The Personal MBA 10th Anniversary Edition
Last read August 18, 2022
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Highlights
38 highlights.
Businesses are created, operated, and improved by ordinary people just like you; there’s no magic or secret knowledge involved. All you need to do is learn a few simple concepts that will change the way you think about how businesses work and allow you to identify promising opportunities.
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Every successful business (1) creates or provides something of value that (2) other people want or need (3) at a price they’re willing to pay, in a way that (4) satisfies the purchaser’s needs and expectations, and (5) provides the business sufficient revenue to make it worthwhile for the owners to continue operation.
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Value can’t be created without understanding what people want (market research). Attracting customers first requires getting their attention, then making them interested (marketing). In order to close a sale, people must trust your ability to deliver on what’s promised (value delivery and operations). Customer satisfaction depends on exceeding the customer’s expectations (customer service). Profit sufficiency requires bringing in more money than is spent (finance).
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Business schools don’t create wealthy and well-connected people. They accept them, then take credit for their success.
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In plain English: Schraga used a technique business schools teach to prove that getting an MBA from a top-tier business school is a bad financial decision.
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We found no statistically significant [advantage]—despite testing every possible school with a reasonable sample size. MBA programs simply do not produce CEOs who are better at running companies, if performance is measured by stock price return . . . The actual CEO performance results line up very closely with what we would expect to see by chance. [. . .] How much longer will investors and boards be fooled by randomness and hollow credentialism?
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The one significant benefit that business schools do provide is better access to Fortune 500 recruiters, consulting firms, large accounting firms, and investment banks via on-campus recruiting and alumni networks.
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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 at jobs they despise is to pay off their creditors. Financial stress can destroy relationships, threaten your health, and jeopardize your sanity. Is a shot at a desk in a corner office really worth it?
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A business is a repeatable process that makes money. Everything else is a hobby.
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A venture that doesn’t create value for others is a hobby. A venture that doesn’t attract Attention is a flop. A venture that doesn’t sell the 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 is not going to exist very long.
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Maslow’s theory was that people progress through five general stages in the pursuit of what they need: physiology, safety, belonging/love, esteem, and self-actualization. Physiology represents the “lowest” level of human need, while self-actualization (the exploration of a person’s innate potential) is the “highest.”
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Clayton Alderfer’s version of Maslow’s hierarchy, which he called “ERG theory”: people seek existence, relatedness, and growth, in that order. When people have what they need to survive, they move on to making friends and finding mates. When they’re satisfied with their relationships, they focus on doing things they enjoy and improving their skills in things that interest them.
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At the core, all successful businesses sell the promise of some combination of money, status, power, love, knowledge, protection, pleasure, and excitement. The better you articulate how your offer satisfies one or more of these drives, the more attractive your offer will become.
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As a business professional, it’s important to understand that status considerations are present in every level of the Core Human Drives. When you make an offer to a new prospect, they will estimate how your offer will influence their social status.
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Urgency. How badly do people want or need this right now?
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Market Size. How many people are purchasing things like this?
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Pricing Potential. What is the highest price a typical purchaser would be willing to spend for a solution?
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Cost of Customer Acquisition. How easy is it to acquire a new customer?
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Cost of Value Delivery. How much will it cost to create and deliver the value offered, in both money and effort?
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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?
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Speed to Market. How soon can you create something to sell?
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Up-front Investment. How much will you have to invest before you’re ready to sell?
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Upsell Potential. Are there related secondary offers that you could also present to purchasing customers?
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Evergreen Potential. Once the initial offer has been created, how much additional work will you have to put in in order to continue selling?
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When any two markets are equally attractive in other respects, you’re better off choosing to enter the one with competition. Here’s why: it means you know from the start there’s a market of paying customers for this idea, eliminating your biggest risk.
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The best way to observe what your potential competitors are doing is to become a customer. Buy as much as you can of what they offer.
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Make money your god and it will plague you like the devil.
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If the only thing that interests you about an opportunity is the money, you’ll probably quit well before you find the pot of gold at the bottom of the landfill.
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The more hassle a project or task involves, the more people are willing to pay for an easy solution or for someone to complete the job on their behalf.
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If you’re looking for a new business idea, start looking for hassles. Where there’s hassle, there’s opportunity.
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I have not failed. I’ve just found ten thousand ways that won’t work. —THOMAS EDISON, PROLIFIC INVENTOR
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I can’t give you a surefire formula for success, but I can give you a formula for failure: try to please everybody all the time. —HERBERT BAYARD SWOPE, PULITZER PRIZE–WINNING JOURNALIST
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As a rule, people never accept Trade-offs unless they’re forced to make a Decision. If the perfect option existed, they’d buy it. Since there’s no such thing as the perfect offering, people are happy to settle for the Next Best Alternative.
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It is better to be roughly right than precisely wrong. —JOHN MAYNARD KEYNES, ECONOMIST
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Critical Assumptions are facts or characteristics that must be true in the real world for your business or offering to be successful. Every business or offering has a set of Critical Assumptions that will make or break its continued existence: if any of these Critical Assumptions turns out to be false, the business idea will be less promising than it appears.
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((Revenue − Cost) / Revenue) × 100 = % Profit Margin If you spend $1 to get $2, that’s a 50 percent Profit Margin. If you’re able to create a Product for $100 and sell it for $150, that’s a Profit of $50 and a Profit Margin of 33 percent. If you’re able to sell the same Product for $300, that’s a margin of 66 percent.
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Profit Margin is not the same as “markup,” which represents how the price of an offer compares to its total cost. Here’s the formula for markup: ((Price − Cost) / Cost) × 100 = % Markup
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If the cost of an offer is $1 and you sell it for $2, your markup is 100 percent, but your Profit Margin is only 50 percent.
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