we see in China more than anywhere else. I think that’s pretty interesting.

Then the other stuff is short-form video, which is TikTok go in. You know, that was a China thing, but that’s taking off in a lot of countries right now. Live streaming, micro-gifting.

There’s a lot of China’s stuff that’s different than the West. Podcasting is actually very popular in China and it’s easier to monetize in China than it is in say the US where there’s not really any ad market for podcasts.

So there’s a couple of things where China is related. Usually, all of these things tie to consumer behavior because that’s where things are really innovative.

Micro-gifting is very popular. Online influencers, E-sports is huge in China and people play online and people just shower them with little gifts of money and things.

So yeah, there’s a lot of interesting models bubbling around, and it’s not just China, it’s really Asia. A lot of interesting stuff happening.

What kind of content are Chinese users consuming the most?

Jeffrey Towson: Especially short video. One of the reasons TikTok took off so quickly was these are 15-second videos. One, it turns out they’re a lot more addictive when you’re hitting a new video every 15 seconds.

The other thing is it engaged more of the China network that… Let’s say there are 500 million people who have smartphones and good data plans and can watch Youku and whatever.

But short video anyone could do.

So all one billion people who have WeChat can watch the short video even if you’re just a farmer in a field and you have a very basic cell phone with a very basic data plan because you don’t have a lot of money, you can watch a short video because they don’t take much memory.

You can also film your own short videos just with your phone.

So it engaged a much bigger percentage of the network of consumers, not just to consume but also to produce content. That’s one of the reasons that is doing so well in lots of poor countries because anyone can do short video no matter how skimpy your data plan is or how basic your cell phone is.

You can do WeChat. You can do a short video and a couple of other things even if you have a little bitty data plan. That’s one of the reasons I think that’s powerful. Also, it turns out it’s super addictive.

It also turns out it’s really good for digital advertising because of every, let’s say fourth or fifth video is a full-screen 15-second video advertisement, which is a heck of a lot better than a banner ad after a search engine inquiry.

It turns out it’s really good for video advertisements when you get a 15 second Hyundai ad that covers your whole screen. That’s a lot better than a banner headline. It really works on a lot of dimensions. It’s pretty clever as a business.

What sources do you suggest to stay up to date with China’s digital economy?

Jeffrey Towson: I’m literally launching this week Jeff’s Asia Tech Class where basically I’m going to start teaching online on my website, which is jefftowson.com.

It will be a freemium model so people can basically log in every week and get about 90 minutes worth of teaching on all of this.

We’re going to layout a good year or two worth of courses and people can learn as much or as little as they want. But yeah, I’m going to start systematically teaching about all of this. That’s launching this week really.

What’s the best way to contact you?

The easiest for contacting me is probably LinkedIn because I’m on there a lot. It’s either LinkedIn which is easy to connect and then I do my Asia Tech Class and my little newsletter on my website.

So those are two of my two main little channels.

September 10, 2019

Nir Eyal On How To Become Indistractable

I met for the first time Nir Eyal, at The Next Web Conference in Amsterdam, back in 2017. I already knew Nir for his book “Hooked” and ever since I’ve followed him, as Nir is the best resource when it comes to building up engaging products, and also a go-to source when it comes to behavioral design.

We have the chance to interview Nir for the blog and ask him a few questions that might help you both from the business and personal standpoint.

Gennaro: Honored to have you with us Nir! I’ll take the chance to ask you a few questions that can benefit the FourWeekMBA community!

In your first book, “Hooked” you taught companies how to build habit-forming products.

Would you mind giving us a bit of context of how that book came to life?

Nir Eyal: Hooked came out of my experience with my last company. It was at the intersection of gaming and advertising, and this was about the time that the Facebook platform was just starting to hit its stride.

This was circa 2007 or so. It was even before we had the app store. This was back in the day of Facebook apps. I had the front row seat to observe this explosion of different companies that were using behavioral psychology to get people started with these games.

And so, I could observe some companies and some products were so good at changing consumer behavior very, very quickly and attracting millions and millions of users, while others weren’t as good. And so I was really fascinated by that and when my last company was acquired, I had this opportunity to try and analyze why was that the case.

And I came up with a hypothesis that the companies of the future, the ones that would really be able to dominate markets would be the ones who understood consumer habits.

That I realized that as interfaces shrink from desktop to laptop to mobile devices to wearable devices, and now to audible devices like the Amazon Echo or Apple Siri, habits become even more important, because if you are not top of mind, if you are not the first to mind solution the consumer asks for, looks for, and knows what they’re looking for, then you might as well not exist.

And so, I really needed to understand how these habits were formed, but I couldn’t find any book or resources that really told me how to build habit-forming products, so that’s exactly what I did.

So, the book’s called Hooked: How to Build Habit-Forming Products, and it outlines this four-step model that we see at the core of all these habit-forming, both online, offline, consumer-facing, enterprise-facing, all of these products fundamentally use this hook model at the core of the consumer experience to keep people engaging on their own with little or no conscious thought out of habit.

Gennaro: Your Model is among the most used frameworks in the startup world.

How does the Hook Model work?

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Source: nirandfar.com

Nir Eyal: It’s pretty simple really. It’s a four-step model that goes from a trigger to an action to a reward and finally to an investment. And it’s through successive cycles through these hooks that customer preferences are shaped, that our tastes are formed, and that our habits take hold.

A trigger, there are two types. There are external triggers, and there are internal triggers. External triggers are these pings, dings, rings, these notifications that tell us what to do next with some information in our outside environment.

The internal triggers are negative emotional states, so these are problems that we want to solve with a product. That’s not necessarily a bad thing, that’s why we do everything. All human behavior is spurred by the desire to escape some kind of discomfort. So, that’s the trigger phase.

Then we have the action phase, which is the simplest behavior done in anticipation of a reward. So, this is gonna be something as simple as a scroll on Facebook or Instagram. It could be clicking a play button on YouTube, a quick search on Google, these very simple behaviors done in anticipation of an immediate reward.

And then you have the variable reward phase which is probably the engine of the hook model. This is where there’s uncertainty that resolves the emotional itch, that resolves the internal trigger.

So, this is a very Skinnerian type of mechanism, this variable reward of seeking what’s called an intermittent reinforcement that keeps people checking with some kind of uncertainty.

Now, of course, the product has actually to scratch the user’s itch. It’s not good enough just to glob on points and batch some leaderboards. That almost never works. What you really have to do is scratch the customer’s itch and yet leave them wanting more.

And then finally, the last step of the hook is the investment phase, and this is where people put something into the product in anticipation of some kind of future benefit, so that can be data, content, followers, reputation, anything that makes the product better and better with use, and loads the next trigger so that through successive cycles through the hook, we no longer even need those external triggers. We use the product on our own. We’re internally triggered to use it out of habit.

Gennaro Cuofano: I was extremely glad to be part of the group of editors that had the chance to comment and edit your new book, “Indistractable.”

On the one hand, with the Hook Model, you gave companies a way to understand their users’ needs deeply and create habit-forming products.

On the other hand, I saw Indistractable as a framework for anyone who is trying to develop a strong “immune system” against tools and apps that have become too distractive. And it is not an easy match.

We have teams of engineers and psychologists tapping into our internal triggers. And, we’re left alone to use those apps, that if used properly can really enhance our lives! So how do we strike a balance? And…

How can “Indistractable” contribute to people’s lives?

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Source: nirandfar.com

Nir Eyal: I wrote Indistractable because I kept getting this feedback after I would give a presentation on how to use habit-forming products for good, by the way, that’s the context for everything I wrote in Hooked was for Facebook and YouTube. And these companies, they already know these techniques, and they have for a very, very long time.

My goal was to democratize those techniques so that people building all sorts of products, you know, why can’t we make exercising as interesting as being on Facebook? Why can’t we make eating healthy as engaging as Instagram? Well, we can. We can actually use those same techniques, and in fact, thousands of companies have.

The problem is that people don’t exactly know how to put these products in their place sometimes, and I have to admit that the inspiration for writing the book came from my own personal challenge that I found that I was spending time in ways that I didn’t always like, and I didn’t always understand why I was using these products as much as I was, even though I knew how they were designed, right, I understand how these products are built to be engaging, how they get us hooked, in fact.

But what I realized was that we really need a new set of techniques, a new set of practices to understand how to put distraction in its place. And I realized that I was in a really good position because I knew these companies Achilles’ heel. I helped them design how to make their products very engaging, which means that I also understand the Achilles’ heel of distraction and how we can put distraction in its place.

And originally I thought, oh, you know, it’s all about the technology, it’s all about the products, that’s what’s wrong, and so I went on a big digital detox, I did digital minimalism.

That didn’t work. And the reason it didn’t work is that I never addressed the deeper psychological issues, that what I learned in my five years writing Indistractable is that distraction always starts from within, and we have to understand what’s driving us to distraction.

The fact is we are looking for distraction because we are incapable of handling uncomfortable emotional states. And so, that’s really where this journey began. That there are actually four things that we can do to become indistractable. We can talk about that a little bit here in your further questions.

But basically the inspiration was I wanted to understand how to put distraction in its place, and so that’s why I wrote this book Indistractable. My hope is that as someone who was an industry insider, I can give people the cheat codes, the secret weapon to make sure we put distraction in its place.

Incidentally, not just technological distraction. Distraction has been around for a very, very long time, and Socrates and Aristotle were talking about the nature of distraction approximately 2500 years ago. So, this is not a new problem, and so what I’m hoping to do is to give people the tools to fight any kind of distraction that gets in their way.

Gennaro Cuofano: On FourWeekMBA, I’ve covered the business models of most of the companies that affect our daily lives. Google and Facebook, in particular, make money by selling our data. This isn’t by itself a bad thing.

However, there are two mechanisms that I believe are distorted. First, those advertising business models have become pretty good in hiding from the same people that use them each day, how they really make money. In a mechanism defined as “hidden revenue generation.”

Second, those tech companies, in particular, are skewed toward advertising alone (Facebook makes over 99% of its money from advertising) while having a global scale.

Do you think a more diversified business model would make them become more “virtuous” or that isn’t an important factor at all?

Nir Eyal: Well, it’s interesting, you know. I don’t think there’s anything inherently wrong with building a product that people want to engage with. That’s a good thing, right. And this is nothing new, you know, it’s interesting.

People kind of go crazy about Facebook and Fortnite, but what about football? What about spectator sports? How much time are we spending addicted? I mean, literally, some people are actually pathologically addicted to watching sports on TV nonstop.

And we don’t talk about all those old problems so, you know, the thing is that unless you are pathologically addicted, there’s nothing wrong with enjoying entertainment. There’s nothing wrong with movies and books and media and sports.

Of course, it’s frivolous, you know, you’re not really producing much when you’re watching a soccer match, a ball bounces back and forth on a field for hours.

You’re not really doing anything, but so what? There’s nothing says that you have to spend your entire life being productive. There’s nothing wrong with a pastime, and being entertained by a game, whether that game is a video game or a football match.

So, I don’t think there’s anything necessarily evil about spending time online in these ways. The question is to what extent do we overuse, and that’s a personal responsibility issue. And then I think there’s a company responsibility when it comes to a select group of people.

Those are people who are actually addicted. People who are pathologically addicted, companies have a responsibility to reach out and do something to help them. And I’ve written about this for years now.

They need what’s called use and abuse policy to reach out and say, hey, you know what, you’re using this product to an extent that may indicate that you’re struggling with an addiction, how can we help? So that’s, I think, the company’s responsibility.

Other than that, you know, other than the one or two percent of people who actually struggle with a pathological addiction, guess what? For the rest of us, it’s in our hands. We can’t wait for these companies to make products that are less engaging, and we don’t want them to. We want these products to be engaging.

So, it’s really gonna be a personal responsibility issue.

What other business books do you suggest?

Nir Eyal: Well, there are lots of books. In fact, the bibliography of Hooked has hundreds of books that I reference in my book. I think from a business perspective, one of the most helpful books is the Lean Startup.

I think is a fantastic methodology for understanding your customers’ needs. If you’re looking to build a product to service your customers, no matter what business you’re in, The Business Model Canvas by Alex Osterwalder, I think is a really good book as well.

I think if you want to understand addiction and how machines can prey upon people who have a predilection for addiction, there’s a book called Addiction By Design by Natasha Dow Schüll, which is pretty good. It shows how vulnerable people can be taken advantage of through machine gambling.

And then there’s another book called Lost Connections by Johann Hari, who wrote this really, I think, a fantastic book on addiction and why addiction is very different from what we would call a habit.

What I do in terms of building products to create habits, you know, addiction it turns out is a much deeper issue. So, those are some books that are top of mind.

I’m not gonna say that those are my the best books I’ve ever read because there are books that I can’t just pick one favorite. But I think those are four that I read recently that I would recommend.

What blogs or resources would you suggest to help improve the psychological well being?

Nir Eyal: So, in terms of resources, I would say that the work of Richard Ryan and Edward Deasy around Self Determination theory. If you’re not familiar with Self Determination theory, it’s one of the most well-researched theories on human motivation, and it basically says if there are three components to psychological wellbeing, then all of us have a profound need for competence, autonomy, and relatedness.

And so, it’s a really great filter to understand why people do what they do, as well as why we might be missing something in our own psyche. I call these three, Deasy and Ryan don’t call it this, but I call these three things our psychological nutrients.

That just as we have physical nutrients, you know, we have these macronutrients of fat, carbohydrates, and protein, we also have these psychological nutrients of, that I mentioned earlier, of competency, autonomy, and relatedness.

And if you have those three things, this is really how you flourish, this is where the seed of motivation lies, and if you’re not getting those three things, you’ll do some very, potentially harmful things in the long term. It’s called the needs displacement hypothesis.

So, it explains why people over-abuse video games, for example. Kids are a great example.

They’re not using video games too much because video games are evil. They’re overusing video games because they’re escaping the fact that they don’t get enough of these psychological nutrients in their day-to-day life.

So, that’s a resource I would check out. I think it’s very effective and useful to understand, whether you’re in business, or just in your personal life.

What’s the best way to be able to reach out or follow you?

What’s the best way for people to reach you out or follow you?

Nir Eyal: So, my website is nirandfar.com. And on, for my book, my first book is called Hooked: How to Build Habit-Forming Products. That’s available wherever books are sold.

And look out for Indistractable: How to Control Your Attention and Choose Your Life, is the full name of the book, and that will be available wherever books are sold starting in September.

Suggested reading

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Business resources from the blog:

What Is a Business Model? 30 Successful Types of Business Models You Need to Know
The Complete Guide To Business Development
Business Strategy: Definition, Examples, And Case Studies
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
What Is Market Segmentation? the Ultimate Guide to Market Segmentation
Marketing Strategy: Definition, Types, And Examples
Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
How To Write A Mission Statement
What is Growth Hacking?
Growth Hacking Canvas: A Glance At The Tools To Generate Growth Ideas

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Published on September 10, 2019 00:59

September 8, 2019

What Is the Minimum Viable Product And Why It Matters

As pointed out by Eric Ries a minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.

This is a concept matured through the lean startup movement that gave rise to the lean startup methodology. While the MVP development methodology has helped many startups build great products.

We’ll see throughout this article what is an MVP, why it matters and when you can use an alternative approach called Exceptional Viable Product (EVP).

The origin story of the lean startup movement

It all started with an HBR article of 2013 that referred to a new phenomenon in the business world “Why the Lean Start-Up Changes Everything:”

For a few years already, serial entrepreneur – Steve Blank – had noticed a new pattern in the business world, which he called the Customer Development Manifesto, which moved along 17 principles.

This manifesto started from a definition of a startup that moves along those lines:

A Startup Is a Temporary Organization Designed to Search for A Repeatable and Scalable Business Model

The interesting part of this definition is – I argue – the “search for” part. In fact, many companies in the past started from a prepackaged business model they could apply to their business to scale up.

In the real world, startups need to look for a business model. The process of iteration to find a business model is as tough as the process of iteration of humans searching for meaning.

In fact, only when a startup has found the proper business model it will be able to unlock value in the long-run.

The Customer Development Manifesto moved around 17 principles:

There Are No Facts Inside Your Building, So Get Outside
Pair Customer Development with Agile Development
Failure is an Integral Part of the Search for the Business Model
If You’re Afraid to Fail You’re Destined to Do So
Iterations and Pivots are Driven by Insight
Validate Your Hypotheses with Experiments
Success Begins with Buy-In from Investors and Co-Founders
No Business Plan Survives First Contact with Customers
Not All Startups Are Alike
Startup Metrics are Different from Existing Companies
Agree on Market Type – It Changes Everything
Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
If it’s not About Passion, You’re Dead the Day You Opened your Doors
Startup Titles and Functions Are Very Different from a Company’s
Preserve Cash While Searching. After It’s Found, Spend
Communicate and Share Learning
Startups Demand Comfort with Chaos and Uncertainty

From then on the Manifesto became the starting point for The Lean Startup Movement:

What Is a Lean Startup Canvas? Lean Startup Canvas Explained

That also brought to the Lean Startup Methodology.

The lean startup methodology in a nutshell

In a nutshell, the lean startup methodology aims at creating a scientific, repeatable process for product development that allows the startup to build products and deliver them fast. In other words, the lean startup moves around three stages:

Build
Measure
Learn

This process of build > measure > learn will need to be repeated over and over, thus creating a feedback loop. The main purpose is to initially come up with a minimum viable product (MVP). In fact, that is a critical aspect of the lean startup model.

As pointed out by Eric Ries:

A Minimum Viable Product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.

What is not an MVP?

As Ash Maurya pointed out the definition of MVP got overtime simplified with “the smallest thing you can build that lets you quickly make it around the build/measure/learn loop”

This kind of simplification brings to flaws and mistakes that can also lead to great failures. In fact, more specifically Ash Maurya defines the MVP as “the smallest thing you can build that delivers customer value (and as a bonus captures some of that value back).”

That is where the Exceptional Viable Product definition given by Rand Fishkin comes in handy and in a way it connects with the stricter definition of MVP given by Ash Maurya.

When does an MVP make sense?

If you just starting up, you don’t have an established brand and your reach is limited, the MVP might be the way to go. That’s because the risk of failure and the cost in terms of branding is very very limited.

Thus the value captured from the iterations is high. All that changes if you have an established brand and a broad reach.

What Is the Exceptional Viable Product?

As Rand Fishkin pointed out:

I believe it’s often the right choice to bias to the EVP, the “exceptional viable product,” for your initial, public release.

Fishkin suggests creating an MVP but not releasing it until that is exceptional. At that point, you do release it to the public. Thus, the exceptional viable product (EVP) methodology requires an iteration of the product “in-house,” tested with your team and maybe a few selected customers.

Only when you’re sure the product is exceptional you can launch to a broader audience. The EVP methodology allows more established brands to avoid failures that can lead to irrecoverable loss of reputation.

Why and when to use the Exceptional Viable Product methodology?

As Rand Fishkin pointed out:

My proposal is that we embrace the reality that MVPs are ideal for some circumstances but harmful in others, and that organizations of all sizes should consider their market, their competition, and their reach before deciding what is “viable” to launch. I believe it’s often the right choice to bias to the EVP, the “exceptional viable product,” for your initial, public release.

Rand Fishkin also added:

Depending on your brand’s size and reach, and on the customers and potential customers you’ll influence with a launch, I’d urge you to consider whether a private launch of that MVP, with lots of testing, learning, and iteration to a smaller audience that knows they’re beta testing, could be the best path.

In other words, he takes into account two main variables. On the one hand, you have the attention, customers, and evangelism.

On the other hand, you have the product quality. The greater the attention, customers base and ability to evangelize the more you’ll need to have a solid product before its launch.

In Rand Fishkin vision, an EVP has to have two minimum features:

have a decent exposure
and be truly impressive, at least at one must-have – identified – feature customers are looking for

He learned that lesson at Moz when he was trying to build a new tool to identify spammy links. As Rand Fishkin recounted:

Our research had already revealed what customers wanted. They wanted a web index that included all the sites Google crawled and indexed, so it would be comprehensive enough to spot all the potential risky links. They wanted a score that would definitively say whether a site had been penalized by Google. And they wanted an easy way of knowing which of those spammy sites linked to them (or any other site on the web) so they could easily take that list and either avoid links from it or export and upload it to Google Search Console through a disavow file to prevent Google from penalizing them.

That would be anexceptionalproduct.

But we didn’t have the focus or the bandwidth to build the exceptional product, so we launched an MVP, hoping to learn and iterate. We figured that something to help our customers and community was better than nothing.

I think that’s my biggest lesson from the many times I’ve launched MVPs over my career. Sometimes, something is better than nothing. Surprisingly often, it’s not.

Key takeaways

The lean startup movement and the lean startup methodology gave an important contribution to the startup ecosystem. A core part of the lean startup methodology is the MVP.

Thus, a scientific method of building up a product which allows a startup to create a feedback loop to get valuable data and have a finished product.

The definition of MVP has been often misunderstood and it has led to many failures. That is why Ash Maurya likes the strict definition of MVP that consists in building “the smallest thing you can build that delivers customer value (and as a bonus captures some of that value back).”

Moz.com founder, Rand Fishkin also helps us with a new way of defining a viable product, based on the EVP.

In short, he points out that while for small startups, that have low exposure building up an MVP might be less risky. For an established brand using the MVP approach, might be too risky.

In fact, this often leads to the “something is better than nothing syndrome.” Rand Fishkin learned the lesson in a hard way. You can avoid that failure by adopting the EVP approach to product development.

Other business resourcs:

Handpicked business models:

How Does PayPal Make Money? The PayPal Mafia Business Model Explained
How Does WhatsApp Make Money? WhatsApp Business Model Explained
How Does Google Make Money? It’s Not Just Advertising!
How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
The Google of China: Baidu Business Model In A Nutshell
Accenture Business Model In A Nutshell
Salesforce: The Multi-Billion Dollar Subscription-Based CRM
How Does Twitter Make Money? Twitter Business Model In A Nutshell
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained

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Published on September 08, 2019 15:20

What Are T-Shaped Skills And Why You Need To Hire A X-Shaped Profile

T-shaped people have now become an essential part of the business world. As the story goes, a T-shaped profile is a person that has a deep understanding and expertise in one or two areas and a broad knowledge of several other areas:

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T-Shaped profiles and skills had become widely popular throughout the 1990s when technical people started to get out from engineering departments to take more and more management roles.

However, as the web took over and the digital age became an integral part of the business world, another profile, an X-Shaped one started to become a key element fora company’s success.

Drawbacks for T-Shaped profiles in the digital age

A T-Shaped profile might have been one of those profiles that thrived throughout the 1990s, however as companies evolved to become more and more entrepreneurial; innovation required also large organizations to organize most of their teams around an entrepreneurial mindset.

While a T-Shaped profile adapted well in an era or relatively fast change, it won’t adapt as well in an age of extremely fast-paced evolution. In this era, an X-Shaped which looks more like an artist or able to understand several areas of your business so well will be a pivotal profile to drive your business success.

Inside an X-Shaped profile

If you want to hit it big, you need to start adding authoritativeness and leadership as critical skills. That is when you make the jump from T-shaped to an X-shaped profile!

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The X-shaped is an evolution of the T-shaped.

Where T-shaped understands that collaboration is a key for growth; The X-shaped profile understands that leadership and strategic thinking are a crucial ingredient to move a small or large group toward goals that require massive action. Thus, the X-shaped is together a T-shaped profile and a recognized leader within the organization!

Those sorts of profile work extremely well in moonshot organizations.

Other business resources:

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Published on September 08, 2019 14:26

6 Time Management Tips And Hacks For Business Owners

If you’re like most busy entrepreneurs, you just never have enough time in the day.

From the moment you wake, competing priorities begin to pull you into a thousand different directions.

It makes sense. You want to earn a great income doing work you love. You’ve set ambitious goals to make that happen. You’ve been encouraged to wear your always-on hustle as a badge of honor. This is life in the fast lane, right?

Still, though you’re always doing something, you can’t shake the feeling that you’re not making progress on the work that matters most. After all, being busy and being effective are not one and the same.

Now, imagine ending each day with a deep sense of satisfaction. A feeling of accomplishment. You’re edging closer and closer towards your goals. It’s all possible with the right time management strategies.

Get Clear on Your Priorities

Are your daily actions taking you closer to your goals? Or are you always adding points to a never-ending to-do list? Rushing from one urgent task to the next?

All too often, we consider this kind of chaos a natural part of chasing success in the modern era. Squeezing the last second out of every hour out of every day is how we get things done.

The problem is that if you spread yourself too thin, you won’t end accomplishing anything truly meaningful. That’s the core idea behind ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results by Gary Keller and Jay Papasan.

The authors emphasize their message perfectly with this ancient proverb:

“If you chase two rabbits, you’ll end up with none.”

There’s a better way. And it demands tough decisions.

Devote time to regularly reconnect with your goals. What are your hopes and desires? What scares you? Let your dreams and fears dictate how you spend your time. You’ll soon realize all tasks are not created equal. Consider a concept from Vilfredo Pareto, the Italian economist who came up with the Pareto Principle.

Pareto observed that 80% of Italy’s wealth was owned by 20% of the country’s population. Also called the 80/20 Rule, the gist is that 80% of your results are generated by 20% of your efforts. What’s the 80/20 in your business? Meeting new customers? Doing demos?

Here are some steps you can take to make sure your schedule matches your priorities.

Track your time

Review your time. Track your time over a week or two. Which activities are taking you closer to where you want to be? Use tools like Harvest and Toggl to get an idea of how you spend your days.

Eisenhower Method

Human beings have a tendency to prioritize tasks if we think they’re urgent. Researchers in this study call it the “mere urgency effect”. So, when given a choice, we’ll usually put unimportant tasks with shorter deadlines, above larger, more important projects with longer timeframes.

Psychologists suggest it’s the sweet dopamine hit we get when we tick something off our to-do list, triggering a flood of positive emotions. The downside is that we might still be accomplishing very little. Think of those days that are dominated by responding to emails as they arrive in your inbox.

The best way to conquer the mere urgency bias?

Start by ranking your tasks according to urgency and importance. Here’s where a time management tactic like the Eisenhower Matrix can help. This method comes courtesy of Dwight D. Eisenhower, the 34th President of the United States.

The statesman had a lot going on. He was the Army Chief of Staff and eventually became the first Supreme Commander of NATO. Add in a stint as the President of Columbia University.

It’s no stretch to say he was incredibly productive during his lifetime.

Eisenhower lived with a simple approach:

“I have two kinds of problems, the urgent and the important. The urgent are not important, and the important are never urgent.”

This is how the Eisenhower Method breaks things down:

Urgent and important – tasks you need to do on the same day. Getting back to that unhappy customer on social media can’t wait.
Important – important but not urgent activities that be scheduled. Think of things like developing your expertise, evaluating your business strategy, and brainstorming sessions
Urgent not important – delegate these tasks. Certain emails and scheduling meetings fall into this bucket.
Not urgent and not important – don’t do at all. Random internet surfing is one example.

Just-in-Time

When the dust settled after the Second World War, Japan’s car manufacturing industry was in crisis. Leaders at Toyota knew the Japanese industrial economy had to keep up with America if it wanted to survive.

An engineer at Toyota, Taiichi Ohno, recognized a problem. Replicating American manufacturing processes wasn’t going to cut it. Japan’s order levels were far lower than in America. They needed a different production system.

And that’s when Ohno came up with the philosophy that would save the Japanese car industry: just-in-time. The company would make “only what is needed when it is needed, and in the amount needed.”

The idea has since spread to computer hardware development and inspired the supply chains of the world’s biggest supermarkets.

How do you apply this approach to time management?

Just-in-time forces you to focus on only what you need for your current task. Whenever successful people tackle a project, they begin with the end in mind, writes Stephen Covey in The 7 Habits of Highly Effective People. Identify your intention before you begin.

Take online research for example. Let’s face it, it’s easy to get pulled down the internet rabbit hole. It doesn’t take much for YouTube videos or clickbait to sap hours of our time. Plus, research is piling up showing that information overload makes it harder for us to make decisions and keep track of information.

We’ve written about this and the harms that come with the Fear of Missing Out. So, if you’re doing research for a blog, meeting or presentation, limit your search to only what is necessary.

Use services like Evernote and Pocket to save interesting articles for later. Preserve your willpower and block distracting sites with a tool like Freedom.

Apply the same approach to social media. In Digital Minimalism, Cal Newport challenges us to examine why and how we use social networks. You can, for example, use LinkedIn to engage meaningfully with fellow professionals and customers, without losing hours to random scrolling.

The early bird gets the worm

The early bird catches the worm. It’s an old saying we’ve all heard before. Perhaps it’s endured because it’s true?

Morning people might be (according to some studies) wealthier, healthier, and more proactive. The reason might be simple. For most of us, we have complete control over our time in the early mornings.

To take full advantage of your mornings, productivity experts recommend kicking off your day with your most important task. International business coach Brian Tracy calls it eating the frog. The approach is simple, do your key tasks early on in the day. The upside is that no matter what else you do, you’ll still get to the work that matters most.

Time management tactics like these have been boosting productivity for centuries. Back in 1918, Charles Schwab hired consultant Ivy Lee to improve efficiency at his steel plant. The story goes that Schwab was so pleased with the results that he wrote Lee a $25 000 check.

Here is the method you use:

Write down 6 things you need to get done the following day
Arrange these tasks in order of priority (this is key)
In the morning, start with the first task and finish it before moving on to the next task

It’s important to use this time for truly important tasks. Not for emails or checking social media. Remember, you will get to those tasks during the day, anyway.

How do you eat an elephant?

Large, complex projects are often daunting. Many times, we don’t know where to begin. Even if we have an action plan, it’s hard to carve out the time to get everything done in one sitting.

One answer is to split a major project into chunks.

Research confirms we perform better when we are closer to reaching our goals. By giving yourself smaller goals to push towards, you improve your motivation. The finish line is in sight.

The tactic may even help you do better quality work. This study showed students turned into their best performances at the beginning and end of a project. Participants typically slacked in the middle. By reframing those bigger projects as smaller tasks, you’ll always benefit from the high energy you have at the start of a task. You can, for example, put your marketing plan together over a full week, checking off a new section each day.

Use an app like Todoist and break down what needs to be done.

Timebox

Notice how a simple activity becomes more and more complex the longer people work on it. We’ve all seen a 15-minute discussion turn into an hour-long meeting just because that’s how much time was booked.

That’s thanks to a phenomenon called Parkinson’s Law.

Cyril Northcote Parkinson first introduced the concept in an essay for The Economist. Parkison was poking fun at public sector inefficiency, but the first line of his essay still holds true today:

“It is a commonplace observation that work expands so as to fill the time available for its completion. “

Fortunately, you can get this law to work for you. Give yourself a specific time-frame for a task before you begin. If you have been tracking your time, you’ll know how long it takes. Try to complete the task during that slot.

This might be a powerful motivator, too. See, we’re typically more driven when we attach a specific deadline to a project, according to a study entitled “The effect of digital learning, outcome, and proximal goals on a moderately complex task” by Seijts and Latham. Use a tactic like the Pomodoro Technique to focus without interruptions when you do this.

Use the Right Technology to Save Time

One of the easiest ways to save time is through technology. For instance, use automation to put every admin part of your business on autopilot. As a business owner, you probably wear many hats. These days, software-as-a-Service (SaaS) applications make it possible to get all the help you need.

Here are a few services to consider:

Calendly to schedule meetings
Quickbooks, Zoho, or Freshbooks to manage your accounting
Schedule posts using social media automation with a service like SocialPilot
Automate customer services with tools like HappyBox or Groove or HubSpot
Use electronic signing to make it easy to manage documents

If you have a team, consider using a team chat platform like Chanty to improve communication. There are a few ways Chanty helps business owners save time. You’ll get to create tasks within the app. Plus, all your activity is organized into a central Teambook. Use smart notifications to reduce distractions.

Master Your Time Management and Reach Your Goals

Building something meaningful – a thriving business or fulfilling career – requires time, focus and consistency. We all have the same 24 hours in a day to work towards these goals. No productivity system or time management hack is going to change that. Still, modern life is hectic. Some days we’re constantly dividing our time between digital distractions and unexpected emergencies.

Thankfully, once we turn to the right time management techniques, we protect and respect our time. We get to the things that really matter. And suddenly, life feels a little less rushed, and a whole lot more rewarding.

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Published on September 08, 2019 05:59

September 7, 2019

Moonshot Thinking: When Growth Becomes All About The 10X Rule

Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.

Inside Google X moonshot thinking

While almost every corporate research lab tries to improve the core product of the mother ship, X was conceived as a sort of anti–corporate research lab; its job was to solve big challenges anywhere except in Google’s core business.

It all started from the search engine that conquered the web, Google. Back in the late 1990s, Google was one of the last movers on the search industry, yet it was 10X better than its competitors. Also, its founders’ Page and Brin had the 10X, moonshot mindset of thinking big. When they set the mission for the company, they didn’t say “we’ll build a competitive search engine.”

They said, “Our mission is to organize the world’s information and make it universally accessible and useful.” This mission might have sounded ridiculous for two young Ph.D. that were more academics than people from the business world. Yet those academics managed to build a business that in 2017 netted more than $110 billion, mostly coming from advertising:

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However, Page and Brin created innovative harm of the company, called Google X, whose aim was to solve significant challenges independently from the core business model of the company.

As pointed out by Larry Page, on the 2013 founders’ letter to shareholders:

It’s amazing what you can achieve with a small dedicated team when you start from first principles and aren’t encumbered by the established way of doing things. Yet I’ve learned over time that it’s surprisingly difficult to get teams to be super ambitious because most people haven’t been educated in this kind of moonshot thinking. They tend to assume that things are impossible, or get frightened of failure. It’s why we’ve put so much energy into hiring independent thinkers at Google, and setting big goals. Because if you hire the right people and have bold enough dreams, you’ll usually get there. And even if you fail, you’ll probably learn something important.

We can learn a lot from Google X moonshot thinking and apply it back to the growth of your business.

What is moonshot thinking? It’s all about 10X!

As pointed out by Astro Teller, who runs Google X:

The context matters so much the expectations matter so much the people matter the resources matter but that’s not the biggest issue there have been these times in the world and sadly they’ve been mostly military in nature where you get a huge number of really smart people together you know not 5 or 10 but a hundred or more and you give them the resources but much more importantly the expectation that they will produce miracles.

This is moonshot in action, and it starts by creating a feeling of exigency.

Create exigency

One of the things for which humans are wired is survival. The issue is that most cultures and corporate cultures create a feeling of normality, which makes us feel safe. That feeling kills the moonshot thinking. Moonshot thinking starts from a life philosophy of treating each day like it is the last and most important for survival. This is not different from Jeff Bezos’ Day One.

Context is king for the moonshot thinking

Making the context that’s the hard part perspective shift is what it’s all about that’s why going ten times bigger is more important and works better than going 10 percent bigger when you shoot for 10 percent better you’re in a smartness contest you’re putting all of your people in a smartness contest with everyone else in the world they’re not gonna win it doesn’t matter how much money you give them but if you push them if you give them the expectation and the freedom to be weird that’s moonshot thinking then they can do the perspective shifts and not only if you shoot for ten times bigger instead of 10% bigger it’s almost never a hundred times harder and the payoff is a hundred times so you already know that you’ve got a better return on your investment but sometimes it’s literally easier and the reason is because that perspective shift is actually cheap relative to being smarter than everyone around you.

Astro Teller also pointed out the importance of creating a context where moonshot thinking becomes the rule. That is according to him the most challenging part. Once you have the context, you’re ready for the rest!

Give up on incremental changes

An incremental change is as hard if not harder than a massive change. Why? You compete against others to find a solution to a similar problem. What if you switch the perspective and ask a different kind of question. For instance, when it comes to growth, it is a usual pattern to see business owners think in terms of “how do I grow my business 30% this year?”

With that thinking, you’ll look for conventional solutions, in many cases prepackaged by others. You’ll look at old formulas to new problems and stick with it until you end up with a failed enterprise. Instead, if you start asking, “how do I grow my business 10X?” that changes everything!

All of a sudden, you need to look for a new solution; you need to get creative, and obsessed about the original question you have in your mind. There won’t be anyone out there able to give you the answer, but you only. That’s when you start embracing a 10X attitude!

Embrace the 10X attitude

As Peter Thiel pointed out in his book, Zero to One, you win when you create a monopoly. When Google took over the search market, it was a latecomer, yet it had a 10X attitude, it wanted to dominate the information market. When Facebook took over the social media industry, it was a latecomer too. Yet, Mark Zuckerberg was thinking in terms of world domination!

The 10X attitude requires an audacious vision, yet also a creative way to think about the problem, and it starts from first principles.

It all starts by reasoning from first principles

In every systematic inquiry (methodos) where there are first principles, or causes, or elements, knowledge and science result from acquiring knowledge of these; for we think we know something just in case we acquire knowledge of the primary causes

As pointed out on Wikipedia, reasoning from first principles means digging into primary causes.

A good part of the modern world has been built on assumptions that primarily took place anywhere between the 1800s and the beginning of the 1900s. Many of those assumptions, if further questioned, can turn into first principles — a set of assumptions that can’t be further examined. Where in the scientific world, going to first principles means getting closer to nature. In the business world, that might mean to ask the right question rather than to stick to a question that anyone else is asking.

Target the impossible but make it actionable

In most cases, a failure in achieving results is not due to setting up a too ambitious goal. Quite the opposite, as Grant Gardone points out in the 10X Rule in many cases, failure is due to an objective which was not ambitious. Not only that, it was not actionable enough. Indeed, to start making the impossible happen, you need to have a clear direction and be able to take massive actions!

Fail most of the time

There’s no playbook for taking moonshots — and we like it that way. Building things that are on the edge of the impossible means we have to embrace ambiguity and be prepared to tinker, experiment, and learn our way into the future. Responsibly irresponsible, we live in the sweet spot between audacity and humility, idealistic and pragmatic. Passionately dispassionate, we ask hard questions, seek out diverse perspectives, and find inspiration in weird and unexpected places.

As pointed out on Google X, there is no playbook for moonshot thinking. Yet it starts from embracing ambiguity and finding the sweet spot between audacity and humility, between being idealistic and pragmatic. On the edge of a continuous flow where bold solutions come out regularly.

Do the hardest thing first

One regular thinking pattern in business is about starting from simple problems, solve them, and build up a business that might survive for a few years. If you aim to build a business that nonetheless the current swift changes, will endure for decades to come you need to start from the hardest problem, one that seems unsolvable and that has a component of social responsibility in it.

Take massive actions

Once you’ve committed to the moonshot thinking, and you apply the 10X rule, it comes the time to take massive action. No longer you can afford to make the same level of efforts that average people take; you need to take a 100X.

You need to breathe the problem you want to solve; you need to identify with it. It is a sort of obsession that gets close to madness, yet only for those looking from the outside. For you, that mindset means taking a level of actions that just a few people in the world can.

Forget T-shaped; it’s all about X-shaped people

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The problem with a T-shaped profile is that it won’t get you to reach the ambitious vision you have. I consider myself a T-shaped profile, yet I’m aware of its limitations. In other words, as a T-shaped, I would not be able to have the ability to move a small team toward a 10X goal.

However, if you want to hit it big, you need to start adding authoritativeness and leadership as critical skills. That is when you make the jump from T-shaped to an X-shaped profile!

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The X-shaped is an evolution of the T-shaped. Where T-shaped understands that collaboration is a key for growth; The X-shaped profile understands that leadership and strategic thinking are a crucial ingredient to move a small or large group toward goals that require massive action. Thus, the X-shaped is together a T-shaped profile and a recognized leader within the organization!

Why 10X thinking is cheaper than incremental thinking, in the long-run

Many believe that 10X thinking is expensive and requires a lot of resources. Instead, 10X thinking is just the opposite. It is about finding inexpensive, creative solutions to hard questions. It also involves a lot of failure along the way, yet the world becomes your laboratory, and failure becomes just another step in the growth process! Thus, in the long run, 10X thinking isn’t only inexpensive but will have a massive ROI on your business.

Handpicked related articles:

Who Owns Google? Under The Hood Of The Tech Giant That Conquered The Web
The Power of Google Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!
Ok Google, Are You In Search Of A Business Model For Voice?
The Future of Google: The Curse of Engineers Become Advertisers
When The AI Meets Users’ Intent, Google Takes A Cut On Every Sale On Earth
Baidu Vs. Google: The Twins Of Search Compared
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
What Is The Most Profitable Business Model?

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Published on September 07, 2019 13:06

September 2, 2019

Eight Things You Need To Know About Business Model Innovation

In the last years, I’ve been dissecting business models of any type, and companies of any size. At the same time, I’ve been talking, interviewing, and discussing business model and business model innovation with dozens of entrepreneurs and practitioners.

I’ve been doing that for several reasons:

To gain a better understanding of businesses around me. As I had the option to gain a Ph.D. on the topic or to create my Ph.D. I went for the latter, and in the process, I thought to document it all on FourWeekMBA. Over time I wanted to create the business school I always dreamed of.
Business models enabled me to gain insights into how companies worked at a holistic level so that I could become a better digital entrepreneur.
Business modeling also helped me test the assumptions around the business I was trying to build, thus reducing the time or potential financial resources spent on a project which was doomed to failure.

In short, I found myself using business modeling for several reasons, and those I believe are all legitimate.

At the same time, while researching the topic with the mindset of an entrepreneur but the depth of reach of a Ph.D. I noticed how business model and business model innovation had become widely adopted concepts. And also (and probably for that reason) widely misunderstood.

Let me then clarify a few things that I’ve found out over the years, which if you’re starting out; but also if you’re passionate about the topic might help make sense of it.

Business model innovation enables you to create competitive moats

As technology becomes over time a commodity, creating a lasting advantage requires business model understanding, experimentation, and execution.

That’s because business model innovation shifted the focus from the competition; which is what in the last decades we’ve all been looking at with frameworks like Porter’s Five Forces, to customers.

Without going through all the reasons why that happened today, business model innovation has become more important than technical innovation.

A quick caveat, before we move on.

When I say that the focus has shifted to customers, it doesn’t mean that you don’t need to understand your competition. It just means you need to start from customers and the problems they face. Only after that, you want to move to competition and what existing alternatives exist.

A multi-faceted concept

Although we like to give a single definition to each of the concepts we know. Those concepts will adapt based on the context they sit into.

In short, that is fine to have multiple definitions of the concept, based on the objective that each practitioner might have.

Therefore, it’s okay that a concept translated in several fields will have different meanings.

Thus, let’s see some of those meanings.

Analysts use business models to produce financial analyses

Business modeling can be seen as a technique to dissect any organization and business for analysts and business people trying to gain a better understanding of those businesses.

Business and financial analysts use business modeling to have a better understanding of tech companies. They do it to give investment recommendation, financial reviews, and investment advice.

Academics study business models for the sake of classifying things

For academics, a business model might be just a holistic way to describe a business. And the purpose of an academic might seem more rigorous than an entrepreneur. The academic has to prove the business has certain features that make it different or similar to other businesses.

And from those features, the academic will derive classifications, that as they become more and more complex only live in theory land.

The research, therefore, doesn’t have necessarily a practical purpose. But instead the goal of uncovering universal classification systems for things in the real world. As such, they might lose a practical application.

Most people confuse business models for business plans

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Among the top results, Google suggests “How to write a business model” when typing “how to … business model. When you click on the result that Google suggested, see what happens.

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When you click on the Google suggested result for “How to write a business model,” you get “how to write a business plan.”

For most people (those that didn’t study the topic), business models often resonate with business plans. I noticed it when I started to research the topic.

As Google makes accessible the searching data and behaviors of billions of people, it also adapts to those search behaviors.

To my surprise, in the past, I noticed how for the query “how to write a business model,” Google served results around “how to write a business plan.”

I’ve learned to appreciate those “mistakes” as Google is a commercial search engine. And as such, it follows what most people search. If collectively people think that a business model is a business plan, Google might enable that to be true.

This means that if you are an entrepreneur searching for valuable resources either you are lucky to find the resource you need or you might end up writing a hundred-page business plan which won’t help much with your business.

If at all will prevent you from starting it. As you will start making things more complicated than what they should be.

Startups confuse business models for monetization strategies

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An example of how Airbnb “confused” its business model for its monetization strategy (Slideshare)

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How WeWork described its business model in the report before the IPO. You might notice that what they’re talking about is their revenue generation strategy. (WeWork Financials)

And for many startups, business model resonates with monetization strategies. I’m not saying this is right or wrong; it’s just what it is.

Overall that is fine. Startup pitches or financial forms are in many cases, also a marketing tool meant to communicate and simplify a concept.

Thus, if most investors want to know about your business model but what they mean is how you make money, that is fine to simplify it.

However, as an entrepreneur, if you do believe yourself that a business model is how you make money that might limit your options, as all day long you’ll think about monetization strategies, rather than having a more holistic and strategic approach.

Business model innovation is an experimentation mindset for entrepreneurs

Business model design is not about sketching a plan on a piece of paper, but rather a mindset of experimentation.

In business modeling, you can manufacture experiments (business models, and business model variations) that enable the entrepreneur to test the assumptions around the business quickly, cheaply, and with minimum effort.

It is important to start testing (as practitioners like Ash Maurya highlighted) from the riskiest assumptions.

Those assumptions for which the business might not become sustainable over-time. Things like monetization strategy or key customers understanding are some of the riskiest assumptions , and they need to be tested, quickly.

An entrepreneur is not a scientist

An entrepreneur has different goals than a scientist. Where the scientist might try to uncover more universal truths. The entrepreneur needs business model experimentation to test the assumptions, uncover market opportunities, reduce the time to market, and eventually build a valuable business.

In short, an entrepreneur is a market-driven animal. Rather than starting from theories to find if that is true through experiments. An entrepreneur starts from a problem, and she, or he goes back to theory to understand what are the underlying assumptions which are preventing the business to succeed.

Once those assumptions have been streamlined, they can be tested, so that the entrepreneur can move on and make the product or service in target with the market.

Business model innovation is at the same time a mindset, a framework and a set of tools for entrepreneurs

Business model innovation, therefore, can be seen as a mindset, framework, and a set of tools for entrepreneurs to build relevant businesses in today’s marketplace.

Key takeaways

Business model innovation is a popular topic, and as such, there are a lot of misconceptions around it.

In my research around the topic, I’ve figured the reasons behind those misconceptions and how and why they exist.

We also uncovered how business modeling has a meaning based on the reason why you’re using it. At the end of it all, business model innovation is a dynamic concept, at the apex of its evolution, and as such, it’s interesting to see how it can have different meanings and interpretations.

At the same time, if you’re an entrepreneur, it’s essential to understand what it can do for you, and this article might clear things up.

Read Next: Business Models Guide.

Business resources:

Hand-picked business models:

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Published on September 02, 2019 14:11

August 29, 2019

How To Read A Balance Sheet Like An Expert

The purpose of the balance sheet is to report the way the resources to run the operations of the business were acquired. The Balance Sheet helps us to assess the risk of the business.

By looking at it, you will be able to answer questions, such as: What is the leverage? Is the company liquid enough?

Remember, leverage is the proportion between equity and debt, while liquidity is the capacity of the business to repay for its short-term obligations, to run the operations.

Why the balance sheet is important

It has been my experience that competency in mathematics, both in numerical manipulations and in understanding its conceptual foundations (accounting), enhances a person’s ability to handle the more ambiguous and qualitative relationships that dominate our day-to-day financial decision- making by Alan Greenspan former FED Governor

Understanding the balance sheet is critical to be able to dissect any business. We’ll start from the ten commandments of the GAAP accounting system.

A quick introduction to the main GAAP principles

Although the fundamental accounting system hasn’t changed, the principle and rules applying today have been updated in the last century.

The generally accepted accounting principles are the standards and procedures used by organizations to submit their financial statements. Today we have two main accepted frameworks, globally: GAAP and IFRS.

Indeed, after the 1929 market crash, the American government felt the necessity to create a set of rules to discipline and to harmonize the accounting system, and avoid what had happened. In the decade after the 1929 market crash institutions such as the Securities and Exchange Commission were created.

In 1934, the SEC, assisted by the American Institute of Accountants (AIA), started to work on the GAAP. The AIA subsequently instituted an organism to specifically create these principles, The Committee on Accounting Procedure (CAP).

Finally, the first set of GAAP was created, and in 1973 and the CAP board was substituted by the Financial Accounting Standards Board (FASB). From this work came out ten basic principles, that are the foundation of the modern accounting system in the US:

Economic entity assumption: If you have a business, even if you are a sole proprietor, the accountant will consider yourself separately from your business.
Monetary Unit Assumption: The Business activity you undertake is considered in US Dollars.
Time Period Assumption: a Business activity you undertake can be reported in separated time intervals, such as weeks, months, quarters or fiscal years.
Cost Principle: If you buy an item in 1980 at $100, it will be reported on your balance sheet as worth $100 today, independently on inflation or appreciation of the asset.
Full Disclosure Principle: You have to report all the relevant information of the business in the financial statements or the footnotes.
Going Concern: The accountant assumes that your business will continue its operations in the foreseeable future.
Matching Principle: If you incur an expense, it should be matched with the revenues, according to the accrual principle. If you decide to pay your employees a bonus related to 2015 but you pay it in 2016, you still will report it as 2015. You will report the expense when it was recognized and not when actual cash disbursed (accrual principle).
Revenue Recognition Principle: if you sold a product on January 2015, but you will receive the money from the customer in April 2015, you will report the sale in January since it was the period when the actual sale was realizable.
Materiality Principle: when you report the financials, it will be allowed to round them, since if an amount is insignificant can be neglected by your accountant.
Conservatism Principle: When in doubt between $80 or $100 loss, your accountant has to choose the most conservative alternative, report $100.

These principles are the “ten commandments” of the accountant. Keep them in mind. They will guide you throughout the book.

Also, the accrual principle in practical terms states: “Revenues and expenses are recognized when occurred, independently from cash disbursement.”

This principle is crucial to building our primary financial statements, in particular, the Income Statement and Balance Sheet.

A quick glance at the main accounts of a financial statement

An account is an item on the financial statements that has certain characteristics. Usually, the accountant groups them in five main types. Each of those types has subtypes.

For now, it is critical to understand each main type to have a better understanding of how financial statements work. The main accounts are:

Assets

Resources owned by an organization. They will produce future benefits for the company. For example, you own a bakery that has to produce biscuits. For you to produce them, you have to buy a machine. The machine will be an asset to your organization.

Liabilities

Obligations (Debt) contracted by an organization. Your bakery bought $100 of raw material from the supplier, and you will pay in 60 days. Until the payment will be made the $100 will show as a liability (future debt) on your balance sheet.

Owner’s Equity

Amount of money or resources you endowed to your organization. The accounting definition is Owner’s Equity = Assets – Liabilities.

Revenue or Income

The $ amount of sales occurred in a certain period. According to the accrual principle, income is recognized independently from cash receipt.

Expenses

The $ amount of costs occurred in a certain period. According to the accrual principle, expenses are recognized independently from cash disbursement.

While assets, liabilities, and equity will be shown on the balance sheet. Revenue and expenses will be shown on the income statement.

A snapshot of the primary financial statements

“Unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself” Warren Buffet

The primary financial statements are Balance Sheet, Income Statement and Cash Flow Statement. Each of these statements has a different purpose, and together they give us specific information in regard to: “Return, Risk and Cash.”

First, if you look at the income statement, there is no way you would make any assessment about the risk of the organization in that particular point in time or the cash produced in a certain period. Instead, the Income Statement (or Profit & Loss) will show you the return generated by the business.

Second, if you want to understand how an organization acquired the resources to operate the business, you have to look at the Balance Sheet.

How does the balance sheet assess the risk of an organization? Simple: there are two ways a company can acquire resources, either through Equity or Debt.

As you can imagine, too much debt can be dangerous. What would occur if you run a business, and suddenly your creditors ask for the money you owe them?

You would go bankrupt. Instead, when debt in proportion to the equity is dismal, this makes your organization creditworthy and safer.

Third, it is highly probable seeing an organization which makes profits but out of cash. The cash flow statement helps you to answer questions such as: How much cash did we make?

Where this cash came from? An organization can find cash through three main activities: Operating, Investing and Financing.

What is the income statement?

The primary purpose of the income statement is to show the return of the business in a certain period: Quarterly, Biannually or Yearly. The income statement is built around the bottom line, the “net profit.”

Do not be surprised to notice your eyes unexplainably falling on the net income. Accountants make it as visible as a fluorescent fish ready to mate. This distracts you by other metrics on the Income Statement that are as important as the Net Income.

What is the balance sheet?

The primary purpose of the Balance Sheet is to show the risk of the business in the particular moment you are looking at it. If you look the balance sheet on January 1st, it won’t be the same on January 2nd. Of course, this is true for the P&L and CFS (Cash Flow Statement) as well, but the balance sheet

is an instant snapshot of the business more than a collage of pictures taken in different moments, like the Income Statement.

What is the cash flow statement?

The primary purpose of the CFS is to show the cash generated by an organization in a certain period: Quarterly, Biannually or Yearly. It doesn’t matter how much profits a business is making, one way to know whether the business will survive in the next future is to look at the cash.

Generating cash is not an easy task, and the organizations who can keep their profits stable and make enough cash to sustain their operations and invest for future growth are the ones who thrive.

Sample of a balance sheet

The purpose of the balance sheet is to report the way the resources to run the operations of the business were acquired. The Balance Sheet helps us to assess the risk of the business.

By looking at it, you will be able to answer questions, such as: What is the leverage? Is the company liquid enough?

Remember, leverage means the proportion between equity and debt, while liquidity is the capacity of the business to repay for its short-term obligations, to run the operations.

Imagine you have to open a restaurant. The overhead costs, plus the costs of running the business are $200,000. There are two ways for you to find the money needed to open the business, assuming you don’t have the resources to do it your own.

Either you find a partner that would put personal money, or you ask for a loan. Therefore, Equity and Debt are the two ways to finance your business. This is how a typical balance sheet looks like:

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Let’s look now at some practical case studies.

Alphabet (Google) Balance Sheet

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Source: Google 10K, 2018

It is important to notice that while the balance sheet will keep its structure. It might vary based on the kind of business we’re analyzing.

In Google‘s case, I’m focusing the analysis on a few key items:

Cash and cash equivalents and Marketable securities
Accounts receivable
Inventory
Non-marketable securities
Property and equipment

Cash equivalents and marketable securities

For instance, for a company like Google, you’ll notice how the top sections with items like cash and cash equivalents and marketable securities are the ones that bring most resources to the company.

These comprise assets that can be easily turned into cash.

As the company explains in its 10K those are primarily composed of “time deposits, money market funds, highly liquid government bonds, corporate debt securities, mortgage-backed and asset-backed securities.”

In short, the company keeps part of its cash reserves as short and longer terms investments where it can earn interest income.

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Some of those marketable securities are also represented by companies in which Googe might be investing from time to time.

These resources are extremely important as they are liquid. Thus, the company can turn to them as a buffer in case of emergencies. But also to keep them as a strategic asset when it is time to make strategic acquisitions.

For instance, the company invests in other bets, which while today don’t contribute much to the overall revenue of the business, they might become important sources of income in the coming decade.

Accounts receivables

In Google‘s case, as the company specifies “accounts receivable are typically unsecured and are derived from revenues earned from customers located around the world.”

More precisely the company’s income recorded but not received yet, it will be reported as accounts receivable. In Google‘s case, as it sells advertising to businesses, we can imagine those sums is money to get from some of those businesses.

Some of the money turned into the accounts receivable might become uncollectible over time, as the customer who owes them might become insolvent. That is why it is critical to check the age of those accounts.

Google, indeed, keeps together reserves in case those accounts won’t be collected anymore.

Inventory

If you’re wondering what kind of inventory a company like Google might hold. A small chunk of Google‘s revenues (as of 2019) come from Hardware. In short, the company sells phones (the Pixel), and other voice devices (Google Home and Google Mini), and other devices.

Thus the inventory is primarily comprised of these devices. And as you’ll see this number is extremely low compared to companies like Amazon which instead focused more over the years in selling physical goods.

Non-marketable investments

While in the marketable securities we see lumped those investments that can be easily liquidated. In the non-marketable investments, we’ll find those investments which can be hardly sold for several reasons.

For instance, those might be long-term bonds or private companies which as they are not yet traded publicly can’t be considered as highly liquid.

And limited partnerships, which once again are not as easy to liquidate (at least from the accounting standpoint) as those that we find under the marketable securities.

That is why we find the non-marketable securities under the long-term assets of the organization.

Property and equipment

One thing you might be surprised about businesses which seem to be primarily digital like Google is the fact that they have billions and billions of dollars in physical assets.

In Google‘s case, you don’t see them under inventories, or other intangible assets. But you do see them under property and equipment. As specified by Google those include:

Land and buildings
Information technology assets
Construction in progress
Leasehold improvements
Furniture and fixtures

Things like land and building and IT assets are critical resources that make the Google business model sustainable over time. The former to host the human resources that keep the company going. The latter, to enable the company to have enough data centers to host billions of sites of Google‘s index and the billions of queries that each day go through the search engine.

So if you’re surprised to see almost sixty billion dollars under this item, you might ignore the fact that also digital businesses that scaled up require massive resources.

While it is possible to be extremely lean when growing. It becomes hard to keep that kind of organizational structure. Thus culture becomes a key element that holds the company together. As of December 31, 2018, Google reported over 98 thousand full-time employees.

Which seems a huge number. But if compared to Microsoft‘s reported 144 thousand employees, considering the Microsoft made about $110 billion in revenues in 2018 (Google reported over $130 billion in revenues in 2018), you can appreciate how so far the company is leaner.

The interesting part is as the company transition more to its mission to be AI-first it also consumes more computer power, which requires more data centers.

Let’s look now how Amazon balance sheet looks.

Amazon Balance Sheet

I’ve covered the Amazon business model at great length. For the sake of this article, we’ll look though at its balance sheet to make also some comparison with Google‘s balance sheet.

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Source: Amazon 10K, 2018

In Amazon‘s balance sheet you might notice right away a few differences with Google‘s balance sheet. For instance, Amazon carries less marketable securities, more inventories and more accounts payable.

This can be explained by the fact that Google and Amazon are fundamentally different businesses. I want to highlight that while Amazon and Google have wholly different business models.

If we look at the competitive landscape, we can use several lenses. But if we use a simple heuristic and look at the overlapping of users that use both platforms.

While those two companies have wholly different business models they still might be considered as competitors.

For instance, in the race to dominate voice search Amazon and Google are (fierce) competitors. And while this is not yet showing on the bottom line it might in the coming years.

Thus, it’s hard sometimes to assess the nature of strategy and when doing a financial assessment starting from hard numbers is good. But you need to make sure to look also at things that don’t have yet a tangible return today but they might in five, ten years.

For the sake of understanding Amazon balance sheet and compare it to Google, we’ll focus on:

Cash and cash equivalents and Marketable securities
Inventories
Accounts receivable
Accounts payable
Property and equipment

I want to show you how the Amazon cash machine works.

Cash equivalents and marketable securities

When it comes to cash and cash equivalents Amazon specifies those are “highly liquid instruments with an original maturity of three months or less as cash equivalents.”

The company also explains to “hold cash equivalents and/or marketable securities in foreign currencies including British Pounds, Euros, and Japanese Yen.”

That might be used as a hedging strategy designed to offset potential loss due to currency fluctuations. But also simply as revenues which are not necessarily turned into US dollars.

Inventories

When we look at platform business models one key element is that they don’t necessarily own assets but control the so-called network effects.

However, when a platform identifies a key strategic asset, owning and controlling it is crucial for its business model.

In Amazon‘s case, when the company transitioned more and more to become a platform (that happened when Amazon third-party sellers made up for more than 50% of Amazon e-commerce revenue).

The company had to make sure its fulfillment centers would be as efficient as possible, thus becoming one of the most important strategic assets for the company.

Indeed, while third-party sellers might stock their inventories or part of it with Amazon. Amazon can still guarantee a fast delivery experience (a key element of Amazon’s customer obsession). And the key to maintaining control over the overall customer experience!

That is why among its business risks Amazon mentions “If We Do Not Successfully Optimize and Operate Our Fulfillment Network and Data Centers, Our Business Could Be Harmed.”

In addition, Amazon highlights how “because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle.”

In short, the company is able to quickly sell its inventory, thus making short term cash which is and has been a bonanza for the company in the past decades.

The inventory management strategy that Amazon uses also enables us to understand how the company generates a lot of cash from its operations.

As Amazon explains “on average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.” In other words, Amazon is able to collect money right away from customers, which thanks to Amazon fast delivery pay right away.

In the meanwhile, Amazon collects the cash but (as we’ll see in the accounts payable) the company doesn’t have to pay its suppliers right away. Thus, generating extra short-term cash which can be easily invested in the operations of the business and to fuel growth.

Accounts receivable

Another element of Amazon cash machine is the ability to keep its accounts receivable under control while turning inventory quickly, and having advantageous payout agreements with suppliers and third-party sellers.

Indeed, even though Amazon is a company which sells hundreds of billions of goods and services on its platform. Yet its accounts receivable are lower than Google.

That might also be due to how the company reports them. But as Amazon clarifies in its financial statements “because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly.”

Accounts payables

Just to close the puzzle of Amazon cash machine, its accounts payable are kept relatively higher to its inventories and receivables as they enable the company to stretch short term cash resources for the liquidity of the business.

The difference between Accounts receivable, inventories and accounts payable make up the so-called working capital, which again is the set of short-term liquidity of the organization.

Indeed, paradoxically when a company lacks short term liquidity (not enough cash or assets easily convertible in cash) it might go bankruptcy nonetheless the business might be solid in the long-run (long-term assets are higher than long-term liabilities).

Case study: Imagine the case of a company which owns a beautiful building which is worth millions. But it can’t sell right away. And creditors call up the company to return a couple of hundred thousand dollars in a month. While the company seems viable in the long-run. The complete lack of short-term available resources might jeopardize the overall organization!

Property and equipment

As the company highlights “property includes buildings and land that we own, along with property we have acquired under build-to-suit, finance, and capital lease arrangements. Equipment includes assets such as servers and networking equipment, heavy equipment, and other fulfillment equipment.”

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Key takeaways

The balance sheet is a very important financial statement as it enables us to understand the assets that the company built over time.

It also enables to see the short and long-term liabilities the company owes.

At the same time from a balance sheet, we can appreciate the differences among several businesses and also understand some of the key elements of their business models.

That is why looking at the balance sheet should be an exercise to practice to dissect and understand any business.

Case studies:

How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!

Other business resources: