When Josh Kaufman was a senior in collage, he accepted a job offer at P&G, to be an assitant brand manager. In this new position, he'd be working alongside people who had MBA degrees from top universities.
Josh didn't have an MBA and he couldn't justify going back to school to get an MBA and put himself in a massive student debt. So he wondered if there was a way he could master the fundamentals of business without getting
an MBA.
When he researched top business people that didnt have an MBA, he came across a brilliant business investor named
Charlie Munger.
Charlie Munger is the business partner of Warrent Buffet with whom he had developed the company
Bershire Hathaway into a $400 billion dollar business.
Munger doesn't have a formal business education. He is a meterologist and a lawyer from Omaha. Everything he knows
about business, he taught it to himself by analysing a latex work of mental moduls.
Josh was inspired by this and started reading hundreds of books on business. Slowy, he started noticing a pattern. He discovered that at the heart of every business, is a five part frame-work.
1. Value Creation
2. Marketing
3. Sales
4. Value Delivery
5. Finance
Josh says that without anyone of these parts, you don't have a business.
A venture that adds no value to others is a hobby.
A venture that doesn't have proper marketing is a flop.
A venture that doesn't sell the value it creates is a non-profit. A venture that doesn't deliver what it promises is a scam and A venture that does not bring in enough money to keep operating, will inevitably close.
Let's explore each part so we can better analyse a business and make better business decisions as an employee of the
business or as an enteprenuer thats trying to start a business.
1. Value Creation
When we create or sell something, we need to ask ourselves, are we creating something that people will actually pay for?
The first thing to figure out when starting a successful business is to understand what drives people to buy a service or product in the first place.
Two primary characteristics that drive buyers decisions are convienience and high-fidelity.
Convienience means a product being quick, reliable, easy and flexible. People always pay a premium for convienience. It's why departmental stores are so successful. You can get a whole range of products under one roof. A product maybe cheaper elsewhere else but because it's so convienient at a departmental store, people dont mind paying a little extra.
High fidelity means high aesthetic appeal, emotional impact or social status. An example of this is Apple computers.
People pay a premium for apple products because they love the way it makes them feel and it shows other people of
their status and choice.
Sometimes, a product can be convenient and have a high fidelity but people may still not buy the product. Hence, why a new product should always go through ''The Lean Startup'', (something I have covered in the last blog).
2. Marketing
The question we need to ask ourselves here is, ''How well are we attracting and holding our customers attention?''
When apple lauched the original I-pod, they told the world that this device would hold a thousand songs in your pocket.
This statement and idea was remarkable at the time and violated people's expectations. It made people pause and take notice of this new product. Any business that can hold the attention of their customers has a great chance of getting their customers to the third stage.
3. Sales
In the area of sales, we want to ask ourselves, '' How well do our customers believe and trust us?''
People are not going to give away their hard earned money unless they believe and trust the product. The best way to build belief and trust is to get social proof. The way businesses make customers trust them is to get an influential celebrity to advertise their product or getting 5 star reviews on Amazon, etc.
If a business cannot get social proof, it needs to perform on a consistent basis and be around long enough for
people to trust it. The more trust a business has, the more sales a business makes.
4. Value Delivery
The fourth part of every business is value Delivery. The question here is, ''Are we exceeding the expectation of our customers?''
Costumer expectations should be high enough to purchase your products but, let's say, after a customer purchased something, they got a coupon saying their next purchase would have a 10% discount, it would suprise the customer in a good way, since there was no mention of a discount and they were not expecting it. So your business performace has
exceeded the customers expectation. If your customer's expectation is exceeded, they will be satisfied and come back to buy again along with recommending your business to their friends.
Another way to exceed customer expectation is to have very good customer services. Make it convienient for your
customers to return products as well as exchange them.
5. Finance
Finally, we have to ask ourselves, ''Are we making more money than we are spending?''
If not, you need to reduce spending on one of the four above mentioned parts, or produce something of more value. Make sure your Incoming is more than your outgoing.
Josh says that at the end of the day, you are simply using numbers to decide whether or not your business is operating the way you intended.
Being a great business mind is not about knowing all the answers, it's about asking the right questions and having
the right mental models. With this five part frame work, you can ask the right questions and understand any business
and skip MBA school.
I hope you enjoyed this breakdown, and as always I suggest reading the book to get your own take and earn your own ''Personal MBA''.
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