“Every successful business (1) creates or provides something of value that (2) other people want or need (3) at a price they’re willing to pay, in a way that (4) satisfies the purchaser’s needs and expectations and (5) provides the business sufficient revenue to make it worthwhile for the owners to continue operation.”
The Personal MBA by Josh Kaufman: Short Summary
The Personal MBA will help you master the art of business. Josh Kaufman compiles business knowledge that is seemingly difficult to understand or only available if you’re a student in business school and simplifies it for you.
The most important function of a business is value addition. A business is designed to repeatedly create and deliver valuable products/services that people want or need, at a price they’re willing to pay and in a way that meets the customers’ needs to continually generate profit. A business is made up of five interdependent processes:
- Value creation
- Value delivery
The revenue you need to sustain your business is dependent on people wanting what you want to offer. A successful business is designed around an understanding of the five core human drives:
Being your competitor’s customer gives you a better perspective on what your competition is doing right, and what you can improve on to stand out. Twelve possible forms of economic value in a business:
- Shared Resource
- Audience Aggregation
You can charge more for your products or services if they have a high perceived value. Feedback from clients, customers, and prospects can help you determine how well your business is meeting their needs. You can maximize the value of received feedback by:
- Getting feedback from potential clientele instead of family and friends
- Asking open-ended questions
- Keeping yourself calm and steady
- Taking suggestions objectively
- Giving potential customers an opportunity to pre-order
Trade-Off: a decision that places a higher value on one of several competing options Trade-offs are based on economic values that are usually evaluated before making a purchase. These values are:
- Ease of use
- Aesthetic Appeal
Great businesses attract potential prospects quickly and inexpensively. The kind of attention your business needs is the kind that will lead to a sale. While it is important to arouse desire in potential buyers, it is counterproductive to overpromise and underdeliver. The more of your customer’s human drives your product or service can connect to, the more likely you are to make a sale. Encouraging your customers to visualize how their lives would be better when they accept your offer is an effective way to get them to want to make a purchase. Many prospects that accept free samples from buyers end up becoming paying customers. Positive controversy is a great way to bring traffic to your business. When your business has an honorable reputation, you will attract repeat customers as well as referrals.
In a new business, it is important to make the first profitable transaction as quickly as possible. A transaction cannot take place without trust between the seller and the customer. The retailer and the prospect need to have aligning interests to create a common ground that is instrumental in a transaction. Negotiation involves exploring different options to find common ground that in turn leads to a successful transaction. Four pricing methods that can help you estimate how much a product or service is worth to your customers:
- The Replacement Cost Method: “How much would it cost to replace?”
- The Market Comparison Method: “How much are things like this selling for?”
- The Discounted Cash Flow/Net Present Value Method: “How much is it worth if it can bring money over time?”
- The Value Comparison Method: “Who is this particularly valuable to?”
Value-Based Selling: understanding and as a result, reinforcing the reasons why your product or service is valuable to potential customers. The three universal currencies in every negotiation are resources, time, and flexibility.
Value delivery is every strategy employed to ensure that every customer is a happy customer.
What you keep in your business is more important than what you make. The quality of your products should not be compromised in the name of saving money.
- Breakeven: The point where a business’s revenue exceeds its expenses
- Fixed Costs will always be incurred in a business, no matter what its value is
- Variable Costs are dependent on how much value you create and amplified by volume
- Overhead: minimum business operational costs. The lower your overhead, the higher your business’s financial sufficiency.
- Leverage: Magnifying potential gains using borrowed money
Working with Others
In working with people in business, influence is a better way to exercise power than compulsion. Your colleagues and your customers will value your relationship with them more when you make them feel important. Taking interest in people and giving them undivided attention in conversations makes them feel important. Putting others down doesn’t make you more important. It just shuts down effective communication. It is important for both parties involved to communicate in a way that promotes safety and doesn’t cause defensiveness or arouse anger. This is how:
- Share your facts
- Tell your story
- Ask for others’ paths
- Talk tentatively
- Encourage testing
To make people feel important and safe around you, always treat them with courtesy, appreciation, and respect.
Following the inflows and outflows help you understand business systems. Increase your inflows and/or decrease your outflows to increase your stock. A business system operates efficiently when the stock is of moderate size. Resilience is developed when one is flexible in situations that inevitably change.
You have to understand how a system currently works before attempting to improve it.
“If you don’t want garbage when you’re done, don’t begin with garbage.”
Standard Operating Procedure: a predefined process used to resolve a common issue or complete a task. A checklist is a standard operating procedure that ensures that important tasks are completed without fail. A checklist is valuable because:
- It helps define a system that is yet to be formalized and shows where a system can be automated or improved
- It helps you handle important tasks that could be overlooked when you’re busy