Review

The real value in an MBA comes from understanding a few principles. The author created a 40 book reading list as an alternative to taking an MBA. Then he decided to extract the key principles from those book, and compress them into a single volume.

I have a content label in my second brain called ‘incompressible’; sometimes a resource is so dense with insight it can’t be distilled - I nearly applied it to this book, as it’s packed with 250 concepts.

Well worth a read.

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I keep coming back to the core concepts of this book. Before reading it I thought the concept of strategy seemed vague - I appreciate the clarity and structure the author brings to the subject. The examples bring the concepts to life. Personally I feel like I'm more able to assess the quality of a strategy now.

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The Startup of You

An interesting take on applying some startup thinking to your career. For a book that's more than 10 years old, the advice is holding up well. A reminder that you're neither fully in control of your career path, or completely unable to influence it.

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The Pareto principle (or 80/20 rule) is an incredibly important concept. This book drags out the explanation and application of the concept over too many pages in my eyes. Despite doing that it doesn't go far enough into the dangers of using the rule, and when it's not applicable.

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Key Takeaways

The 20% that gave me 80% of the value.

This book was incredibly hard to condense - hence the length of the Key Takeaway section here. Apologies!

• 5 interdependent processes that a business must have:
1. Value Creation → Creates and delivers something of value. Discovering what people need or want, then creating it
2. Marketing → That other people want or need Attracting attention and building demand for what you’ve created
3. Sales → At a price they’re willing to pay Turning prospective customers into paying customers
4. Value delivery → In a way that satisfies the customer’s needs and expectations Giving your customers what you’ve promised and ensuring that they’re satisfied
5. Finance → So that the business brings in enough profit to make it worthwhile for the owners to continue operation Bringing in enough money to keep going and make your effort worthwhile.
• Focus on improving skills directly related to the 5 parts of every business.

Value Creation

• The Market matters most. A fantastic product won’t redeem a bad market.
• Understand core human drivers - the more your offer connects with, the more attractive it will be to your market.
• Competition means that the market exists (there's no market risk). Learn from the competition, be their customer, see what works and what doesn't .

• 12 standard forms of value creation: Product, service, shared resource, subscription, resale, lease, agency, audience aggregation, loan, option, insurance and capital.
• People are willing to pay to relive pain (time, effort, distraction, uncertainty, experience, resources or equipment)

• Modularity and bundling provide customers flexibility and allow you to benefit from different forms of value creation.
• Ideas are worthless → getting them to work is the hard bit
• Prototypes allow you to get feedback before you spend time, effort and money.
• The faster you move through the iteration cycle, the better you product offering will become.
‣
Six major steps to iteration
• When deciding what to build - What will attract customers away from alternatives?

• The more accurately you can define and test critical assumptions in advance the less risk you'll be taking
• Shadow testing → selling an offer before it exists
• A minimum viable offer is an offer that promises or provides the smallest number of benefits necessary to produce an actual sale.
• Field test → use the product in the field and Iterate many times before releasing to customers

Marketing

• Marketing is about getting noticed. Sales is about closing the deal. Without prospects, you won’t sell anything.
• Rule 1 of marketing: Your potential customers attention is limited. Find away around their filters.
• Advertising is the tax you pay for being unremarkable.
• Focus your attention on getting the attention of the right people at the right time
• To break their attention, provoke curiosity, surprise or concern
• Marketing is most effective when it focuses on the end result - not the features
• B2B Qualification: Evaluate customers before purchase, to avoid the time consuming ones.
• Addressability: how easy it is to get in touch with people who might want what you're offering
• Discover what people really want, present your offer in a way that intersects with that preexisting desire
• Get people to want something by visualising what their life would be like after purchase
• Framing is the act of emphasising the details that are critically important
• If you want to attract attention quickly, give something valuable away for free
• A hook is a single phrase or sentence that describes an offer's primary benefit. Focus on the primary benefit, the unique differentiator, why people should care. “1000 songs in your pocket”
• Call to action → make it clear, simple and obvious
• Publicly taking a position not everyone will agree with will attract attention.
• Reputation → No one ever got fired for buying IBM

Sales

• Earn the trust of prospects: help them understand why it’s worth paying for, what’s important and convincing them you’re capable
• You need trust to make transactions - There are ways to signal you're trustworthy
• Common ground: Overlapping interests between two or more parties.
• You must be able to support your asking price before a customer will actually accept it.

• Set prices to appeal to the prospects that will ensure you work with your most desirable customers in a way that results in the highest profits
• Value Based Selling → SPIN → 1) Understand the situation 2) Define the problem 3)Clarify the short-term and longterm implications of that problem 4) Quantify the need
• Education Based Selling → the process of making your prospects better, more informed customers
• Understand their next best alternative
• Exclusivity → strong position if you’re the only place a product or service can be bought
• Can be handy to say "I need to discuss this with my x"
• Present yourself to the prospect as an assistant buyer. Your job is not to sell the thing, it’s to help them make an informed decision.
• Making damaging admissions can actually increase their trust in your ability

• Risk reversal: Money back guarantee. "Take the puppy home strategy"
• Reactivation: Quicker, simpler, and more effective to increasing revenue by attracting new customers

Value Delivery

• Every successful business delivers what it promises to customers
• Value Stream: A set of steps and processes from the start of your value creation process all the way through the delivery to the end. Diagram your value stream. It can help you streamline your process, making the entire system perform better.
• Make your value stream as small and efficient as possible. The longer the process the greater the chance that things go wrong. The shorter and more streamlined your value stream, the easier it is to manage and the more effectively you'll be able to deliver value.
• A system is a process made explicit and repeatable. A series of steps that has been formalised in some way.
• Distribution Channels
• Direct to user: Simple, effective, control the experience BUT might limit reach.
• Distribution through intermediary: increase sales BUT give up margin and control (counter-party risk)
• Expectation Effect: Quality = Performance - Expectations
• Be predictable: Customers want to know what to expect. They want a predictable experience. Uniformity, consistency and reliability.
• Scale is the ability to reliably duplicate or multiply a process as volume increases. Scalability determines your maximum potential volume. Automation helps.
• Accumulating small improvements in the value delivery process produces big results → due to amplification: a small change to a scalable system produces huge results.
• Invest in force multipliers to free up your time energy and attention to focus on building your business instead of simply operating it. (Tools are force multipliers)

Finance

• The art and science of watching money flow in and out of your business. Then deciding how to allocate it and determining whether or not what you're doing is producing the results you want.
• The more profitable the business, the better it will be able to handle uncertainty and change.
• Value Capture: Capture enough value to make your investment of time and energy worthwhile, not so much that there's no reason to business with you. Maximisation = capture as much as possible. Minimisation = capture as little as possible, as long as the business remains sufficient (long run powerful)
• Cash doesn't lie. Little room for creative interpretation. Free cash flow = cash collected minus cash spent for capital equipment and assets, which are necessary to keep it operating.

• Not every customer is a good customer. Some sap more time, energy and resource
• Lifetime value: the total value of a customers business over the lifetime of their relationship
• Allowable Acquisition Cost is the marketing component of lifetime value
• AAC = (Lifetime value - value stream costs - share of fixed costs) * (1 - desired profit margin)
• Reductions in variable costs are amplified by volume. Cutting costs that are wasteful is a good idea, but diminishing returns always kick in. Focus on creating and delivering more value.
• To bring in cash more quickly, speed up collections and reduce credit lines you're giving others
• Funding: The more control you must give up for a dollar of funding gained, the less attractive the source of funding. Bootstrap for as long as possible - then move up the funding hierarchy (giving away control).

The Human Mind

• Your brain and body are not optimised for the modern world
• Look after your brain and your body. Nutrition, exercise, sleep and rest = make you more productive.
• Use meditation to disassociate yourself from the voice in your head. The announcer lists things in the environment that may fulfil human drives, or present danger.
• Unless a reference level is violated, people will conserve energy and not act
• Change your environment to support your choices
• Conflict: When you procrastinate. One subsystem is trying to control getting things done. While another is trying to control getting enough rest. Both subsystems will keep increasing their strength to win (this makes you feel conflicted). Procrastination conflict can be ended, by Scheduling time for work and rest.
• We are natural pattern matchers → the more patterns you've learned, the more options you have when solving problems
• Use your willpower to change your environment, not your behaviour. Change your environment, save your willpower for when you need it.
• The response to a threat is fight, flight or freeze. Don't try to turn off the signal. Send a little confirmation back, message received. Thank you.
• The grandchild rule helps you evaluate decisions with longer-term impact
• Using checklists helps with absence blindness (harder to identify things we can’t observe)
• Our perception is optimised to notice contrast in our surrounding environment
• Scarcity encourages people to make decisions quickly.
• Novelty - new sensory data. Is critical to attracting and maintaining attention

Working with Yourself

• Your body and mind are tools to help get things done - master how to work with them
• Flow state: focus the full power of your energy and attention on a task
• Keeping in mind theres a limit to what I can accomplish in a single day makes it easier to keep stress and recovery in balance.
• Your brain can only focus on one thing at once. There's a cognitive switching penalty
• 4 Methods of completion: Do, delegate, defer, eliminate.
• Get your most important task - done each day.
• Goals are most useful when framed: positive, immediate, concrete and specific format (PICS)
• Due to accumulation, small habits can add up to huge results over time
• Ask why 5 times to work out what you really want. Ask how 5 times to connect your core desires to physical actions
• The next action - the specific concrete thing you could do to make progress on a project. All you need to know if the very next thing you can do to move a project forward
• Ingvar Kampard - split your day into 10 minute increments. Try to waste as few as possible. You'll be amazed what you can achieve.
• To be productive you must set limits → Time boxing + Number of major tasks per day
• Time is not what needs to be managed. Time will always pass. Manage energy instead → Humans need to rest and recover for peak performance
• Test different approaches. Make what works a habit.

• Spend some money each month on personal R&D

Working with others.

• Power comes in 2 forms. Influence or compulsion. Focus on influence.
• Self reliance naturally improves your flexibility and knowledge overtime, but working with others helps you get more done, faster and improve the quality of the end result
• Communication overhead: The proportion of your time you spend communicating with members of your team instead of getting productive work done. Objectives, plans and ideas are worthless unless everyone involved understands them well enough to take action

• People need to feel safe when expressing their opinion to be open and honest.
• If you want make others feel important and safe around you, always remember to treat people with appreciation, courtesy and respect.
• People are more receptive to requests with a reason. Any reason will do.
• When everyone understands the purpose of the plan, you allow people you work with to intelligently respond to changes as they happen
• Plans are useless, planning is indispensable
• You become more and more like those you spend time with over time, and less like people in other groups
• When in a position of authority, it will change the way others interact with you
• Don't dwell on the problem, focus on your options.

Understanding Systems

• A complex system is a self perpetuating arrangement of interconnected parts that form a unified whole.
• All complex systems that work evolved from simpler systems that worked.
• Follow the flows and you'll be able to understand what the system is doing
• The performance of a system is always limited by the availability of a critical input
• How to deal with a constraint:
1. Identification: find the limiting factor.
2. Exploitation: ensure that resources related to the constraint aren't wasted
3. Subordination: redesign the entire system to support the constraint. Its OK for other systems to be less efficient, as long as the constraint is utilised.
4. Elevation: permanently increase the capacity of the constraint (often effective but expensive)
5. Reevaluation: after making a change, reevaluate the system to see were the constraint is now located.
• Feedback loop: when the output of a system, becomes an input for the next cycle
• Balancing loops dampen each systems cycles output, leading to equilibriums and resistance to change.
• Reinforcing loops amplify the systems output with each cycle. Compounding is a positive reinforcing loop.
• An autocatalysis system produces the inputs needed for the next cycle as a bi-product form the previous cycle. Amplifying the cycle. Compounding positive, self reinforcing feedback loop.
• The environment impacts the systems flows or processes, changing the output of the system
• Changing environments and selection tests are an entrepreneurs best friend, they allow small companies to outperform large ones.
• There's a big difference between risk and uncertainty. Risks are known unknowns. Uncertainties are unknown, unknowns.
• All systems change. There is no stasis. Complex systems are always in flux.
• Highly dependent systems are referred to as tightly coupled. Eliminate unnecessary dependencies and you'll reduce the risk of a cascading failure
• When your system relies on the performance of someone outside of your control, do all that you can to prepare for the possibility that they won't perform as expected
• Approach making changes to a complex system with extreme caution: what you get may be the opposite of what you expect
• Overreacting to normal accidents is actually counterproductive.Keep systems loose. Expecting zero failures is unrealistic and extreme.

Analysing Systems

• Before you can improving a system you need to understand how well its currently operating

• Measuring something is the first step to improving it. Pay attention to the just a few key measurements that really matter (KPIs).
• Garbage in, Garbage out. Analysing poor quality data can be worthless
• A tolerance is an acceptable level of "normal error" in a system.
• Context is the use of related measurements to provide additional information about the data you're examining. Aggregate measurements almost never tell you anything useful. Is the change important? Random? Due to the environment or you?
• If your system is too large or complex to collect data on every process... sample
• The more a change can be isolated, the more chance you have of proving causation
• Use a proxy measure if you can't measure something directly.
• Segment → Splitting data into well-defined subgroups to add additional context
• Humanisation is the process of using data to tell a story (narrative) about a real person's experience or behaviour. Quantifiable measures are helpful in the aggregate, but its often necessary to reframe the measure into actual behaviour to really understand what's actually happening.

Improving Systems

• Intervention Bias: There's a bias to do something over nothing
• Optimisation: You can't reliably optimise a systems performance across multiple variables at once. Pick the most important one and focus your efforts accordingly.
• Refactoring is changing a system to improve efficiency without changing the output of the system.
• Focus on the critical inputs that produce most of the results you want. Non-linearity can often be extreme.
• All good things are subject to diminishing returns
• Identify where friction exists. Make small changes to reduce the amount of friction.
• The less human effort required to operate a system the more efficient the automation
• the more efficient the automated system, the more crucial the contribution of the human operators of that system. They need to quickly identify and fix issues otherwise they are multiplied
• SOPs reduce friction and minimise willpower depletion. Waste time and energy spent solving problems that have already been solved
• Checklists are externalised pre-defined standard operating procedure. They increase quality
• Cessation is the choice to intentionally stop doing something that's counterproductive
• Resilience is a massively underrated quality in business. Resilience is never optimal if you evaluate a system solely on throughput.
• as much as possible, never have a single critical point of failure
• A system can't grow indefinitely without limit. They tend to have a natural size, and exceeding this size can cause many problems.
• The experimental mindset. You don't know what changes are going to have the best impact. Constant experimentation helps you identify what works.

Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

0) Introduction

• People take MBAs to make something important happen.
• Often driven by unfounded fears... don’t think they know enough about business, certification intimidation or imposter syndrome.
• You don’t need to know it all - there are a few key principles and concepts that unlock most of the value.
• You’ll learn how businesses actually work, how to start a new one, how to improve an existing one, how to apply business concepts to achieving personal goals
• 248 concepts in the book. They’ll help you answer better questions
• Self taught people often do better than alumni from renowned universities
• Left P&G because:
• Large companies move slowly
• Climbing the corporate ladder is an obstacle to doing great work
• Frustration leads to burnout
• Author read loads, collected the concepts and tracked which ones were valuable
• Seth Godin said that you don’t need an MBA. Better off reading 30-40 books whilst gaining experience, avoid the debt. The author compiled the books and notes on his blog, emailed Seth, who linked to it in his blog.
• Had to move from a reading list to extracting the key ideas, that would be more valuable to visitors
• Charlie Munger style latticework of mental models help him understand many businesses
• Most businesses tend to look like this:
1. Create or provide something of value that
2. Other people want or need
3. At a price they are willing to pay, in a way that
4. Satisfies the purchases needs and expectations and
5. Provides the business sufficient revenue to make it worthwhile for the owners to continue operation
• Value can’t be created without understanding what people want. Attracting customers requires getting their attention first, then making them interested. IN order to close a sale, people must trust you can deliver on it. Customer satisfaction depends on exceeding expectations. Profit sufficiency required bringing in more money than is spent.
• Businesses rely on people and systems.
• Businesses are created by people, and survive only because they benefit some people. So we need to understand people.
• Businesses are just collection of processes that are reliably repeatable to produce a result. So we need to understand systems, and how to improve them
• 3 arguments against an MBA: expense, outdated curriculum and not guaranteed to get you a high paying job or make you a good manager. So spend less money and time learning things that really matter. Business schools don’t create successful people, they just accept them.

1) Value Creation

• Create something of value. Make some else’s life a little bit better. A business cannot exist without it, if you don’t have something valuable to trade.
• Some provide a little value to many, some provide a lot of value to a few

2) Marketing

• Offering value is not enough. If people don’t know (or care) about what you have to offer, it doesn’t matter how much value you create
• Attract attention of the right people, and make them interesting in what’s being offered
• Without prospects, you won’t sell anything
• Marketing is about getting noticed. Sales is about closing the deal
• Rule 1 of marketing: Your potential customers attention is limited. So people filter, ration... allocate to things they care about. You have to find a way around their filters
• High quality attention must be earned. When you’re seeking attention, you’re competing against everything else in their world. You need to be more interesting or useful than the competing alternatives
• You need attention and for them to care. Broad attention often doesn’t get you sales.
• Earn attention of people who are likely to buy from you, and you’ll inevitably build your business.

3) Sales

• Every successful business sells what it has to offer.
• The sales process begins with a prospect and ends with a paying customer
• The best businesses earn the trust of prospects, help them understand why the offer is worth paying for, helping the prospect understand what’s important and convincing them you’re capable

4) Value Delivery

• Every successful business delivers what it promises to customers

5) Finance

• Often people don't like to learn about finance. Finance can be easy though.
• Its the art and science of watching money flow in and out of your business
• Then deciding how to allocate it and determining whether or not what you're doing is producing the results you want
• To exist, businesses must bring in sufficient revenue to justify all of the time and effort that goes into running the operation.
• Every business must capture some of the value it creates as revenue, and pay expenses and compensate people who make the business run
• Finance helps you watch your dollars in a way that makes sense

6) The Human Mind

Understanding how we take in information, make decisions and how we decide what to do... is critically important if you want to create and sustain a business venture.

7) Working with Yourself

• You can think of your body and mind as tools to help get things done. You want to master how to work with them

8) Working with Others

• If you want to do well in this world, it pays to understand how to get things done effectively with others

9) Understanding Systems

• Businesses are complex systems that exist within even more complex systems (markets, industries, societies)
• A complex system is a self perpetuating arrangement of interconnected parts that form a unified whole.

10) Analysing Systems

• Before you can improving a system you need to understand how well its currently operating
• Systems must be analysed while they are operational and whilst the environment is changing

11) Improving Systems