# embeddings_queue

created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "Norms based on the previous Measurements are no longer valid. At P&G, we had a method of evaluating \nthe effectiveness of certain types of advertising. Drawing on several years\u2019 worth of data, it was possible t\no compare new advertisements with old advertisements that had been successful. If the new advertising d\nidn\u2019t beat the Norm in testing, it wasn\u2019t used. If the company suddenly decided to use a different testing m"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ethodology, the Norms would no longer be valid\u2014it would be comparing apples and oranges. Change the\n Measurement methods, and you immediately invalidate any Norms based on them. If you still want to use\n Norms, you must build your database of historical information once again. Past performance is no guaran\ntee of future performance. Remember, we\u2019re dealing with complex Systems\u2014things always Change over"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3eea6-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "time. Just because something was useful in the past does not mean it will continue to perform as well in p\nerpetuity. For best results, reexamine your Norms periodically to make sure they\u2019re valid. SHARE THIS C\nONCEPT: http://book.personalmba.com/norms/ Proxy How many legs does a dog have if you call the tail \na leg? Four. Calling a tail a leg doesn\u2019t make it a leg. \u2014ABRAHAM LINCOLN What do you do if it\u2019s not po"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3eeba-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ssible to measure something directly? A Proxy measures one quantity by measuring something else. For \nexample, in democratic political Systems, votes are used as a Proxy to measure the \u201cwill of the people.\u201d It\u2019\ns not possible to subject every citizen in the country to a brain scan that reveals detailed preferences, so v\notes are used as the Next Best Alternative. Proxies are used all the time in scientific measurement. Ever"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3eece-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "wonder how scientists know how hot the sun is, or how old certain rocks are? They measure Proxies like t\nhe wavelength of electromagnetic rays or the decay of known radioactive isotopes, then apply well-proven\n relationships and formulas to determine the answer. Useful Proxies are closely related to the primary subj\nect\u2014the closer, the better. Take Web site analytics\u2014you may want to know exactly where and how long"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3eed8-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "people pay Attention to different parts of the Web page, but again, you can\u2019t brain scan each visitor to you\nr Web site. Tracking the position of the mouse cursor, however, can be a useful Proxy for Attention. Accor\nding to a study done by researchers at Carnegie Mellon University: . . . 84% of the times that a region was\n visited by a mouse cursor, it was also visited by (users\u2019) eye gaze. In addition, 88% of regions that were n"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3eeec-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ot gazed by the eye were also not visited by a mouse cursor. 2 Because mouse movements and eye fixati\non (i.e., Attention) are highly Correlated, mouse movements are a good Proxy for visitor Attention. The bet\nter the Correlation, the better the Proxy. For best results, ensure that the Proxy is actually related to the in\ntended subject. Proxies can be tricky or misleading if they seem to measure one thing but actually measur"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef00-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "e another. Think back to the example of trying to measure programmer productivity by counting lines of co\nde as a Key Performance Indicator. As we discussed earlier, \u201clines of code\u201d is certainly a Proxy for progra\nmming effectiveness, but more code is sometimes an inverse signal of productivity, making it a useless M\neasurement for the stated objective. Used with care, Proxies can help you measure the immeasurable\u2014ju"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef14-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "st be sure your Proxy is directly and highly Correlated with the subject of interest. SHARE THIS CONCEP\nT: http://book.personalmba.com/proxy/ Segmentation Analytics nirvana rule: never report a metric (even \nGod\u2019s favorite KPI) without segmenting it . . . There is no KPI so insightful all by itself, even in a trend or a\ngainst a forecast, that can\u2019t be made more impactful by applying segmentation. \u2014AVINASH KAUSHIK, A"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef28-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 118, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "UTHOR OF WEB ANALYTICS: AN HOUR A DAY Very often, aggregate data sets contain hidden nugget\ns of gold\u2014if you can find them. Segmentation is a technique that involves splitting a data set into well-defi"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef3c-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ned subgroups to add additional Context. Splitting the data into predefined groups can uncover previously\n unknown relationships. For example, knowing that orders increased by 87 percent this month is good, but\n knowing that 90 percent of those new orders came from women in Seattle is even better. Find out what m\nade those women order, and you\u2019ll be able to use that information to further capitalize on your success. T"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef50-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "here are three common ways to Segment customer data: Past Performance, Demographics, and Psychog\nraphics. Past Performance Segments customers by past known actions. For example, you can Segment c\nustomer sales data using previous sales data, comparing sales to new customers with sales to customers\n who have previously purchased from you. Lifetime Value calculations are a form of Segmentation by Past"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef64-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "Performance. Demographics Segment customers by external personal characteristics. Personal informati\non like age, gender, income, nationality, and location can help you determine which customers are your P\nrobable Purchasers. Knowing that your best customers are males between the ages of twentythree and th\nirty-two who live in major metropolitan areas and have over $2,000 per month in disposable income can b"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef6e-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "e quite useful\u2014you can focus your Marketing efforts on reaching more prospects who have those charact\neristics. Psychographics Segment customers by internal psychological characteristics. Typically discovere\nd via surveys, assessments, or focus groups, Psychographics are attitudes or worldviews that influence h\now people see themselves and the world at large. Psychographics can be very useful in creating or adjust"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef82-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ing your Value Creation, Marketing, and Sales strategies. For example, if you\u2019re selling home security syst\nems, it\u2019s likely that your Probable Purchasers will believe statements like \u201cthe world is a dangerous place\u201d \nand feel somewhat in danger even when in their homes. Experimenting with promoting your product in sur\nvivalist and self-defense magazines and Web sites\u2014markets whose customers might have similar beliefs"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3ef96-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "\u2014might not be a bad idea. Segment your data, and you\u2019ll find many useful hidden connections worth inve\nstigating. SHARE THIS CONCEPT: http://book.personalmba.com/segmentation/ Humanization People ar\ne the center of the universe. Not stuff. \u2014STOWE BOYD, SOCIAL TECHNOLOGIST Analyzing data is co\nmforting to the quantitative-minded, but to really use data properly, you must go beyond juggling numbers"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3efaa-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "to understand what they\u2019re telling you. When analyzing data from a System, it\u2019s easy to forget that it often \npertains to the actions of real human beings. For example, imagine a customer service department that a\nnswers customer complaints by telephone. Numerically, reducing hold times from ten minutes to eight min\nutes sounds great\u2014that\u2019s a 20 percent improvement! Put the champagne away: what the data-centric vie"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3efbe-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "wpoint misses is the fact that you still have a dissatisfied customer waiting on the phone for eight minutes,\n which still feels like an eternity. Every minute on hold makes that customer angrier, which affects their per\nception of the company. That 20 percent improvement pales in comparison to the Reputation hit your busi\nness takes every time that customer tells their friends and associates how horrible your company is to dea"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3efd2-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "l with. Humanization is the process of using data to tell a story (Narrative) about a real person\u2019s experienc\ne or behavior. Quantifiable measures are helpful in the aggregate, but it\u2019s often necessary to reframe the \nmeasure into actual behavior to really understand what\u2019s actually happening. Many businesses Humanize\n by developing a series of personas: fictional profiles of people developed from data. When I developed h"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3efe6-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ome cleaning products for P&G, market research data told us that two broad Segments existed: people w\nho valued regular deep cleaning (\u201cUnless I\u2019m on my hands and knees cleaning with bleach and elbow gre\nase, I\u2019m not satisfied\u201d) and people who wanted cleaning to be quick and convenient (\u201cI\u2019m too busy to clea\nn\u2014as long as it looks good enough, I\u2019m happy\u201d). Using this information, we combined these characteristic"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3eff0-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "s with other data like household income, family statistics, and hobbies to create a profile of a fictional pers\non. Once the profile was developed, it became easier to use the data we had to make decisions\u2014instead \nof relying on statistics to evaluate an idea, we could rely on our intuition by asking ourselves if \u201cWendy\u201d w\nould like it. Don\u2019t just present data\u2014tell a story that helps people understand what\u2019s happening, and you\u2019ll"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f004-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "find your analysis efforts more useful. SHARE THIS CONCEPT: http://book.personalmba.com/humanizati\non/ 12 IMPROVING SYSTEMS In theory there\u2019s no difference between theory and practice. But, in practic\ne, there is. \u2014JAN L. A. VAN DE SNEPSCHEUT, COMPUTER SCIENTIST Creating and improving Syste\nms is the heart of successful business practice. The purpose of understanding and analyzing systems is t\no improve them, which is often tricky\u2014changing systems can often create unintended consequences. In t"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f018-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "his chapter, you\u2019ll learn the secrets of Optimization, how to remove unnecessary Friction from critical proc\nesses, and how to build Systems that can handle Uncertainty and Change. SHARE THIS CONCEPT: http\n://book.personalmba.com/improvingsystems/ Optimization Premature optimization is the root of all evil. \u2014\nDONALD KNUTH, COMPUTER SCIENTIST AND FORMER PROFESSOR AT STANFORD UNIVERSITY\n Optimization is the process of maximizing the output of a System or minimizing a specific input the syste"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f02c-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 119, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "m requires to operate. Optimization typically revolves around the systems and processes behind your Key"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f040-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "Performance Indicators , which measure the critical elements of the system as a whole. Improve your KPI\ns, and your system will perform better. Maximization typically focuses on the system\u2019s Throughput.If you \nwant to earn more money, create more units to sell, or serve more customers, you\u2019re Optimizing for Throu\nghput. Making Changes to the system that increase Throughput means your system is performing better i"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f054-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "n a specific, measurable way. Minimization typically focuses on in-process inputs required for the System \nto operate. If you\u2019re trying to increase your Profit Margin, costs are one of the key inputs. Minimize your co\nsts, and your margins will increase. By definition, if you\u2019re trying to Maximize or Minimize more than one t\nhing, you\u2019re not Optimizing\u2014you\u2019re making Trade-offs. Many people use the term Optimization to mean \u201c"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f068-ad44-11ee-97b3-be9cc6a8b6ef
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f07c-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ficult to understand which Changes produced which results. Remember: you can\u2019t reliably Optimize a syst\nem\u2019s performance across multiple variables at once. Pick the most important one and focus your efforts a\nccordingly. SHARE THIS CONCEPT: http://book.personalmba.com/optimization/ Refactoring Elegance is \nnecessarily unnatural, only achievable at great expense. If you just do something, it won\u2019t be elegant, but i"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f090-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "f you do it and then see what might be more elegant, and do it again, you might, after an unknown numbe\nr of iterations, get something that is very elegant. \u2014ERIK NAGGUM, COMPUTER PROGRAMMER Not al\nl changes to a System are designed to affect the System\u2019s output. Sometimes it\u2019s more effective to reengi\nneer a process without changing the end result at all. Refactoring is the process of changing a system to i"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f0a4-ad44-11ee-97b3-be9cc6a8b6ef
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f0b8-ad44-11ee-97b3-be9cc6a8b6ef
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f0c2-ad44-11ee-97b3-be9cc6a8b6ef
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f0d6-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "es or inputs together. Think of rearranging an assembly line: if you constantly have to stop what you\u2019re doi\nng and travel all the way across the factory to obtain a necessary component, rearranging things so the c\nomponent is always close at hand is probably a good idea. The system will still produce the same thing w\nhen you\u2019re done, but you\u2019ll have removed a little inefficiency from the system that adds up to significant lo"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f0ea-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "sses in productivity. If your Goal is to make the system faster or more efficient, Refactoring is critically imp\nortant. SHARE THIS CONCEPT: http://book.personalmba.com/refactoring/ The Critical Few Typically, cau\nses, inputs, or effort divide into two categories: (1) the majority, that have little impact, and (2) a small min\nority, that have a major, dominant impact. \u2014RICHARD KOCH, AUTHOR OF THE 80/20 PRINCIPLE Vilfr"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f0fe-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "edo Pareto was a nineteenth-century economist and sociologist who was very interested in the topic of la\nnd ownership and the social distribution of wealth. After collecting and analyzing a great deal of data, Par\neto found a curious Pattern: over 80 percent of the land in Italy was owned by less than 20 percent of the \npopulation. The Italian economy wasn\u2019t distributed evenly, or in the bell-curve-shaped distribution many p"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f112-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "eople assumed: wealth was highly concentrated among a relatively small group of individuals. As Pareto s\ntudied other areas of life, he consistently found the same Pattern: in Pareto\u2019s garden, for example, 20 per\ncent of the pea pods produced 80 percent of the peas. What was going on? In any complex System, a mi\nnority of the inputs produce the majority of the output. This Pattern of persistent nonlinearity is now called"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f126-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "the Pareto principle, or the 80-20 rule. Personally, I prefer to refer to it as the Critical Few. Once you unde\nrstand this common Pattern, you\u2019ll find it in many areas of life: \ufffd In many businesses, less than 20 percent \nof the customers account for more than 80 percent of annual revenue. \ufffd Less than 20 percent of a busines\ns\u2019s employees typically do 80 percent or more of the highly valuable work. \ufffd You wear less than 20 percent"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f13a-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 120, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "of the clothing in your closet over 80 percent of the time. \ufffd You spend over 80 percent of your time commu\nnicating with less than 20 percent of your personal contacts. The nonlinearity of the Critical Few can often\n be extreme. For example, less than 3 percent of the world\u2019s population is in possession of over 97 perce"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f14e-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "nt of the world\u2019s total wealth. Over time, political power (in both countries and companies) also tends to co\nncentrate in the hands of a few people, which results in a very small group of individuals making decisions\n that directly affect the lives of hundreds of millions of people. Far less than 1 percent of movies ever prod\nuced become blockbusters, and less than 0.1 percent of books ever written become best sellers. For best"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f1da-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "results, focus on the critical inputs that produce most of the results you want. In The 4-Hour Workweek, T\nimothy Ferriss used the Critical Few to identify his best performing customers. Out of the 120 customers F\nerriss was serving, 5 accounted for 95 percent of the revenue. By focusing on those top-performing whole\nsalers and putting the rest on \u201cautopilot,\u201d Ferriss doubled his monthly revenue and cut his work time from"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f1ee-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "eighty hours to fifteen hours a week. The same approach is often useful to weed out results you don\u2019t wan\nt. While conducting his business analysis, Ferriss realized that two particular customers accounted for mo\nst of his frustration and fire fighting. \u201cFiring\u201d these energy-sucking customers, even though they represent\ned significant sources of volume, liberated his time and energy. As a result, he was able to secure distribu"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f202-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "tion with three additional high-volume customers that boosted the bottom line without the constant headac\nhes. Noncritical inputs are significant Opportunity Costs. If you\u2019re spending most of your time in unproduct\nive meetings, for example, you\u2019re wasting time that could be used to actually get important things done. T\nhe same goes for noncritical expenses: they represent money that you could be using to far greater effect"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f216-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": ". Find the inputs that produce the outputs you want, then make them the focus of most of your time and e\nnergy. Ruthlessly weed out the rest. SHARE THIS CONCEPT: http://book.personalmba.com/critical-few/ \nDiminishing Returns The last 10 percent of performance generates one-third of the cost and two-thirds of \nthe problems. \u2014NORMAN R. AUGUSTINE, AEROSPACE EXECUTIVE AND FORMER U.S. UNDER SE\nCRETARY OF THE ARMY If you have $10 in your bank account, finding $5 in the pocket of your freshly l"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f220-ad44-11ee-97b3-be9cc6a8b6ef
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f234-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ving more of something can actually be detrimental. When I was in marketing at P&G, we spent a lot of ti\nme and effort analyzing the results of our advertising. In the first few weeks of running a television comme\nrcial, it was easy to see if it was performing as expected. If the commercial was performing well, we\u2019d allo\ncate more money to it, but that would only work for so long. No matter how much people liked the commer"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f248-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "cial, at a certain point it would \u201cwear out,\u201d and the company would no longer produce $1 of revenue for ev\nery dollar the company spent showing that ad. That was the \u201cPoint of Diminishing Returns\u201d\u2014if we spent \nmore dollars showing the same commercial, the company would start losing money. Far better to spend t\nhose funds promoting the product in a different way. It\u2019s always better to spend a little time and energy to"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f25c-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "get the big wins than to do nothing. In I Will Teach You to Be Rich, Ramit Sethi recommends applying wh\nat he calls the \u201c85% Solution.\u201d So many people get wrapped up in making the perfect decision that they wi\nnd up overwhelming themselves and doing nothing. Focus on doing a few simple things that will produce \nmost of the results you\u2019re looking for, then call it a day. Don\u2019t feel like you have to Optimize absolutely eve"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f270-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "rything to perfection. Optimization and Refactoring are affected by the Critical Few as well\u2014a few small c\nhanges can produce enormous results. After you\u2019ve picked the \u201clow-hanging fruit,\u201d further Optimization ca\nn cost more in effort than you\u2019ll reap in returns. That\u2019s a good point to stop. Perfectionism is a trap for the \nunwary. Optimize and Refactor up to the point you start experiencing Diminishing Returns, then focus on"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f284-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "doing something else. SHARE THIS CONCEPT: http://book.personalmba.com/diminishingreturns/ Frictio\nn The world is wide, and I will not waste my life in friction when it could be turned into momentum. \u2014FRA\nNCES E. WILLARD, EDUCATOR AND SUFFRAGIST WHO SPEARHEADED THE CAMPAIGN TO ADO\nPT THE EIGHTEENTH AND NINETEENTH AMENDMENTS TO THE U.S. CONSTITUTION Imagine a ho\nckey puck on the ground in front of you. You\u2019re suitably armed with a hockey stick, and the objective is to"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f28e-ad44-11ee-97b3-be9cc6a8b6ef
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f2b6-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 121, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "let\u2019s assume you flood the field with water and freeze it, until the landscape is a smooth plane of ice. Now"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f2ca-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "the puck will travel hundreds of feet every time you hit it, because the ice doesn\u2019t rob the puck of energy\n\u2014 the puck glides along the surface effortlessly. At this rate, you\u2019ll only need to hit the puck a few times b\nefore you\u2019ve achieved the objective, and you won\u2019t be tired when you\u2019re done. Friction is any force or proc\ness that removes energy from a System over time. In the presence of Friction, it\u2019s necessary to continue t"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f2de-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "o add energy to a system to keep it moving at the same rate over time. Unless additional energy is added,\n Friction will slow the system down until it comes to a stop. Remove the Friction, and you\u2019ll increase the sy\nstem\u2019s efficiency. Every business process has some amount of Friction. The key is to identify areas where\n Friction currently exists, then experiment with small improvements that will reduce the amount of Friction"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f2f2-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "in the system. Removing small amounts of Friction consistently over time Accumulates large improvement\ns in both quality and efficiency. Introducing Friction intentionally can sometimes encourage people to beh\nave in a certain way or make a particular decision. For example, adding a small amount of Friction to your\n returns process, like requiring the customer to provide a receipt or explain the reason for the return, can"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f306-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "decrease the number of people who return your product. You don\u2019t want to add too much, since that can \nnegatively impact your Reputation (customers get angry if you make them work too hard for a refund), but\n a little Friction in the right place can help prevent frivolous returns. Work on removing Friction from your b\nusiness system where appropriate, and you\u2019ll generate better results for less effort. SHARE THIS CONCE"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f31a-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "PT: http://book.personalmba.com/friction/ Automation The first rule of any technology used in a business i\ns that automation applied to an efficient operation will magnify the efficiency. The second is that automatio\nn applied to an inefficient operation will magnify the inefficiency. \u2014BILL GATES, FOUNDER AND CHAIR\nMAN OF MICROSOFT Remove enough Friction, and people may not have to be involved in a process at"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f32e-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "all. Automation refers to a System or process that can operate without human intervention. Factory produ\nction lines, utility networks, and computer programs use Automation to minimize the amount of human inv\nolvement necessary to complete a task. The less human effort required to operate the system, the more e\nfficient the Automation. Automation is best for well-defined, repetitive tasks. For example, if I had to manu"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f342-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ally reply to a letter or e-mail every time someone wanted to read my list of recommended business books\n, I\u2019d quickly go insane. Fortunately, I can just put the list up on my Web site\u2014every time someone request\ns the list, it\u2019s delivered to them automatically, without any effort on my part. My reading list has been view\ned by hundreds of thousands of readers from around the world, and Automation is what makes it possible"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f356-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": ". Find a way to Automate your system, and you open the doors to Scale via Duplication and Multiplication,\n improving your ability to create and deliver value to more paying customers. SHARE THIS CONCEPT: ht\ntp://book.personalmba.com/automation/ The Paradox of Automation One machine can do the work of fifty \nordinary men. No machine can do the work of one extraordinary man. \u2014ELBERT HUBBARD, AUTHOR \nOF A MESSAGE TO GARCIA Automation can be great, but it has very important drawbacks worth under"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f36a-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "standing. Imagine a fully Automated production line that makes computer processors that sell for $200 pe\nr unit. All the human operators have to do is push a button, and the production System starts cranking out\n 2,400 finished products per minute. Life is good, right? Yes, with a very important caveat. Imagine that a \ndrill used to bore holes in the silicon wafer becomes misaligned and starts drilling microscopic holes throu"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f37e-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "gh the middle of the processor core. Every second the system keeps working, forty chips are ruined. Assu\nme each processor costs $20 in raw materials\u2014that means the factory starts losing $800 every second th\ne error isn\u2019t found. Every minute the system keeps running, the company loses $48,000. And that\u2019s just th\ne direct cost\u2014if you take into account that each processor would sell for $200, the company is losing $52"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f392-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "8,000 a minute: $48,000 in direct costs and $480,000 in opportunity costs. Sound far-fetched? Consider t\nhis: In late 2009, Toyota identified a major issue with the accelerator pedal in several popular vehicle mod\nels, which were top sellers for many years. The error was Multiplied across every vehicle Toyota made, a\nnd the recall cost over five billion dollars. Before the recall, Toyota was considered the best automotive m"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f3a6-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "anufacturer in the world. They still are in many respects, but their Reputation and financial situation suffer\ned a major blow. Even the best can fall if costly mistakes are allowed to Multiply. Here\u2019s the Paradox of A\nutomation: the more efficient the Automated system, the more crucial the contribution of the human opera\ntors of that system. When an error happens, operators need to identify and fix the situation quickly or shut"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f3ba-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "the system down\u2014otherwise, the Automated system will continue to Multiply the error. Dr. Lisanne Bainb\nridge, a psychologist at University College London, was one of the first to rigorously study the ramification\ns of efficient and reliable systems.1 She was the first to identify and express the \u201cparadox\u201d of Automated s\nystems: efficient Automated systems reduce the need for human effort, but make human involvement eve"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f3ce-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 122, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "n more critical. Efficient Automation makes humans more important, not less. SHARE THIS CONCEPT: h\nttp://book.personalmba.com/paradox-ofautomation/ The Irony of Automation There will always be a set of"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f3e2-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "circumstances that was not expected, that the automation either was not designed to handle or other thin\ngs that just cannot be predicted. As system reliability increases, the more difficult it is to detect the error a\nnd recover from it. \u2014DR. RAJA PARASURAMAN, PROFESSOR OF PSYCHOLOGY AT GEORGE MAS\nON UNIVERSITY Efficient Automated Systems make skilled human intervention critically important to pre"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f3f6-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "vent the Amplification of errors, so it\u2019s best to keep skilled operators on hand at all times, right? That\u2019s eas\nier said than done: businesses typically don\u2019t pay highly skilled employees to sit around in a room all day \ndoing nothing, which is what they\u2019ll be doing as long as the system appears to be reliable. Even if they do,\n the operators will spend most of their time being bored out of their skulls. Here\u2019s the Irony of Automation:"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f400-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "the more reliable the system, the less human operators have to do, so the less they pay Attention to the s\nystem while it\u2019s in operation. Remember the Mackworth Clock and the vigilance studies conducted on Briti\nsh radar operators in World War II from our discussion of Novelty? Humans get bored extremely quickly if \nthings stay the same, and the more reliable the system, the more things stay the same. Ironically, reliable"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f41e-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "systems tend to dull the operator\u2019s senses, making it very difficult for them to notice when things go wrong\n\u2014the moment when their attention is most sorely needed. As a result, the more reliable the system, the lo\nwer the likelihood that human operators will notice when something goes wrong\u2014particularly if the error is\n small. Left long enough, small errors can become the \u201cnew normal,\u201d which is how a company like Toyota"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f428-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ends up with a five-billion-dollar recall. (By the way, don\u2019t make the Attribution Error and think that Toyota\u2019\ns engineers were stupid or careless\u2014if you rely on Automated systems, it could easily happen to you.) Th\ne best approach to avoid major Automation errors is rigorous, ongoing Sampling and Testing. Remember,\n Normal Accidents can and will occur. If you assume that errors will be made and plan a battery of tests to"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f446-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "find the most critical errors, you can keep your system operators engaged and increase the probability of \nfinding important errors quickly. Keep your Automated system\u2019s operators mentally engaged, and they\u2019ll b\ne far more likely to notice when errors inevitably occur. SHARE THIS CONCEPT: http://book.personalmb\na.com/irony-ofautomation/ Standard Operating Procedure (SOP) The measure of success is not whether"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f450-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "you have a tough problem to deal with, but whether it\u2019s the same problem you had last year. \u2014JOHN FO\nSTER DULLES, FORMER U.S. SECRETARY OF STATE What do you do when a customer has a compl\naint or asks for a refund? What happens when you run out of toner for the laser printer? Who takes the he\nlm if the manager is out of town and there\u2019s an emergency? A Standard Operating Procedure (SOP) is a \npredefined process used to complete a task or resolve a common issue. Business Systems often include"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f464-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "repetitive tasks, and having a standard process in place can help you spend less time reinventing the whe\nel and more time doing productive work. Well-defined Standard Operating Procedures are useful because\n they reduce Friction and minimize Willpower Depletion. Instead of wasting valuable time and energy solvi\nng a problem that has already been solved many times before, a predefined SOP ensures that you spend"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f478-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "less time thrashing and more time adding value. Standard Operating Procedures are also effective ways \nto bring new employees or partners up to speed quickly. Having a central source of SOPs can help new e\nmployees or partners learn how you work far more effectively than informal training. Storing your SOPs in \nsome sort of central electronic database is best\u2014it ensures that everyone can instantly reference the mos"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f48c-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "t up-to-date procedures available. Don\u2019t let your Standard Operating Procedures lapse into bureaucracy. \nRemember, the purpose of an SOP is to minimize the amount of time and effort it takes to complete a tas\nk or solve a problem effectively. If the SOP requires effort without providing value, it\u2019s Friction. For best re\nsults, review your SOPs on a periodic basis\u2014once every two to three months is ideal. If you find outdated"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f4a0-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": ", wasteful, or unnecessary work in your SOPs, change them. Neither you nor your customers are served \nby unnecessary red tape. Create Standard Operating Procedures for important recurring tasks, and you\u2019ll \nsee your productivity skyrocket. SHARE THIS CONCEPT: http://book.personalmba.com/standardoperatin\ng-procedures/ Checklist No matter how expert you may be, well-designed checklists can improve outcom\nes. \u2014STEVEN LEVITT, COAUTHOR OF FREAKONOMICS Want to make sure an important task is done"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f4b4-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "correctly every single time? Create a checklist. A Checklist is an Externalized, predefined Standard Oper\nating Procedure for completing a specific task. Creating a Checklist is enormously valuable for two reason\ns. First, Checklisting will help you define a System for a process that hasn\u2019t yet been formalized\u2014once th\ne Checklist has been created, it\u2019s easier to see how to improve or Automate the system. Second, using C"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f4be-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "hecklists as a normal part of working can help ensure that you don\u2019t forget to handle important steps that \nare easily overlooked when things get busy. Pilots have extremely detailed Checklists for takeoff and land\ning for a reason: skipping a step is easy, but can have major consequences for everyone on board. Even \npilots with decades of flying experience always use Checklists to make sure everything is done right and i"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f4dc-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 123, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "n the proper sequence. As a result, plane crashes are extremely rare\u2014statistically, it\u2019s safer to fly comme"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f4e6-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "rcially than to drive. Even simple processes can benefit from Systemization and the use of Checklists. In 2\n001, a study on the effects of Checklisting was conducted by Dr. Peter Pronovost, which was described in\n detail in Atul Gawande\u2019s The Checklist Manifesto and in an article Gawande published in the New Yorker\n. 2 The study was conducted in a hospital in Detroit that had the highest rate of ten-day IV line infections ("}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f4fa-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "a costly and life-threatening condition) in the country. Pronovost\u2019s objective was to determine whether or \nnot using Checklists would reduce the rate of infections. Here\u2019s the entirety of the intervention: whenever \na doctor inserted an IV line, they were instructed to use the following Checklist. Step 1: Wash hands with \nsoap. Step 2: Clean the patient\u2019s skin with chlorhexidine antiseptic. Step 3: Put sterile drapes over the enti"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f50e-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "re patient. Step 4: Wear a sterile hat, mask, gloves, and gown. Step 5: Put a sterile dressing over the cath\neter site once the IV line is in. None of these steps is particularly complicated. In fact, many doctors resist\ned the study, since they felt that being forced to use a Checklist for such a simple procedure was insulting\n, given their status as highly trained specialists. Even more insulting, the head nurse was empowered to s"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f522-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "top the doctor if they weren\u2019t using the Checklist\u2014an unusual role reversal that had many doctors fuming.\n Nevertheless, the results of this study over two years were astounding: the ten-day IV line infection rate d\nropped from 11 percent to 0 percent and saved the hospital over $2 million in related costs. As it turns out\n, forgetting even basic, commonsense procedures is easy in a busy, stressful environment. Checklisting c"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f536-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "an produce major improvements in your ability to do quality work, as well as your ability to delegate work \neffectively. By taking the time to explicitly describe and track your progress, you reduce the likelihood of m\najor errors and oversights, as well as prevent Willpower Depletion associated with figuring out how to com\nplete the same task over and over again. In addition, once your Checklist is complete you can use it as th"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f54a-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "e basis for full or partial Automation of the system, which will allow you to spend time doing more importa\nnt things. For best results, create explicit Checklists for the Five Parts of Your Business, then make sure t\nhey\u2019re followed every single time. SHARE THIS CONCEPT: http://book.personalmba.com/checklisting/ C\nessation There is nothing so useless as doing efficiently that which should not be done at all. \u2014PETER D"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f55e-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "RUCKER, FATHER OF MODERN MANAGEMENT THEORY Sometimes the best way to improve a Syste\nm is to stop doing so much. Cessation is the choice to intentionally stop doing something that\u2019s counterpr\noductive. Due to Absence Blindness, we\u2019re predisposed to attempt to improve a system by doing somethi\nng\u2014it \u201cfeels wrong\u201d to do nothing. That doesn\u2019t mean that doing nothing is a bad strategy: it\u2019s often more"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f572-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "effective. In The One-Straw Revolution, Masanobu Fukuoka wrote about his experiments with natural far\nming, which mostly involved letting nature take its course and intervening as little as possible. While most \nfarms were introducing chemicals and machinery into agriculture, Fukuoka was consciously doing nothing\n\u2014and reaping the rewards of high yields and ever-increasing soil richness. Here\u2019s what he had to say abo"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f586-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ut the virtues of cessation: Human beings with their tampering do something wrong, leave the damage un\nrepaired, and when the adverse results accumulate, work with all their might to correct them. When the co\nrrective actions appear to be successful, they come to view these measures as splendid accomplishment\ns. People do this over and over again. It is as if a fool were to stomp on and break the tiles of his roof. The"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f59a-ad44-11ee-97b3-be9cc6a8b6ef
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "n when it starts to rain and the ceiling begins to rot away, he hastily climbs up to mend the damage, rejoici\nng in the end that he has accomplished a miraculous solution. Instead of trying to do too much, Fukuoka \nonly did what was absolutely necessary. As a result, his fields were consistently among the most producti\nve in the area. Cessation takes guts. It\u2019s often unpopular or unpalatable to do nothing, even if doing nothi"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f5ae-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ng is actually the right solution. As an example, \u201cpricing bubbles\u201d are often caused by government interve\nntion in certain markets, which has the Second-Order Effect of artificially decreasing the costs of certain a\nctions, leading to rampant speculation. When reality sets in and the bubble \u201cpops,\u201d as it did with dot-com c\nompanies in 2000 and the housing market in 2008, it\u2019s politically unpopular for the government to do nothi"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f5c2-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ng, even though doing something is what caused the situation in the first place. More often than not, the g\novernment acts, which causes another, bigger bubble a few years later. Firing customers, quitting your jo\nb, discontinuing a product, or pulling out of a market you can\u2019t succeed in are all tough decisions, but thes\ne decisions may put you in a better position in the long run. Doing something is not always the best cours"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f5d6-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "e of action. Consider doing nothing instead. SHARE THIS CONCEPT: http://book.personalmba.com/cess\nation/ Resilience Placing a system in a straightjacket of constancy can cause fragility to evolve. \u2014C. S. H\nOLLING, ECOLOGIST Turtles aren\u2019t the sexiest creatures in the animal kingdom. They can\u2019t run fast. The\ny can\u2019t fly. They don\u2019t have big sharp teeth or claws. They can\u2019t puff themselves up to look menacing or p"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f5ea-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 124, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "oison their enemies with deadly venom. Compared to the raw power of a tiger or a falcon, turtles are rathe\nr lame. What turtles do have is a variety of protective strategies\u2014they can swim quickly, use camouflage, \nsnap with their jaws, and if all else fails, retract into their shell and wait for the threat to pass. Creatures el"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f5fe-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "sewhere in the animal kingdom are in big trouble if they\u2019re cornered by a predator. Turtles have a fighting \nchance\u2014they win because they\u2019re the armored tanks of nature. They can also eat many different things a\nnd go into hibernation when times get tough. That\u2019s why they live so long. Tigers, on the other hand, rely \non their strength, power, and speed to chase down their prey. When times are good, tigers are the kings o"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f612-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "f the jungle. If prey becomes scarce or they lose their hunting prowess due to age or injury, death takes th\nem quickly and mercilessly\u2014no second chances. What the business world needs is more turtles and few\ner tigers. The world is a fundamentally Uncertain place. Unexpected things happen\u2014 some good, some b\nad. You never know when Mother Nature, Lady Luck, or a hungry predator will decide that today is not yo"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f626-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ur day. Resilience is a massively underrated quality in business. Having the toughness and flexibility to ha\nndle anything life throws at you is a major asset that can save your skin\u2014literally and metaphorically. You\nr ability to adjust your strategy and tactics as conditions Change can be the difference between survival a\nnd disaster. Resilience is never \u201coptimal\u201d if you evaluate a System solely on Throughput. Flexibility always"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f63a-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "comes at a price. A turtle\u2019s shell is heavy\u2014 it could certainly move faster without it. Giving it up, however,\n would leave the turtle vulnerable in the moments when moving a little faster just isn\u2019t fast enough. In an e\nffort to chase a few more short-term dollars, many businesses trade Resilience for short-term results\u2014an\nd pay a hefty price. The big investment banks are a classic example. Keeping cash reserves on hand to h"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f644-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "andle the unexpected has become \u201cultraconservative\u201d and \u201cinefficient\u201d\u2014it\u2019s become a \u201cbest practice\u201d to L\neverage the entire company many times over times to squeeze out a few more cents in earnings per shar\ne each quarter, leaving the business explosively vulnerable to a very small decline in revenues. Operating\n a business with no cash reserves, no insurance, and high levels of debt may improve your returns for a f"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f662-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ew months or quarters, but the moment your revenues decline even by a little or someone decides to sue \nthe business, you\u2019re sunk. Leverage works just like rocket fuel\u2014depending on how it\u2019s used, it can propel \nyour business to dizzying heights or make the entire operation explode. Unfortunately, many of the advan\nced financial manipulation tactics taught in business schools implicitly trade Resilience for paper returns\u2014"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f676-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "and once-successful businesses pay the price by going out of business when times get tough. Preparing f\nor the unexpected makes you more Resilient. On a personal level, investing in a home emergency/first ai\nd kit, car kit, and extra resources like food and water isn\u2019t paranoid\u2014supplies like these are cheap insuran\nce for the intelligent. The same goes for purchasing insurance and building up reserves for unexpected ev"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f68a-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 125, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "ents. You may never need them, but you\u2019ll be glad they\u2019re there if you do. HERE\u2019S WHAT MAKES A BUS\nINESS RESILIENT: \u2022 Low ( preferably zero) outstanding debt \u2022 Low overhead, fixed costs, and operating \nexpenses \u2022 Substantial cash reserves for unexpected contingencies \u2022 Multiple independent products/indus\ntries/lines of business \u2022 Flexible workers/employees who can handle many responsibilities well \u2022 No single"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f69e-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f6b2-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f6bc-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f6d0-ad44-11ee-97b3-be9cc6a8b6ef
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f6e4-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
metadata:
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f6f8-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f70c-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f720-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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{"source": "source_documents/The Personal MBA.pdf", "file_path": "source_documents/The Personal MBA.pdf", "page": 126, "total_pages": 127, "format": "PDF 2.0", "title": "", "author": "", "subject": "", "keywords": "", "creator": "", "producer": "", "creationDate": "D:20231231061515Z", "modDate": "D:20231231061515Z", "trapped": "", "chroma:document": "automatically deploying face masks attached to an oxygen tank. If the airplane\u2019s pressurized cabin fails fo\nr some reason, the passengers won\u2019t lose consciousness\u2014a very good thing indeed. Fail-safes are not ef\nficient in the sense that you\u2019re investing time and resources in a system you hope you\u2019ll never use. Backu\np systems and Insurance, from one perspective, can be seen as a waste of money\u2014why spend valuable"}


created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f734-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f752-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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created_at: 2024-01-07 10:05:41
topic: persistent://default/default/46953148-6970-44f8-adec-ceb4242926f3
id: 44f3f766-ad44-11ee-97b3-be9cc6a8b6ef
encoding: FLOAT32
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# embedding_metadata

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You Don’t Need to Know It All As to methods, there may be a million and then some, but principles are fe
w. The man who grasps principles can successfully select his own methods. The man who tries methods, 
ignoring principles, is sure to have trouble. —RALPH WALDO EMERSON, ESSAYIST AND POET One of
 the beautiful things about learning any subject is the fact that you don’t need to know everything—you onl


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y need to understand a few critically important concepts that provide most of the value. Once you have a 
solid scaffold of core principles to work from, building upon your knowledge and making progress become
s much easier. The Personal MBA is a set of foundational business concepts you can use to get things do
ne. Reading this book will give you a firm foundation of business knowledge you can use to make things h


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appen. Once you master the fundamentals, you can accomplish even the most challenging business goal
s with surprising ease. Over the past five years, I’ve read thousands of business books, interviewed hundr
eds of business professionals, worked for a Fortune 50 corporation, started my own businesses, and cons
ulted with businesses ranging from solo operations to multinational corporations with hundreds of thousan


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ds of employees and billions of dollars in revenue. Along the way, I’ve collected, distilled, and refined my f
indings into the concepts presented in this book. Understanding these fundamental principles will give you
 the tools you can rely on to make good business decisions. If you invest the time and energy necessary t
o learn these concepts, you’ll easily be in the top 1 percent of the human population when it comes to kno


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wing: � How businesses actually work. � How to start a new business. � How to improve an existing business
. � How to use business-related skills to accomplish your personal goals. Think of this book as a filter. Inste
ad of trying to absorb all of the business information that’s out there—and there’s a lot out there—use this
 book to help you learn what matters most, so you can focus on what’s actually important: making things h


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appen. No Experience Necessary People always overestimate how complex business is. This isn’t rocket 
science—we’ve chosen one of the world’s most simple professions. —JACK WELCH, FORMER CEO OF
 GENERAL ELECTRIC Don’t worry if you’re a complete beginner. Unlike many other business books, this
 book does not require any prior business knowledge or experience. I don’t assume you’re already the CE


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O of a large company who makes multimillion-dollar decisions on a daily basis. (But this book will still be v
ery useful if you are!) If you do have business experience, take it from many of my clients around the worl
d who have MBAs from top schools—you’ll find the information in this book more valuable and practical th
an anything you learned earning your degree. Together, we’ll explore 226 simple concepts that help you t


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hink about business in an entirely new way. After reading this book, you’ll have a much more comprehens
ive and accurate understanding of what businesses actually are and what successful businesses actually 
do. Questions, Not Answers Education is not the answer to the question. Education is the means to the a
nswer to all questions. —BILL ALLIN, SOCIOLOGIST AND EDUCATION ACTIVIST Most business books


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attempt to teach you to have more answers: a technique for this, a method for that. This book is different.
 It won’t give you answers—it will help you ask better questions. Knowing what’s critically important in eve
ry business is the first step in making good business decisions. The more you know about the essential q
uestions to ask in your current situation, the more quickly you’ll be able to find the answers you need to m


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ove forward. Mental Models, Not Methods The limits of my language are the limits of my world. —LUDWI
G WITTGENSTEIN, PHILOSOPHER AND LOGICIAN To improve your business skills, you don’t need to l
earn everything there is to know—mastering the fundamentals can take you surprisingly far. I call these fo
undational business concepts mental models, and together, they create a solid framework you can rely on


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to make good decisions. Mental models are concepts that represent your understanding of “how things w
ork.” Think of driving a car: what do you expect when you press down on the right-side pedal? If the car sl
ows down, you’ll be surprised— that pedal is supposed to be the accelerator. That’s a mental model—an i
dea about how something works in the real world. Your brain forms mental models automatically by notici


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ng patterns in what you experience each day. Very often, however, the mental models you form on your o
wn aren’t completely accurate—you’re only one person, so your knowledge and experiences are limited. 
Education is a way to make your mental models more accurate by internalizing the knowledge and experi
ences other people have collected throughout their lives. The best education helps you learn to see the w


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orld in a new, more productive way. For example, many people believe things like “starting a business is ri
sky,” “to get started, you must create a massive business plan and borrow a lot of money,” and “business 
is about who you know, not what you know.” Each of these phrases is a mental model—a way of describi
ng how the world works—but they’re not quite accurate. Correcting your mental models can help you thin


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k about what you’re doing more clearly, which will help you make better decisions: After learning the ment
al models in this book, many of my clients have realized that their picture of what businesses are and how
 businesses work was inaccurate—getting their venture off the ground would be far easier than they origin


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ally imagined. Instead of wasting valuable time and energy feeling intimidated and freaking out, learning t
hese concepts gave them the freedom to stop worrying and start making progress. This book will help you
 learn the fundamental principles of business quickly so you can focus your time and energy on actually d
oing useful things: creating something valuable, attracting attention, closing more sales, serving more cus


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tomers, getting promoted, making more money, and changing the world. Not only will you be able to creat
e more value for others and improve your own financial situation, you’ll also have more fun along the way.
 My “Personal” MBA Self-education is, I firmly believe, the only kind of education there is. —ISAAC ASIM
OV, FORMER PROFESSOR OF BIOCHEMISTRY AT BOSTON UNIVERSITY AND AUTHOR OF OVER 
FIVE HUNDRED BOOKS People often ask me if I have an MBA. “No,” I reply, “but I did go to business sc


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hool.” As a student at the University of Cincinnati, I was fortunate enough to participate in the Carl H. Lind
ner Honors-PLUS program, which is essentially an MBA at the undergraduate level. The program was ge
nerously funded via scholarships, and as a result I had the remarkable opportunity to experience most of 
what business schools teach without the crippling burden of debt. I’ve also been on the “fast track to corp


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orate success.” Through the University of Cincinnati’s cooperative education program, I landed a manage
ment position at a Fortune 50 company—Procter & Gamble— during my second year of college. By the ti
me I graduated in 2005, I had an offer to become an assistant brand manager in P&G’s Home Care divisi
on, a role typically reserved for graduates of top MBA programs. As I began my last semester of college, I


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started focusing less on my coursework and more on the future. My new job would require a solid unders
tanding of business, and almost all of my peers and managers would have MBAs from top-tier schools. I b
riefly considered enrolling in an MBA program, but it made no sense to pursue an expensive credential to 
get the kind of job I already had, and my responsibilities would be demanding enough without adding a lo


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ad of coursework by enrolling in a part-time program. While considering my options, I remembered a bit of
 career advice that Andy Walter, the first associate director I reported to at P&G, had given me: “If you put
 the same amount of time and energy you’d spend completing an MBA into doing good work and improvin
g your skills, you’ll do just as well.” (Andy doesn’t have an MBA—he studied electrical engineering in colle


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ge. He’s now one of the company’s top global IT managers, responsible for leading many of P&G’s larges
t projects.) In the end, I decided to skip business school, but not business education. Instead of enrolling i
n an MBA program, I skipped the classroom and hit the books, creating my own “Personal” MBA. A Self-D
irected Crash Course in Business Many who are self-taught far excel the doctors, masters, and bachelors


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of the most renowned universities. —LUDWIG VON MISES, AUSTRIAN ECONOMIST AND AUTHOR O
F HUMAN ACTION I’ve always been an avid reader, but before I decided to learn everything I could abou
t business, most of what I read was fiction. I grew up in New London, a small farm town in northern Ohio 
where the major industries are agriculture and light manufacturing. My mother is a children’s librarian, and


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my father worked as a sixth grade science teacher, then as an elementary school principal. Books were a
 major part of my life, but business was not. Before getting my first real job, I knew next to nothing about 
what businesses were or how they functioned, other than that they were places people went every day in 
order to draw a paycheck. I had no idea that companies like Procter & Gamble even existed until I applied


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for the job that swept me into the corporate world. Working for P&G was an education in itself. The sheer 
size and scope of the business—and the complexity required to manage a business of that size —boggle
d my mind. During my first three years with the company, I participated in decisions across every part of t
he business process: creating new products, ramping up production, allocating millions of marketing dolla


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rs, and securing distribution with major retailers like Walmart, Target, Kroger, and Costco. As an assistant
 brand manager, I was leading teams of thirty to forty P&G employees, contractors, and agency staff—all 
of whom had competing projects, plans, and priorities. The stakes were huge and the pressure was intens
e. To this day, I can’t help but marvel at the thousands of man-hours, the millions of dollars, and the enor


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mously complex processes necessary to make a simple bottle of dish soap appear on the shelf of the loca
l supermarket. Everything from the shape of the bottle to the scent of the product is optimized—including t
he text on the cardboard boxes used to ship inventory to the store. My work at P&G, however, wasn’t the 
only thing on my mind. My decision to skip business school in favor of educating myself developed from a


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side project into a minor obsession. Every day I would spend hour after hour reading and researching, se
arching for one more tidbit of knowledge that would help me to better understand how the business world 
worked. Instead of using the summer after graduation to relax and go on vacation, I spent my days haunti
ng the business stacks at the local bookstore, absorbing as much as I possibly could. By the time I officiall


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y started working full-time for P&G in September 2005, I had read hundreds of books across every discipli
ne that business schools teach, as well as in disciplines that most business schools don’t cover, such as


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psychology, physical science, and systems theory. When my first day at P&G finally arrived, I felt prepare
d to strategize with the best of them. As it turned out, my self-education served me well—I was doing valu
able work, making things happen, and getting good reviews. As time went on, however, I realized three ve
ry important things: 1. Large companies move slowly. Good ideas often died on the vine simply because t


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hey had to be approved by too many people. 2. Climbing the corporate ladder is an obstacle to doing grea
t work. I wanted to focus on getting things done and making things better, not constantly positioning mysel
f for promotion. Politics and turf wars are an inescapable part of the daily experience of working for a larg
e company. 3. Frustration leads to burnout. I wanted to enjoy the daily experience of work, but instead I fe


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lt like I was running a gauntlet each day. It began to affect my health, happiness, and relationships. The lo
nger I stayed in the corporate world, the more I realized I wanted out. I desperately wanted to work on my 
own terms, as an entrepreneur. The Wheat and the Chaff It is important that students bring a certain raga
muffin, barefoot irreverence to their studies; they are not here to worship what is known, but to question it.


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—JACOB BRONOWSKI, WRITER AND PRESENTER OF THE ASCENT OF MAN If there’s one thing I’
m good at, it’s taking in a huge amount of information and distilling it to the essentials. I’m a synthesist by 
nature, and my travels through the world of business literature quickly became an exercise in separating t
he diamonds from the rough. The amount of business information being published every day is staggering


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. As of this writing, the Library of Congress has approximately 1.2 million business-related books in its gen
eral collection. Assuming you read at an average speed of 250 words per minute and an average book co
ntains 60,000 words, it would take 528 years of around-the-clock reading to finish the entire collection, 82
2 years if you allowed yourself the luxury of food and sleep. According to Bowker, the company responsibl


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e for assigning ISBN numbers for the publishing industry, over 11,000 new business books are published 
worldwide each year, adding to the millions of business books printed since the early 1900s. Amazon.com
 carries over 630,000 businessrelated titles, not counting audiobooks, e-books, or materials that are publi
shed without an ISBN. Of course, books aren’t the only source of business information available. Take ma


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gazines and newspapers, for example: 527 major business-related periodicals are currently tracked by th
e Wilson Business Periodicals Index. Every year, the WBPI adds over 96,000 records to its database of 1.
6 million entries. That figure doesn’t include blogs: according to Google Blog Search, there are currently o
ver 110 million business-related blog posts on the Internet—a figure that is growing daily. There’s certainl


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y no shortage of business writers in the blog world: the blog search engine Technorati has indexed over 4
 million bloggers who write about business-related topics. Clearly, sifting through the massive amount of b
usiness information available would be an enormous challenge. My early business research was mostly h
aphazard—I simply went to a bookstore and picked up a book that looked interesting. For every great boo


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k I found, I had to wade through ten times as many hastily assembled texts by consultants who were mor
e interested in creating a three-hundred-page business card than providing genuinely useful information. I
 started to wonder: how much of what’s out there—and there’s a lot out there—I really needed to know. H
ow could I separate the valuable information from the rubbish? I only had so much time and energy, so I s


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tarted searching for a filter: something that would direct me to the useful knowledge and keep me away fr
om the chaff. The more I searched, the more I realized it didn’t exist—so I decided to create it myself. I be
gan tracking which resources were valuable and which ones weren’t, then publishing my findings on my 
Web site, both as an archive and for the benefit of anyone interested. It was a personal project, nothing m


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ore: I was just a recent college graduate doing my best to learn something useful, and publishing my rese
arch for others seemed like a good use of time and energy. One fateful morning, however, the Personal M
BA went unexpectedly public, and my life changed permanently. The Personal MBA Goes Global Whoeve
r best describes the problem is the one most likely to solve it. —DAN ROAM, AUTHOR OF THE BACK O


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F THE NAPKIN In addition to reading books, I was following several hundred business blogs. Some of the
 best business thinking was being published on the Internet months (or years) before it ever appeared in p
rint, and I wanted to read it all as soon as it was available. One of the bloggers I followed avidly was Seth 
Godin. A best-selling author (of books like Permission Marketing, Purple Cow, and Linchpin) and one of th


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e earliest successful online marketers, Seth specializes in bold statements of big ideas designed to challe
nge you to do more, do better, question the status quo, and make a difference. One particular morning, S
eth was commenting on a recent news story: Harvard was rescinding the admission of 119 previously soo
n-to-be Harvard MBA students.1 These prospective students had discovered an ethically dubious way to


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hack into the Harvard admissions Web site to view their application status before the official acceptance l
etters went out. The story quickly became a media frenzy, devolving into a debate about whether MBA stu
dents were naturally inclined to lie, cheat, and steal, or if business schools made them that way. Instead o


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f being outraged at the bad behavior of the applicants, Seth (unsurprisingly) had a different perspective: H
arvard was giving these students a gift. By rescinding their applications, Harvard was giving these student
s a significant opportunity: the university was returning $150,000 and two years of their lives, which would
 otherwise have been spent chasing a mostly worthless piece of paper. “It’s hard for me to understand,” h


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e wrote, “why [getting an MBA] is a better use of time and money than actual experience combined with a 
dedicated reading of 30 or 40 books.” “Holy cow,” I thought. “That’s exactly what I’m doing!” Over the next
 two days, I created a list of the books and resources I had found most valuable in my studies,2 then publi
shed it on my blog with a link to Seth’s post, so anyone interested in figuring out how to do what Seth sug


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gested would be able to find it. Then I typed a quick e-mail to Seth and sent him a link to my post. Two mi
nutes later, a post went up on Seth’s blog directing people to my reading list, and a flood of readers from 
around the world started visiting my Web site. Popular personal development and productivity blogs like Li
fehacker .com picked up the story, which then spread to social media Web sites like Reddit, Digg, and Del


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icious. Within the first week of the Personal MBA’s existence, thirty thousand people visited my little corne
r of the Internet to see what I was doing. Better yet, they started talking. Some readers asked questions—
where should they start? Others suggested great books they’d read, helping me with my research. A few t
old me the entire project was naive, and that I was wasting my time. Through it all, I kept reading, researc


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hing, and developing the Personal MBA in my spare time, and the business self-education movement beg
an to snowball. “The Personal MBA Manifesto,”3 an essay I created to help newcomers understand what t
he project is all about, has been viewed hundreds of thousands of times by readers all over the world and 
is still in the top ten manifestos published by ChangeThis.com after five years. The Personal MBA recom


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mended reading list has been profiled by BusinessWeek4 and has been updated with the results of my lat
est research every year since 2005. Thousands of do-it-yourself business students from around the world 
help one another learn and grow every day in the PMBA Community forums.5 In an amazingly short perio
d of time, the Personal MBA grew from a oneman side project into a major global movement, and I left P&


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G to focus on building the PMBA and working with my clients full-time. As much as I enjoyed leading the e
fforts of the worldwide PMBA community, I quickly realized that providing a reading list wasn’t enough. Pe
ople read business books to solve specific challenges or to improve themselves in some tangible way. Th
ey’re looking for solutions, and a list of books, while valuable, could only do so much. The books themselv


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es aren’t as important as the ideas and knowledge they contain, but many of my readers were missing out
 because it took hours of turning pages to get to the good stuff. Many Personal MBA readers started enth
usiastically, then quit after reading a few books—it took too long to reap the rewards, and the demands of 
work and family life inevitably intervened. To help them, I had more work to do. Munger’s Mental Models I


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think it’s undeniably true that the human brain works in models. The trick is to have your brain work better 
than the other person’s brain because it understands the most fundamental models—the ones that do the
 most work. —CHARLES T. MUNGER, BILLIONAIRE BUSINESS PARTNER OF WARREN BUFFETT, C
EO OF WESCO FINANCIAL, AND VICECHAIRMAN OF BERKSHIRE HATHAWAY My first glimpse into t
he future of the Personal MBA came when I discovered the work of Charles T. Munger. Charlie was born i


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n Omaha, Nebraska, shortly before the Great Depression. As a young man, Charlie skipped high school a
thletics in favor of reading to satisfy his intense curiosity about how the world worked. His early business 
experience consisted of working in a family-owned grocery store for $2 a day. In 1941, Charlie graduated 
from high school. After two years of studying undergraduate mathematics and physics at the University of


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Michigan, he enlisted in the Army Air Corps, where he was trained as a meteorologist. In 1946, after leavi
ng the army, he was accepted to Harvard Law School, even though he had never earned a bachelor’s de
gree, which wasn’t absolutely required at the time. Charlie graduated from Harvard Law in 1948 and spen
t the next seventeen years practicing as an attorney. In 1965, he left the law firm he had created to start a


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n investment partnership, which went on to outperform the market by 14 percent compounded annually ov
er fourteen years—an astounding record given his complete lack of formal business education. Charlie M
unger isn’t a household name, but Warren Buffett, Charlie’s business partner, certainly qualifies. Buffett a
nd Munger purchased Berkshire Hathaway, a floundering textile manufacturer, in 1975, turning it into a co


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nglomerate investment holding company. Together, Buffett and Munger became billionaires. According to 
Buffett, Charlie’s mental-model-centric approach to business is a major contributing factor in the success 
of Berkshire Hathaway and Buffett’s status as one of the world’s wealthiest business owners: “Charlie can
 analyze and evaluate any kind of deal faster and more accurately than any man alive. He sees any valid


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weakness in sixty seconds. He’s the perfect partner.”6 The secret to Charlie’s success is a systematic wa
y of understanding how businesses actually work. Even though he never formally studied business, his rel


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entless self-education in a wide variety of subjects allowed him to construct what he called a “latticework 
of mental models,” which he then applied to making business decisions: I’ve long believed that a certain s
ystem—which almost any intelligent person can learn—works way better than the systems most people u
se [to understand the world]. What you need is a latticework of mental models in your head. And, with that


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system, things gradually fit together in a way that enhances cognition. Just as multiple factors shape ever
y system, multiple mental models from a variety of disciplines are necessary to understand that system . . 
. You have to realize the truth of biologist Julian Huxley’s idea that, “Life is just one damn relatedness afte
r another. ” So you must have all the models, and you must see the relatedness and the effects f rom the


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relatedness . . . 7 It’s kind of fun to sit here and outthink people who are way smarter than you are becaus
e you’ve trained yourself to be more objective and more multidisciplinary. Furthermore, there is a lot of mo
ney in it, as I can testify from my own personal experience.8 By basing their investment decisions on their
 extensive knowledge of how businesses work, how people work, and how systems work, Buffett and Mun


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ger created a company worth over $195 billion—an astounding track record for a meteorologist-turned-la
wyer from Omaha with no formal business education. Discovering Munger’s approach to business educati
on was a huge validation. Here was a man who, decades before, had decided to do what I was doing—an
d it had worked extraordinarily well! Munger’s method of identifying and applying fundamental principles


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made much more sense to me than most of the business books I’d previously read. I resolved to learn ev
erything I could about the “mental models” Charlie used to make decisions. Unfortunately, Charlie has ne
ver published a comprehensive collection of his mental models. He’s given hints in his speeches and ess
ays—even going so far as to publish a list of the psychological principles he finds most useful in Poor Cha


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rlie’s Almanack, a recent biography—but there was no single text that contained “everything you need to k
now in order to succeed in business.” If I wanted to understand the fundamental principles of how every s
uccessful businessperson works, I’d have to discover them myself. To do that, I had to rebuild my underst
anding of business from the ground up. Connecting the Dots In all affairs, it’s a healthy thing now and the


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n to hang a question mark on the things you have long taken for granted. —BERTRAND RUSSELL, REN
OWNED PHILOSOPHER AND AUTHOR OF THE PROBLEMS OF PHILOSOPHY AND THE PRINCIPLE
S OF MATHEMATICS Most business books (and business schools) assume that the student already kno
ws what businesses are, what they do, and how they work—as if it were the most obvious thing in the wor
ld. It’s not. Business is one of the most complex and multidisciplinary areas of human experience, and tryi


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ng to understand how businesses work can be remarkably intimidating, even though they surround us eve
ry day. Businesses are so much a part of daily life that it’s easy to take the business world for granted. Da
y after day, businesses deliver what we want swiftly, efficiently, and with remarkably little fuss. Look aroun
d: almost every material good you’re surrounded by right now was created and delivered to you by some


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sort of business. Businesses invisibly create and deliver so many different things in so many different way
s that it makes generalizations difficult: what do apple cider and airlines have in common? As it turns out, 
quite a bit—if you know where to look. Here’s how I define a business: Every successful business (1) crea
tes or provides something of value that (2) other people want or need (3) at a price they’re willing to pay, i


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n 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. Take away any of these things—valu
e creation, customer demand, transactions, value delivery, or profit sufficiency—and you have something 
other than a business. Each factor is both essential and universal. As I deconstructed each of those factor


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s, I found additional universal requirements. Value can’t be created without understanding what people w
ant (market research). Attracting customers first requires getting their attention, then making them interest
ed (marketing). In order to close a sale, people must first trust your ability to deliver on what’s promised (v
alue delivery and operations). Customer satisfaction depends on reliably exceeding the customer’s expect


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ations (customer service). Profit sufficiency requires bringing in more money than is spent (finance). None
 of these functions is rocket science, but they’re always necessary, no matter who you are or what busine
ss you’re in. Do them well, and your business thrives. Do them poorly, and you won’t be in business very l
ong. Every business fundamentally relies on two additional factors: people and systems. Every business i


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s created by people and survives by benefiting other people in some way. To understand how businesses
 work, you must have a firm understanding of how people tend to think and behave—how humans make d
ecisions, act on those decisions, and communicate with others. Recent advances in psychology and neur
oscience are revealing why people do the things they do, as well as how to improve our own behavior and


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work more effectively with others. Systems, on the other hand, are the invisible structures that hold every
 business together. At the core, every business is a collection of processes that can be reliably repeated t


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o produce a particular result. By understanding the essentials of how complex systems work, it’s possible 
to find ways to improve existing systems, whether you’re dealing with a marketing campaign or an automo
tive assembly line. Before writing this book, I spent several years testing the principles in this book with m
y clients and readers. Understanding and applying these “business mental models” has helped them laun


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ch new careers, land job offers from prestigious organizations in the corporate and academic worlds, get 
promoted, start new businesses, and in several cases go through the entire product development process
 (from idea to first sale) in less than four weeks. These concepts are important because they work. Not onl
y will you be able to create more value for others and improve your own financial situation, you’ll find it not


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iceably easier to achieve what you set out to do—and you’ll have more fun along the way. For the Skeptic
s You wasted $150,000 on an education you could have got for a buck fifty in late charges at the public lib
rary. —MATT DAMON AS WILL HUNTING, GOOD WILL HUNTING This is a book about business conce
pts, not business schools. However, many people simply don’t believe it’s possible to reap the benefits of


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a comprehensive business education without forking over enormous sums of money for a name-brand dip
loma from an Ivy League school. This section, which will discuss the merits and downfalls of traditional M
BA programs, is for the skeptics. Should You Go to Business School? There is a difference between (A) 
what an MBA does to help you prove your abilities to others and (B) what getting an MBA actually does to


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improve your abilities. They are two different things. —SCOTT BERKUN, AUTHOR OF MAKING THING
S HAPPEN AND THE MYTHS OF INNOVATION Every year, millions of individuals determined to make a
 name for themselves have the following thought: “I want to become a successful businessperson. Where 
should I get my MBA?” Since you’re flipping through this book, you’ve probably wondered the same thing


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at some point in your life. Here’s the answer: five simple words that will save you years of effort and hundr
eds of thousands of dollars: Skip business school. Educate yourself. This book will show you how to succ
eed in business—without mortgaging your life. Three Big Problems with Business Schools College: two h
undred people reading the same book. An obvious mistake. Two hundred people can read two hundred b


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ooks. —JOHN CAGE, SELF-TAUGHT WRITER AND COMPOSER I have nothing against people who wo
rk in business schools: by and large, business school professors and administrators are lovely people wh
o try their best and want to see their students succeed. Unfortunately, MBA programs around the world ha
ve three major systemic issues: 1. MBA programs have become so expensive you must effectively mortg


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age your life to pay the price of admission. “Return on Investment” is always directly related to how much 
you spend, and after decades of tuition increases, MBA programs are increasingly a burden to their stude
nts instead of a benefit. The primary question is not whether attending a university is a positive experienc
e: it’s whether or not the experience is worth the cost.9 2. MBA programs teach many worthless, outdated


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, even outright damaging concepts and practices—assuming your goal is to actually build a successful bu
siness and increase your net worth. Many of my MBAHOLDING readers and clients come to me after spe
nding tens (sometimes hundreds) of thousands of dollars learning the ins and outs of complex financial fo
rmulas and statistical models, only to realize that their MBA program didn’t teach them how to start or imp


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rove a real, operating business. That’s a problem—graduating from business school does not guarantee h
aving a useful working knowledge of business when you’re done, which is what you actually need to be s
uccessful. 3. MBA programs won’t guarantee you a high-paying job, let alone make you a skilled manager
 or leader with a shot at the executive suite. Developing skills such as decision making, management, and


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leadership takes real practice and experience, which business schools can’t provide in the classroom, re
gardless of how prestigious the program is. Instead of spending huge sums of money to learn marginally 
useful information, you can spend your time and resources learning things that actually matter. If you’re re
ady and able to invest in improving your skills and abilities, you can learn everything you need to know ab


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out business on your own, without mortgaging your life for the privilege. Delusions of Grandeur The very s
ubstance of the ambitious is merely the shadow of a dream. —WILLIAM SHAKESPEARE, HAMLET It’s e
asy to figure out why business school is attractive: it’s sold as a oneway ticket to a permanently prosperou
s and comfortable life. It’s a pleasant daydream: after two years of case studies and happy hour “networki


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ng,” corporate recruiters will be shamelessly throwing themselves at you, each of them offering a prestigio
us and high-paying position at a top firm. Your rise up the corporate ladder will be swift and sure. You’ll be
 a CAPTAIN OF INDUSTRY, collecting huge bonuses and tabulating the value of your stock options while
 sitting behind an impressive-looking mahogany desk in the corner office on the top floor of a gigantic glas


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s skyscraper. You’ll be the big boss, telling other people what to do until it’s time to go play golf or relax o
n your yacht. You’ll be wined and dined all over the world, and the lowly masses will venerate you and yo
ur astounding achievements. Everyone will think you’re rich, intelligent, and powerful— and they’ll be dam


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n right. What price for the promise of riches, power, and glory? A few thousand dollars in application fees,
 an effortless scribble on a loan document, and you’ll be on your way to the top! Not only that, you’ll get a 
two-year vacation from actually working. What a fantastic deal! Unfortunately, daydreams and reality are 
often quite different. Your Money AND Your Life There ain’t no such thing as a free lunch. —ROBERT HE


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INLEIN, AUTHOR OF STRANGER IN A STRANGE LAND AND THE MOON IS A HARSH MISTRESS Fo
r the moment, let’s assume you think business school is your ticket to everlasting success. You’re in luck
—getting into at least one business school is relatively easy. If you pay thousands of dollars in application
 fees, write enough personal statements that strike just the right balance of confidence and humility, and c


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ompliment the quality of the school’s program in interviews, sooner or later some college or university will 
generously bestow upon you the chance to become the next Bill Gates.10 Here, though, is where the pro
blems begin: business school is insanely expensive. Unless you’re independently wealthy or land a massi
ve scholarship, your only option is to effectively mortgage your life by taking out an enormous loan agains


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t your future earnings to pay the tuition. Most prospective MBA students have already graduated from coll
ege with an undergraduate degree, so they’re already carrying some level of student loan debt. According
 to FinAid.org, a college financial aid Web site, the average cumulative debt of a student who completed a
n undergraduate degree in the United States in 2009 is $22,500. For students who choose to pursue an


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MBA program after undergrad, total average cumulative debt is $41,687. That doesn’t include providing fo
r material needs like rent, groceries, and car payments, which are often funded via additional student loan
s. Forty thousand dollars is a significant chunk of change, assuming you go to an average school—but wh
o wants to be merely average? If you’re shooting for offers from top-tier financial services companies like


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Goldman Sachs or major consulting companies like McKinsey and Bain (which are historically the highest
-paying options for newly minted MBAs), you’re going to have to attend a top-ten program, and that’ll requ
ire a lot more than a measly forty grand. Breaking Out the Benjamins Who goeth a borrowing, goeth a sor
rowing . . . A fool and his money are soon parted. —THOMAS TUSSER, SIXTEENTH-CENTURY ENGLI


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SH FARMER AND POET According to the 2010 U. S. News & World Report business school rankings, ea
ch of the top fifteen MBA programs charge $40,000 to $50,000 per year for tuition. Most full-time MBA pro
grams are two-year affairs. Once you factor in the high cost of living near any major university, you’re easi
ly looking at a total price tag of somewhere between $125,000 and $200,000 for a b-school diploma. Assu


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ming you get in, of course. Top business schools are notoriously hard to get into—the programs can affor
d to be picky because of their reputations. It’s circular. The reputation of a business school is built on the 
success of its graduates, so the top schools only admit those students intelligent and ambitious enough to
 make it through the rigorous selection process—the ones who are already likely to succeed, MBA or no


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MBA. Business schools don’t create successful people. They simply accept them, then take credit for thei
r success. If you get in, the school will do what it can to help you get a decent job, but making things happ
en will always be your responsibility. If you’re successful in the years after graduation, the school will hold 
you up as a shining example of the quality of their program and will use the “halo effect” of your name to r


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ecruit more students. If you lose your job and go broke, you’ll get neither publicity nor help, but the loan bil
ls will keep rolling in. Sorry about your luck. Here’s what Christian Schraga, a 2002 graduate of the Whart
on School of Business, had to say about his MBA experience in an essay on his Web site:11 My been-the
re-done-that experience has taught me that a top MBA program provides some benefits, but at a steep pri


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ce. If you are currently considering attending a full-time program, please stop to ask yourself whether or n
ot you are willing to take the risk. Business school is a big risk. Should you choose to enroll, the only certa
inty is that you will shell out about $125,000. Such a figure correlates to a $1,500/month non-deductible lo
an repayment and a ten-year period of time in which you will not be able to save a red cent. If you think th


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at this payment is worth it to earn the pedigree, the fraternity, the two years off, and a shot at the big buck
s, then the MBA is right for you. If not, please do something else. Wise words. If you don’t absolutely need
 the sheepskin, don’t enroll. What an MBA Will Actually Get You Hypocrisy can afford to be magnificent in
 its promises; for never intending to go beyond promises, it costs nothing. —EDMUND BURKE, POLITICI


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AN AND POLITICAL THEORIST In “The End of Business Schools? Less Success Than Meets the Eye,” 
a study published in Academy of Management Learning & Education, 12 Jeffrey Pfeffer of Stanford Unive
rsity and Christina Fong of the University of Washington analyzed forty years of data in an effort to find evi
dence that business schools make their graduates more successful. Their hypothesis was remarkably str


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aightforward: If an MBA education is useful training for business, then the following should be true as a m
atter of logic: (1) having an MBA degree should, other things being equal, be related to various measures 
of career success and attainment, such as salary; and (2) if what someone learns in business school help


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s that person be better prepared for the business world and more competent in that domain—in other wor
ds, if business schools convey professionally useful knowledge—then a measure of how much one has le
arned or mastered the material, such as grades in course work, should be at least somewhat predictive of
 various outcomes that index success in business. What Pfeffer and Fong found was astonishing and dist


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urbing: business schools do almost nothing, aside from making money disappear from students’ pockets: 
Business schools are not very effective: Neither possessing an MBA degree nor grades earned in course
s correlate with career success, results that question the effectiveness of schools in preparing their stude
nts. And, there is little evidence that business school research is influential on management practice, calli


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ng into question the professional relevance of management scholarship. According to Pfeffer and Fong’s 
study, it doesn’t matter if you graduate at the top of your class with a perfect 4.0 or at the bottom with a ba
rely passing grade—getting an MBA has zero correlation with long-term career success. None. There is s
cant evidence that the MBA credential, particularly from non-elite schools, or the grades earned in busine


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ss courses— a measure of the mastery of the material—are related to either salary or the attainment of hi
gher level positions in organizations. These data, at a minimum, suggest that the training or education co
mponent of business education is only loosely coupled to the world of managing organizations. That’s tou
gh to hear if you’ve forked over a few hundred thousand dollars to buy a degree whose sole purpose is to


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make you a more successful businessperson. It gets worse: getting an MBA doesn’t even have an impact
 on your total lifetime earnings. It takes decades of work simply to dig yourself out of the debt you took on 
to get the degree. Christian Schraga, the Wharton MBA, estimated that the ten-year “net present value” (a
 financial analysis technique used to estimate whether or not an investment is worthwhile) of a top MBA pr


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ogram is approximately negative $53,000 (that’s bad). This assumes a pre-MBA base salary of $85,000, 
a post-MBA salary of $115,000 (a 35 percent increase), marginal tax rate increases (which you’ll pay if yo
ur job requires moving to a major city), and a discount rate of 7 percent to account for opportunity cost (th
e opportunities you give up by spending money on business school instead of investing it in something els


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e). In plain English: Schraga used a technique business schools teach to prove that getting an MBA from 
a top-tier school is a bad financial decision. Assuming Schraga’s assumptions are accurate, it takes twelv
e years of solid effort just to break even—and that’s assuming everything goes according to plan. If you gr
aduate into a bad job market, you’re screwed. Where Business Schools Came From It is, in fact, nothing


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short of a miracle that modern methods of instruction have not entirely strangled the curiosity of inquiry. 
—ALBERT EINSTEIN, NOBEL PRIZE-WINNING PHYSICIST MBA programs don’t make students more s
uccessful because they teach very few things that are actually useful in the working world. As Pfeffer and 
Fong state in their paper: A large body of evidence suggests that the curriculum taught in business school


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s has only a small relationship to what is important for succeeding in business . . . If there is, in fact, only 
a slight connection between the skills needed in business and what is taught in graduate business progra
ms, then the absence of an effect of the MBA or mastery of the subject matter on the careers of graduate
s is understandable. If you look at the curriculum of any business school, you’ll notice a few assumptions


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about what you’ll do after you graduate: you’ll either be a Clevel executive at a large industrial manufactur
ing or retail operation, become a consultant, become a corporate accountant, or work as a financier at an 
investment bank. Accordingly, the coursework is implicitly structured around keeping your massive operati
on running and/or doing sophisticated quantitative analysis—not doing any of the other critically important


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things that 99 percent of working businesspeople do in any given day. The disconnect between the classr
oom and the working world makes sense when you realize that the concepts, principles, and techniques 
most business schools teach were designed for a very different world. Graduate schools of business start
ed popping up at the end of the nineteenth century during the Industrial Revolution. The intent of early MB


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A programs was to train managers to be more scientific in an effort to make large operations more efficien
t. Frederick Winslow Taylor, the pioneer of “scientific management” techniques that now form the foundati
on of modern management training, used a stopwatch to shave a few seconds off the average time a wor
kman took to load iron ingots into a train car. That should give you a good idea of the underlying mind-set


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of most business school management programs. Management was thought of mostly as an exercise in ge
tting people to work faster and do exactly what they’re told. The philosopher kings behind what passed for
 management psychology were Ivan Pavlov and, later on, B. F. Skinner, who believed that if you discover
ed and applied just the right stimulus, people would behave however you wanted. This mentality led to the


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widespread use of financial incentives to influence behavior: salary, bonuses, stock options, and so on, in
 an effort to encourage business professionals and managers to act in the best interest of corporate share
holders. There’s an enormous (and growing) body of evidence that direct incentives often undermine perf


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ormance, motivation, and job satisfaction in the real world.13 Despite more useful competing theories of h
uman action, 14 the search for the magic stimulus continues in business school classrooms to this day. In
 Search of Distribution Any technique, however worthy and desirable, becomes a disease when the mind i
s obsessed with it. —BRUCE LEE, WORLD-RENOWNED MARTIAL ARTIST Marketing, on the other han


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d, was originally a way to get additional store distribution for physical products and keep expensive factor
y production lines busy. With the widespread adoption of the radio and television in the early twentieth ce
ntury, it became possible to advertise to a large national audience, paving the way for national brands and
 national retailers. More advertising typically resulted in more distribution, which in turn resulted in more s


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ales and even more money to spend on advertising, continuing the cycle. As decades passed, this self-rei
nforcing feedback loop resulted in a few dominant behemoths in each industry. Business schools became
 obsessed with how to capture market share and create gigantic companies quickly via ever-larger merge
rs, raising the financial stakes with each acquisition. For entrepreneurs, venture capital became a must-ha


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ve aspect of the business process—how else could you afford to build a factory or a national brand in a fe
w short years? “Economies of scale” in production meant large companies could outcompete smaller rival
s by offering similar products at lower prices. Investors wanted to see huge returns on their money quickly
, prudence be damned, rewarding speculators who wrote business plans promising a huge exit in a short


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amount of time. Viable businesses were acquired and gutted in the name of conglomeration and “synergy
,” all with the blessing of business academia. The sheer enormity of integrating these gigantic, complex b
usiness systems was ignored or overlooked, leading most of the companies that attempted huge mergers
 to ruin. Playing with Fire Beware of geeks bearing formulas. —WARREN BUFFETT, CHAIRMAN AND C
EO OF BERKSHIRE HATHAWAY AND ONE OF THE WEALTHIEST INDIVIDUALS IN THE WORLD Fin


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ance, in the meantime, was steadily increasing in complexity. Before the twentieth century, accounting an
d finance were a matter of common sense and relatively simple arithmetic. The widespread adoption of d
ouble-entry bookkeeping (a thirteenth-century innovation) brought many benefits, like increased accuracy 
and ease of detecting anomalies like theft, at the cost of simplicity. The introduction of statistics to financia


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l practice simultaneously enhanced analytical capability at the cost of abstraction, increasing opportunities
 to fudge the numbers without anyone noticing. Over time, managers and executives began using statistic
s and analysis to forecast the future, relying on databases and spreadsheets in much the same way ancie
nt seers relied on tea leaves and goat entrails. The world itself is no less unpredictable or uncertain: as in


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the olden days, the signs only “prove” the biases and desires of the soothsayer. The complexity of financi
al transactions and the statistical models those transactions relied upon continued to grow until few practit
ioners fully understood how they worked or respected their limits. As Wired revealed in a February 2009 a
rticle, “Recipe for Disaster: The Formula That Killed Wall Street,” the inherent limitations of deified financi


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al formulas such as the Black-Scholes option pricing model, the Gaussian copula function, and the capital
 asset pricing model (CAPM) played a major role in the tech bubble of 2000 and the housing market and d
erivatives shenanigans behind the 2008 recession. Learning how to use complicated financial formulas is
n’t the same as learning how to run a business. Understanding what businesses actually do to create and


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deliver value is essential knowledge, but many business programs have de-emphasized value creation an
d operations in favor of finance and quantitative analysis. In “Upper Mismanagement,” journalist Noam Sc
heiber explores the reason behind the downfall of American industry: Since 1965, the percentage of grad
uates of highly ranked business schools who go into consulting and financial services has doubled, from a


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bout one-third to about two-thirds. And while some of these consultants and financiers end up in the manu
facturing sector, in some respects that’s the problem . . . Most of GM’s top executives in recent decades h
ailed from a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his f
ailed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s offic


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e.) But these executives were frequently numb to the sorts of innovations that enable high-quality producti
on at low cost.15 Process improvements are easy to skip if you want the business’s short-term profit num
bers to look good, even though they’re essential to long-term viability. By ignoring the things that make a 
business operate more effectively, MBA-trained executives have unwittingly gutted previously viable com


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panies in the name of quarterly earnings per share. Meanwhile, the widespread practice of using large am
ounts of debt as leverage16 created enormous companies with even more enormous obligations, amplifyi
ng returns in good years but making the firms catastrophically unstable during the slightest downturn. The
 “leveraged buyout” strategy taught in many business school classrooms—buying a company, financing m


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assive expansion via debt, then selling the business to another company at a premium17—turned formerl
y self-sustaining companies into debt-bloated monstrosities, and the constant flipping of businesses from


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one temporary owner to the next turned financial markets into a game of musical chairs. When financial w
izardry and short-term returns trump prudence and longterm value creation, customers and employees su
ffer. The only people who benefit are the MBA-trained executive-level financiers and fund managers, who 
extract hundreds of millions of dollars in transaction fees and salaries while destroying previously viable c


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ompanies, hundreds of thousands of jobs, and billions of dollars of value. Business is about creating and 
delivering value to paying customers, not orchestrating legal fraud. Unfortunately for us all, business scho
ols have deemphasized the former in favor of teaching the latter. No Reason to Change Schools teach th
e need to be taught. —IVAN ILLICH, PRIEST, THEOLOGIAN, AND EDUCATION CRITIC The world is co


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nstantly changing, but business schools aren’t changing with it. With the advent of the Internet and the wi
despread availability of new technologies, successful modern businesses tend to be smaller, require less 
capital to build, have less overhead, and require fewer employees. According to the U. S. Small Business 
Administration, small businesses represent 99.7 percent of all employer firms in the United States, emplo


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y half of all private-sector workers, have generated 64 percent of net new jobs over the past fifteen years, 
and create more than 50 percent of U.S. nonfarm gross domestic product (GDP).18 You wouldn’t know th
at from looking at bschool curricula: based on current standards, it seems that most MBA programs believ
e huge businesses are the only ventures worth managing. Mass-market advertising is no longer able to re


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liably convert pennies to dollars. Inventories (if they exist at all) tend to be smaller, businesses depend on 
others for critical functions, and markets change and adapt extremely quickly. Speed, flexibility, and ingen
uity are the qualities that successful businesses rely on today—qualities that the corporate giants of the p
ast few decades struggle to acquire and retain, and business school classrooms struggle to teach. The de


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mands of the public market push executives to chase short-term earnings at the expense of long-term sta
bility, creating waves of layoffs and severe budget cuts when times get tight or unexpected events occur. 
At the same time, more and more employees are looking for a greater sense of autonomy, flexibility, and 
security from their work—and they’re finding these things outside of the confines of the traditional corporat


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e job. How do you manage someone who doesn’t really want to work for you in the first place? MBA progr
ams are trying to cope, but they’re still teaching theories that are outdated, misguided, and even outright 
wrong. Even so, don’t expect them to start doing things differently. Why bother, when MBA programs are 
profitable status symbols for the colleges and in such high demand? As long as students are still signing u


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p, don’t expect the hallowed halls of business schools to change their tune. The Single Benefit of Busines
s Schools Institutions will try to preserve the problem to which they are the solution. —CLAY SHIRKY, PR
OFESSOR AT NYU AND AUTHOR OF HERE COMES EVERYBODY AND COGNITIVE SURPLUS The 
one significant benefit that business schools do provide is better access to Fortune 50 recruiters, consulti


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ng firms, large accounting firms, and investment banks via on-campus recruiting and alumni networks. Up
on graduating from a top-tier business school, you’ll find it much easier to get an interview with a corporat
e recruiter who works for a Fortune 50, investment bank, or consulting firm. The effect is strongest immedi
ately after graduation, then largely wears out within three to five years. After that, you’re on your own: hiri


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ng managers no longer care so much about where you went to school—they care more about what you’v
e accomplished since then. Hiring managers typically use MBA programs as a filter when deciding whom 
to bring in for an interview. HR managers are busy, and since each student in the program has been pres
creened, there’s less of a chance the manager will be wasting precious time. Hiring directly from MBA pro


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grams also provides plausible deniability for the recruiter if the hire doesn’t work out: “I’m not sure what th
e issue was—she graduated from Harvard Business School!” The filtering aspect of MBA programs is ver
y real, and difficult to overcome on your own. If you have your heart set on becoming a management cons
ultant, international financier, or Fortune 50 fast-track management candidate, you may have to buy yours


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elf a $150,000 interview. If you go this route, be aware of what you’re getting yourself into before you appl
y—once you sign your life away, the debt will make it very difficult to change your mind. If you’re more int
erested in working for yourself or holding down an enjoyable job while having a life, getting an MBA is a w
aste of time and money. As Dr. Pfeffer says, “If you are good enough to get in, you obviously have enoug


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h talent to do well, regardless.” I Owe, I Owe—It’s Off to Work I Go Are you where you want to be if it doe
sn’t work? —LOUIS L’AMOUR, AUTHOR AND HISTORIAN Let’s say you go ahead and get your MBA. If 
you’re “lucky,” you may be hired by a big financial services or consulting firm, where you’ll have the privile
ge of working eighty-plus hours a week for around $100,000 a year. The money is certainly good, but you’


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ll have a hard time maintaining any sort of life outside of work, and the pressure will be intense and relentl
ess. Even if you don’t like your job, you’d better keep pushing if you want to pay your tuition bills and mak
e your investment “worth it.” Congratulations: you’ve used your intelligence and drive to condemn yourself


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to the life of an indentured servant. If you do a good job, you’ll become an executive, get a raise, and hav
e the privilege of working one hundred-plus hours a week. You’d better not mind enjoying the fruits of you
r labor alone: top executives consistently have the highest rates of divorce and family relationship issues. 
As the saying goes: you can have anything you want, as long as you’re willing to pay the price. If you’re n


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ot so “fortunate,” you’ll find a job that pays little more than what you’d be able to command without your M
BA. Worse yet, graduating into an iffy job market means that you may graduate with a thousand-dollar-am
onth loan payment without a job to foot the bill. An unforgiving job market won’t make student loan payme
nts go away—in the United States, student loan debt cannot be forgiven, even if you declare bankruptcy.


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Regardless of how your life works out, your student loans will always be there, and your phone will ring wi
th the calls of debt collectors until they’re repaid. I can’t emphasize this enough: the quickest and easiest 
way to screw up your life is to take on too much debt. The primary reason people spend decades working 
in jobs they despise is to pay off their creditors. Financial stress can destroy relationships, threaten your h


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ealth, and jeopardize your sanity. Is a shot at a desk in a corner office really worth it? With heavy debt loa
ds and questionable returns, MBA programs simply aren’t a good investment—they’re a trap for the unwa
ry. A Better Way To educate educators! But the first ones must educate themselves! And for these I write.
 —FRIEDRICH NIETZSCHE, PHILOSOPHER AND AUTHOR OF THE WILL TO POWER AND THUS SP
OKE ZARATHUSTRA Fortunately, you have a choice in how you go about educating yourself—a choice t


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hat can make you more successful than top MBA graduates while saving you hundreds of thousands of d
ollars. Studying the fundamentals of sound business practice and developing a network on your own19 ca
n provide most of the benefits of business education at a fraction of the cost. Instead of wasting your time 
and hard-earned money learning outdated theories you’ll probably never use, it’s far better to spend your t


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ime and energy teaching yourself what you actually need to know to succeed. If you’re the type of person 
who’s capable of getting into a top MBA program and doing what it takes to succeed after graduation, skip
ping business school and learning the fundamentals of business by reading this book may be the best de
cision you ever make. What You’ll Learn in This Book When you first start to study a field, it seems like yo


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u have to memorize a zillion things. You don’t. What you need is to identify the core principle s—generally
 three to twelve of them—that govern the field. The million things you thought you had to memorize are si
mply various combinations of the core principles. —JOHN T. REED, REAL ESTATE INVESTMENT EXPE
RT AND AUTHOR OF SUCCEEDING This book is designed to teach you the fundamentals of sound busi


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ness practice as quickly and efficiently as possible. Here’s a quick preview of what you’ll learn: How Busin
esses 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 exp
ectations so that (5) the business brings in sufficient profit to make it worthwhile for the owners to continu


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e operation. Together, the concepts in chapters 2 to 6 describe how every business operates and what yo
u can do to improve your results. How People Work. Every business is created by people and survives by
 benefiting other people. To understand how businesses work, you need a firm understanding of how peo
ple make decisions, act on those decisions, and communicate with others. Chapters 7 to 9 introduce you t


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o a few major concepts in psychology that describe how the human mind processes the world, how you c
an work more effectively, and how you can create and strengthen professional relationships. How System
s Work. Businesses are complex systems with many moving parts that exist within even more complex sy
stems like industries, societies, cultures, and governments. Chapters 10 to 12 will help you understand ho


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w complex systems work, as well as help you analyze existing systems and find ways to improve them wit
hout provoking unanticipated consequences. Here are a few things you shouldn’t expect: Management an
d Leadership Overload. Many business resources (and all business schools) conflate management and le
adership skills with business skills; they’re not the same thing. While management and leadership are imp


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ortant in the practice of business, they aren’t the be-all and end-all of business education: without solid bu
siness knowledge, it’s possible to organize and lead a group of people toward the accomplishment of the 
wrong objectives. Business is about the profitable creation and delivery of valuable offers to paying custo
mers—management and leadership are simply a means to this end. We’ll discuss the essentials of effecti


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ve management and leadership in chapter 9, but in their proper context. Deep Finance and Accounting. L
earning how to manage money is a very important topic that we’ll discuss in chapter 6, but the ins and out
s of managerial accounting and financial analysis are beyond the scope of this book. If you’re interested i
n exploring these subjects in more detail after learning the fundamentals, I highly recommend Accounting


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Made Simple by Mike Piper, Essentials of Accounting by Robert N. Anthony and Leslie K. Breitner, The M
cGraw-Hill 36-Hour Course in Finance for Nonfinancial Managers by Robert Cooke, and How to Read a F


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inancial Report by John A. Tracy. Quantitative Analysis. Likewise, reading this book won’t help you beco
me a high-flying spreadsheet jockey. Statistics and quantitative analysis are very useful skills when used 
appropriately, but the analytical techniques themselves are very situational and beyond the scope of this 
book. If you’re interested in quantitative analysis, I recommend starting with Principles of Statistics by M.


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G. Bulmer and Turning Numbers into Knowledge by Jonathan G. Koomey. How to Use This Book The be
st effect of any book is that it excites the reader to selfactivity. —THOMAS CARLYLE, ESSAYIST AND HI
STORIAN Here are a few tips that will help you get the most from this book: Browse, skim, and scan. Beli
eve it or not, you don’t need to read a book cover to cover to benefit: browsing can give you better results


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with less effort. Periodically skim through this book until you find a section that grabs your attention, then 
commit to applying that concept to your work for a few days. You’ll begin to notice significant differences i
n the quality of your work, as well as in your ability to “think like a businessperson.” Keep a notebook and 
pen handy. The purpose of this book is to give you ideas about how to make things better, so be prepared


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to capture your thoughts as you have them; it’ll make it easier to review the major concepts later. Your no
tebook will also make it easy to shift from taking notes to creating detailed action plans as they occur to y
ou.20 Review this book regularly. Keep it close to where you work so you can refer to it often, particularly 
before starting a new project. Repetition inevitably leads to mastery, and the better you internalize these c


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oncepts, the more you’ll improve your results. I also recommend setting a reminder in your calendar to rev
iew this book or your notes every few months to reinforce your understanding and spark new ideas. There
’s always more to explore. Each of these mental models has extremely broad applications, and it’s imposs
ible to explore every ramification of these concepts in a single book. There are many great resources in th


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e world of business literature that can deepen your understanding if you’d like to learn more about a partic
ular mental model. Join me at personalmba.com to explore these ideas in more detail and learn how to ap
ply them to your daily life and work. Let’s begin. 2 VALUE CREATION Make something people want . . . T
here’s nothing more valuable than an unmet need that is just becoming fixable. If you find something brok


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en that you can fix for a lot of people, you’ve found a gold mine. —PAUL GRAHAM, FOUNDER OF Y CO
MBINATOR, VENTURE CAPITALIST, AND ESSAYIST AT PAULGRAHAM.COM Every successful busin
ess creates something of value. The world is full of opportunities to make other people’s lives better in so
me way, and your job as a businessperson is to identify things that people don’t have enough of, then find


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a way to provide them. The value you create can take on one of several different forms, but the purpose i
s always the same: to make someone else’s life a little bit better. Without value creation, a business can’t 
exist—you can’t transact with others unless you have something valuable to trade. The best businesses i
n the world are the ones that create the most value for other people. Some businesses thrive by providing


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a little value to many, and others focus on providing a lot of value to only a few people. Regardless, the 
more real value you create for other people, the better your business will be and the more prosperous you
’ll become. SHARE THIS CONCEPT: http://book.personalmba.com/value-creation/ The Five Parts of Ever
y Business A business is a repeatable process that makes money. Everything else is a hobby. —PAUL F
REET, SERIAL ENTREPRENEUR AND COMMERCIALIZATION EXPERT Roughly defined, a business i


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s 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 expect
ations . . . 5. So that the business brings in enough profit to make it worthwhile for the owners to continue 
operation. It doesn’t matter if you’re running a solo venture or a billion-dollar brand. Take any one of these


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five factors away, and you don’t have a business— you have something else. A venture that doesn’t crea
te value for others is a hobby. A venture that doesn’t attract attention is a flop. A venture that doesn’t sell t
he value it creates is a nonprofit. A venture that doesn’t deliver what it promises is a scam. A venture that 
doesn’t bring in enough money to keep operating will inevitably close. At the core, every business is funda


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mentally 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 attenti
on and building demand for what you’ve created. 3. Sales. Turning prospective customers into paying cus
tomers. 4. Value Delivery. Giving your customers what you’ve promised and ensuring that they’re satisfie


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d. 5. Finance. Bringing in enough money to keep going and make your effort worthwhile. If these five thing
s sound simple, it’s because they are. Business is not (and has never been) rocket science—it’s simply a 
process of identifying a problem and finding a way to solve it that benefits both parties. Anyone who tries t
o make business sound more complicated than this is either trying to impress you or trying to sell you so


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mething you don’t need. The Five Parts of Every Business are the basis of every good business idea and 
business plan. If you can clearly define each of these five processes for any business, you’ll have a compl


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ete understanding of how it works. If you’re thinking about starting a new business, defining what these pr
ocesses might look like is the best place to start. If you can’t describe or diagram your business idea in ter
ms of these core processes, you don’t understand it well enough to make it work.1 SHARE THIS CONCE
PT: http://book.personalmba.com/5-parts-of-everybusiness/ Economically Valuable Skills Don’t go around


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saying the world owes you a living. The world owes you nothing—it was here first. —MARK TWAIN, GRE
AT AMERICAN NOVELIST If you want to improve your value as a businessperson, focus on improving sk
ills directly related to the Five Parts of Every Business. Not every skill or area of knowledge is Economical
ly Valuable, and that’s okay—there are many things worth pursuing for the sake of relaxation or enjoymen


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t alone. You may enjoy whitewater rafting, but it’s very unlikely anyone will pay you to shoot the rapids unl
ess you apply your skills for the benefit of others. Make the leap from personal enjoyment to Products and
 Services (discussed later), however, and you’ll find yourself getting paid— plenty of adventurous souls ar
e willing to pay for rafting equipment and guides. As Michael Masterson suggests in Ready, Fire, Aim, do


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n’t expect skills that aren’t related to the Five Parts of Every Business to be economically rewarded. Find 
a way to use them to create Economic Value, and you’ll inevitably find a way to get paid. Any skill or know
ledge that helps you create value, market, sell, deliver value, or manage finances is Economically Valuabl
e—accordingly, these are the topics we’ll discuss in this book. SHARE THIS CONCEPT: http://book.perso


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nalmba.com/economicallyvaluable-skills/ The Iron Law of the Market Market matters most; neither a stella
r team nor fantastic product will redeem a bad market. Markets that don’t exist don’t care how smart you a
re. —MARC ANDREESSEN, VENTURE CAPITALIST AND FOUNDER OF NETSCAPE AND NING.COM
 What if you throw a party and nobody shows up? In business, it happens all the time. Dean Kamen, a ren


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owned and prolific inventor whose creations include the Sterling engine, the world’s first insulin pump, and
 water purification devices, poured over $100 million into the development of the Segway PT, a $5,000, tw
o-wheeled, self-balancing scooter that he claimed would revolutionize personal transportation “in the sam
e way that the car replaced the horse and buggy.” When the Segway was made available to the public in


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2002, the company announced that it expected to sell 50,000 units every year. Five years into the busines
s, the company had sold a total of 23,000 units— less than 10 percent of the initial goal. (The company’s f
inancial records are private, but it’s safe to say they don’t look good.) The problem wasn’t that the product
 was poorly designed—the technology that makes the Segway work is extremely sophisticated, and the b


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enefits are significant: the Segway is a convenient, green urban car replacement. The problem was that v
ery few people cared enough to spend $5,000 on a goofy-looking alternative to walking or riding a bike—t
he massive market that Kamen expected didn’t exist. The same thing happens to new businesses every d
ay. Without enough revenue to sustain it, any business will fail. Your revenue is completely dependent on


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people actually wanting what you have to offer. Every business is fundamentally limited by the size and q
uality of the market it attempts to serve. The Iron Law of the Market is cold, hard, and unforgiving: if you d
on’t have a large group of people who really want what you have to offer, your chances of building a viabl
e business are very slim. The best approach is to focus on making things people want to buy. Creating so


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mething no one wants is a waste. Market research is the business equivalent of “look before you leap.” B
ooks 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. In the next few sections, we’ll e
xplore how to figure out what people want and need before investing your time and hard-earned money in


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to creating something new. SHARE THIS CONCEPT: http://book.personalmba.com/iron-law-of-themarket
/ Core Human Drives Understanding human needs is half the job of meeting them. —ADLAI STEVENSO
N, POLITICIAN AND FORMER GOVERNOR OF ILLINOIS If you’re going to build a successful business, 
it’s useful to have a basic understanding of what people want. According to Harvard Business School prof
essors Paul Lawrence and Nitin Nohria, the authors of Driven: How Human Nature Shapes Our Choices,


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all human beings have four Core Human Drives that have a profound influence on our decisions and actio
ns: 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 br
okerages, and political consulting companies. Companies that promise to make us wealthy, famous, influ


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ential, or powerful connect to this drive. 2. The Drive to Bond. The desire to feel valued and loved by formi
ng relationships with others, either platonic or romantic. Businesses built on the drive to bond include rest
aurants, conferences, and dating services. Companies that promise to make us attractive, well liked, or hi
ghly regarded connect to this drive. 3. The Drive to Learn. The desire to satisfy our curiosity. Businesses


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built on the drive to learn include academic programs, book publishers, and training workshops. Compani
es that promise to make us more knowledgeable or competent connect to this drive. 4. The Drive to Defe


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nd. The desire to protect ourselves, our loved ones, and our property. Businesses built on the drive to def
end include home alarm systems, insurance products, martial arts training, and legal services. Companie
s that promise to keep us safe, eliminate a problem, or prevent bad things from happening connect to this 
drive. There’s a fifth core drive that Lawrence and Nohria missed: 5. The Drive to Feel. The desire for new


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sensory stimulus, intense emotional experiences, pleasure, excitement, entertainment, and anticipation. 
Businesses built on the drive to feel include restaurants, movies, games, concerts, and sporting events. O
ffers that promise to give us pleasure, thrill us, or give us something to look forward to connect with this dr
ive. Whenever a group of people have an unmet need in one or more of these areas, a market will form to


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satisfy that need. As a result, the more drives your offer connects with, the more attractive it will be to you
r potential market. At the core, all successful businesses sell some combination of money, status, power, l
ove, knowledge, protection, pleasure, and excitement. The more clearly you articulate how your product s
atisfies one or more of these drives, the more attractive your offer will become. SHARE THIS CONCEPT:


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http://book.personalmba.com/core-humandrives/ Ten Ways to Evaluate a Market So often people are wor
king hard at the wrong thing. Working on the right thing is probably more important than working hard. —
CATERINA FAKE, FOUNDER OF FLICKR.COM AND HUNCH.COM If you’re thinking of starting a new b
usiness or expanding an existing business into a new market, it pays to do some research before you lea


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p. The Ten Ways to Evaluate a Market provide a back-of-the-napkin method you can use to identify the at
tractiveness of any potential market. Rate each of the ten factors below on a scale of 0 to 10, where 0 is e
xtremely unattractive and 10 is extremely attractive. When in doubt, be conservative in your estimate: 1. U
rgency—How badly do people want or need this right now? (Renting an old movie is typically low urgency


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; 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 market for underwater bas
ket weaving courses is very small; the market for cancer cures is massive.) 3. Pricing Potential—What is t
he highest price a typical purchaser would be willing to spend for a solution? (Lollipops sell for $0.05; aircr


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aft carriers sell for billions.) 4. Cost of Customer Acquisition—How easy is it to acquire a new customer? 
On average, how much will it cost to generate a sale, in both money and effort? (Restaurants built on high
-traffic interstate highways spend little to bring in new customers. Government contractors can spend milli
ons landing major procurement deals.) 5. Cost of Value Delivery—How much would it cost to create and d


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eliver the value offered, both in money and effort? (Delivering files via the Internet is almost free; inventing
 a product and building a factory costs millions.) 6. Uniqueness of Offer—How unique is your offer versus 
competing offerings in the market, and how easy is it for potential competitors to copy you? (There are ma
ny hair salons, but very few companies that offer private space travel.) 7. Speed to Market—How quickly


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can you create something to sell? (You can offer to mow a neighbor’s lawn in minutes; opening a bank ca
n take years.) 8. Up-Front Investment—How much will you have to invest before you’re ready to sell? (To 
be a housekeeper, all you need is a set of inexpensive cleaning products. To mine for gold, you need milli
ons to purchase land and excavating equipment.) 9. Upsell Potential—Are there related secondary offers


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that you could also present to purchasing customers? (Customers who purchase razors need shaving cre
am and extra blades as well; buy a Frisbee, and you won’t need another unless you lose it.) 10. Evergree
n Potential—Once the initial offer has been created, how much additional work will you have to put into it i
n order to continue selling? (Business consulting requires ongoing work to get paid; a book can be produc


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ed once, then sold over and over as is.) When you’re done with your assessment, add up the score. If the
 score is 50 or below, move on to another idea—there are better places to invest your energy and resourc
es. If the score is 75 or above, you have a very promising idea—full speed ahead. Anything between 50 a
nd 75 has the potential to pay the bills, but won’t be a home run without a huge investment of energy and


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resources, so plan accordingly. SHARE THIS CONCEPT: http://book.personalmba.com/ten-ways-toevalu
ate-a-market/ The Hidden Benefits of Competition The competitor to be feared is one who never bothers 
about you at all, but goes on making his own business better all the time. —HENRY FORD, FOUNDER O
F THE FORD MOTOR COMPANY AND ASSEMBLY-LINE PIONEER One of the most common experien
ces of a first-time entrepreneur is discovering that your brilliant business idea isn’t as original as you’d tho


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ught: other businesses are already offering similar products or services. This would shake anyone’s confi
dence—after all, why bother when someone else is doing what you want to do? Cheer up: there are Hidd
en Benefits of Competition. When any two markets are equally attractive in other respects, you’re better o
ff choosing to enter the one with competition. Here’s why: it means you know from the start there’s a mark


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et of paying customers for this idea, eliminating your biggest risk. The existence of a market means you’re
 already on the right side of the Iron Law of the Market, so you can spend more time developing your offer


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instead of proving a market exists. If there are several successful businesses serving a market, you don’t
 have to worry so much about investing in a dead end, since you already know that people are buying. Th
e best way to observe what your potential competitors are doing is to become a customer. Buy as much a
s you can of what they offer. Observing your competition from the inside can teach you an enormous amo


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unt about the market: what value the competitor provides, how they attract attention, what they charge, ho
w they close sales, how they make customers happy, how they deal with issues, and what needs they are
n’t yet serving. As a paying customer, you get to observe what works and what doesn’t before you commit
 to a particular strategy. Learn everything you can from your competition, and then create something even


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more valuable. SHARE THIS CONCEPT: http://book.personalmba.com/hidden-benefit-ofcompetition/ Th
e Mercenary Rule Make money your god and it will plague you like the devil. —HENRY FIELDING, EIGH
TEENTH-CENTURY NOVELIST AND SATIRIST Becoming a Mercenary doesn’t pay: don’t start a busine
ss for the money alone. Here’s why: starting and running a business always takes more effort than you fir


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st expect. Even if you identify a business that will largely run itself, setting up the Systems (discussed late
r) necessary to run the business requires persistence and dedication. If the only thing that interests you a
bout an opportunity is the money, you’ll probably quit well before you find the pot of gold at the bottom of t
he landfill. Pay very close attention to the things you find yourself coming back to over and over again. Bui


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lding or finishing anything is mostly a matter of starting over and over again; don’t ignore what pulls you. T
he trick is to find an attractive market that interests you enough to keep you improving your offering every 
single day. Finding that market is mostly a matter of patience and active exploration. That said, don’t ignor
e “boring” businesses until you investigate them; if you can find some aspect of the work that interests yo


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u and keeps you engaged, mundane markets can be quite attractive. “Dirty” businesses like plumbing and
 garbage collection certainly aren’t sexy, but they can be quite lucrative because there’s a significant ongo
ing need combined with relatively few people willing to step up and meet the demand. If you find a way to 
make a necessary but dull market interesting enough to pursue, you may have discovered a hidden vein


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of gold waiting to be mined. SHARE THIS CONCEPT: http://book.personalmba.com/mercenary-rule/ The 
Crusader Rule The zealous display the strength of their belief, while the judicious show the grounds of it. 
—WILLIAM SHENSTONE, EIGHTEENTH-CENTURY POET AND LANDSCAPE DESIGNER Being a Cru
sader doesn’t pay either. Every once in a while, you’ll find an idea so fascinating it becomes hard to think


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about it objectively. The stars align, heavenly trumpets blare, and suddenly you have the unmistakable im
pression that you’ve found your calling. In all the excitement, it’s easy to forget that there’s often a huge di
fference between an interesting idea and a solid business. In your optimism, forget ye not prudence: chan
ging the world is difficult if you can’t pay the bills. Some ideas don’t have enough of a market behind them


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to support a business, and that’s perfectly okay. That doesn’t mean you should ignore them: side projects
 can help you expand your knowledge, improve your skills, and experiment with new methods and techniq
ues. I’m a huge advocate of pursuing side projects as long as you don’t count on them to reliably produce 
income. Once you have your financial bases covered, crusade all you want. Before attempting to launch a


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business, take the time to do a thorough evaluation using the Ten Ways to Evaluate a Market. If you’re fi
nding it difficult to be objective, find a trusted colleague or adviser to help you, then test it as quickly and a
s inexpensively as you can before you fully commit. A few hours spent in evaluation can prevent months (
or years) of frustration and misplaced effort. SHARE THIS CONCEPT: http://book.personalmba.com/crus


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ader-rule/ Twelve Standard Forms of Value Value is not intrinsic; it is not in things. It is within us; it is the 
way in which man reacts to the conditions of his environment. —LUDWIG VON MISES, AUSTRIAN ECO
NOMIST In order to successfully provide value to another person, it must take on a form they’re willing to 
pay for. Fortunately, there’s no need to reinvent the wheel—Economic Value usually takes on one of twel


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ve 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 asse


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t from a wholesaler, then sell that asset to a retail buyer at a higher price. 6. Lease. Acquire an asset, the
n allow another person to use that asset for a predefined amount of time in exchange for a fee. 7. Agency.
 Market and sell an asset or service you don’t own on behalf of a third party, then collect a percentage of t
he transaction price as a fee. 8. Audience Aggregation. Get the attention of a group of people with certain


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characteristics, then sell access in the form of advertising to another business looking to reach that audie
nce. 9. Loan. Lend a certain amount of money, then collect payments over a predefined period of time eq
ual to the original loan plus a predefined interest rate. 10. Option. Offer the ability to take a predefined acti


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on for a fixed period of time in exchange for a fee. 11. Insurance. Take on the risk of some specific bad thi
ng happening to the policy holder in exchange for a predefined series of payments, then pay out claims o
nly when the bad thing actually happens. 12. Capital. Purchase an ownership stake in a business, then co
llect a corresponding portion of the profit as a one-time payout or ongoing dividend. Let’s investigate thes


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e Twelve Standard Forms of Value in more detail. SHARE THIS CONCEPT: http://book.personalmba.co
m/12-standardforms-of-value/ Form of Value #1: Product Business is not financial science . . . it’s about cr
eating a product or service so good that people will pay for it. —ANITA RODDICK, ENTREPRENEUR AN
D FOUNDER OF THE BODY SHOP A Product is a tangible form of value. To run a Product-oriented busi


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ness, you must: 1. Create some sort of tangible item that people want. 2. Produce that item as inexpensiv
ely as possible while maintaining an acceptable level of quality. 3. Sell as many units as possible for as hi
gh a price as the market will bear. 4. Keep enough inventory of finished product available to fulfill orders a
s they come in. The book you’re holding right now is a good example of a Product. It had to be written, edi


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ted, typeset, printed, bound, and shipped to bookstores in sufficient quantities before reaching your hands
. Leave out any of these steps and you wouldn’t be reading this right now. To make money, a book must 
be sold for more than it cost to create, print, and distribute. Products can be durable, like cars, computers,
 and vacuum cleaners. They can also be consumable: goods like apples, donuts, and prescription medica


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tions are products as well. Products don’t have to be physical—even though things like software, e-books,
 and MP3s don’t have a distinct physical form, they are entities that can be sold. Providing value in Produ
ct form is valuable because Products can be Duplicated . This book was only written once, but individual c
opies can be printed and delivered millions of times to readers all around the world. As a result, products t


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end to Scale better than other forms of value, since they can be Duplicated and/or Multiplied (all discusse
d later). SHARE THIS CONCEPT: http://book.personalmba.com/product/ Form of Value #2: Service Ever
yone can be great because everyone can serve. —MARTIN LUTHER KING, JR., HUMAN RIGHTS ACTI
VIST A Service involves helping or assisting someone in exchange for a fee. To create value via Services


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, you must be able to provide some type of benefit to the user. In order to create a successful Service, yo
ur business must: 1. Have employees capable of a skill or ability other people require but can’t, won’t, or d
on’t want to use themselves. 2. Ensure that the Service is provided with consistently high quality. 3. Attrac
t and retain paying customers. A good example of a Service business is a barbershop. A haircut is not a P


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roduct: you can’t purchase one from a shelf. The Service is the series of actions the stylist uses to transfo
rm your current hairstyle into the one you want. In this sense, doctors, freelance designers, massage ther
apists, lawn care providers, and consultants are all Service providers. Services can be lucrative, particular
ly if the skills required to provide them are rare and difficult to develop, but the trade-off is that they’re diffi


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cult to duplicate. Services typically depend on the Service provider’s investment of time and energy, both 
of which are finite. A heart surgeon can only complete so many four-hour operations on any given day. If 
you’re developing a Service, be sure to charge enough to compensate for the time you’ll be investing on a
 daily basis in providing the Service to your customers. Otherwise, you’ll discover that you’re working too


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hard for too little a reward. SHARE THIS CONCEPT: http://book.personalmba.com/service/ Form of Value
 #3: Shared Resource The joy that isn’t shared dies young. —ANNE SEXTON, PULITZER PRIZE-WINNI
NG POET A Shared Resource is a durable asset that can be used by many people. Shared Resources all
ow you to create the asset once, then charge your customers for its use. In order to create a successful S


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hared Resource, you must: 1. Create an asset people want to have access to. 2. Serve as many users as
 you can without affecting the quality of each user’s experience. 3. Charge enough to maintain and improv
e the Shared Resource over time. Gyms and fitness clubs are a classic example of a Shared Resource. A
 fitness club may purchase forty treadmills, thirty exercise bikes, six sets of free weights, a set of kettlebell


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s, and other useful but expensive equipment that lasts a long time. The club’s members benefit by being a
ble to access this equipment without having to purchase it themselves—instead, they pay an access fee, 
which is much easier for an individual to afford. (Most gyms combine access to their Shared Resource wit
h Services and Subscriptions , a common example of Bundling—discussed later.) Businesses like museu


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ms and amusement parks work in much the same way. Whether it means studying a Monet or riding a roll
er coaster, Shared Resources allow many people to take advantage of experiences that would otherwise 
be too expensive. The tricky part about offering a Shared Resource is carefully monitoring usage levels. If
 you don’t have enough users, you won’t be able to spread out the cost of the asset enough to cover up-fr


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ont costs and ongoing maintenance. If you have too many users, overcrowding will diminish the experienc
e so much that they’ll become frustrated, stop using the resource, and advise others not to patronize your 
business, diminishing your Reputation (discussed later). Finding the sweet spot between too few member


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s and too many is the key to making a Shared Resource work. SHARE THIS CONCEPT: http://book.pers
onalmba.com/shared-resource/ Form of Value #4: Subscription Please accept my resignation. I don’t wan
t to belong to any club that will accept me as a member. —GROUCHO MARX, COMEDIAN A Subscriptio
n program provides predefined benefits on an ongoing basis in exchange for a recurring fee. The actual b


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enefits provided can be tangible or intangible—the key differences are (a) the expectation of additional val
ue to be provided in the future and (b) that fees will be collected until the Subscription is canceled. In orde
r to create a successful Subscription, you must: 1. Provide significant value to each subscriber on a regul
ar basis. 2. Build a subscriber base and continually attract new subscribers to compensate for attrition. 3.


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Bill customers on a recurring basis. 4. Retain each subscriber as long as possible. Cable or satellite televi
sion service is a great example of a Subscription. After you sign up, the company will continue to provide t
elevision service as long as you make the payments. You don’t have to call up the company every month 
to buy another thirty days’ worth—the service continues as long as the invoice is paid. Subscription is an


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attractive form of value because it provides more predictable revenue. Instead of having to resell to your e
xisting customers every day, Subscriptions allow you to build a steady base of loyal customers over time. 
This model ensures a certain level of revenue coming in each billing period. The key to Subscription offer
s is doing everything you can to keep customer attrition as low as possible. As long as you continue to ma


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ke your customers happy, only a small percentage of your customer base will cancel each period, giving y
ou the ability to plan your finances with more certainty. Any subscriber attrition you experience can be ove
rcome by enrolling more customers. SHARE THIS CONCEPT: http://book.personalmba.com/subscription/
 Form of Value #5: Resale Buy low, sell high. —STOCK TRADER’S MAXIM Resale is the acquisition of a


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n asset from a wholesale seller, followed by the sale of that asset to a retail buyer at a higher price. Resal
e is how most of the retailers you’re familiar with work: they purchase what they sell from other businesse
s, then resell each purchase for more than it cost. In order to provide value as a reseller, you must: 1. Pur
chase a product as inexpensively as possible, usually in bulk. 2. Keep the product in good condition until


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sale—damaged goods can’t be sold. 3. Find potential purchasers of the product as quickly as possible to 
keep inventory costs low. 4. Sell the product for as high a markup as possible, preferably a multiple of the 
purchase price. Resellers are valuable because they help wholesalers sell products without having to find 
individual purchasers. To a farmer, selling apples to millions of individuals would be time-intensive and ine


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fficient: it’s far better to sell them all to a grocery chain and focus on growing more apples. The grocery th
en takes the apples into inventory and sells them to individual consumers at a higher price. Major retailers
 like Walmart and Tesco, book retailers like Barnes & Noble, and catalog operations like Lands’ End work 
in fundamentally the same way: purchase products at low prices directly from manufacturers, then sell the


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m for a higher price as quickly as possible. Sourcing good products at low prices and managing inventory 
levels are the keys to reselling. Without a steady supply of sellable product at a low enough price to turn a
 profit, a reseller will have a hard time bringing in enough revenue to keep going. Accordingly, most succe
ssful resellers establish close relationships with the businesses that supply their stock to ensure they conti


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nue to get a reliable supply of good assets at low prices. SHARE THIS CONCEPT: http://book.personalm
ba.com/resale/ Form of Value #6: Lease The human species, according to the best theory I can form of it,
 is composed of two distinct races: the men who borrow and the men who lend. —CHARLES LAMB, ESS
AYIST A Lease involves acquiring an asset, followed by allowing another person to use that asset for a pr


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edefined amount of time in exchange for a fee. The asset can be pretty much anything: cars, boats, hous
es, DVDs. As long as an asset is durable enough to survive rental to another person and return ready for 
reuse, you can Lease it. In order to provide value via a Lease, you must: 1. Acquire an asset people want 
to use. 2. Lease the asset to a paying customer on favorable terms. 3. Protect yourself from unexpected o


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r adverse events, including the loss or damage of the leased asset. Leasing benefits the customer by allo
wing the use of an asset for less than the outright purchase price. You may not be able to afford to spend 
tens of thousands of dollars to purchase a luxury car or a speedboat, but for a few hundred dollars a mont
h, you can certainly lease or rent one. The same principle applies to housing: leasing makes it possible to


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live in an expensive building for much less than it would cost to purchase or build it yourself. After your lea
se is up, the asset can be leased by the owner to someone else. To successfully provide value via Lease
s, you must ensure that the revenue from the Lease covers the purchase price of the asset before it wear
s out or is lost. Most assets have a limited useful life, so you must charge enough to bring in more revenu


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e than the purchase price before the asset loses its value. In addition, be sure to plan for repair and repla
cement costs to ensure you’re charging enough money to cover you in the event your asset is lost or dam
aged in use. SHARE THIS CONCEPT: http://book.personalmba.com/lease/ Form of Value #7: Agency I w


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ish to be cremated. One tenth of my ashes shall be given to my agent, as written in our contract. —GROU
CHO MARX Agency involves the marketing and sale of an asset you don’t own. Instead of producing valu
e by yourself, you team up with someone else who has value to offer, then work to find a purchaser. In ex
change for establishing a new relationship between your source and a buyer, you earn a commission or f


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ee. In order to provide value via Agency, you must: 1. Find a seller who has a valuable asset. 2. Establish
 contact and trust with potential buyers of that asset. 3. Negotiate until an agreement is reached on the ter
ms of sale. 4. Collect the agreed-upon fee or commission from the seller. Sellers benefit from an Agency r
elationship because it generates sales that might not otherwise happen. Literary agents are a classic exa


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mple: a potential author may have an idea for a book, but may not know anyone in publishing. By working
 with an agent who has preexisting connections in the publishing industry, it’s far more likely the author wil
l land a publishing contract. In exchange for finding a publisher and negotiating the deal, the agent gets a 
percentage of the book’s advance and royalties. Buyers also benefit from an Agency relationship—good a


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gents can help them find great assets to purchase. Agents often act as a filter for buyers, who trust that th
e agent will bring their attention to assets worth purchasing and keep them away from bad deals. Residen
tial real estate is a great example: working with an experienced buyer’s agent who knows the area often 
makes purchasing a home in a new town much easier. The key to Agency is to ensure that your fee or co


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mmission is high enough to make the effort worth it. Since most Agency relationships are dependent upon
 closing a sale, spend your time on activities that will result in a completed transaction, and ensure that th
e commission or fee from that transaction compensates you for the time and effort you put into closing the
 deal. SHARE THIS CONCEPT: http://book.personalmba.com/agency/ Form of Value #8: Audience Aggre


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gation So long as there’s a jingle in your head, television isn’t free. —JASON LOVE, MARKETING EXEC
UTIVE Audience Aggregation revolves around collecting the attention of a group of people with similar ch
aracteristics, then selling access to that audience to a third party. Since attention is limited and valuable, g
athering a group of people in a certain demographic is quite valuable to businesses or groups that are inte


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rested in getting the attention of those people. In order to provide value via Audience Aggregation, you m
ust: 1. Identify a group of people with common characteristics or interests. 2. Create and maintain some w
ay of consistently attracting that group’s attention. 3. Find third parties who are interested in buying the att
ention of that audience. 4. Sell access to that audience without alienating the audience itself. Audience Ag


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gregation benefits the audience because it provides something worthy of their attention. Magazines and a
dvertising-supported Web sites are great examples: readers benefit from the information and entertainme
nt these sources provide in exchange for being exposed to some level of advertising. If the advertising be
comes obnoxious, they’ll leave, but most people are willing to be exposed to a certain amount of advertisi


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ng if the content is good. Audience Aggregation benefits the advertiser because it gets attention, which le
ads to sales. Think of a conference or trade show: buying a booth in the center of a building full of people 
interested in what you have to offer can be a smart decision. Done well, advertising attracts attention, atte
ntion brings prospects, and prospects lead to sales. As long as the sales bring in more money than the co


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st of the advertising plus the business’s Overhead (discussed later), the advertising can be a valuable tool
 to bring in new customers, which means the advertiser can continue to support the aggregator by purcha
sing more advertising. SHARE THIS CONCEPT: http://book.personalmba.com/audienceaggregation/ For
m of Value #9: Loan Money talks—but credit has an echo. —BOB THAVES, CARTOONIST AND CREAT
OR OF “FRANK AND ERNEST” A Loan involves an agreement to let the borrower use a certain amount o


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f resources for a certain period of time. In exchange, the borrower must pay the lender a series of paymen
ts over a predefined period of time, which is equal to the original loan plus a predefined interest rate. In or
der to provide value via Loans, you must: 1. Have some amount of money to lend. 2. Find people who wa
nt to borrow that money. 3. Set an interest rate that compensates you adequately for the Loan. 4. Estimat


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e and protect against the possibility that the Loan won’t be repaid. Used responsibly, Loans allow people t
o benefit from immediate access to products or services that would otherwise be too expensive to purcha
se outright. Mortgages allow people to live in houses without having hundreds of thousands of dollars in t
he bank. Auto Loans allow people to drive new vehicles in exchange for a monthly payment instead of a 1


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00 percent down payment. Credit cards allow people to purchase goods and services immediately, then p
ay for them over the course of several months. Loans are beneficial to the lender because they provide a 
way to benefit from excess capital. The addition of compound interest on top of the original loan (the “prin
cipal”) means that the lender will collect much more than the original loan—in the case of long-term Loans


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like mortgages, often two to three times more. After the Loan is made, little additional work is required on 
the part of the lender aside from collecting payments—unless the borrower stops making payments. Acco


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rdingly, the process of identifying how risky a particular Loan is—a process called “underwriting”—is critic
ally important for lenders, who often require some sort of asset as collateral to protect against the risks of 
a Loan gone sour. If the Loan is not repaid, ownership of the collateral is transferred to the borrower, then
 sold to recoup any funds lost in the transaction. SHARE THIS CONCEPT: http://book.personalmba.com/l


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oan/ Form of Value #10: Option You pays your money and you makes your choice. —PUNCH, NINETEE
NTH-CENTURY BRITISH COMIC MAGAZINE, 1846 An Option is the ability to take a predefined action fo
r a fixed period of time in exchange for a fee. Most people think of Options as financial securities, but they
’re all around us: movie or concert tickets, coupons, retainers, and licensing rights are all examples of Opt


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ions. In exchange for a fee, the purchaser has the right to take some specific action—attend the show, pu
rchase an asset, or buy a financial security at a particular price— before the deadline. In order to provide 
value via Options, you must: 1. Identify some action people might want to take in the future. 2. Offer poten
tial buyers the right to take that action before a specified deadline. 3. Convince potential buyers that the O


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ption is worth the asking price. 4. Enforce the specified deadline on taking action. Options are valuable be
cause they allow the purchaser the ability to take a specific action without requiring them to take that actio
n. For example, if you purchase a movie ticket, you have the ability to occupy a seat in the theater, but yo
u don’t have to if a better opportunity presents itself. When you purchase the ticket, all you’re purchasing i


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s the right to exercise the Option to see the movie at the time specified—nothing more. Options are often 
used to keep specific courses of action open for a certain period of time before another transaction takes 
place. For example, in moving to Colorado from New York, my wife, Kelsey, and I put a deposit down on 
an apartment we hadn’t seen in person. The deposit ensured that the landlord wouldn’t rent the apartment


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to someone else before we moved. Once we signed the official rental agreement, the deposit became a s
tandard rental security deposit. If we had decided not to move forward, the landlord would have kept the d
eposit in compensation for holding the apartment for us and would have been free to find another tenant. 
Thus, the Option was beneficial for both of us. Options are often an overlooked form of value—flexibility is


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one of the Three Universal Currencies (discussed later). Find a way to give people more flexibility, and y
ou may discover a viable business model. SHARE THIS CONCEPT: http://book.personalmba.com/option/
 Form of Value #11: Insurance Take calculated risks. That is quite different from being rash. —GENERAL 
GEORGE S. PATTON, COMMANDER OF THE U.S. THIRD ARMY IN WORLD WAR II Insurance involve


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s the transfer of risk from the purchaser to the seller. In exchange for taking on the risk of some specific b
ad thing happening to the policy holder, the policy holder agrees to give the insurer a predefined series of 
payments. If the bad thing actually happens, the insurer is responsible for footing the bill. If it doesn’t, the i
nsurer gets to keep the money. In order to provide value via Insurance, you must: 1. Create a binding leg


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al agreement that transfers the risk of a specific bad thing (a “loss”) happening from the policy holder to y
ou. 2. Estimate the risk of that bad thing actually happening, using available data. 3. Collect the agreed-u
pon series of payments (called “premiums”) over time. 4. Pay out legitimate claims upon the policy. Insura
nce provides value to the purchaser by protecting them from downside risk. For example, a house can cat


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ch fire in any number of ways, and most homeowners don’t have enough cash to purchase another if their
 home burns to the ground. Homeowners’ Insurance transfers this risk to the insurer. If the home is destro
yed by fire, the Insurance will compensate the homeowner and allow them to purchase a new home. If it i
sn’t, the insurer gets to keep the premium payments. Insurance works because it spreads risk over a larg


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e number of individuals. If an insurer writes policies for thousands or millions of homes, it’s highly unlikely 
that every single one will burn to the ground at once—only a certain number of claims will have to be paid.
 As long as the insurer brings in more premium payments than it pays in claims, the insurer makes money
. Car insurance, health insurance, and warranty coverage for consumer goods work the same way. The m


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ore premiums an insurer collects and the fewer claims the insurer pays, the more money it makes. Insurer
s have a vested interest in avoiding “bad risks,” maximizing premiums, and minimizing payments on claim
s. Accordingly, insurers must be constantly vigilant to avoid fraudulent activity, both by preventing fraudul
ent claims and by refraining from defrauding purchasers by collecting premium payments without paying l


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egitimate claims. If an insurer fails to pay legitimate claims, they’re likely to find themselves in court as pol
icy holders use the legal system to uphold their Insurance contract. SHARE THIS CONCEPT: http://book.
personalmba.com/insurance/ Form of Value #12: Capital Capital is that part of wealth which is devoted to 
obtaining further wealth. —ALFRED MARSHALL, ECONOMIST AND AUTHOR OF PRINCIPLES OF EC


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ONOMICS Capital is the purchase of an ownership stake in a business. For parties that have resources t
o allocate, providing Capital is a way to help owners of new or existing businesses expand or enter new m
arkets. Angel investing, venture capital, and purchasing stock in publicly traded companies are all exampl


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es of providing value via Capital, which we’ll discuss in detail later in the Hierarchy of Funding. In order to 
provide value via Capital, you must: 1. Have a pool of resources available to invest. 2. Find a promising b
usiness in which you’d be willing to invest. 3. Estimate how much that business is currently worth, how mu
ch it may be worth in the future, and the probability that the business will go under, which would result in t


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he loss of your Capital. 4. Negotiate the amount of ownership you’d receive in exchange for the amount of
 Capital you’re investing. Businesses benefit from Capital investment because it enables them to gather th
e resources necessary to expand or enter new industries. Some industries, like manufacturing and financi
al services, require huge amounts of funding to start or expand. By taking on investors, business owners


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can secure enough funding to move forward quickly. Investors benefit by acquiring a certain percentage o
f that company’s ownership, which allows them to benefit from the business’s activities without active invo
lvement. Instead of leaving their money in a bank account, investors can allocate it to companies that are 
involved in promising ventures, which may provide a higher rate of return. If the business brings in a lot of


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cash, investors may benefit from a regular dividend. If it’s acquired by another company or is listed on a p
ublic stock exchange, investors may receive a percentage of the purchase price as a lump-sum payment 
or sell their shares of the company on the open market for a profit. SHARE THIS CONCEPT: http://book.p
ersonalmba.com/capital/ Perceived Value People don’t trade money for things when they value their mon


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ey more highly than they value the things. —ROY H. WILLIAMS, THE WIZARD OF ADS All forms of valu
e are not created equal. Perceived Value determines how much your customers will be willing to pay for w
hat you’re offering. The higher the perceived value of your offering, the more you’ll be able to charge for it,
 which significantly improves your chances of succeeding. As a rule of thumb, the less attractive the End


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Result (discussed later) and the more end-user involvement it takes to get the benefit, the lower the value
 your customers will place on the offer. Here’s an example: A homeowner may be willing to pay a maximu
m onetime fee of $50 for a pool cleaning kit, but they’d be willing to pay $250 a month to have someone cl
ean their pool every week for them. The pool gets cleaned either way, but the weekly cleaning service ha


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s a higher perceived value because the pool owner doesn’t have to spend any time or effort to get the sa
me desired result. Charging $10,000 a month for your cleaning service, however, won’t work—homeowne
rs don’t care about having a clean pool that much. Focus on creating Forms of Value that require the least
 end-user effort to get the best possible End Result—they will have the highest perceived value. SHARE


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THIS CONCEPT: http://book.personalmba.com/perceived-value/ Modularity Great things are not done by 
impulse, but by a series of small things brought together. —VINCENT VAN GOGH, ARTIST Keep in mind
 that the Twelve Standard Forms of Value aren’t mutually exclusive: you can offer any number or combina
tion of these forms to your potential customers to see which ones they like best. Most successful business


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es offer value in multiple forms. Take the magazine industry, for example. Magazines charge a monthly or
 annual Subscription fee in exchange for a printed magazine delivered by mail on a periodic basis. Simult
aneously, they use Audience Aggregation to sell access to their subscribers via advertising, which is inclu
ded in the magazine alongside the content. Travel Web sites like Orbitz sell Products (airplane tickets) alo


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ngside tripcancellation Insurance, and display advertising (Audience Aggregation) to Web site visitors. Mo
vie theaters combine movie showings (a Shared Resource ) with tickets (an Option) and concession sales
 (Products). In most companies, each of these offers is handled separately, and the customer can pick an
d choose which offers they want to take advantage of. By making offers Modular, the business can create


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and improve each offer in isolation, then mix and match offers as necessary to better serve their custome
rs. 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. SHARE THIS CONCEPT: http://book.personalmba.com/modularity/ Bundling 
and Unbundling A bit of this and a bit of that is how newness enters the world. —SALMAN RUSHDIE, NO


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VELIST The benefit of making your offers small and Modular is that it allows you to take advantage of a st
rategy called Bundling. Bundling allows you to repurpose value that you have already created to create ev
en more value. Bundling occurs when you combine multiple smaller offers into a single large offer. An exa
mple of Bundling occurs in the mobile phone industry, where a mobile phone (a physical Product) is bundl


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ed with a monthly service plan (a Subscription) for a single price. Similarly, buy-one-get-onefree offers at t
he grocery store are a form of Bundling. Typically, the more offers contained in the bundle, the higher the 
Perceived Value of the offer, and the more the business can charge. That’s why mobile phone providers a
dd things like more minutes, unlimited text messaging, and Internet service onto the basic service plan. T


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he more benefits provided, the more a customer is typically willing to pay on a monthly basis for the entire
 package. Unbundling is the opposite of Bundling: it’s taking one offer and splitting it up into multiple offers
. A good example of Unbundling is selling MP3 downloads of a single album instead of the CD. Customer


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s may not be willing to pay $10 for an entire album, but they may be willing to pay a dollar or two for the s
ongs they particularly like. Unbundling the album into individual units opens the way to sales that wouldn’t
 otherwise happen. Bundling and Unbundling can help you create value for different types of customers wi
thout requiring the creation of something new. By combining offers and forms in various configurations, yo


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u can offer your customers exactly what they want. SHARE THIS CONCEPT: http://book.personalmba.co
m/bundlingunbundling/ Prototype It’s this simple: if I never try anything, I never learn anything. —HUGH P
RATHER, AUTHOR OF NOTES TO MYSELF The classic MBA product development model is shrouded i
n secrecy and mystique: develop the offering in private, make everyone involved sign non-disclosure agre


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ements,2 raise millions of dollars in venture capital, spend years making it perfect, then unveil your creati
on to the astonishment of the world and the thunderous sound of ringing cash registers. Unfortunately, thi
s mentality ruins careers and empties bank accounts. On their own, ideas are largely worthless—discover
ing whether or not you can actually make them work in reality is the most important job of any entreprene


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ur. Don’t be shy about showing potential customers your work in progress. Unless you work in an industry
 with unusually aggressive, competent, and well-funded competitors, you really don’t have to worry about 
other people “stealing” your idea. Ideas are cheap—what counts is the ability to translate an idea into reali
ty, which is much more difficult than recognizing a good idea. “Stealth mode” diminishes your early learnin


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g opportunities, putting you at a huge early disadvantage. It’s almost always better to focus on getting fee
dback from real customers as quickly as you possibly can. A Prototype is an early representation of what 
your offering will look like. It may be a physical model, a computer rendering, a diagram, a flowchart, or a 
one-page paper that describes the major benefits and features. It doesn’t have to be fancy: all your Protot


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ype has to do is represent what you’re offering in a tangible way, so that your potential customers can und
erstand what you’re doing well enough to give you good feedback. For best results, create your prototype 
in the same form as the finished product. If you’re creating a physical product, make a tangible model. If y
ou’re making a Web site, create a working Web page with the basic components. If you’re creating a servi


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ce, create a diagram or flowchart of everything that happens in the process, then act it out. The more reali
stic your Prototype is, the easier it’ll be for people to understand what you’re trying to do. The Prototype is
 your first attempt at creating something useful, but it won’t be your last. Your first will be embarrassingly p
oor and incomplete, and that’s okay. Prototypes are valuable because they allow you to get good feedbac


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k from real people before you invest a huge amount of time, money, and effort into the project. The purpo
se of a Prototype is not to make it perfect: it’s to quickly create a tangible focus for your efforts—somethin
g you and other people can see, evaluate, and improve. As you show your Prototype to potential custome
rs, you’ll get a steady stream of ideas and Feedback (discussed later) that will help you make your offer e


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ven better. SHARE THIS CONCEPT: http://book.personalmba.com/prototype/ The Iteration Cycle I have 
not failed. I’ve just found 10,000 ways that won’t work. —THOMAS A. EDISON, PROLIFIC INVENTOR N
obody—no matter how smart or talented they are—gets it right the first time. For proof, consider any artist
ic masterpiece. Beneath the finished surface of the Mona Lisa, you’ll find layer upon layer of draft sketche


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s, false starts, and major alterations. The ceiling of the Sistine Chapel is covered with hundreds of millions
 of very small brushstrokes, each of which brought the resulting masterpiece one step closer to completio
n. It took Michelangelo millions of hammer strokes to turn a crude block of marble into the David. The Iter
ation Cycle is a process you can use to make anything better over time. There’s nothing wasteful about th


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e inevitable changes and revisions that these artists made to their creations: every iteration brought the pr
oject one step closer to completion. Iteration has six major steps, which I call the WIGWAM method: 1. W
atch—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 mak


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e the biggest impact? 4. Which?—Decide which change to make. 5. Act—Actually make the change. 6. M
easure—What happened? Was the change positive or negative? Should you keep the change, or go back
 to how things were before this iteration? Iteration is a cycle—once you measure the results of the change
 and decide whether or not to keep it, you go back to the beginning to observe what’s happening, and the


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cycle repeats. For best results, clearly define what you’re trying to accomplish with each iteration. Are you
 trying to make the offering more attractive or appealing ? Are you trying to add a new feature people will 
value? Are you trying to make the offering cost less without detracting from its value? The more clearly yo
u can define what you’re after, the easier it’ll be to understand the Feedback (discussed later) you’re recei


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ving and the more value you’ll extract from each Iteration Cycle. SHARE THIS CONCEPT: http://book.per
sonalmba.com/iteration-cycle/ Iteration Velocity Our goal is to have more at bats per unit of time and mon
ey than anyone else. —ERIC SCHMIDT, CHAIRMAN AND CEO OF GOOGLE When creating a new offer


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ing, your primary goal should be to work your way through each Iteration Cycle as quickly as possible. Iter
ation is a structured form of learning that helps you make your offering better; the faster you learn, the mo
re quickly you’ll be able to improve. The faster you move through the Iteration Cycle, the better your offeri
ng will become. If you’re really good, you can move through the process several times each day. The key


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is to keep each iteration small, clear, and quick, basing each iteration on what you learned via previous ite
rations. The Iteration Cycle often feels like additional work because it is additional work. That’s why so fe
w people do it: it’s very tempting to skip all of these “extra” steps and attempt to create the final offering o
utright. The major problem with the direct approach is risk: you’re sinking a great deal of time, energy, and


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resources into creating something that may not ultimately sell. If the idea’s a dud, it’s far better to figure t
hat out quickly and inexpensively via a few quick Iteration Cycles than to bet the farm on an idea or marke
t that just won’t work. Iteration may take some additional effort up front, but after you’ve gone through a fe
w cycles, you’ll have a deeper understanding of the market, direct knowledge of what people actually wan


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t enough to pay for, and a clear understanding of whether or not you have a viable offer to give them. If yo
u discover that you have what people want, great—full steam ahead. If there’s no demand for what you’re
 developing, you can quickly and cleanly move on to the next promising idea. SHARE THIS CONCEPT: ht
tp://book.personalmba.com/iteration-velocity/ Feedback No business plan survives first contact with custo
mers. —STEVEN GARY BLANK, SERIAL ENTREPRENEUR AND AUTHOR OF THE FOUR STEPS TO


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THE EPIPHANY Getting useful Feedback from your potential customers is the core of the Iteration Cycle. 
Useful Feedback from real prospects helps you understand how well your offer meets their needs before 
development is complete, which allows you to make changes before you start selling. Here are a few tips 
to maximize the value of the Feedback you receive: 1. Get Feedback from real potential customers instea


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d of friends and family. Your inner circle typically wants you to succeed and wants to maintain a good rela
tionship with you, so it’s likely that they’ll unintentionally sugarcoat their Feedback. For best results, be sur
e 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 ope


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n-ended questions prepared to give the conversation a bit of structure, but otherwise encourage the other 
person to do most of the talking. Short who/ what/when/where/why/how questions typically work best. Wat
ch what they do, and compare their actions with what they say. 3. Steady yourself, and keep calm. Asking
 for genuine Feedback (the only useful kind) requires thick skin—no one likes hearing their baby is ugly. T


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ry not to get offended or defensive if someone doesn’t like what you’ve created; they’re doing you a great 
service. 4. Take what you hear with a grain of salt. Even the most discouraging Feedback contains crucial
 pieces of information that can help you make your offering better. The worst response you can get when 
asking for Feedback isn’t emphatic dislike: it’s total apathy. If no one seems to care about what you’ve cre


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ated, you don’t have a viable business idea. 5. Give potential customers the opportunity to preorder. One 
of the most important pieces of Feedback you can receive during the iteration process is the other person’
s willingness to actually purchase what you’re creating. It’s one thing for a person to say that they’d purch
ase something and quite another for them to be willing to pull out their wallet or credit card and place a re


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al order. You can do this even if the offer isn’t ready yet—a tactic called Shadow Testing (discussed later)
. Whenever possible, give the people who are giving you Feedback the opportunity to preorder the offerin
g. If a significant number of people take you up on the offer, you’re in good shape: you know that you hav
e a solid offering and you immediately boost your cash flow. If no one is willing to preorder, you know you


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have more work to do before you have a viable offer—by asking why they’re not willing to purchase right 
now, you’ll discover their major Barriers to Purchase (discussed later): what’s holding them back. SHARE 
THIS CONCEPT: http://book.personalmba.com/feedback/ Alternatives Until one is committed, there is he
sitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative and creation, the


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re is one elementary truth the ignorance of which kills countless ideas and splendid plans: that the mome
nt one definitely commits oneself, the providence moves too. —W. H. MURRAY, MOUNTAINEER AND W
RITER It’s Friday night. You’re hungry, and you’re thinking about going out to eat. You’ve already decided
 that you value having food prepared for you enough to justify the extra expense. Where should you go for


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dinner? If you go to the neighborhood diner, you’ll have access to a large variety of decent food at a reas
onable price. The place may not be very fancy, but you know you’ll be served a pretty good meal quickly 
and without a lot of fuss or expense. If you go to a swanky hot spot, you’ll be treated to attractive décor, i
mpeccable service, and sophisticated cuisine. You’ll have an impressive story to tell your friends, as well


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as the anticipation and excitement of a big night on the town. You’ll also have a heftier tab at the end of th
e evening. Unless you’re really hungry, you won’t patronize both restaurants on the same evening—it’s an


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either/or decision. At the same time, there’s no “right” decision—in fact, you may choose to go to the dine
r one evening and the trendy restaurant the next. It all depends on what you value most at the moment yo
u decide where to eat. Now let’s flip the situation. You’re the owner of the diner, and you’re looking for wa
ys to serve your customers better and bring new people into the restaurant. What should you focus on im


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proving? Would expanding your entrée selection, reducing the time it takes to serve customers, or remod
eling the restaurant make the biggest difference to the bottom line? In a perfect world, it would be best to 
do all of these things, but business has been lackluster recently, and you don’t have an unlimited budget t
o work with. You know you need to do something, but it’s not clear which improvements—if any—would m


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ake the cash register ring more often. What do you do? As you develop your offering, you can’t avoid mak
ing choices between competing Alternatives. Should you add a particular feature, or not? Should you opti
mize for market A, optimize for market B, or attempt to please both? If you invest more in the offering, will 
your customers be willing to pay more to defray the expense? Examining the possible Alternatives and co


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nsidering the customer’s perspective results in better choices. As you make decisions about what to inclu
de and what to leave out, it’s essential to appreciate the Alternatives that your potential customers face w
hen they decide whether or not to purchase your offering. Once you’re aware of the options, you can exa
mine the combinations and permutations of those Alternatives to present an attractive offer. SHARE THIS


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CONCEPT: http://book.personalmba.com/alternatives/ Trade-offs I can’t give you a surefire formula for s
uccess, but I can give you a formula for failure: try to please everybody all the time. —HERBERT BAYAR
D SWOPE, PULITZER PRIZE-WINNING JOURNALIST A Trade-off is a decision that places a higher valu
e on one of several competing options. We live in a world where time, energy, and resources are finite. Th


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ere are only twenty-four hours in a day, you only have so much available energy, and at any given time th
ere’s an upper limit on the amount of money you’re able to spend. What do you do when you can’t do eve
rything you want? You can’t have everything you want all of the time. Even if your bank account is large e
nough to purchase a private island, you’re still faced with the decision of which private island to buy. You


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may want it all, but you can’t have it all, so you do the best you can by choosing the option with the charac
teristics that matter most to you at the moment you make the decision. Every minute of every day, you an
d the people around you are making Trade-offs. Some of these Trade-offs are economic: which pair of pa
nts should you purchase? Some of them are temporal: should you visit with friends or go to a movie? Som


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e of them are about effort: should you go to the team meeting or complete the overdue TPS report? Predi
cting how people will make certain Trade-offs is tricky—values change quickly, given the environment and
 context. Values are preferences —how much we want, desire, or place importance on one particular obje
ct, quality, or state of being versus another. What you value this morning may be different from what you v


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alue this afternoon or this evening. What you want today may be different from what you want tomorrow. 
When making decisions about what to include in your offering, it pays to look for Patterns—how specific g
roups of people tend to value some characteristic in a certain context. The decisions you make about wha
t to include and what to leave out will never make everyone happy, so perfection shouldn’t be your goal. B


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y paying attention to the Patterns behind what your best customers value, you’ll be able to focus on impro
ving your offering for most of your best potential customers most of the time. SHARE THIS CONCEPT: htt
p://book.personalmba.com/tradeoffs/ Economic Values A successful business is either loved or needed. 
—TED LEONSIS, FORMER EXECUTIVE AT AOL AND OWNER OF THE WASHINGTON WIZARDS AN
D WASHINGTON CAPITALS Every time your customers purchase from you, they’re deciding that they va


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lue what you have to offer more than they value anything else their money could buy at that moment. As y
ou develop your offering, one of your first priorities should be to find out what your potential customers val
ue more than the buying power of the dollars in their wallets. Everyone has slightly different values at any 
given time, but there are a few common patterns that appear when people evaluate a potential purchase.


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Assuming the promised benefits of the offering are appealing, there are nine common Economic Values t
hat people typically consider when evaluating a potential purchase. They are: 1. Efficacy—How well does 
it work? 2. Speed—How quickly does it work? 3. Reliability—Can I depend on it to do what I want? 4. Eas
e of Use—How much effort does it require? 5. Flexibility—How many things does it do? 6. Status—How d


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oes this affect the way others perceive me? 7. Aesthetic Appeal—How attractive or otherwise aestheticall
y pleasing is it? 8. Emotion—How does it make me feel? 9. Cost—How much do I have to give up to get t
his? In the book Trade-Off: Why Some Things Catch On, and Others Don’t, Kevin Maney discusses these
 common values in terms of two primary characteristics: convenience and fidelity. Things that are quick, re


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liable, easy, and flexible are convenient. Things that offer quality, status, aesthetic appeal, or emotional im
pact are high-fidelity. Almost every improvement you make to an offer can be thought of in terms of impro


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ving either convenience or fidelity. It’s incredibly difficult to optimize for both fidelity and convenience at th
e same time, so the most successful offerings try to provide the most convenience or fidelity among all co
mpeting offerings. If you’re craving pizza, a table at the original Pizzeria Uno in Chicago is high-fidelity; Do
mino’s home delivery is convenient. Accordingly, Pizzeria Uno benefits more from making the dining expe


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rience remarkable, while Domino’s benefits more from delivering decent pizza as quickly as possible. The 
Trade-offs that are made in the development of new offerings are what give each option its unique identity
. Here’s an example from the apparel business: Old Navy, Banana Republic, and Gap are owned by the s
ame company, Gap Inc. All three lines make the same types of clothing—shirts, pants, and so on—but off


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er different Trade-offs. Instead of attempting to make a single clothing line that’s designed to appeal to ev
eryone (which is impossible, since everyone wants something different), the company focused each line a
round a specific Trade-off. Old Navy emphasizes functionality and low cost. Gap emphasizes style and fa
shion at a moderate cost. Banana Republic emphasizes aesthetics and status at a premium cost. Each lin


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e has its own identity and appeals to a different type of potential customer, even though the clothes may b
e manufactured using the same processes and the revenues end up in the coffers of the same company. 
SHARE THIS CONCEPT: http://book.personalmba.com/economic-values/ Relative Importance Testing Th
ings which matter most must never be at the mercy of things which matter least. —JOHANN WOLFGANG
 VON GOETHE, NINETEENTH-CENTURY DRAMATIST, POET, AND POLYMATH The tricky thing about


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trying to figure out what people want is that people want everything. Here’s proof: bring together a group 
of potential customers for a focus group. Ask each participant to rate the importance of each of the nine E
conomic Values for your offering on a scale of 0 to 10. What will the results look like? Regardless of your 
product or service, the results will be the same: your customers want products that provide exceptional re


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sults instantly, every time, with absolutely no effort. Simultaneously, they want the offer to make them rich,
 famous, attractive, and eternally blissful. They also want it to be free. If you ask them what they’d be willin
g to give up, they’ll answer that everything is critically important, and they won’t be happy with less. The re
ality outside of the focus group is always quite different. Shortly after the group adjourns, each of those pa


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rticipants will go out and purchase something that’s not free and not perfect, and they’ll be happy with thei
r decision. Why? As a rule, people never accept Trade-offs unless they’re forced to make a Decision. If th
e perfect option existed, they’d buy it. Since there’s no such thing as the perfect offering, people are happ
y to settle for the Next Best Alternative (discussed later). The best way to discover what people actually v


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alue is to ask them to make explicit Trade-offs during the research process. The problem with the hypothe
tical focus group was that it didn’t ask the participants to make any real Decisions—the participants could 
have everything, so they wanted everything. Relative Importance Testing—a set of analysis techniques pi
oneered by statistician Jordan Louviere in the 1980s3—gives you a way to determine what people actuall


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y want by asking them a series of simple questions designed to simulate real-life Trade-offs. Here’s how it
 works. Let’s assume we’re conducting a Relative Importance Test for the diner previously mentioned. Inst
ead of asking the participant to rank each benefit from 0 to 10, we show the participant something like the 
following: A. Orders delivered to table in five minutes or less. B. Most entrée prices under $20. C. Appeali


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ng restaurant décor. D. Large variety of menu options. After this set is shown, the participant is asked the 
following questions: 1. Which of these items is most important? 2. Which of these items is least important
? Once the participant answers the questions, another set is shown: E. Unique entrées I can’t get anywhe
re else. F. Knowing I can always order my favorite dishes. G. People are impressed that I dine here. H. La


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rge portions. Random question sets containing four or five criteria are provided until there are no more po
ssible combinations or the participant’s attention wanders, which will typically occur around the five- to ten
-minute mark. It won’t take the participant long to provide a response to each of these simple questions, b
ut the results are quite revealing. By asking the participant to make an actual choice, you’re collecting mor


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e accurate information about how the participant would respond when faced with a similar choice in the re
al world. When the results are aggregated and statistically analyzed, the relative importance of each bene
fit becomes very clear. The more sets each participant completes, the more clearly you’ll be able to judge 
the relative importance of each benefit.4 Relative Importance Testing can help you quickly determine whic


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h benefits you should focus on to make your offering maximally attractive. SHARE THIS CONCEPT: http:/
/book.personalmba.com/relativeimportance-testing/ Critically Important Assumptions (CIAs) It is better to 
be roughly right than precisely wrong. —JOHN MAYNARD KEYNES, ECONOMIST Imagine that you’re in
terested in opening a yoga studio. The market opportunity looks good: you believe that you’ve identified a


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n underserved neighborhood with significant demand and enough discretionary income to pay a $100-plu
s monthly membership fee. You’ve sketched out what the space would look like, and you have a rough id


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ea of the different styles you’d like to offer and whom you’d bring in to teach classes. You’ve found a suita
ble location that you can rent for around $10,000 per month (if you sign a twelve-month lease), and you e
stimate that you’ll need an additional $12,000 per month to pay employee salaries and other monthly oper
ating expenses. You’ll also need to spend around $5,000 up front for equipment: mats, blocks, and a com


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puter to handle membership records. The commercial real estate agent you’re working with is putting pres
sure on you to move quickly, saying the location you want may be snatched up by another tenant if you d
on’t commit now. Your current life savings are enough to cover the start-up costs and three months of proj
ected operating expenses. You’re excited, but you want to ensure that you’re making the right decision be


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fore you move forward. Should you sign the lease? Stories like this are very common: an excited first-time
 entrepreneur has a dream of owning a restaurant, bar, or bookstore, so they invest their life savings and t
ake on significant debt to open the new business. Sometimes these stories work out well. More often than
 not, in a few months the new entrepreneur is bankrupt and out of business, wondering how things went s


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o terribly wrong. Critically Important Assumptions (CIAs) are facts or characteristics that must be true in th
e real world for your business or offering to be successful. Every new business or offering has a set of CI
As, and if any CIA turns out to be false, the business idea will be vastly less promising than it appears. Th
e yoga studio example above has three primary CIAs: 1. Individuals in this neighborhood will be willing to


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commit to pay $100 or more per month for a yoga membership close to their home. 2. The business will b
e able to attract at least 220 members paying full price within three months. 3. Total monthly revenues will
 exceed $22,000 for the next twelve months, which is the minimum duration of the lease term. Let’s exami
ne what would happen to the yoga studio if these CIAs turn out to be false: 1. Initial interest is high, but m


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ost of the people who tour the new studio balk at paying $100 per month, saying that they’d rather drive a 
few miles and pay $75. The studio lowers prices to $75, which means 300 members are now required to k
eep the studio afloat. After lowering prices, membership reaches the 220- member mark as planned, but it
’s not enough to keep the studio open. 2. The studio doesn’t attract enough members to pay the bills beca


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use yoga enthusiasts in the neighborhood are already locked into twelve-month membership contracts wit
h a studio a few miles away. The studio runs out of money quickly and closes. 3. A very nice competing st
udio opens up in the same neighborhood around the same time. After three months, the studio only has h
alf of the members it needs to sustain itself. With nine more months on the lease, the financial outlook is b


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leak. Every business or offering has a set of CIAs that will make or break its continued existence. The mor
e accurately you can identify these assumptions in advance and actually test whether or not they’re true, t
he less risk you’ll be taking and the more confidence you’ll have in the wisdom of your decisions. SHARE 
THIS CONCEPT: http://book.personalmba.com/criticallyimportant-assumptions/ Shadow Testing Praemo


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nitus praemunitus (forewarned is forearmed). —ROMAN PROVERB The best way to validate the truth of 
your Critically Important Assumptions is to test them directly, but going through the entire process of starti
ng the business is needlessly risky and expensive. It’s much smarter to minimize your risk by testing your 
offering with real paying customers before you fully commit to making it real. Shadow Testing is the proce


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ss of selling an offering before it actually exists. As long as you’re completely up front with your potential c
ustomers that the offering is still in development, Shadow Testing is a very useful strategy you can use to 
actually test your CIAs with real customers quickly and inexpensively. Real paying customers are always 
different from hypothetical customers. Shadow Testing allows you to get a critical piece of customer feedb


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ack you can get in no other way: whether or not people will actually pay for what you’re developing. In ord
er to minimize the risk you’re taking on in committing to the project, your objective should be to start gathe
ring data from real paying customers as soon as possible. Fitbit is a company that knows the value of Sha
dow Testing. Founded by Eric Friedman and James Park in September 2008, Fitbit makes a small clip-on


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exercise and sleep data-gathering device. The Fitbit device tracks your activity levels throughout the day 
and night, then automatically uploads your data to the Web, where it analyzes your health, fitness, and sle
ep patterns. It’s a neat concept, but creating new hardware is time-consuming, expensive, and fraught wit
h risk, so here’s what Friedman and Park did. The same day they announced the Fitbit idea to the world, t


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hey started allowing customers to preorder a Fitbit on their Web site, based on little more than a descriptio
n of what the device would do and a few renderings of what the product would look like. The billing syste
m collected names, addresses, and verified credit card numbers, but no charges were actually processed 
until the product was ready to ship, which gave the company an out in case their plans fell through. Order


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s started rolling in, and one month later, investors had the confidence to pony up $2 million dollars to mak
e the Fitbit a reality. A year later, the first real Fitbit was shipped to customers. That’s the power of Shado
w Testing. SHARE THIS CONCEPT: http://book.personalmba.com/shadow-testing/ Minimum Economicall


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y Viable Offer (MEVO) If you’re not embarrassed by the first version of your product, you’ve launched too l
ate. —REID HOFFMAN, FOUNDER OF LINKEDIN In order to conduct a Shadow Test, you need somethi
ng to sell. Fortunately, you don’t have to create the entire offer before you start selling. A Minimum Econo
mically Viable Offer (MEVO) is an offer that promises and/or provides the smallest number of benefits nec


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essary to produce an actual sale. A MEVO is essentially a Prototype that’s been developed to the point th
at someone will actually pull out their wallet and commit to making a purchase. It doesn’t have to be comp
licated: Fitbit’s MEVO was a Prototype, a description, and a few computer renderings. All you need to do i
s convey enough information to convince a real potential customer to buy. Creating a MEVO is useful bec


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ause it’s impossible to predict 100 percent accurately what will work in advance. You don’t want to invest 
a ton of time and money in something that has no chance of working, and the faster you can figure out if y
our idea will work or not, the better off you’ll be. Since Feedback from prospective customers and paid-in-f
ull orders are very different things, creating a MEVO allows you to start collecting data from real customer


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s as quickly as possible, directly testing the idea’s Critically Important Assumptions and reducing the risk 
of making a business-ending investment decision. Here’s how the hypothetical yoga studio we discussed 
earlier could use a MEVO and Shadow Testing to evaluate their CIAs: Step 1: Create a simple Web site d
escribing the studio in detail, including location, tentative schedule, teaching staff, sketches of the space,


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and membership fees. The site includes a sign-up form for visitors to preorder memberships by submitting
 their credit card information. By signing up, members commit to a twelvemonth membership when the stu
dio opens, but they have the opportunity to cancel within the first month if they don’t like it. If the studio do
esn’t open, all preorders are canceled without charge. Total cost: a few hundred dollars. Step 2: Direct pro


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spective customers to the Web site. This can be done inexpensively in any number of ways: flyers, door-t
o-door inquiry, direct mail, and local search engine advertising. Total cost: a few hundred dollars. Step 3: 
Track how many individuals sign up for preopening memberships at the full rate via the Web site or reque
st additional information. Total cost: a few hours of analysis. This simple process can be done quickly and


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cheaply, and will reveal a great deal about the real-world accuracy of the business’s CIAs. Spending a fe
w hundred dollars to pretest critical assumptions is a very good use of money, particularly if the findings pr
event the investment of larger sums of money in a business idea that’s doomed to fail from the start. The 
purpose of starting with a MEVO is to minimize your risk. By keeping the investments small, incremental,


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and learning oriented, you’ll be able to quickly discover what works and what doesn’t. If the idea is promisi
ng, you’re in a great position to make it happen. If your assumptions don’t hold true, you’re able to cut you
r losses without losing your shirt or your dignity. SHARE THIS CONCEPT: http://book.personalmba.com/
minimumeconomically-viable-offer/ Incremental Augmentation Pick three key attributes or features, get th


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ose things very, very right, and then forget about everything else . . . By focusing on only a few core featur
es in the first version, you are forced to find the true essence and value of the product. —PAUL BUCHHEI
T, CREATOR OF GMAIL AND GOOGLE ADSENSE Once your MEVO is selling and you’ve proven that y
our CIAs are valid, you’re in good shape, but you’re not finished. If you’re committed to making your offer


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as good as it can be, you’ll need to keep making small changes that improve the offer if you want to stay c
ompetitive and attract more customers. Incremental Augmentation is the process of using the Iteration Cy
cle to add new benefits to an existing offer. The process is simple: keep making and testing additions to th
e core offer, continue doing what works, and stop doing what doesn’t. The process of customizing cars is


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an example of Incremental Augmentation. Starting with a stock car, the “tuner” steadily replaces and upgr
ades parts: a better engine, spoiler, tinted windows, and chrome hubcaps. The intent of every change is t
o make the car just a little bit better, until it’s the best it can be. When the car is finished, it’s a different ma
chine. Incremental Augmentation helps you improve your offering while minimizing the risk that any single


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iteration will fail catastrophically. If you’re not careful, drastic changes after launch can eliminate the qualit
ies that made your offer attractive or break the systems you use to create the value you’re providing to yo
ur customers. By making and testing changes quickly and incrementally, you can continually improve your
 offer without betting the farm, helping you create even more value for your customers over time. Keep in


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mind that Incremental Augmentation can only take you so far. In order to enter a new market or change th
e game, you may need to create something completely new. If that’s the case, start over with a new Proto
type and work your way through the value creation process from the beginning. When it’s ready, get Feed
back and use Testing (discussed later) to compare the new version with the old version to make sure it’s


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actually better before you launch it. SHARE THIS CONCEPT: http://book.personalmba.com/incrementala
ugmentation/ Field Testing Any engineer that doesn’t need to wash his hands at least three times a day is
 a failure. —SHOICHIRO TOYODA, FORMER CHAIRMAN OF THE TOYOTA MOTOR CORPORATION


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A hundred and fifty days a year, Patrick Smith lives in the Colorado wilderness, just as he has for the past
 fifty years. Smith is the founder of the Colorado School of Outdoor Living and two successful hunting/bac
kpacking companies: Mountainsmith, which he sold in 1995, and Kifaru International, which he created in 
1997. Becoming a Kifaru customer is a quick way to overheat your credit card. Kifaru makes arguably the


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best hiking and hunting packs and shelters in the world—extremely rugged, lightweight, and well designed
. Kifaru packs can carry two hundred pounds comfortably, will last for decades, and sell for hundreds of d
ollars. It’s not uncommon for avid sportsmen and soldiers to shell out thousands of dollars for custom-mad
e Kifaru gear, then wait eagerly for six to eight weeks while the company makes it. Try as you might, it’s e


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xtremely difficult to find a Kifaru customer who’s disappointed in the quality of their gear. More often than 
not, a new Kifaru customer is a customer for life. The secret behind Kifaru’s quality is Field Testing. Smith 
personally creates, uses, and Iterates every single product Kifaru makes for years before offering it to cust
omers. By the time the finished product is available, even the most demanding customers have a difficult t


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ime finding flaws. Here’s what Smith says about his personal approach to Field Testing: The backcountry i
s definitely both my inspiration and my laboratory. I’ve figured out how to create designs out there [in the fi
eld]. I trust this technique. I get instant feedback about designs because I’m in the backcountry doing the t
hings the design is for, and testing it right then, in the real world arena it’s intended for . . . I really do think


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this is a better design process than sitting in front of a computer in an office in town. I think it’s a win/win si
tuation.5 Field Testing has a long and distinguished history in the creation of successful businesses. In 19
23, W. H. Murphy, of the Protective Garment Corporation of New York, had an associate shoot him in the 
chest from ten feet away in front of a public audience to prove his product worked—a marketing stunt bas


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ed on extensive Field Testing to verify that the vest was capable of stopping live rounds. Miguel Caballero
, a Colombian suit manufacturer who has created bulletproof suits for heads of state like Barack Obama a
nd Hugo Chávez, has continued the tradition by posting videos of people wearing his suits being shot poin
t-blank in the stomach on YouTube.6 Most major automotive manufacturers put new car designs through


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on-and off-road obstacle courses to test performance and handling in real-world conditions. Software com
panies like Microsoft and Google extensively Field Test their new products internally with employees befor
e releasing them to customers. Testing internally allows the company to eliminate any bugs before custo
mers ever see the product. Using what you make every day is the best way to improve the quality of what


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you’re offering. Nothing will help you find ways to make your offer better than being its most avid and dem
anding customer. SHARE THIS CONCEPT: http://book.personalmba.com/field-testing/ 3 MARKETING Th
e cardinal marketing sin is being boring. —DAN KENNEDY, MARKETING EXPERT Offering value is not 
enough. If no one knows (or cares) about what you have to offer, it doesn’t matter how much value you cr


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eate. Without Marketing , no business can survive—people who don’t know you exist can’t purchase what
 you have to offer, and people who aren’t interested in what you have to offer won’t become paying custo
mers. Every successful business finds a way to attract the attention of the right people and make them int
erested in what’s being offered. Without prospects, you won’t sell anything, and without completing profita


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ble transactions, your business will fail. Marketing is the art and science of finding “prospects”—people wh
o are actively interested in what you have to offer. The best businesses in the world find ways to attract th
e attention of qualified prospects quickly and inexpensively. The more prospects you entice, the better off 
your business will be. Marketing is not the same thing as selling. While “direct marketing” strategies often


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try to minimize the time between attracting attention and asking for the sale, Marketing and selling are two
 different things. Marketing is about getting noticed; Sales, which we’ll discuss in chapter 4, is about closin
g the deal. SHARE THIS CONCEPT: http://book.personalmba.com/marketing/ Attention In an attention ec
onomy (like this one), marketers struggle for attention. If you don’t have it, you lose. —SETH GODIN, BE


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ST-SELLING AUTHOR OF PERMISSION MARKETING, PURPLE COW, AND TRIBES Modern life is ove
rloaded with demands on your Attention. Think of all of the things that are competing for your attention rig
ht now: there’s work to be done, people to call, e-mail to check, TV to watch, music to listen to, and countl
ess Web sites to visit. Everyone has too many things to do, and too little time to do them all. Rule #1 of M


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arketing is that your potential customer’s available attention is limited. Keeping up with everything in your 
world would require way more attention than you actually have to work with. To compensate, you filter: yo
u ration your attention, allocating more to things you care about and less to things you don’t. So does ever
yone else, including your potential prospects. To get someone’s attention, you have to find a way around t


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heir filters. High-quality attention must be earned. When you’re seeking someone’s attention, it’s useful to 
take a moment to remember that you’re competing against everything else in their world. In order to be no
ticed, you need to find a way to earn that attention by being more interesting or useful than the competing


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alternatives. Attention doesn’t matter if people don’t care about what you’re doing. If all you’re looking for i
s attention, don’t bother with all of this business stuff: skipping down the street in a pink bunny suit while y
elling at the top of your lungs will get you all the attention you’ll ever want. When it comes to business, ho
wever, some kinds of attention aren’t worth having. You want the attention of prospects who will ultimately


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purchase from you— otherwise, you’re wasting your time. It’s nice to be the center of attention, but busin
ess is about making profitable sales, not winning a popularity contest. Being featured on national televisio
n or on a huge Web site is a wonderful thing, but very often this kind of broad publicity fails to deliver actu
al sales. Spending time and energy acting like a socialite reduces the amount of resources you can devot


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e to creating real value for your customers, which doesn’t help anyone. Earn the attention of the people w
ho are likely to buy from you, and you’ll inevitably build your business. The mental models in this chapter 
will show you how. SHARE THIS CONCEPT: http://book.personalmba.com/attention/ Receptivity They sa
y it takes 7 exposures to a product ad before you’ll want to buy it, but after 8,743 spam emails for Viagra, I


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still don’t want it! —ERIN PAVLINA, INTUITIVE COUNSELOR AND BLOGGER AT ERINPAVLINA.COM 
People ignore what they don’t care about. One of the primary functions of the human brain is perceptual fil
tering: determining what to pay attention to and what to ignore. The fastest way to be ignored by anyone i
s to start talking about something they don’t care about. Receptivity is a measure of how open a person is


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to your message. Rabid fans of hit novels like Stephenie Meyer’s Twilight books are paragons of Recepti
vity: they’re interested in almost anything they can find about their obsession as soon as it’s available. Fro
m a business perspective, that’s ideal —it’s difficult to offer something that this audience won’t want imme
diately. On the other hand, a committed ethical vegan isn’t likely to be interested in hearing about the ben


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efits of red meat consumption, regardless of how much disconfirming evidence there is or how compelling
 the presentation. The worldview mismatch is just too big, and even the largest publicity campaign won’t b
e able to overcome the overwhelming urge to ignore. Receptivity has two primary components: what and 
when. People tend to be receptive only to certain categories of things at certain times. I love hearing abou


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t great new business books, but I never want to be on the receiving end of a 3:00 a.m. phone call from a p
ublicist. If you want your message to be heard, the medium matters. The form of your message has a big i
nfluence on how receptive people are to the information that message contains. If the form of your messa
ge suggests that it was created just for them, you’re far more likely to get your prospect’s attention. Here’s


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an example: Almost everyone will ignore postal junk mail—if it looks blatantly commercial or mass-produc
ed, there’s a 99 percent chance the recipient will throw it away without a second thought. Change the for
m, however, and Receptivity changes as well. Most people will at least open a hand-addressed envelope, 
since it’s clear someone spent time and effort sending it to them. Taken to an extreme, almost everyone (i


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ncluding busy executives) will open and look through the contents of a large overnight hand-addressed Fe
dEx envelope—it’s big, expensive, and clearly requires effort to send. Even then, if the contents don’t mat
ch what they’re interested in, you’ll lose their attention immediately. SHARE THIS CONCEPT: http://book.
personalmba.com/receptivity/ Remarkability Advertising is the tax you pay for being unremarkable. —RO


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BERT STEPHENS, FOUNDER OF GEEK SQUAD Every time I go for a run, people ask me about my sho
es. They don’t ask me because they’re fashionable: they ask me because they’re weird. Vibram FiveFinge
rs are shoes that look like a cross between a sock and a glove. Wearing them makes you look a bit like a f
rog: each toe has its own little pocket, giving your feet a slightly amphibian look—odd enough to be notice


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d. I picked up a pair of FiveFingers to experiment with barefoot running—the thin rubber sole protects you
r feet from rocks and glass without adding any unnecessary support, which lets your feet do what they’re 
naturally designed to do. Running or walking in FiveFingers is surprisingly fun, which is why I keep wearin
g them. FiveFingers are just strange enough that people can’t help but notice your feet when you wear the


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m—they violate expectations of what shoes are supposed to look like. As a result, people ask me about th
em constantly— even in as “unfriendly” a place as the streets of New York City. By the end of the convers
ation, I’ve inevitably told my new acquaintance what they are, why I’m wearing them, how much they cost,
 and where they can purchase them. FiveFingers are designed to overcome the number one problem eve


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ry new offering faces: if no one knows you exist, no one will buy what you have to sell. Every customer wh
o wears a pair of FiveFingers inevitably provides Vibram all of the advertising they need to keep growing
—for free. From a business perspective, the Attention-grabbing design of FiveFingers is working beautifull
y. On the street, salespeople confirm that FiveFingers are flying off the shelves—new stock sells out almo


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st immediately. According to the New York Times (“Wiggling Their Toes at the Shoe Giants,” August 30, 2
009), sales of the FiveFingers line have tripled every year since they were introduced in 2006, and in 200
9 revenue crossed the $10 million mark in North America—without mass-market advertising. Not bad for f


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unny-looking frog shoes. Being Remarkable is the best way to attract Attention. In the classic marketing b
ook Purple Cow, Seth Godin uses a wonderful metaphor to illustrate this principle. A field full of brown co
ws is boring. A purple cow violates the viewer’s expectations, which naturally attracts Attention and intere
st. If you design your offer to be Remarkable—unique enough to pique your prospect’s curiosity—it’ll be si


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gnificantly easier to attract attention. SHARE THIS CONCEPT: http://book.personalmba.com/remarkability
/ Probable Purchaser There are 6 billion people on this planet. 99.999% of them would rather not give you
 their money. —HUGH MACLEOD, CARTOONIST AND AUTHOR OF IGNORE EVERYBODY Assuming t
hat everyone in the world cares about what you have to offer is a huge marketing mistake. You may think


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that what you have to offer is the greatest thing since sliced bread—in fact, I hope you do! That doesn’t ch
ange the fact that it’s not right for everyone. Whatever you’re offering, I can guarantee you that most of th
e people in this world don’t—and will never—care about what you’re doing. Harsh but true. Fortunately, yo
u don’t have to appeal to everyone in order to succeed. You just have to attract enough Attention to close


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enough sales to produce enough profit to keep going. To do that, it’s best to focus on attracting the attenti
on of the people who will actually care about what you’re doing. Skilled marketers don’t try to get everyon
e’s attention—they focus on getting the attention of the right people at the right time. If you’re marketing H
arley-Davidson motorcycles, trying to land an appearance on Oprah to show off this year’s new models pr


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obably isn’t the best strategy. Likewise, Oprah’s core audience is not likely to include burly men in leather 
jackets with handlebar mustaches and tattoos, so don’t expect her to pay for a marketing booth at a motor
cycle trade show any time soon. Your Probable Purchaser is the type of person who is perfectly suited to 
what you’re offering. Harley’s most profitable customer is the “weekend warrior”—middle-aged men with d


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isposable income who want to feel powerful and dangerous while cruising around in their spare time. Opr
ah’s Probable Purchasers are middle-aged women who want to improve themselves and enjoy listening t
o intimate confessions and emotional stories. Harley doesn’t try to appeal to Oprah’s Probable Purchaser
s, and vice versa —they each focus on appealing to their specific core audience, to great effect. Attemptin


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g to appeal to everyone is a waste of time and money: focus your marketing efforts on your Probable Purc
haser. By spending your limited resources reaching out to people who are already interested in the types 
of things you offer, you’ll maximize the effectiveness of your attentiongrabbing activities. SHARE THIS CO
NCEPT: http://book.personalmba.com/probablepurchaser/ End Result People don’t buy quarter-inch drills;


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they buy quarter-inch holes. —THEODORE LEVITT, ECONOMIST AND FORMER PROFESSOR AT HA
RVARD BUSINESS SCHOOL Most business opportunity seekers aren’t really interested in the day-to-day
 details and responsibilities of running a business. They buy business books and courses because they w
ant to experience a more prosperous, abundant, and hopeful future. Most drivers don’t buy expensive off-r
oad-capable vehicles because they actually drive off the road. They buy them because off-road capability


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makes them feel adventurous and bold, capable of meeting any driving challenge. Most women don’t buy 
a $20 tube of lipstick for its color alone. They buy it because they believe it will make them more beautiful 
and desirable. Most college students don’t pay hundreds of thousands of dollars to Harvard or Stanford or
 Yale just to sit in a class. They go (or, rather, their parents send them) because they believe they’ll be per


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ceived as sophisticated, intelligent, and powerful after they graduate. Marketing is most effective when it f
ocuses on the desired End Result, which is usually a distinctive experience or emotion related to a Core H
uman Drive. The actual function of the purchase is important, but the End Result is what the prospect is m
ost interested in hearing about. It’s often far more comfortable to focus on the features: you know what yo


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ur offer does. Even so, it’s far more effective to focus on the benefits: what your offer will provide to custo
mers. The End Result is what matters most. By focusing on the End Result, you’re homing in on what will 
cause your prospect to conclude, “This is for me.” SHARE THIS CONCEPT: http://book.personalmba.com
/end-result/ Qualification The product that will not sell without advertising will not sell profitably with adverti


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sing. —ALBERT LASKER, FORMER CEO OF LORD & THOMAS AND PIONEER OF MODERN ADVER
TISING Believe it or not, it’s often wise to turn away paying customers. Not every customer is a good cust
omer: customers who require more time, energy, attention, or risk than they’re worth to your bottom line ar
en’t worth attracting in the first place. Qualification is the process of determining whether or not a prospect


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is a good customer before they purchase from you. By evaluating a prospect before they buy, you can mi
nimize the chance of wasting your time dealing with a customer who’s not a good fit for your business. Pr
ogressive Insurance has turned Qualification into a profitable business strategy. To see Qualification in ac
tion, go to the Progressive Insurance Web site (www.progressive.com) and request a quote for car insura


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nce. When you request a quote, Progressive asks you a set of basic questions: 1. What type of car do yo
u have? 2. Do you own or lease it? If you own it, are you still making payments? 3. What’s your ZIP code?


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4. Are you married? 5. Did you go to college? 6. Have you had any at-fault accidents in the past five year
s? Progressive then uses your answers to gather data from a series of databases to answer two question
s: a. Are you the type of person Progressive wants to insure? b. If so, how much should they charge to ins
ure you? If you’re the type of person Progressive wants as a customer, they’ll quote you a price and enco


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urage you to purchase an insurance policy immediately. If you’re not, Progressive will tell you that you can
 get a better price elsewhere and actively encourage you to purchase insurance from one of their competit
ors. Why in the world would a business encourage a hot prospect to purchase from the competition? As y
ou recall from our previous discussion of Insurance, the profitability of an insurer depends on collecting as


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much money as possible in premiums while paying out as little money as possible in claims. Progressive 
doesn’t want to maximize its total client base: it wants to insure only people who are likely to drive safely a
nd have few accidents, which means attracting customers who will pay premiums for a long time without 
making claims. Qualification allows Progressive to maximize the number of highly profitable customers it i


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nsures while funneling the “bad risks” directly to their competitors. It’s good for customers as well—if they’
re “good risks,” they get lower rates on their car insurance. Screening your customers can help you filter o
ut the bad customers before they do business with you. The more clearly you define your ideal customer, 
the better you can screen out the prospects who don’t fit that description, and the more you’ll be able to fo


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cus on serving your best customers well. SHARE THIS CONCEPT: http://book.personalmba.com/qualifica
tion/ Point of Market Entry There is nothing harder than the softness of indifference. —JUAN MONTALVO
, ESSAYIST Assuming you don’t have a small child and aren’t expecting one any time soon, you probably
 don’t care about diapers, strollers, cribs, infant toys, day care, and Baby Einstein DVDs. Any information


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you’re exposed to about these things is likely to be filtered away by your brain, since it’s not relevant to yo
ur life at the moment. But once you’re expecting a little bundle of joy to enter your life, you suddenly care 
a great deal about these things, and will probably start actively searching for information about them. Befo
re hearing the news, you had no reason to care; now you do. Certain markets have clearly defined entry a


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nd exit points. Learning a newborn is on the way is an example of a Point of Market Entry. Once you know
 you’re expecting, you’re suddenly much more receptive to information about products and services that w
ill help you take care of a child. Attempting to attract the Attention of people who don’t care about what yo
u do is a waste of time, money, and energy, so it’s best to find out when people are interested in hearing f


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rom you before you reach out. Attracting your Probable Purchaser’s Attention immediately after they’ve re
ached the Point of Market Entry is hugely valuable. Companies like Procter & Gamble, Kimberly-Clark, Jo
hnson & Johnson, and Fisher-Price pay an enormous amount of attention to Points of Market Entry, since 
they have a huge impact on the effectiveness of every baby-product-related marketing activity. It’s not unc


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ommon for new moms and dads to come home from the hospital with a complimentary “care package” fro
m one or more of these companies containing samples of diapers, diaper rash ointment, formula, and oth
er newborn-care basics. If you can get a prospective customer’s attention as soon as they become interes
ted in what you’re offering, you become the standard by which competing offers are evaluated. That’s a re


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markably powerful position that increases the likelihood the prospect will ultimately purchase from you. Di
scovering where Probable Purchasers start looking for information after crossing the interest threshold is 
extremely valuable. Before the advent of the Internet, most expecting parents immediately started devouri
ng books and talking to more experienced family and friends. Today, newly minted moms and dads hit the


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Web first, which is why organic and paid search engine marketing is often so valuable. By optimizing for k
ey words your prospective customers are likely to search for, you can ensure that they find you first. SHA
RE THIS CONCEPT: http://book.personalmba.com/point-of-marketentry/ Addressability Sometimes the ro
ad less traveled is less traveled for a reason. —JERRY SEINFELD, COMEDIAN Agood salesman, as the


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old (and politically incorrect) saying goes, can sell a refrigerator to an Eskimo. It’s a cliché, but there’s so
me truth to it: Inuit who live above the Arctic Circle use insulated refrigerators to keep their food from freez
ing in subzero temperatures. The real barrier isn’t need, it’s finding these customers in the first place: mak
ing the sale involves traveling thousands of miles through brutally wild terrain just to get their attention, let


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alone land a sale and deliver the product. 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 do
esn’t want to be reached at all. Yoga is a good example of a highly Addressable market. It’s relatively eas


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y to find places where people are already paying attention to yoga-related information: studios, popular m
agazines like Yoga Journal, conferences, Web sites, etc. Yoga is an $8 billion industry worldwide, and yo
u can tap into some or all of these outlets to help yogis and yoginis learn more about what you have to off


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er. Sensitive or embarrassing topics tend to have low Addressability, even if there’s a huge need. Chronic 
medical conditions are a good example: it’s difficult to find and reach a large group of people who suffer fr
om an uncomfortable and potentially embarrassing condition like psoriasis or ulcerative colitis. People suff
ering from these conditions typically don’t gather in the same place or read the same things, and many wil


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l avoid being publicly identified as sufferers by joining organizations, so it’s hard to find and talk to them di
rectly. Doctors, on the other hand, are more Addressable: they have publicly listed addresses and phone 
numbers and are willing and able to meet with drug company representatives about new offerings. Since 
each doctor sees many patients and acts as a gatekeeper for prescription medications, it’s clear why phar


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maceutical companies spend so much time and money marketing to MDs. The Internet has dramatically i
mproved the Addressability of many markets. People who have a sensitive medical condition are highly lik
ely to search for information anonymously on the Internet, which is Addressable via advertising. Blogs, dis
cussion boards, and databases like WebMD.com make it easier for people who don’t know one another to


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share their experiences and knowledge, making these low-Addressability markets more accessible than 
ever before. Addressability is a huge concern when you are developing a new offer. If you have a choice, i
t’s far better to focus on building something for an Addressable audience than it is to go around and hand 
sell or try to address an audience that is not naturally Addressable or doesn’t want to be addressed. If you


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choose to serve an Addressable market before committing to an offer, it’ll be significantly easier to marke
t your offer without breaking the bank. SHARE THIS CONCEPT: http://book.personalmba.com/addressabi
lity/ Desire BUT I REALLY WANT IT!!! —TWO-YEAR-OLD CHILDREN EVERYWHERE Effective marketi
ng makes your prospect want what you have to offer. In order for a prospect to be willing to pay you perfe


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ctly good money for what you’re offering, they must want what you have. If your marketing activities don’t 
produce some visceral feeling of Desire in your prospects, you’re wasting your time and money. Provokin
g Desire is the part of marketing that makes most people uncomfortable. It’s understandable: pop culture i
s enamored with the image of the marketer as a shadowy master manipulator, hypnotizing the masses int


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o wanting things they don’t really want or need. Nothing could be further from the truth. Here’s the reality: i
t’s almost impossible to make someone want something they don’t already desire. Yes, it’s possible to be 
scammy and manipulative if you misrepresent what you’re offering or promise something you can’t deliver
. Don’t mistake that for brainwashing: the quickest way to waste a multimillion-dollar advertising budget is


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to try to force people to want something they don’t already want. The human mind simply doesn’t work tha
t way—we only purchase what we already desire on some level. The essence of effective marketing is dis
covering what people already want, then presenting your offer in a way that intersects with that preexistin
g Desire. The best marketing is similar to Education-Based Selling (discussed later): it shows the prospect


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how the offer will help them achieve what they desire. Your job as a marketer isn’t to convince people to 
want what you’re offering: it’s to help your prospects convince themselves that what you’re offering will hel
p them get what they really want. So what do people want? We’ve already covered that: the Core Human 
Drives are a starting point that will help you discover what your market wants at the most basic level. The


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more drives you can connect with your offering, the more effective your marketing activities will be. SHAR
E THIS CONCEPT: http://book.personalmba.com/desire/ Visualization When your work speaks for itself, d
on’t interrupt. —HENRY J. KAISER, PIONEER OF MODERN SHIPBUILDING AND FOUNDER OF KAIS
ER PERMANENTE As soon as you step onto the lot of a car dealership, the salesperson you work with h


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as a single, clear objective: convince you to get behind the wheel of a vehicle for a test drive. The test driv
e is used to sell cars all over the world for a very good reason: it works. The test drive is the most effective
 tool a salesperson has to convince you to purchase a car that day. Until you’re actually driving a car, it’s 
much easier to treat a potential purchase in a detached way. You’re capable of rationally comparing make


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s and models, features, and prices. You can convince yourself that you’re “just looking,” with no intention 
of purchasing anything just yet. Once you’re actually behind the wheel of a car, however, the emotional pa
rts of your mind take control. You start to imagine what your life would be like if you owned this vehicle. In
stead of dispassionately comparing horsepower and acceleration metrics, you can actually feel the power


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of the engine and the ease of handling, and you can imagine the respect (or envy) of your neighbors as y
ou pull your attractive new vehicle into the driveway. You’ve stopped comparing and started wanting. Onc
e you start wanting, you’ll probably buy—it’s only a matter of time. B&H Photo Video uses the same strate
gy in a different market. Roaming the aisles of their Manhattan superstore is an intense sensory experienc


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e. You can feel the weight of the camera you’re considering, watch how quickly it focuses, and hear the s
nap of the shutter. Better yet, you can compare the feel of each camera to hundreds of others, all within ar
m’s reach. It’s little wonder B&H is one of the most successful photography retailers in the world—after te


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st-driving a few cameras, it’s extremely difficult to resist the urge to take one home. The most effective wa
y to get people to want something is to encourage them to Visualize what their life would be like once they
’ve accepted your offer. As we’ll discuss later in Mental Simulation, our minds are designed to automatical
ly imagine the consequences of our actions. You can use this natural tendency to your advantage by helpi


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ng your prospects imagine the positive experiences they’ll have. If you encourage your prospects to Visua
lize what their life will look like after purchasing, you increase the probability that they’ll purchase from you
. The best way to help your customers Visualize is to expose them to as much sensory information as pos
sible—the information their mind uses to conclude, “I want this.” SHARE THIS CONCEPT: http://book.per


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sonalmba.com/visualization/ Framing Everything we hear is an opinion, not a fact. Everything we see is a 
perspective, not the truth. —MARCUS AURELIUS, ROMAN EMPEROR AND PHILOSOPHER In a famou
s experiment conducted by psychologists Amos Tversky and Daniel Kahneman, participants were asked t
o make a decision about administering medical treatment to a sick population of six hundred people. Parti


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cipants in the study were given two options: Treatment A would save two hundred lives. Treatment B had 
a 33 percent chance of saving all six hundred people and a 66 percent possibility of saving no one. Treat
ment A and Treatment B are mathematically identical—statistically, there’s no difference in the expected o
utcome. The results, however, revealed a clear psychological preference: 72 percent of participants chose


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Treatment A, while 28 percent of the participants chose Treatment B. The experiment was then repeated 
with two different treatment options. Treatment C would result in four hundred deaths. Treatment D had a 
33 percent chance that no one would die, but a 66 percent probability that all six hundred would die. Parti
cipants overwhelmingly preferred Treatment D, 78 percent to 22 percent. What’s interesting to note is that


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Treatments A and C are also statistically identical, but A was overwhelmingly preferred while C was not. 
Contemplating lives saved with fatalities significantly altered the preferences of the people making decisio
ns, even though the expected outcomes were exactly the same. We’ll explore one of the reasons for this 
preference in Loss Aversion (discussed later), but for now, let’s focus on how the emphasis of the various


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messages changed the results. Framing is the act of emphasizing the details that are critically important w
hile de-emphasizing things that aren’t, by either minimizing certain facts or leaving them out entirely. Prop
er use of Framing can help you present your offer persuasively while honoring your customer’s time and a
ttention. Framing is a natural part of communication: some form of compression in any message is inevita


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ble. It’s simply not practical to include all of the facts and context when communicating with others—we e
mphasize some details and leave out others to save time. We Frame because we have to: otherwise, it w
ould take a huge amount of time to communicate even the simplest information to other people. It would t
ake two hours to order a pizza, as you told the person at the other end of the line not only the size and top


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pings you wanted, but how you got their phone number and why on this particular evening you were in the
 mood for a slice as opposed to, say, General Tso’s chicken. Since Framing is an ever-present part of co
mmunication, it pays to be conscious of it. By being mindful of what you’re emphasizing and what you’re 
minimizing, you can communicate the benefits of your offer to your prospects in a clear and concise way,


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which maximizes your persuasive power. Framing is not the same as lying or being deceitful. Honesty is a
lways the best policy, and not just from a moral perspective. Misrepresenting your offer may net a few mor
e sales in the short term, but it dramatically increases the probability that your customer’s expectations wil
l be violated, decreasing their satisfaction and permanently harming your Reputation. (See the Expectatio


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n Effect.) Using Framing to your advantage will allow you to communicate the benefits of your offer to you
r Probable Purchasers persuasively, as long as you don’t leave out information that your customers have 
a right to know. SHARE THIS CONCEPT: http://book.personalmba.com/framing/ Free To charge nobody 
nuthin’ is a guarantee of no profit. Getting attention is not the same as getting paid. —JOSEPH FERRAR


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A, INTELLECTUAL PROPERTY ATTORNEY If you want to attract Attention quickly, give something valua
ble away for Free. People love the promise of getting something for nothing. You’ve probably seen Free s
amples of food being given away at the supermarket, or received an offer to try a product or service for a 
certain time at no obligation. Chances are, at least a few of those free offers have led you to purchase mo


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re. Offers of Free value continue to exist because they work—the Free value is subsidized by the addition
al sales that are made because of the offer. I started my teaching and consulting business by giving away 
my research and writing for Free on my Web site. As a result, hundreds of thousands of people find (or ar
e referred to) the Personal MBA, benefit from the information, and come to trust me as a useful resource.


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More often than not, they give me permission to continue providing even more useful Free information via 
e-mail. Periodically, I offer to meet with prospective consulting customers by phone for Free—there’s no o
bligation whatsoever on their part, and I don’t hold anything back. Every time I make this offer, I receive h


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undreds of inquiries and meet many new and interesting people. A good percentage of the people who ac
cept a “free sample” become paying customers, making “Free” the foundation of my teaching and consulti
ng business. More often than not, offering genuine Free value is a quick and effective way to attract attent
ion. By giving your prospects something useful at no cost up front, you earn their attention and give your p


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otential customers a chance to actually experience the value you provide. Done well, this strategy will net 
you sales you wouldn’t have made otherwise. Giving Free value attracts attention, but always remember t
hat attention alone doesn’t pay the bills. The siren song of “going viral” encourages many business owner
s to continually give away too much in an effort to chase attention over establishing and improving the pro


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fit-generating parts of their business. Attention is necessary to attract paying customers, but if that attentio
n never leads to sales, it won’t sustain your business. For best results, focus on giving away real Free val
ue that is likely to attract real paying customers. SHARE THIS CONCEPT: http://book.personalmba.com/fr
ee/ Permission Selling to people who actually want to hear from you is more effective than interrupting str


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angers who don’t. —SETH GODIN I just did the unthinkable: I actually opened the spam folder in my e-m
ail account. The folder contained 1,555 unread messages, most of which were some variant of: “Hot Russ
ian babes want to chat with YOU!” “Buy Viagra Online!” “Eliminate hair loss instantly!” I didn’t ask for any 
of these e-mails—the spammers just sent them, without considering whether or not I wanted them. I have


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absolutely no interest in chatting with “hot Russian babes,” I have no use for black-market Viagra, and I ac
tually like being bald. How likely am I to read these messages, let alone respond to them? Not likely at all
—on the contrary, I’ll go out of my way to avoid paying Attention to them, and it’ll be a cold day in hell befo
re I purchase what they’re pushing. Unfortunately, many businesspeople assume that the spam approach


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is the best way to get Attention. Unsolicited phone calls, press releases, massmarket advertising, and “res
ident”-addressed direct mail are the most common legal equivalents of spam: blanketing a huge, undiffere
ntiated group of people with a standard message in the hopes that a tiny fraction will respond. In the early 
days of television and radio advertising, commercial interruptions actually worked. When there were only t


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hree channels, people were more likely to actually pay Attention during the commercials. By purchasing a 
single thirty-second prime-time advertising slot on each of the three major networks, you could reach 90 p
ercent of the television-watching population in a single day. Now, people have the ability to filter out anythi
ng they don’t want to pay Attention to, either by ignoring the offending message or by shifting their Attenti


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on to something else. The moment you start talking about something your prospects don’t care about, the
y’re gone. Asking for Permission to follow up after providing Free value is more effective than interruption.
 Offering genuine value earns your prospect’s Attention, and asking for Permission gives you the opportun
ity to focus on communicating with people you know are interested in what you have to offer. Permission i


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s a real asset. Reaching new people tends to be difficult and expensive. It’s far easier to follow up with so
meone you already know—all it takes is an e-mail, a letter, or a phone call, all of which are easy and inex
pensive. If you ask the new prospects you meet for Permission to follow up, you’re making the most of yo
ur outreach activities. The best way to get Permission is to ask for it. Whenever you provide value to peop


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le, ask them if it’s okay to continue to give them more value in the future. Over time, your list of prospectiv
e customers will grow, and the larger it grows, the higher the likelihood you’ll start landing more sales. Us
e Permission once you have it, but don’t abuse the privilege. Getting Permission to follow up never gives 
you carte blanche to send them anything you like. Before asking your prospects for Permission to follow u


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p, make it clear what they’ll be getting and how it’ll benefit them. If you honor your commitments by contin
ually providing value and refraining from spamming your prospects with irrelevant information, you’ll have 
a powerful asset that can help you build a deeper relationship with the people who are interested in what 
you’re offering. SHARE THIS CONCEPT: http://book.personalmba.com/permission/ Hook If you can do it,


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it ain’t braggin’. —DIZZY DEAN, HALL OF FAME BASEBALL PLAYER Complicated messages are ignore
d or forgotten. Your Probable Purchasers are busy—they don’t have time to pay Attention to all of the info
rmation assaulting them every day. If you want people to remember who you are and what you’re offering,
 you have to grab their Attention and hold it—all in a matter of seconds. A Hook is a single phrase or sent


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ence that describes an offer’s primary benefit. Sometimes the Hook is a title, and sometimes it’s a short ta
gline. Regardless, it conveys the reason someone would want what you’re selling. A classic example of a 
Hook in the publishing world is the title of Timothy Ferriss’s book, The 4-Hour Workweek. This short title i
mplies several intriguing benefits: (1) four hours is a lot less than most people work, and most people wou


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ld like to work less; (2) you can potentially earn as much in four hours a week as in forty-plus hours a wee
k; (3) if you’re not working so much, you could do other cool things with your time. That’s not bad at all for 
four short words. When paired with the book’s cover image of a guy relaxing in a hammock on a tropical b


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each, the title goes a long way in convincing people to purchase and read the book. Apple used a Hook fo
r the launch of the iPod: “1,000 songs in your pocket.” At the time, portable music players consisted of bul
ky CD and cassette players, and advertising for early MP3 players focused on geekspeak: megabytes of 
disk space. Apple’s Hook highlighted the primary benefit: instead of carrying around hundreds of tapes or


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CDs, you could carry your entire music collection in one elegant device. Apple’s five-word tagline worked 
wonders. In a little under a year, 236,000 first-generation iPods were sold—an astounding start, consideri
ng this was the company’s first foray into the portable music category. The Hook grabbed Attention, and t
he quality of the product closed the sale. When creating a Hook, focus on the primary benefit or value you


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r 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. Crafting a Hook is a creative exercise—the more potential options you
 generate, the more quickly you’ll find one that works. Once you’ve created your Hook, use it! Place it on y


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our Web site, your advertising, your business cards—make it one of the first things potential customers se
e. The Hook grabs Attention, and the remainder of your marketing and sales activities close the deal. The 
better your Hook, the more Attention you’ll grab, and the easier it’ll be for your satisfied customers to tell t
heir friends about you. SHARE THIS CONCEPT: http://book.personalmba.com/hook/ Call-to-Action (CTA)


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Don’t make me think. —STEVE KRUG, USABILITY EXPERT Attracting a prospect’s Attention doesn’t hel
p if they disappear: if you want to make a sale, you need to direct your prospects to take some kind of acti
on. Your prospects can’t read your mind. If you want your prospects to take the next step you’re encourag
ing, you need to tell them exactly what to do. The most effective marketing messages give the recipient or


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prospect a single, very clear, very short action to take next. Think about a roadside billboard that says so
mething like “Tony’s Hamburgers are the best.” What will people who see that message do? Nothing, pro
bably. In all likelihood, the billboard is a waste of time and money. Give them a Call-To-Action such as “Ta
ke exit 25 and turn right for the best burgers in town,” and soon Tony will be serving more hamburgers to


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hungry travelers. A Call-To-Action directs your prospects to take a single, simple, obvious action. Visit a 
Web site. Enter an e-mail address. Call a phone number. Mail a self-addressed stamped envelope. Click 
a button. Purchase a product. Tell a friend. The key to presenting an effective Call-To-Action is to be as cl
ear, simple, and obvious as you possibly can. The more clearly you present your proposal, the higher the


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probability your prospect will actually do what you suggest. If you’re encouraging someone to enter their e
-mail address to sign up for a newsletter, say that verbatim multiple times, and make it immediately clear 
WHERE the e-mail address field is, WHY they should fill it out, WHAT to click once they’ve entered their e
-mail, and WHAT they can expect to happen when they do. If you think you’re being too obvious, you’re d


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oing it right. The best Calls-To-Action ask directly either for the sale or for Permission to follow up. Making
 direct sales is optimal, since it makes it easy to figure out whether or not your marketing activities are cos
t-effective. Asking for Permission is the next best thing, since it allows you to follow up with your prospects
 over time, dramatically decreasing your marketing costs and increasing the probability of an eventual sal


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e. Ensure that every message you create has a clear Call-To-Action, and you’ll dramatically increase the 
effectiveness of your marketing activities. SHARE THIS CONCEPT: http://book.personalmba.com/call-to-
action/ Narrative A tale in everything. —WILLIAM WORDSWORTH, POET Since the dawn of history, peo
ple have been telling stories. Telling stories is a universal human experience, and stories have always be


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en used in the conduct of trade. A good story will make even the best offer even better. Most compelling 
Narratives around the world follow a common format. The world-renowned mythologist Joseph Campbell 
called this prototypical storyline “The Hero’s Journey” or the “monomyth.” People all over the world respon
d very strongly to this story motif, and you can use this basic format to craft and tell your own stories. The


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Hero’s Journey begins by introducing the Hero: a normal person who is experiencing the trials and tribulat
ions of everyday life. The Hero then receives a “call to adventure”: a challenge, quest, or responsibility tha
t requires them to rise above their normal existence and hone their skills and abilities in order to prevail. 
When the Hero accepts the call, they depart their normal experience and enter into a world of uncertainty


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and adventure. A series of remarkable experiences initiates them into the new world, and the Hero underg
oes many trials and learns many secrets in the pursuit of ultimate success. After persevering in the face of
 adversity and vanquishing the foe, the Hero receives a mighty gift or power, then returns to the normal w
orld to share this knowledge, wisdom, or treasure with the people. In return, the Hero receives the respect


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and admiration of all. Your customers want to be Heroes. They want to be respected and admired by all, t
o be powerful, successful, and determined in the face of adversity. They want to be inspired by the trials a
nd tribulations of other people who have come before and vanquished the foe. Telling a story about peopl


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e who have already walked the path your prospects are considering is a powerful way to make them inter
ested in proceeding. Testimonials, case studies, and other stories are extremely effective in encouraging 
your prospects to accept your “call to adventure.” By telling stories about the customers who have come b
efore, you grab your prospect’s Attention and show them a path to achieve what they want. The more vivi


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d, clear, and emotionally compelling the story, the more prospects you’ll attract. Tell your prospective cust
omers the stories they’re interested in hearing, and you’ll inevitably grab their Attention. SHARE THIS CO
NCEPT: http://book.personalmba.com/narratives/ Controversy If you want an audience, start a fight. —IRI
SH PROVERB Controversy means publicly taking a position that not everyone will agree with, approve of,


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or support. Used constructively, Controversy can be an effective way to attract Attention: people start talk
ing, engaging, and paying Attention to your position, which is a very good thing. The Personal MBA itself i
s a good example of the power of positive Controversy. The Personal MBA is about fundamental business
 principles —what you need to understand about business in order to succeed. I firmly believe that anyon


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e can learn whatever they need to know about business independently, without mortgaging their future ea
rnings by enrolling in a traditional MBA program. Some people vehemently disagree with that position—pa
rticularly graduates of Ivy League business school programs. MBA graduates and candidates are often qu
ite vocal in their disagreement, which usually takes the form of denouncing the Personal MBA approach to


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business education on their own Web sites or publicly disagreeing with me by leaving comments on my 
Web site. That’s not a bad thing: this consistent level of mild Controversy has allowed the Personal MBA t
o grow year after year without paid advertising. By making their thoughts known, the Personal MBA’s detr
actors are spreading the word to people who may not have been aware that there are alternatives to tradit


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ional business school programs. The Controversy leads many new people to investigate and examine the 
Personal MBA and make up their own minds about its usefulness. More than a few of them stick around, r
ead my Free content, then decide to purchase a book, take a course, or hire me as a consultant. As long 
as my detractors keep things civil, I welcome the disagreement. It’s okay to have an opinion and take a str


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ong stand. Everyone has a natural tendency to want other people to like them, and disagreement is often 
uncomfortable. In an effort to be unobjectionable, it’s easy to water down your opinions to the point where 
they offend no one. If your position is agreeable to everyone, it becomes so boring that no one will pay Att
ention to you. It’s okay to support a position that not everyone else supports. It’s okay to disagree with so


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meone, or to call someone out, or to position yourself against something, because Controversy provokes 
a discussion. Discussion is Attention, which is a very good thing if you want to attract people who will ben
efit from what you’re doing. That’s not to say all Controversy is good Controversy: there’s a fine line betwe
en being constructively controversial and creating a soap opera. Controversy with a purpose is valuable;


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Controversy for the sake of Controversy, or Controversy that belittles and demeans, is not. Controversy w
on’t help you if you lose sight of the purpose behind your actions. As long as you’re able to maintain a sen
se of the bigger picture of how you’re trying to help, creating a bit of Controversy can be a very effective to
ol in encouraging people to seek out more information about what you’re doing. SHARE THIS CONCEPT:


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http://book.personalmba.com/controversy/ Reputation Like it or not, the market’s perception becomes yo
ur reality. —HOWARD MANN, ACTOR AND COMEDIAN In my opinion, “branding” is one of the most ove
rused and overhyped ideas in the modern business world. There’s nothing magical or complex about build
ing a brand: when business professionals say they want to “enhance their brand” or “build brand equity,” t


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hey almost always mean “improve their reputation.” Reputation is what people generally think about a part
icular offer or company. Reputations naturally arise whenever people talk to one another. Some products 
and services are worth the price; others are not. Some experiences are worth having; others are not. Som
e people are good to work with; others are not. No one wants to waste their time or money, so people pay


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very close attention to what others say about things they’re interested in. Building a strong Reputation is 
hugely valuable: people are often willing to pay a premium for a good Reputation. One of the reasons well
-known consumer brands like Tide and Crest can continue to charge premium prices in near-commodity c
ategories is the strength of their Reputation. Potential customers want to feel certain that the purchase the


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y’re considering will benefit them, that others will think highly of their decision, and that they won’t be wasti
ng their money. As the venerable corporate saying goes, “no one ever got fired for buying IBM.” It’s import
ant to note that your Reputation is not directly under your control —it’s the sum total of what others think a
bout everything you do: the products you release, the advertising you promote, the customer service you


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provide. No matter how hard you try, you can’t directly “manage” your Reputation—you can only try to imp
rove it over time by making people glad they chose to do business with you. Always remember that the m
arketplace is the final arbiter of your Reputation, and that it’s always watching what you do. When you buil


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d a great Reputation, your customers will continue to do business with you and will refer you to others bec
ause they think highly of you (and because referring friends to good products and services is a way to buil
d their own Reputations). Building your Reputation takes time and effort, but it’s the most effective kind of 
marketing there is. SHARE THIS CONCEPT: http://book.personalmba.com/reputation/ 4 SALES People d


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on’t like to be sold, but they love to buy. —JEFFREY GITOMER, AUTHOR OF THE SALES BIBLE AND T
HE LITTLE RED BOOK OF SELLING Every successful business ultimately sells what it has to offer. Havi
ng millions of prospects isn’t enough if no one ultimately pulls out their wallet and says, “I’ll take one.” The
 sales process begins with a prospect and ends with a paying customer. No sale, no business. The best b


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usinesses in the world earn the trust of their prospects and help them understand why the offer is worth p
aying for. No one wants to make a bad decision or be taken advantage of, so sales mostly consists of hel
ping the prospect understand what’s important and convincing them you’re capable of actually delivering 
on what you promise. The end of the sales process is an excited new customer and more cash in the ban


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k. SHARE THIS CONCEPT: http://book.personalmba.com/sales/ Transaction 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 ATransaction is an exchange of v
alue between two or more parties. If I have something you want and you have something I want, we’d bot
h be better off if we agreed to trade. The Transaction is the defining moment of every business. Sales are


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the only point in the business cycle where resources flow into the business, which makes completing Tran
sactions critically important. Businesses survive by bringing in more money than they spend, and there’s n
o way to do that without completing Transactions. You can only transact with things that are Economically
 Valuable. If you don’t have anything your prospective customers want, they won’t buy from you. This may


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seem obvious, but it’s amazing how many prospective businesspeople enter the market without somethin
g the market wants. That’s why developing and testing a Minimum Economically Viable Offer (MEVO) is s
o important: it’s the best way to determine whether or not you’ve created something valuable enough to s
ell before you invest your life savings. When you’re starting a new business, the object is to get to the poin


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t where you make your first profitable Transaction as quickly as you possibly can, because that’s the point
 where you transition from being a project to being a business. The examples/concepts in this chapter will 
help you create profitable Transactions that both parties are happy with. SHARE THIS CONCEPT: http://b
ook.personalmba.com/transaction/ Trust The secret of life is honesty and fair dealing. If you can fake that,


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you’ve got it made. —GROUCHO MARX Here’s a proposal: send me a certified bank check for $100,000
 right now, and in ten years I’ll give you the keys to a brand-new, ten-thousand-squarefoot villa on Italy’s A
malfi Coast. You can’t see any example villas, you won’t hear from me again until the villa is ready, and th
ere are absolutely no refunds. Deal? Unless you’re an extremely trusting soul with cash to burn, probably


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not. After all, how can you be sure I can actually build you a seaside mansion for such a paltry sum? How 
can you be sure I won’t just take the money and disappear? You can’t, which is why you shouldn’t cut me 
(or anyone else) a check for a villa on the Mediterranean you’ve never seen. Let’s reverse the situation: le
t’s assume I’m capable of building this villa, and you’re interested in purchasing one. Would it be smart for


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me to purchase land, break ground, and start building before I’m sure you actually have the money to pay
 for it? Probably not—if the deal falls through, I’d have to find another customer or eat the cost. Without a 
certain amount of Trust between parties, a Transaction will not take place. No matter what promises are 
made or how good the deal sounds, no customer is going to be willing to part with their hard-earned mone


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y unless they believe you’re capable of delivering what you promise. Likewise, it’s usually not smart to acc
ept credit or IOUs from customers you don’t know. Building a trustworthy Reputation over time by dealing 
fairly and honestly is the best way to build Trust. You can also take steps to signal you’re trustworthy: org
anizations like the Better Business Bureau, credit and background check services, and financial arrangem


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ents like escrow accounts exist to help overcome an initial lack of Trust between parties in a Transaction. 
These offerings break down an important mutual barrier to completing a sale: without these services, man
y Transactions would never take place. The easier it is to demonstrate your trustworthiness and verify that
 the other party is trustworthy, the greater the chance of a successful Transaction. SHARE THIS CONCE


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PT: http://book.personalmba.com/trust/ Common Ground A compromise is the art of dividing a cake in suc
h a way that everyone believes he has the biggest piece. —LUDWIG ERHARD, POLITICIAN AND FORM
ER CHANCELLOR OF WEST GERMANY Common Ground is a state of overlapping interests between tw
o or more parties. Think of your available options as a circle that surrounds you. Your prospects have a cir


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cle of available options as well. Your job is to find exactly where those circles overlap, which is much easi
er if you understand what your Probable Purchasers want or need. Consider the job you’re currently in, or


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the last one you held. Chances are, you accepted that job because you were willing to take on certain res
ponsibilities, and your employer was interested in having you do the work. You were interested in being p
aid a certain amount, and your employer was willing to pay you at least that much. Your interests overlapp
ed, which resulted in a job offer and a paid position at the company. That’s Common Ground. The same t


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hing happens every time you purchase something from a retailer. They have a product you want to own; y
ou have a certain amount of money they are willing to accept for the product. If you don’t want the product
 or the retailer wants more than you’re willing to pay, no Transaction will take place. Common Ground is a 
precondition of any type of Transaction. Without any areas of overlapping interest, there’s no reason for a


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prospect to choose to work with you. After all, it wouldn’t make sense to pay more for something than it’s 
worth to you. Why expect your prospects to accept your offer if it’s not in their best interest? Aligning inter
ests is critical to finding Common Ground. Sales isn’t about convincing somebody to do something that’s 
not in their best interest. Ideally, you should want exactly what your prospects want: the satisfaction of thei


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r desire or the resolution of their problem. The more your interests are aligned with your prospect’s, the m
ore they’ll Trust your ability to give them what they want. There are always many paths to a successful Tr
ansaction, which is the essence of negotiation. 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 o


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ne in which your interests overlap. The more open you are to potential options, the higher the likelihood y
ou’ll find an area of Common Ground that’s acceptable for all parties involved. SHARE THIS CONCEPT: 
http://book.personalmba.com/common-ground/ Pricing Uncertainty Principle Everything you want in life ha
s a price connected to it. There’s a price to pay if you want to make things better, a price to pay just for lea


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ving things as they are, a price for everything. —HARRY BROWNE, AUTHOR OF FAIL-SAFE INVESTIN
G One of the most fascinating parts of Sales is what I call the Pricing Uncertainty Principle: all prices are a
rbitrary and malleable. Pricing is always an executive decision. If you want to try to sell a small rock for $3
50 million, you can. If you want to quadruple that price or reduce it to $0.10 an hour later, there’s absolutel


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y nothing stopping you. Any price can be set to any level at any time, without limitation. The Pricing Uncer
tainty Principle has an important corollary: you must be able to support your asking price before a custom
er will actually accept it. In general, people prefer to pay as little as possible to acquire the things they wa
nt (with some notable exceptions, which we’ll discuss later in Social Signaling). If you expect people to pa


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y you perfectly good money to buy what you’re offering, you must be able to provide a Reason Why the of
fered price is worth paying. It’s difficult to support a price of $350 million for a rock—unless that rock is the
 Hope Diamond, a 45.5-carat deep-blue diamond with a long and distinguished history. The Hope Diamon
d is currently owned by the Smithsonian National Museum of Natural History and is not for sale. If the Smi


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thsonian decided to sell the Hope Diamond, however, they could easily set an asking price of $1 billion. W
hat’s to stop them? 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 sp
end. By setting a low starting price and allowing potential buyers to bid against one another, auctions are t


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ypically an efficient way to establish a true market price for something that is difficult to reproduce and wh
ere 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. The most expensive diamond ever sold was the rough 507.5-carat C
ullinan Heritage diamond, which went for $35.3 million at auction.1 Not bad for a rock. SHARE THIS CON


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CEPT: http://book.personalmba.com/pricinguncertainty-principle/ Four Pricing Methods Money is better th
an poverty, if only for financial reasons. —WOODY ALLEN, COMEDIAN, SCREENWRITER, AND DIREC
TOR Let’s assume for a moment you own a house you’re willing to sell. The Pricing Uncertainty Principle 
says the price could be anything—you have to set it yourself, since houses don’t come with built-in price t


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ags. Let’s also assume you’d prefer to sell the house for as much as possible. How would you go about s
etting the largest price a customer will actually accept? There are four ways to support a price on somethi
ng 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 pot


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entially worth to your customers. The Replacement Cost method supports a price by answering the questi
on “How much would it cost to replace?” In the case of the house, the question becomes “What would it c
ost to create or construct a house just like this one?” Assume a meteorite scored a direct hit on the house,
 and there’s nothing left —you have to rebuild the house from scratch. What would it take to purchase simi


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lar land, pay for an architect to draw up plans, acquire identical materials, and hire construction workers to
 create exactly the same house? Total up these costs, add a bit of margin to compensate for your time an
d effort, and you’ll have a supportable estimate of how much your house is worth. Applied to most offers,


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Replacement Cost is typically a “cost-plus” calculation: figure out how much it costs to create, add your de
sired markup, and set your price appropriately. The Market Comparison method supports a price by answ
ering the question “How much are other things like this selling for?” In the case of the house, this question
 becomes “How much have houses like this, in this general area, sold for recently?” If you look at the surr


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ounding area, there are probably a few other houses similar to the one you own that have been sold withi
n the past year. They’re probably not exactly the same (maybe they have an extra bedroom or bathroom, 
a little less square footage, etc.) but they’re close enough. After you adjust for the differences, you can us
e the sale prices of those “comparable” houses to create a supportable estimate of how much your house


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is worth. Market Comparison is a very common way to price offers: find a similar offer and set your price r
elatively close to what they’re asking. The Discounted Cash Flow (DCF) / Net Present Value (NPV) metho
d 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 re


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nted it for a period of time, and how much is that series of cash flows worth as a lump sum today?” Rent p
ayments come in every month, which is quite handy: you can use the DCF/NPV formulas2 to calculate wh
at that series of payments over a certain period of time would be worth if you received it in one lump sum. 
By calculating the NPV of the house assuming you could rent it for $2,000 a month for a period of ten year


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s with 95 percent occupancy and you could earn 7 percent interest on your money by choosing the Next B
est Alternative, you’ll have a supportable estimate of what the house is worth. DCF/NPV is only used for p
ricing things that can produce an ongoing cash flow, which makes it a very common way to price business
es when they’re sold or acquired—the more profit the business generates each month, the more valuable


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the business is to the purchaser. The Value Comparison method supports a price by answering the questi
on “Who is this particularly valuable to?” In the case of the house, this question becomes “What features o
f this house would make it valuable to certain types of people?” Let’s assume the house is in an attractive,
 safe neighborhood with a top-tier public school nearby. These characteristics would make the house mor


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e valuable to families who have school-age kids, particularly if they want to attend that school. To potentia
l home buyers in the market, this particular house would be more valuable than the same house in an are
a with inferior schools. Here’s another example: assume Elvis Presley previously owned the house. To ce
rtain types of people—wealthy people who love Elvis—this house would be extremely valuable. Elvis’s pre


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vious involvement with the property could easily triple or quadruple the price you’d be able to support via t
he replacement, market comparison, or DCF/NPV methods. By looking at the unique characteristics of wh
at you’re offering and the corresponding worth of those characteristics to certain individuals, you can often
 support much higher prices. Value Comparison is typically the optimal way to price your offer, since the v


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alue of an offer to a specific group can be quite high, resulting in a much better price. Use the other metho
ds as a baseline, but focus on discovering how much your offer is worth to the party you hope to sell it to, 
then set your price appropriately. SHARE THIS CONCEPT: http://book.personalmba.com/4-pricingmetho
ds/ Value-Based Selling Price is what you pay. Value is what you get. —WARREN BUFFETT Imagine tha


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t you provide an ongoing service to a Fortune 50 corporation that increases their annual revenues by $10
0 million. Is your service worth $10 million a year? Sure—after all, what company would give up $90 millio
n in ongoing revenue? Does it matter if providing this valuable service doesn’t cost you much money? Abs
olutely not—even if it only costs you a hundred dollars a year to provide the service, you’re providing a hu


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ge amount of value, which supports the comparatively high price. Does it matter if most business-to-busin
ess services cost $10,000 or less? Absolutely not—you’re providing much more value than other services 
in the market, which completely justifies a higher price. Value-Based Selling is the process of understandi
ng and reinforcing the Reasons Why your offer is valuable to the purchaser. In the previous section, we di


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scussed how the Value Comparison method is often the best way to support a high price on your offer. Va
lue-Based Selling is how you support that price. By understanding and reinforcing the Reason Why a Tran
saction will be valuable to the customer, you simultaneously increase the likelihood of a Transaction as w
ell as the price the buyer will be willing to pay. Value-Based Selling is not about talking—it’s about listenin


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g. When most people think of sales, they imagine a pushy, smooth-talking shyster whose sole priority is to
 “close the deal.” Emulating shady used car dealers is the fastest way to destroy Trust and give your pote
ntial customers the impression that you care more about your bottom line than about what they want. In re
ality, the best salespeople are the ones who can listen intently for the things the customer really wants. As


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king good questions is the best way to identify what your offer is worth to your prospect. In the classic sale
s book SPIN Selling, Neil Rackham describes the four phases of successful selling: (1) understanding the 
situation, (2) defining the problem, (3) clarifying the short-term and longterm implications of that problem,


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and (4) quantifying the need-payoff, or the financial and emotional benefits the customer would experienc
e after the resolution of their problem. Instead of barging in with a premature, boilerplate hard sell, succes
sful salespeople focus on asking detailed questions to get to the root of what the prospect really wants. By
 encouraging your prospects to tell you more about what they need, you reap two major benefits. First, yo


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u increase the prospect’s confidence in your understanding of the situation, increasing their confidence in 
your ability to deliver a solution. Second, you’ll discover information that will help you emphasize just how 
valuable your offer is, which helps you in Framing the price of your offer versus the value it will provide. If 
you discover why, how, and how much your offer will benefit the customer, you’ll be able to explain that va


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lue in terms they’ll understand and appreciate. Understanding the value you can provide your customers i
s the golden path to a profitable sale. SHARE THIS CONCEPT: http://book.personalmba.com/value-base
dselling/ Education-Based Selling Upgrade your user, not your product. “Value” is less about the stuff and 
more about the stuff the stuff enables. Don’t build better cameras—build better photographers. —KATHY 
SIERRA, AUTHOR AND COCREATOR OF THE HEAD FIRST SERIES OF BOOKS Before moving to Col


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orado, my wife, Kelsey, was the sales manager of the Mark Ingram Bridal Atelier in New York City, the mo
st prestigious bridal salon in the world. Her job was to help brides from around the world find “The One”—t
he perfect dress for their dream wedding. Mark Ingram is the Martha Stewart of the bridal industry—his se
nse of style is legendary. Gowns by Oscar de la Renta, Monique Lhuillier, Lela Rose, and Vera Wang pop


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ulate his collection. Mark’s consultants are so skilled that one of the first three gowns they present is almo
st always the gown the bride chooses for her wedding. In addition, the shopping experience and customer
 service are superb—Mark doesn’t discount, but brides would rather work with him than purchase their go
wn from a competitor, even though it’d be less expensive. Compared with most bridal salons, the Mark In


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gram Bridal Atelier sells very high-end gowns. The average sale price of a gown at Mark’s atelier is $6,00
0—four times the national average. To make the sale, Mark’s consultants must help the bride (and her par
ents, who often pay the bill) understand why the gown is worth the price. It’s certainly possible to purchas
e a less expensive gown from another salon, but cheaper gowns cut corners: they use lower-quality fabric


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s, skimp on construction, and use machined lace or beading. Also, alterations are necessary to ensure th
at the gown fits the bride perfectly. Mark’s team of bridal seamstresses is the best in the world, and you c
an only work with them if you purchase a gown from Mark’s atelier. If you care about these things—and m
ost fashion-conscious brides certainly do—it’s easy to see why it’s worth it to purchase a gown from Mark


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if you can afford to. Education-Based Selling is the process of making your prospects better, more informe
d customers. As a sales consultant, Kelsey worked to do two things: (1) make the bride feel comfortable a
nd relaxed, then (2) help the bride become more knowledgeable about gowns in terms of how they are m
ade and what to look for when buying one. Instead of pressuring the bride to “close the sale,” Kelsey alwa


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ys took the time to explain the ins and outs of fabric, lace, beading, construction, and alterations to the bri
de and her family. She invested time in making her brides more knowledgeable, and this made them more
 likely to purchase an expensive dress from her, both because they had learned to fully appreciate the qu
ality of what she was selling and because she had earned their Trust. Education-Based Selling requires a


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n up-front investment in your prospects, but it’s worth it. By investing energy in making your prospects sm
arter, you simultaneously build Trust in your expertise and make them better customers. Be forewarned, h
owever, that effective education requires your offer to be superior in some way to your competitors’—othe
rwise, you’ll be sending customers away. All the more reason to ensure that you have an offer worth sellin


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g. SHARE THIS CONCEPT: http://book.personalmba.com/education-basedselling/ Next Best Alternative 
When others sense your willingness to walk away, your hand is strengthened . . . Sometimes you are bett
er off not getting to yes. —ROBERT RUBIN, FORMER U.S. SECRETARY OF THE TREASURY When ne
gotiating, it’s always useful to know what the other party is likely to do in the event that an agreement can’


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t be reached. Sometimes, it’s just not possible to reach an agreement—there’s no Common Ground, so b
oth parties agree to go their separate ways. What then? Your Next Best Alternative is what you’ll do in the
 event you can’t find Common Ground with the party you’re negotiating with. Imagine you’re looking for a j
ob, and there are three companies interested in hiring you. You may prefer to work at Company A, but if y


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ou can’t reach a mutually acceptable agreement, it’s easier to be a confident negotiator if you know that C
ompanies B and C are also interested in hiring you. If Company A is your only option and they know it, yo
u’re not likely to get a good deal. The other party always has a Next Best Alternative as well—that’s what 
you’re negotiating against. If you’re selling a product that costs $100, you are selling against the next best


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thing that they could do with that $100: saving, investing, or purchasing something else. If you’re trying to
 hire an employee, you’re competing against the next best offer they have from another company. The mo


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re options the other party has, the weaker your negotiating position. Understanding the other party’s Next 
Best Alternative gives you a major sales advantage: you can structure your agreement so it’s more attracti
ve than their next best option. The more you know about the other party’s alternatives, the more attractivel
y you can Frame your total offer by Bundling/ Unbundling various options. Having a strong Next Best Alter


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native keeps negotiations moving quickly. Many professional sports players who are approaching free age
ncy use the opportunity to renegotiate or renew their contracts with their current teams, particularly if other
 teams express interest in them. If the original team doesn’t want to lose the player, they have an incentiv
e to reach an acceptable deal quickly. In every negotiation, the power lies with the party that is able and w


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illing to walk away from a bad deal. In almost every case, the more acceptable alternatives you have, the 
better your position. The more attractive your alternatives, the more willing you’ll be to walk away from a d
eal that doesn’t serve you, resulting in better deals. SHARE THIS CONCEPT: http://book.personalmba.co
m/next-bestalternative/ Three Universal Currencies Time will take your money, but money won’t buy time.


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—JAMES TAYLOR, MUSICIAN In every negotiation, there are Three Universal Currencies: resources, ti
me, and flexibility. Any one of these currencies can be traded for more or less of the others. Resources ar
e tangible items like money, gold, oil, etc. Resources are physical: you can hold them in your hand. If you 
want to buy some furniture, you can offer money in exchange. If you’re selling your car, the purchaser cou


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ld (with your agreement) give you a bar of gold or a mint first-edition issue of Action Comics #1, which feat
ures the first appearance of Superman in print. You’re simply trading one resource for another. Time is th
e second major currency. If you go to work as an hourly employee, you are trading a certain amount of tim
e and effort for a certain amount of resources. You can also trade resources for time: you can offer to pay


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other people in exchange for their work, which is the essence of employment, contracting, and freelancing
. Flexibility is the third universal currency—one that is usually quite underrated. Becoming a salaried empl
oyee isn’t a straightforward exchange of resources for effort—you’re also giving up a certain amount of fle
xibility. There’s an implicit agreement that you won’t work on other things when you’re supposed to be wor


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king for the company, which is a very real Opportunity Cost. While you’re working, you’re giving up the fle
xibility to do something else. It’s entirely possible to negotiate for a greater or lesser degree of flexibility by
 trading off effort or resources. For example, you can decrease your effort and increase your flexibility by 
working part time, in exchange for fewer resources—reduced salary and benefits. Purchasing a house req


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uires less time if you agree to a thirty-year mortgage versus saving up to buy it outright, at the cost of addi
tional resources (interest) and dramatically decreased flexibility. It’s possible to gain more of any of these 
desired currencies by finding appropriate Trade-offs between one or more of the others. If you’d like additi
onal compensation in the form of a raise or larger contract, you can give up time or flexibility (such as the


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ability to use what you make for other purposes) as a Trade-off. If you’d like a bit more flexibility or time off
 in your working arrangements, you can negotiate a decrease in salary to compensate. If your employer or
 client wants you to work more or wants to benefit more from your work, you can ask them for more comp
ensation in return. Keep the Three Universal Currencies in mind when negotiating, and you’ll be amazed


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at the range of potential options you’ll be able to present to the other party, making it easier to find an opti
on that works for all parties involved. SHARE THIS CONCEPT: http://book.personalmba.com/3-universalc
urrencies/ Three Dimensions of Negotiation The first thing to decide before you walk into any negotiation i
s what to do if the other fellow says no. —ERNEST BEVIN, FORMER BRITISH SECRETARY OF STATE


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FOR FOREIGN AFFAIRS Most people think of negotiation as sitting down across from the other party an
d presenting offers and counteroffers. But that’s the last phase of the process; the other two happen well 
before you ever sit down at the negotiating table. The Three Dimensions of Negotiation are setup, structur
e, and discussion. As David Lax and James Sebenius discuss in 3-D Negotiation, each of these phases is


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critically important: by creating an Environment (discussed later) that’s conducive to a deal and preparing
 your strategy in advance, you can dramatically increase the probability of finding a mutually acceptable s
olution. The first phase of every negotiation is the Setup: setting the stage for a satisfying outcome to the 
negotiation. The more you can stack the odds in your favor before you start negotiating, the better the dea


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l you’ll be able to strike: � Who is involved in the negotiation, and are they open to dealing with you? � Who 
are you negotiating with, and do they know who you are and how you can help them? � What are you prop
osing, and how does it benefit the other party? � What’s the setting—will you present your offer in person, 
by phone, or by some other means? � What are all of the Environmental factors around the deal—do recen


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t events make this deal more or less important to the other party? Setup is the negotiation equivalent of G
uiding Structure (discussed later)— the Environment surrounding the deal plays a huge role in the eventu
al outcome, so it pays to ensure that the Environment is conducive to getting a good deal before you ever


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reach the table. By thinking about the Setup, you can make sure you’re negotiating with the right person
—the person who has the Power (discussed later) to give you what you want. Research is what gives this
 dimension of negotiation its power—the more knowledge you gain about your negotiating partner during t
his phase, the more power you have in the entire negotiation, so do your homework before presenting an


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offer. The second dimension of negotiation is Structure: the terms of the proposal. In this phase, you put t
ogether your draft proposal in a way they’re likely to appreciate and accept: � What exactly will you propos
e, and how will you Frame your proposal to the other party? � What are the primary benefits of your propos
al to the other party? � What is the other party’s Next Best Alternative, and how is your proposal better? � H


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ow will you overcome the other party’s objections and Barriers to Purchase? � Are there Trade-offs or conc
essions you’re willing to make to reach an agreement? Remember, your goal in creating the proposal is to
 find Common Ground: an agreement that both parties will be happy to accept. By thinking through the Str
ucture of your proposal in advance, you can prepare a few different options that you believe the other part


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y will want, on terms you’re willing to accept. If you’re expecting the other party to balk at the price, for inst
ance, you can prepare arguments to overcome the objection, lower-cost options that provide less value, o
r alternative offers that would better fit their needs. When the time comes for you to discuss the deal with 
your negotiating partner, you’ll be ready for anything. The third dimension of negotiation is the Discussion:


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actually presenting the offer to the other party. The Discussion is where you actually talk through your pro
posal with the other party. Sometimes the Discussion happens the way you see it in the movies: in a mah
ogany-walled boardroom, across the table, toe to toe with the CEO. Sometimes it happens over the phon
e. Sometimes it happens over e-mail. Whatever the setting, this is the point where you present your offer,


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discuss or clarify any issues the other party doesn’t understand, answer objections and remove Barriers t
o Purchase, and ask for the sale. Regardless of what happens during the Discussion phase, the end resul
t of every round of Discussion is either (1) “Yes, we have a deal on these terms,” (2) “We don’t have a de
al quite yet—here’s a counteroffer or another option to consider,” or (3) “No, we don’t have a deal—there’


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s clearly no Common Ground, so we’ll suspend negotiations and reserve the right to talk to somebody els
e.” Discussion continues until a final agreement is reached or the parties decide to quit negotiating, which
ever happens first. If you prepare the Three Dimensions of Negotiation (Setup, Structure, and Discussion)
 in advance, you’ll be far more likely to settle on terms that benefit both parties. SHARE THIS CONCEPT:


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http://book.personalmba.com/3-dimensions-ofnegotiation/ Buffer Zeal without knowledge is the sister of fo
lly. —SIR JOHN DAVIES, ELIZABETHAN POET AND LAWYER AND FORMER ATTORNEY GENERAL 
OF IRELAND In all but the most extenuating circumstances, Common Ground ensures that every deal is i
n the best interest of all parties involved. However, there may be parts of the agreement or discussion wh


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ere one party’s gain is the other’s loss. If you’re interviewing for a job and you attempt to negotiate a high
er salary, any increase in your salary is necessarily the employer’s loss. Depending on the situation, thes
e aspects of the negotiation can be tense. You want to push for as much as you possibly can, but if you p
ush too hard, you risk torpedoing the deal and permanently harming your relationship with the other party.


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In these cases, it’s helpful to work with someone who can help you negotiate a good deal without risking t
he relationship. A Buffer is a third party empowered to negotiate on your behalf. Agents, attorneys, mediat
ors, brokers, accountants, and other similar subject-matter experts are all examples of Buffers. Buffers wh
o have expertise in specific types of negotiations can be extremely valuable in helping you get the best de


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al possible. You don’t have to know everything about arcane topics like tort law and tax policy if you enlist 
the help of an honest and capable Buffer. When a professional athlete is negotiating a contract to join a pr
ofessional sports team, he or she typically enlists the help of both an agent and an attorney. The agent’s j
ob is to obtain the best possible compensation for the athlete, and the team’s manager and owner know t


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his. They can remain positive about hiring the athlete even while the agent plays hardball. In the end, the 
athlete’s overall compensation is improved despite the agent’s fees. The same thing happens with the ath
lete’s attorney, who can argue for the inclusion or exclusion of certain provisions in the proposed contract.
 An attorney can make these proposals with much greater force and effect based on their knowledge, exp


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erience, and expertise. Together with the agent, the attorney can work with the team owner and manager 
to ensure that the athlete gets the best deal the team is willing to accept, without adversely affecting the a
thlete’s Reputation or goodwill. Buffers can also be useful in order to add some time or space to a highint
ensity negotiation. It’s often quite useful not to be the party who has the final say. Being able to say, “I nee


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d to discuss this with my agent/accountant/ attorney” before giving final approval on a deal is a valuable c
heck-step that prevents hasty or unwise decisions. Be very mindful of Incentive-Caused Bias (discussed l
ater) when working with a Buffer. Depending on the arrangement, your Buffer’s priorities may be very diffe


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rent from your own. For example, real estate agents act as Buffers between the sellers of property and po
tential purchasers. If you’re looking to buy property, it’s often useful to work with a buy-side agent, provide
d you’re aware of how they’re compensated. Agents are typically compensated on a commission basis, s
o it pays to be wary if you’re using them on the buy side of a deal. The Agent is compensated if and only if


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a Transaction actually occurs. Accordingly, their first priority is to complete a deal—any deal—regardless 
of whether or not it’s actually a good deal for the buyer. If at all possible, work with a Buffer who is willing t
o accept a flat fee in exchange for services rendered, whether or not the deal happens. If your Buffer will 
be paid regardless of what happens, their interests will be more closely aligned with getting you the best d


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eal possible, which enhances their Reputation. Don’t let your Buffer replace your own informed judgment. 
One of the worst things you can do is relinquish control over your decisions to your Buffer, particularly if y
our interests aren’t exactly aligned. Many unwary investors have found their savings depleted by giving ca
rte blanche control to “investment professionals” who are compensated every time a security is bought or


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sold. By “churning” the account, the broker is legally able to rack up thousands of dollars in unnecessary f
ees. As a rule of thumb: don’t give anyone unfettered control over decisions that directly affect your mone
y. Buffers can be a hugely valuable resource as long as you’re clear about how they’ll be rewarded, what t
hey’re responsible for, and how you intend to work together. SHARE THIS CONCEPT: http://book.person


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almba.com/buffer/ Reciprocation Gifts are never free: they bind the giver and receiver in a loop of reciproc
ity. —MARCEL MAUSS, SOCIOLOGIST AND ANTHROPOLOGIST Reciprocation is the strong desire mo
st people feel to “pay back” favors, gifts, benefits, and resources provided. If you’ve ever had the experien
ce of receiving a holiday gift from someone you didn’t send anything to, you know how uncomfortable this


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feels. If someone benefits us, we like to benefit them in return. As a social force, Reciprocation is one of t
he primary psychological tendencies that underlie human cooperation. The “you scratch my back, I’ll scrat
ch yours” instinct is extremely powerful and forms the foundation of friendships and alliances. Historically, 
gift giving was how the powerful remained in Power (discussed later): by throwing lavish parties or genero


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usly awarding titles and land, leaders increased their influence by amassing a store of favors that could b
e called in during times of need. Here’s the tricky part: the desire to Reciprocate is not necessarily in prop
ortion to the original benefit provided. In Influence: The Psychology of Persuasion, Robert Cialdini provide
s an example of reciprocation in car sales. Car salesmen typically offer prospects a small gift up front. “Ca


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n I get you a coffee? Would you like a soda? Some water? Cookies? Is there anything that I can do to ma
ke you more comfortable?” It seems like a common gesture of hospitality. It’s not. Accepting this small off
er creates a psychological need to Reciprocate, subtly stacking the deck in the salesman’s favor. Prospec
tive car buyers who accepted this free offer were far more likely to purchase a vehicle, add optional acces


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sories, and agree to less attractive financing terms. As a result, these customers spent thousands of dolla
rs more than the people who did not accept anything from the salesman while negotiating. That doesn’t m
ake rational sense, because the coffee or cookies cost the dealer very little, but Reciprocation makes it m
ore likely that the buyer will “pay back” the favor with a much larger concession. The more legitimate valu


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e you can provide to others up front, the more receptive they’ll be when it’s time for your pitch. Providing F
ree value builds your social capital, making it more likely the people you benefit will Reciprocate when you
 make an offer down the road. Being generous is one of the best things you can do to improve your result
s as a salesperson. By giving away value and helping others as much as you can, they’ll respect you; it wi


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ll build your Reputation, but it will also increase the probability that they will be interested enough when yo
u do present your Call-To-Action. SHARE THIS CONCEPT: http://book.personalmba.com/reciprocation/ 
Damaging Admission We confess our little faults to persuade people that we have no large ones. —FRAN
ÇOIS DE LA ROCHEFOUCAULD, SEVENTEENTHCENTURY FRENCH COURTIER AND APHORIST W
hen Kelsey and I moved from New York City to the mountains of northern Colorado, our new landlords, B


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en and Betty, made sure to notify us of two important facts about our new home: 1. Rock slides were a ve
ry real possibility. 2. Black bears and mountain lions roamed nearby. These facts didn’t prevent us from le
asing the apartment, but we were glad to know them in advance, and it increased our estimation of their in
tegrity. We weighed the risks, increased our renter’s insurance, purchased a can of Counter Assault bear


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pepper spray, and signed the lease. Counterintuitively, making a Damaging Admission like this to your pro
spects can actually increase their Trust in your ability to deliver what you promise. Since Kelsey and I didn
’t own a car when we lived in Manhattan, we had to purchase one when we moved to Colorado. We found
 a car we were interested in purchasing on eBay Motors, but it was uncomfortable to make such a big pur


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chase without actually seeing the vehicle. To help alleviate our concerns, the dealership that listed the car
, Masters Auto Collection in Denver, went out of their way to photograph every detail —including a small c


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hip in the paint on the left side, which wasn’t a big deal. Because they were willing to include even the sm
all flaws in their description before we purchased, we felt more confident that they had thoroughly describ
ed the vehicle. We purchased it, and everything was exactly as described. Without making a Damaging A
dmission, Masters Auto Collection wouldn’t have made the sale. Your prospects know you’re not perfect,


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so don’t pretend to be. People actually get suspicious when something appears to be “too good to be true.
” If an offer appears abnormally good, your prospects will start asking themselves, “What’s the catch?” Ins
tead of making them wonder, tell them yourself. By being up front with your prospects regarding drawback
s and Trade-offs, you’ll enhance your trustworthiness and close more sales. SHARE THIS CONCEPT: htt


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p://book.personalmba.com/damagingadmission/ Barriers to Purchase Selling begins when the prospect s
ays no. —SALES MAXIM Assume for a moment you present an offer to a prospect, and their reply is som
ething along the lines of “No—that doesn’t work for me.” Time to pack it in and move on? There’s always 
a reason a prospect says no. The fact that they’re even talking with you implies that there’s at least some i


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nterest—otherwise, the conversation would simply end. There’s still hope of closing the sale, if you start a
sking the right questions. Selling anything is largely the process of identifying and eliminating Barriers to P
urchase: risks, unknowns, and concerns that prevent your prospects from buying what you offer. Your pri
mary job as a salesperson is to identify and eliminate barriers standing in the way of completing the Trans


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action . Eliminate your prospect’s objections and barriers, and you’ll close the deal. There are five standar
d objections that appear in sales of all kinds: 1. It costs too much. Loss Aversion (discussed later) makes 
spending money feel like a loss—by purchasing, the prospect is giving something up, and that naturally m
akes people hesitate. (Some people even experience this sense of loss after they make a purchase decisi


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on, a condition called “buyer’s remorse.”) 2. It won’t work. If the prospect thinks that there’s a chance the 
offer won’t (or can’t) provide the promised benefits, they won’t purchase. 3. It won’t work for ME. The pros
pect may believe that the offer is capable of providing benefits to other people but that they’re different—a
 special case. 4. I can wait. The prospect may believe they don’t have a problem worth addressing right n


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ow, even if it’s very clear to you that they do. 5. It’s too difficult. If the offer takes any effort whatsoever on 
their part, the prospect may believe that their contribution will be too hard to manage. To overcome these 
objections as quickly as possible, it makes sense to build them into the structure of your initial offer. Since
 these objections are very common, anything that you can do to alleviate them before the prospect consid


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ers the offer will make the sales process much easier. Objection #1 (“it costs too much”) is best addresse
d via Framing and ValueBased Selling. If you’re selling a piece of software to a business that can save th
em $10 million a year, and you’re asking $1 million a year for a license, your software isn’t expensive—it’s
 effectively Free. If it’s clear that the value of your offer far exceeds the asking price, this objection is moot


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. Objections #2 and #3 (“it won’t work” / “it won’t work for me”) are best addressed via Social Proof—showi
ng the prospect how customers just like them are already benefiting from your offer. The more like your pr
ospect your stories and testimonials are, the better. That’s why Referrals are such a powerful sales tool—
customers tend to refer people who have similar situations and needs, and the Referral itself helps break


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down these objections. Objections #4 and #5 (“I can wait” / “it’s too difficult”) are best addressed via Educ
ation-Based Selling. Often, your prospects haven’t fully realized they have a problem, particularly in the ca
se of Absence Blindness (discussed later). If the business doesn’t realize it’s losing $10 million in the first 
place, it’s difficult to convince them that you can help. The best way to get around this is to focus your earl


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y sales efforts on making your customers smarter by teaching them what you know about their business, t
hen helping them Visualize what their involvement would look like if they decide to proceed. Once you hav
e the prospect’s Attention and Permission, there are two possible tactics if they still have these objections:
 (1) convince the prospect that the objection isn’t true, or (2) convince the prospect that the objection is irr


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elevant. The approach you’ll use depends on the objection raised, but some combination of Framing, Valu
e-Based Selling, Education-Based Selling, Social Proof, and Visualization will usually do the trick. If the pr
ospect still doesn’t buy, that typically means there’s a Power issue —your negotiating partner may not hav
e the budget or the authority to agree to your proposal. Always try to negotiate directly with the decision m


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aker—that way, if they refuse your offer, you know that it’s because it wasn’t a good fit for them, and you c
an move on to more promising prospects as quickly as possible. SHARE THIS CONCEPT: http://book.per
sonalmba.com/objectionsbarriers-to-purchase/ Risk Reversal If you want a guarantee, buy a toaster. —C
LINT EASTWOOD, ACADEMY AWARD-WINNING ACTOR People always hate to lose. They hate to feel


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stupid. They hate to make bad People always hate to lose. They hate to feel stupid. They hate to make ba
d decisions or waste money. They hate to take risks. When it comes to closing sales, you are that risk. In 
every transaction, the purchaser is taking on some risk. What if this doesn’t work as promised? What if it d


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oesn’t meet their needs? What if purchasing from you is a waste of money? These questions are always i
n the back of your prospect’s mind as they’re considering purchasing from you. If you don’t eliminate thes
e questions, it’s very likely they’ll ruin the sale. Risk Reversal is a strategy that transfers some (or all) of th
e risk of a Transaction from the buyer to the seller. Instead of making the purchaser shoulder the risk of a


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bad Transaction, the seller agrees in advance to make things right if—for whatever reason—things don’t t
urn out as the purchaser expected. Take the bedding industry, for example. Look around, and you’ll see a
 lot of over-the-top offers: twelve-month, 100 percent money-back guarantees, no questions asked! A cust
omer could sleep on a bed for a year, decide they didn’t like it, and call up the store to return it for a full ref


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und. Crazy, right? It’s not crazy at all: this strategy completely eliminates the purchaser’s perception of ris
k, which is a major Barrier to Purchase. If a customer makes a purchase and it doesn’t work out, they don’
t have to feel stupid about wasting their money—and they don’t have to feel angry at the company or at th
emselves for making a bad decision. All they need to do is take advantage of the guarantee and return it


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—no big deal. As a result, they’ll go through with the Transaction—there’s no downside, so why not? Coll
oquially, this approach is sometimes called the “take the puppy home” strategy. If you visit a pet store and
 meet an adorable puppy, but you’re not sure whether or not you’re ready to commit, the pet store will tell 
you to take the puppy home on a trial basis. “If it doesn’t work out,” the salesman says, “you can always b


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ring it back.” The puppy almost never comes back, of course. Without making this promise, though, the pu
ppy might never go home in the first place. Adopting a Risk Reversal strategy is naturally uncomfortable b
ecause sellers also hate to lose. No seller wants to feel used or taken advantage of, and it’s often easy to 
feel that way if a customer obviously gets value from the offer and asks for a refund anyway. The differenc


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e is that the purchaser is purchasing from one seller—the seller is selling to many purchasers. Your custo
mers experience this risk with every purchase they make, and it’s a big deal. Since you’re serving many c
ustomers, you can spread the risk of a return among many customers. Yes, you’ll lose money on custome
rs who are obviously taking advantage of your generosity, and that never feels good. In compensation, by


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eliminating the risk that every purchaser feels, you’ll close many more sales and come out way ahead in t
erms of total revenue and profit. If you want to maximize your sales, it almost always makes sense to offer
 a very strong Risk-Reversing guarantee and to extend the risk-free period as much as possible. If you do
n’t already have a Risk-Reversal policy, implement one and you’ll see your sales increase. SHARE THIS


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CONCEPT: http://book.personalmba.com/risk-reversal/ Reactivation Every company’s greatest assets are
 its customers, because without customers there is no company. —MICHAEL LEBOEUF, BUSINESS PR
OFESSOR AND AUTHOR OF HOW TO WIN CUSTOMERS AND KEEP THEM FOR LIFE Sales is the pr
ocess of convincing prospects to become customers. Winning new customers, however, is often costly an
d time intensive. What if there was another way to bring in more revenue at very little additional cost? Rea


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ctivation is the process of convincing past customers to buy from you again. If you’ve been in business for
 a while, you’ll inevitably have some “lapsed” customers—people who have already purchased from you b
ut haven’t purchased for quite some time. You know they’re interested in what you have to offer, and you 
probably already have their contact information. Why not present them with a new offer to make them acti


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ve customers once again? Netflix is a company that uses Reactivation brilliantly. If you cancel a Netflix su
bscription, three to six months later you’ll receive a postcard and/ or e-mail from Netflix with an offer to res
ubscribe at a reduced rate. If you don’t reply, they’ll send another message every few months until you res
ubscribe or request to be removed completely from their system. Since Netflix is a Subscription business,


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every reactivated customer means a new monthly stream of income, which greatly enhances the Lifetime 
Value (discussed later) of each customer. Reactivation is typically a quicker, simpler, and more effective a
pproach to increasing revenue than attracting new customers. Your old customers already know and trust 
you, and they’re aware of the value you provide. You have their information—you don’t have to find them.


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Your cost of customer acquisition (a component of Allowable Acquisition Cost) is extremely low—all you h
ave to do is contact them and present an attractive offer. Reactivation is much simpler if you have Permis
sion from your customers to follow up. Your list of prospective customers is a valuable asset, but your list 
of past customers is just as valuable. By obtaining Permission from your customers to follow up with them


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, you increase the probability of Reactivation if they—for whatever reason—stop buying from you. Most po
int-of-sale (POS) systems keep track of customer data: who purchased and when the sale was made. It’s 
relatively simple to extract a list of customers who haven’t purchased from you in a while, then present the
m with a Reactivation offer directly via e-mail, phone call, or postal mail. Reactivation campaigns are cons


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istently the easiest and most profitable marketing activities you’ll ever try. Make it a priority every three to 
six months to contact your lapsed customers with another offer to see if you can encourage them to start


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buying again, and you’ll be amazed by the results. SHARE THIS CONCEPT: http://book.personalmba.co
m/reactivation/ 5 VALUE DELIVERY A satisfied customer is the best business strategy of all. —MICHAEL
 LEBOEUF, BUSINESS PROFESSOR AND AUTHOR OF HOW TO WIN CUSTOMERS AND KEEP THE
M FOR LIFE Every successful business actually delivers what it promises to its customers. There’s a term
 for a person who takes other people’s money without delivering equivalent value: “scam artist.” Value Del


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ivery involves everything necessary to ensure that every paying customer is a happy customer: order proc
essing, inventory management, delivery/fulfillment, troubleshooting, customer support, etc. Without Value 
Delivery, you don’t have a business. The best businesses in the world deliver the value they’ve promised t
o their customers in a way that surpasses the customers’ expectations. Customers like to get the benefits


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of their purchases quickly, reliably, and consistently. The more happy customers a business creates, the 
more likely it is that those customers will purchase from the company again. Happy customers are also m
ore likely to tell others about what you do, improving your Reputation and bringing in even more potential 
customers. Successful businesses satisfy their customers most of the time in the midst of a changing envi


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ronment. Unsuccessful businesses fail to make their customers happy, lose them, and eventually fail. SH
ARE THIS CONCEPT: http://book.personalmba.com/value-delivery/ Value Stream Great design is elimina
ting all unnecessary details. —MINH D. TRAN, TECHNOLOGIST AND DESIGNER When I worked at Pro
cter & Gamble, one of the most fascinating things about my job was understanding how products were cre


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ated and delivered. Here’s a quick look at how a bottle of Dawn dishwashing detergent is made: 1. Raw m
aterials are delivered to the factory. 2. The materials are combined to create dishwashing liquid, which is s
tored in large vats. 3. Plastic bottles are blown into shape using molds, then filled with the liquid and capp
ed. 4. Adhesive labels are applied to each bottle. 5. Each bottle is inspected, boxed, then loaded onto a p


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allet. It’s a textbook example of a Value Creation process, which begins with raw materials and ends with f
inished Products, ready to be shipped. Here’s what happens next: 6. Pallets are wrapped, stacked, and st
ored for shipment in a warehouse. 7. When orders from customers are placed, pallets are moved into posi
tion for loading onto a truck. 8. A truck picks up the pallets and delivers them to the customer’s closest dis


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tribution center. 9. The customer puts the pallets on a delivery truck. 10. The truck delivers the pallet to a 
store that needs additional inventory. 11. The store unwraps the pallet, unboxes the product, and transfer
s it to the shelf, where it will remain until purchased by the consumer. That’s a lot of steps for a little bottle 
of dish soap. Those steps are worth studying. A Value Stream is the set of all steps and all processes fro


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m the start of your Value Creation process all the way through the delivery of the end result to your custo
mer. Understanding what your offer’s Value Stream looks like is critically important if you want to be able t
o deliver value to your customers quickly, reliably, and consistently. You can think of the Value Stream as 
a combination of your Value Creation and Value Delivery processes. Very often, your offer moves directly


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from the first into the second. Even though the purposes of these core processes are very different, treatin
g them as one big process can help you improve your ability to deliver the value you create. The Toyota P
roduction System (TPS) was the first large-scale manufacturing operation to systematically examine its en
tire Value Stream on a regular basis. Analyzing the production system in great detail paved the way for an


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ongoing series of small, incremental improvements: Toyota engineers make over 1 million improvements 
to the TPS each year. As a result, the company consistently reaps huge rewards in speed, consistency, a
nd reliability, which has greatly improved Toyota’s Reputation as a company with very high-quality product
s—that is, until the Paradox of Automation (discussed later) destroyed that Reputation. The best way to u


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nderstand your Value Stream is to diagram it. Tracing the steps or transformations your offer goes throug
h from the beginning to the end is an extremely enlightening process that can show you just how efficient 
your Value Delivery process is. It’s very common for processes to contain unnecessary steps or awkward 
transitions. Creating a complete diagram of your entire Value Stream takes effort, but it can help you strea


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mline your process, making the entire system perform better. 1 In general, try to make your Value Stream 
as small and efficient as possible. As we’ll examine later in the book when we discuss systems, the longer
 your process, the greater the risk of things going wrong. The shorter and more streamlined your Value St
ream, the easier it is to manage and the more effectively you’ll be able to deliver value. SHARE THIS CO


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NCEPT: http://book.personalmba.com/value-stream/ Distribution Channel Unless a person is a clam digg
er, a trapper, or an old-style pickand-shovel prospector, it’s virtually impossible these days to be a succes
s all by oneself. —BENJAMIN F. FAIRLESS, FORMER HEAD OF U.S. STEEL Once a sale is made, you 
must deliver what you promised to your customer. A Distribution Channel describes how your form of valu


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e is actually delivered to the end user. There are two basic types of Distribution Channels: direct-to-user a
nd intermediary. Direct-to-user distribution works across a single channel: from the business directly to th


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e end user. Services are a classic example: when you get a haircut, the value is provided by the business 
itself directly to you, with no intermediary. Direct-to-user distribution is simple and effective, but it has limit
ations— you have full control of the entire process, but you can only serve as many customers as your tim
e and energy allow. Once demand for your offer outpaces your ability to deliver it, you’re risking disappoin


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ting your customers and diminishing your Reputation. Intermediary distribution works across multiple chan
nels. When you purchase a Product from a store, that store is acting as a Reseller. The store (in most cas
es) doesn’t manufacture the Products—it purchases them from another business. The business that creat
ed the Product can sell it to as many stores as it wants, a process called “securing distribution.” The more


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distribution a Product has, the more sales the business is likely to make—the more stores selling the Prod
uct, the more opportunities for sales. Intermediary distribution can increase sales, but it requires giving up 
a certain amount of control over your Value Delivery process. Trusting another business to deliver your off
er to your customers frees up your limited time and energy, but it also increases Counterparty Risk—the ri


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sk that your partner will screw up and diminish your Reputation. Imagine you’re in the business of selling c
ookies, and you secure distribution at a local supermarket. The supermarket purchases cookies from you,
 places them on their shelves, and sells them to their shoppers at a premium. Instead of buying cookies fr
om you directly, shoppers purchase them via the supermarket: classic intermediary distribution. It’s easy t


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o see the benefits of this approach, but there are drawbacks. Let’s say your cookies are damaged in the s
upermarket’s truck on the way to the store: they break, crumble, and the box they’re delivered in is crushe
d. The supermarket’s shoppers won’t know exactly what happened, but if it happens often, they’ll assume 
that you create a low-quality product, damaging your reputation. Securing distribution can be valuable, but


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keep an eye on your intermediaries. Distribution isn’t a “set-it-and-forget-it” strategy—if you’re working wit
h multiple Distribution Channels, plan to devote time and energy to making sure they’re representing your 
business well. SHARE THIS CONCEPT: http://book.personalmba.com/distributionchannel/ The Expectati
on Effect Never promise more than you can perform. —PUBLILIUS SYRUS, FIRST-CENTURY B.C. SYRI


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AN APHORIST Zappos has perfected the art of selling shoes online. Selling shoes over the Internet is a t
ough business—customers can’t try them on, and no one wants to be stuck with shoes they don’t like and
 will never wear. To compensate, Zappos applies classic Risk Reversal to every order—they offer free shi
pping and free, no-questions-asked returns if you don’t like the Products you order. Those two policies eli


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minate the risk of making a bad purchase, so customers are more willing to try Zappos out. That’s not, ho
wever, the reason Zappos has developed such a solid Reputation in this market. The secret lies in an une
xpected benefit the company doesn’t advertise. When you order from Zappos, it’s very likely that you’ll rec
eive a pleasant surprise: your shoes will arrive the next day, several days ahead of schedule. Zappos coul


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d easily advertise “free expedited shipping,” but they don’t— the surprise is far more valuable. A customer
’s perception of quality relies on two criteria: expectations and performance. You can characterize this rela
tionship in the form of a quasiequation, which I call the Expectation Effect: Quality = Performance - Expect
ations. Customer expectations have to be high enough for a customer to purchase from you in the first pla


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ce. After the purchase is made, however, the performance of the offering must surpass the customer’s ex
pectations in order for them to be satisfied. If performance is better than expectations, the customer’s perc
eption of quality will be high. If performance is lower than expectations, the perception of quality will be lo
w—no matter how good the offer is in absolute terms. Apple’s first-generation iPhone was a massive succ


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ess—customers expected something good, and they received a device that delivered benefits beyond thei
r expectations. Apple’s second-generation iPhone, the 3G, wasn’t as well received—prelaunch expectatio
ns were so high that there was almost no way the company could surpass them, and a few glitches in the 
roll-out process quickly took center stage. The iPhone 3G was a better phone in the absolute—it was fast


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er and had several new features, more memory, and a lower price. To many customers, however, it didn’t 
feel better—Apple failed to deliver on their expectations, and the company’s Reputation suffered. The sa
me thing happened again with the launch of the fourth-generation iPhone—a small antenna glitch soured 
many customers on the device, even though the new version was demonstrably better than the old. The b


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est way to consistently surpass expectations is to give your customers an unexpected bonus in addition to
 the value they expect. The purpose of the Value Delivery process is to ensure that your customers are ha
ppy and satisfied, and the best way to ensure customer satisfaction is to at least meet the customers’ exp
ectations, surpassing them whenever you possibly can. Do whatever you can do to provide something tha


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t unexpectedly delights your customers. Zappos’s free upgraded shipping is more valuable as a surprise
—if it were part of the deal, it would lose its emotional punch. When you perform well above your custome
rs’ expectations, they’ll be satisfied with the experience. SHARE THIS CONCEPT: http://book.personalmb


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a.com/expectation-effect/ Predictability I have always believed that for a product or service to thrive, it mu
st deliver quality. A fine product or service is its own best selling point. —VICTOR KIAM, FORMER OWN
ER OF REMINGTON AND THE NEW ENGLAND PATRIOTS FOOTBALL TEAM Aaron Shira, one of my 
best friends growing up, Bootstrapped a painting Aaron Shira, one of my best friends growing up, Bootstra


