Many of us out there in the tech and business world will consider pursuing an MBA at one point. While this can be a rewarding experience, it comes with a hefty price tag and equally significant opportunity cost. There are plenty of reasons for pursuing a full-fledged program (social capital and prestigious stamp are just a few), but for many, a shorter course and real-world practice will do well. I am a big proponent of self-reliance and thus was delighted to learn about the book The Personal MBA: A World-Class Business Education in a Single Volume. If you are interested in how businesses work, or even considering pursuing MBA, this book a is a great starting point. Below you will find a selection of my personal major takeaways. If you find these interesting, certainly check the author’s website at personalmba.com (it’s also a great source of witty quotes). Without further ado, some things I learnt about running businesses by reading this book:
Efficient processes are key to sustainable businesses
Process improvements don’t help the immediate bottom line, but they are essential to long-term business viability. Stray free of the other extreme, overoptimization. Good loose system beats a tight-one. While the former is less efficient, the latter requires numerous exceptions which still won’t prevent it from failing in unexpected ways.
Small companies are sexy
According to the U. S. Small Business Administration, small businesses represent 99.7 percent of all employer firms in the United States, employ 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).1 You don’t have to create next Amazon or Tesla to have huge positive impact.
Businesses are not rocket science
A business 1) provides something of value, that 2) other people want, 3) at a price they are willing to pay, 4) in a way that satisfies or exceeds their expectations, while 5) generating sufficient revenue.
The milestone between a project and a business is first financially profitable transaction. Keep eye on the prize and get it as soon as possible.
Product should satisfy one or more fundamental human drives
The drives are the drive to Acquire, the drive to Bond, the drive to Learn, the drive to Defend, the drive to Feel.2 Clearly articulate how your product ties to one or more of these drives.
Evaluate market potential of your idea
On scale 0 to 10, score the following: 1) How badly do people want or need your product right now? 2) How many people are purchasing things like this already?, 3) What is the highest price consumers would pay for this?, 4) How much will it cost to acquire new customers, 5) How much does it cost to create and deliver your product?, 6) How unique is your offer? 7) How quickly can you start selling something?, 8) How much you have to invest before you can make and sell your product? 9) How easy it is to generate secondary sales from the primary product? (if you sell an enzyme, can you sell reagent kits or experiment kits with it as well?), 10) How much work does your product require to keep delivering value? (in-person training requires a lot, a prerecorded online programme requires none).
Competition is a gift
When deciding to enter to otherwise equal markets, enter the one with competition, that way you know there are consumers for your offering.
The best way to learn how competitors deliver value is to become their customer. The best way to beat your rivals is to make them irrelevant. Don’t focus on competing, focus on making a killer product. Remember, in words of Paul Graham: “If in doubt, work on the product.”
Some less obvious ways to create economic value
Shared resource – lab space, a gym, …. Create and manage a durable asset that multiple parties use, and charge for access.
An agency – literary and real estate agents, … Collect, manage, market and sell an asset or service on other people’s behalf, and collect a fee.
Option – tickets, … Offer customers the possibility of taking some action in the future, at predefined prices, without obliging them to do so. In other words, charge for providing flexibility.
Audience aggregation – mailing lists, social media, … Create community with certain set of characteristics. Get and keep their attention by providing something they value. Provide access to this community to third parties and charge for the access.
The more obvious ways are: service, product, subscription, lease, loan, insurance, capital.
Keep generating and sharing mock-ups and prototypes
You are much more likely to get funded if you can show a demo or prototype. Sharing it with customers is the best way how to get feedback. These benefits significantly outweigh the risk of competition jumping on your idea.
The quicker you generate new versions of demo’s and the quicker you collect feedback on them, the faster you will start delivering a product of value. Internal testing counts too!
Use pre-orders and shadow-testing to gauge your product-market fit
Are you working on a product and do you want to have reliable data on who is out there to buy it? Create opportunity to preorder or a mock-up website and collect information on people who commit to purchase. Beware: be honest and perfectly transparent about the current readiness of your offering.
Product can be convenient or it can be high-end. It can address a pain point immediately, or focus on something more subtle and deliver value over time. Rarely it will be able to do both equally well. You will thus need to make trade-offs, and that’s a good thing. Focus on trade-offs that maximize the strengths of your offering, and satisfy the needs of your customers. To find out the latter: ask them to make explicit A/B trade-offs for key characteristic of your offering.
Once marketing your product, verbalize your offering’s major strength in a hook. Good hooks are one-liners such as “1000 songs in your pocket”, or “The 20-Minute Body”.
The true marketing value of social media
Ever wondered why the ads you are getting on Instagram are so interesting? That’s because they are tailored to yours truly. To use marketing budget effectively, target groups of prospects who are likely to be interested in your product already. This extends beyond social media: always choose smaller targeted campaign over a general one.
Permission to follow-up is the second-best thing after a direct sale
Your marketing campaign should have clear call to action. The primary objective is a sale. The second-best option is a follow up.
Acquiring new prospects requires effort. It’s much easier to reach out to a contact who demonstrated interest earlier. Do so periodically, and absolutely do include former customers when doing so.
When asking for permission to follow up, be super clear what customers should expect when they sign up (a weekly newsletter with one new productivity trick each week, etc …), and let customers explicitly state their interest in future purchase on sign-up (a pre-commitment strategy).
Some tips for effective selling
Listen to your customer, and understand what are their pain points and needs. Then demonstrate how your product addresses them (if it does). Point to competition if it does not. (Check this post for a good primer on sales.)
Let your prospect imagine what a life with your product would be like. You can do this with demos, testers, or testimonials and other stories. The most effective testimonials describe customer satisfaction despite original scepticism.
Offer genuine free value
This is great way how to ask for permission to follow up, collect feedback, and allow your customer to image what a life with your product would be like. It also creates a reciprocal relationship, making your prospects more likely to buy from you in the future.
Selling begins when prospects say no
Selling is the process identifying and eliminating customers’ barriers to purchase. “It’s too expensive?” Focus on value your offering delivers. “It is not exactly what I am looking for?” Share testimonials and case studies. “It can wait?” Educate on the counterfactuals. To reduce frequency of no, offer risk reversal strategy (e.g. free returns).
Don’t just meet your customer’s expectations, exceed them
The perception of quality is performance minus expectations. Create performance that exceeds expectations by offering an unexpected benefit with your offer (a freebie, earlier delivery than advertised, …).
Treat your value delivery process as an experiment
The higher your throughput, the more customers you can serve. To increase your throughput focus on streamlining your value delivery process and eliminating any unnecessary steps. To be able to do this, you should deliberately outline your whole value stream, and measure how changes to its parts affect your throughput.
Don’t focus on maximizing (short term) profit
You, of course, must generate profit. But you will achieve better results by focusing on serving as many customers as possible while capturing modest value. While this reduces short term results, it will make your business much better situated for the long-term (that’s why Apple is not selling a $100’000 iPhone).
You should reinvest most of revenue that your business generates into its growth for the same reason. It will compound your profits and after several years you will be in much better position than would have been the case otherwise.
Before seeking funding decide on what enterprise you want to build
An unicorn that races to IPO and leaves you wealthy at the exit? You will very likely need lot of external capital. A self-sufficient business that has you free to make your own decisions? Avoid external dilutive financing as much as possible. This will also make it easier to reinvest your profits (see above).
If you do accept funding, use it solely to acquire things that will grow your revenue and that you could not afford otherwise.
Understand your emotions around entrepreneurship
Fears and anxieties stop us from doing things we wish to do. These mental patterns were designed to protect us from objectively bad things, such as being expelled from community or being eaten by predator. The world has dramatically changed since. Risks we are facing when following our (healthy and socially acceptable) dreams and passions are disproportionately smaller, yet they trigger the same levels of fear and arousal.
Verbalize these fears by sharing them out loud with someone or writing them down. Imagine yourself pursing your goals and make mental note of what inner conflicts this triggers. Deconstruct these conflicts by asking yourself how significant they are in the real world. There is a good chance that doing so will leave you both more relaxed and motivated for pursuing your goals.
Have a personal R&D budget
In all the hustle and bustle of building and growing a business, you will have to keep in mind to put your wellbeing first. Assuming that is taken care of, you will also need to stay on top of the game in your field and as a manager. While you will learn a lot by doing, you can accelerate your growth by creating a personal R&D budget and spending it on anything that makes you more knowledgeable or productive. This includes classes, coaching, books, equipment and conferences.
Keep teams small and elite
Keep teams small. Studies have shown that the most effective group size is somewhere between three and eight people.3 Keep teams in this size to reduce communication overhead.
Keep teams elite. In words of Paul English: “Any company can have only ten best people.” Focus on making this ten better than your competitors, and then capitalize on individuals’ strengths. You will beat your competition irrespective of their total size.
Five tips for effective real-world management
- Recruit only as many people as you need to deliver in high quality.
- Have a clear vision and ambitious plan for achieving it. Revise the plan as you go.
- Treat people with respect and show appreciation for their effort.
- Provide your team with the best tools and don’t fraction their time with unnecessary meetings or distractions.
- Measure your performance and keep experimenting with process improvements.
Any repeated task can benefit from automation
Create checklists and SOPs to help both new and old employees to carry out tasks with more efficiency and less errors. Listen to your employees on what SOPs are needed. Steer clear of documents where effort to create and maintain them outweighs value they deliver. While automated systems reduce idiosyncratic errors, they can introduce systemic ones. Keep a finger on your processes’ pulse with unbiased and continuous sampling.
Run stress tests
Internally simulate what happens if you get 10x your daily visitor count, number of orders per week, a major recall, a major supplier goes out of business, etc…. Find ways how your value delivery chain fails in internal experiments, and safeguard against future real world crisis. You will learn that you should, as much as possible, avoid having a single point of failure (having one customer much larger than rest, single supplier of critical ingredient, etc …).
As you read the above points, you probably noticed that they have you understanding yourself as a person, getting rid of self-defeating beliefs, carrying out experiments, working with bright and inspiring colleagues, all the while following your passion and making a positive change in the world. That’s a great career! So don’t forget to have fun and enjoy the ride.
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