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Kindle Notes & Highlights
by
Josh Kaufman
Read between
January 9 - January 19, 2019
Business Angst. The feeling that you “don’t know much about business” and therefore could never start your own company or take more responsibility in your current position. Better to maintain the status quo than face the fear of the unknown.
Fears
Certification Intimidation. The idea that “business is really complicated” and is a subject best left to highly trained “experts.” If you don’t have an MBA or similar expensive credentials, who are you to say you know what to do?
Fear 2
How Businesses Work. A successful business, roughly defined, provides (1) something of value that (2) other people want or need at (3) a price they’re willing to pay, in a way that (4) satisfies the customer’s needs and expectations so that (5) the business brings in sufficient profit to make it worthwhile for the owners to continue operation. Together, the concepts in chapters 1 to 5 describe how every business operates and what you can do to improve your results.
definition of a business
To understand how businesses work, you need a firm understanding of how people make decisions, act on those decisions, and communicate with others.
Need to understand how peope make decisions
Businesses are complex systems with many moving parts that exist within even more complex systems like industries, societies, cultures, and governments.
Businesses within systems
Financial Intelligence for Entrepreneurs by Karen Berman and Joe Knight Simple Numbers, Straight Talk, Big Profits! by Greg Crabtree Accounting Made Simple by Mike Piper How to Read a Financial Report by John A. Tracy In addition, online courses like MBA Math (http://mbamath.com) and Bionic Turtle (http://bionicturtle.com) are available if you want to explore these topics in even greater depth. (Many business schools and corporate finance training programs recommend or require these courses prior to enrollment.) Quantitative Analysis and Modeling. We’ll discuss the fundamentals of
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Recommended books for finance/accounting
Make something people want… There’s nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you’ve found a gold mine. —PAUL GRAHAM, FOUNDER OF Y COMBINATOR, VENTURE CAPITALIST, AND ESSAYIST AT PAULGRAHAM.COM
Roughly defined, a business is a repeatable process that: 1. Creates and delivers something of value… 2. That other people want or need… 3. At a price they’re willing to pay… 4. In a way that satisfies the customer’s needs and expectations… 5. So that the business brings in enough profit to make it worthwhile for the owners to continue operation.
Definition of business
At the core, every business is fundamentally a collection of five Interdependent (discussed later) processes, each of which flows into the next: 1. Value Creation. Discovering what people need or want, then creating it. 2. Marketing. Attracting attention and building demand for what you’ve created. 3. Sales. Turning prospective customers into paying customers. 4. Value Delivery. Giving your customers what you’ve promised and ensuring that they’re satisfied. 5. Finance. Bringing in enough money to keep going and make your effort worthwhile.
5 Parts of every business
Market matters most; neither a stellar team nor fantastic product will redeem a bad market. Markets that don’t exist don’t care how smart you are. —MARC ANDREESSEN, VENTURE CAPITALIST AND FOUNDER OF NETSCAPE AND NING.COM
The problem was that very few people cared enough to spend $5,000 on a goofy-looking alternative to walking or riding a bike
Segway example
Books like The New Business Road Test by John Mullins can help you identify promising markets from the outset, increasing the probability that your new venture will be a success.
Book rec for market research
Maslow’s theory was that people progress through five general stages in the pursuit of what they want: physiology, safety, belongingness/love, esteem, and self-actualization.
Clayton Alderfer’s version of Maslow’s hierarchy, which he called “ERG theory”: people seek existence, relatedness, and growth, in that order.
According to Harvard Business School professors Paul Lawrence and Nitin Nohria, the authors of Driven: How Human Nature Shapes Our Choices, all human beings have four Core Human Drives that have a profound influence on our decisions and actions: 1. The Drive to Acquire. The desire to obtain or collect physical objects, as well as immaterial qualities like status, power, and influence. Businesses built on the drive to acquire include retailers, investment brokerages, and political consulting companies. Companies that promise to make us wealthy, famous, influential, or powerful connect to this
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5 drivers for human action
The Ten Ways to Evaluate a Market provide a back-of-the-napkin method you can use to identify the attractiveness of any potential market. Rate each of the ten factors below on a scale of 0 to 10, where 0 is extremely unattractive and 10 is extremely attractive. When in doubt, be conservative in your estimate: 1. Urgency—How badly do people want or need this right now? (Renting an old movie is typically low urgency; seeing the first showing of a new movie on opening night is high urgency, since it only happens once.) 2. Market Size—How many people are actively purchasing things like this? (The
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Ten Factors for Evaluating a Business Opportuntity
Economic Value usually takes on one of twelve standard forms: 1. Product. Create a single tangible item or entity, then sell and deliver it for more than what it cost to make. 2. Service. Provide help or assistance, then charge a fee for the benefits rendered. 3. Shared Resource. Create a durable asset that can be used by many people, then charge for access. 4. Subscription. Offer a benefit on an ongoing basis, and charge a recurring fee. 5. Resale. Acquire an asset from a wholesaler, then sell that asset to a retail buyer at a higher price. 6. Lease. Acquire an asset, then allow another
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12 Standards of Economic Value
Hassle Premium
The most valuable offers do one or more of the following: Satisfy one or more of the prospect’s Core Human Drives. Offer an attractive and easy-to-visualize End Result (discussed later). Command the highest Hassle Premium by reducing end-user involvement as much as possible. Satisfy the prospect’s Status Seeking tendency by providing desirable Social Signals (discussed later) that help them look good in the eyes of other people.
Perceived Value
By making offers Modular, the business can create and improve each offer in isolation, then mix and match offers as necessary to better serve their customers. It’s like playing with LEGOS: once you have a set of pieces to work with, you can put them together in all sorts of interesting ways.
Modularity
Iteration has six major steps, which I call the WIGWAM method: 1. Watch—What’s happening? What’s working and what’s not? 2. Ideate—What could you improve? What are your options? 3. Guess—Based on what you’ve learned so far, which of your ideas do you think will make the biggest impact? 4. Which?—Decide which change to make. 5. Act—Actually make the change. 6. Measure—What happened? Was the change positive or negative? Should you keep the change, or go back to how things were before this iteration?
Iteration Process
Here are a few tips to maximize the value of the Feedback you receive: 1. Get Feedback from real potential customers instead of friends and family. Your inner circle typically wants you to succeed and wants to maintain a good relationship with you, so it’s likely that they’ll unintentionally sugarcoat their Feedback. For best results, be sure to get plenty of Feedback from people who aren’t personally invested in you or your project. 2. Ask open-ended questions. When collecting Feedback, you should be listening more than you talk. Have a few open-ended questions prepared to give the
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Tips for collecting feedback
Relative Importance Testing—a set of analysis techniques pioneered by statistician Jordan Louviere in the 1980s 3—gives you a way to determine what people actually want by asking them a series of simple questions designed to simulate real-life Trade-offs.
Shadow Testing is the process of selling an offering before it actually exists.
If you’re not embarrassed by the first version of your product, you’ve launched too late. —REID HOFFMAN, FOUNDER OF LINKEDIN
A Minimum Viable Offer is an offer that promises and/or provides the smallest number of benefits necessary to produce an actual sale. A Minimum Viable Offer is essentially a Prototype that’s been developed to the point that someone will actually pull out their wallet and commit to making a purchase.
MVO
Pick three key attributes or features, get those things very, very right, and then forget about everything else… By focusing on only a few core features in the first version, you are forced to find the true essence and value of the product. —PAUL BUCHHEIT, CREATOR OF GMAIL AND GOOGLE ADSENSE
Rule #1 of Marketing is that your potential customer’s available attention is limited.
Your Probable Purchaser is the type of person who is perfectly suited to what you’re offering.
You wouldn’t worry so much about what others think of you if you realized how seldom they do. —ELEANOR ROOSEVELT, FORMER FIRST LADY OF THE UNITED STATES
Marketing is most effective when it focuses on the desired End Result, which is usually a distinctive experience or emotion related to a Core Human Drive.
Qualification is the process of determining whether or not a prospect is a good customer before they purchase from you.
Addressability is a measure of how easy it is to get in touch with people who might want what you’re offering. A highly Addressable audience can be reached quickly and easily. A non-Addressable audience can only be reached with extreme hardship, or isn’t Receptive and doesn’t want to be reached at all.
Addressble vs non-addressable
The essence of effective marketing is discovering what people already want, then presenting your offer in a way that intersects with that preexisting Desire. The best marketing is similar to Education-Based Selling (discussed later): it shows the prospect how the offer will help them achieve what they desire.
More often than not, offering genuine Free value is a quick and effective way to attract attention.
When creating a Hook, focus on the primary benefit or value your offer provides. Emphasize what’s uniquely valuable about your offer and why the prospect should care. Brainstorm a list of words and phrases related to your primary benefit, then experiment with different ways to connect them in a short phrase.
Advice about creating a good hook
A Call-To-Action directs your prospects to take a single, simple, obvious action.
The best Calls-To-Action ask directly either for the sale or for Permission to follow up.
Controversy means publicly taking a position that not everyone will agree with, approve of, or support. Used constructively, Controversy can be an effective way to attract Attention: people start talking, engaging, and paying Attention to your position, which is a very good thing.
Reputation is what people generally think about a particular offer or company. Reputations naturally arise whenever people talk to one another.
There is only one boss: the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else. —SAM WALTON, FOUNDER OF WALMART
A compromise is the art of dividing a cake in such a way that everyone believes he has the biggest piece. —LUDWIG ERHARD, POLITICIAN AND FORMER CHANCELLOR OF WEST GERMANY
Common Ground is a precondition of any type of Transaction. Without any areas of overlapping interest, there’s no reason for a prospect to choose to work with you.
Negotiation is the process of exploring different options to find Common Ground: the more potential paths you explore, the greater the chance you’ll be able to find one in which your interests overlap. The more open you are to potential options, the higher the likelihood you’ll find an area of Common Ground that’s acceptable for all parties involved.
Pricing Uncertainty Principle: all prices are arbitrary and malleable. Pricing is always an executive decision. If you want to try to sell a small rock for $350 million, you can. If you want to quadruple that price or reduce it to $0.10 an hour later, there’s absolutely nothing stopping you. Any price can be set to any level at any time, without limitation. The Pricing Uncertainty Principle has an important corollary: you must be able to support your asking price before a customer will actually accept it. In general, people prefer to pay as little as possible to acquire the things they want
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Auctions are an example of the Pricing Uncertainty Principle at work—prices change constantly, rising in proportion to how many people are interested and how much they’re each willing to spend.
By setting a low starting price and allowing potential buyers to bid against one another, auctions are typically an efficient way to establish a true market price for something that is difficult to reproduce and where no comparable items are already in the market. That’s why rare items like the Hope Diamond—if they’re sold—are typically sold at auction.
There are four ways to support a price on something of value: (1) replacement cost, (2) market comparison, (3) discounted cash flow/net present value, and (4) value comparison. These Four Pricing Methods will help you estimate just how much something is potentially worth to your customers.
The Discounted Cash Flow (DCF) / Net Present Value (NPV) method supports a price by answering the question “How much is it worth if it can bring in money over time?” In the case of your house, the question becomes “How much would this house bring in each month if you rented it for a period of time, and how much is that series of cash flows worth as a lump sum today?”
DCF/NPV is only used for pricing things that can produce an ongoing cash flow, which makes it a very common way to price businesses when they’re sold or acquired—the more profit the business generates each month, the more valuable the business is to the purchaser.
