the personal mba - josh kaufman ------------------------------ VALUE CREATION ------------------------------ business definition/characteristics 1 provide value 2 that people want 3 at a price they'll pay 4 at or above their expectations 5 at high enough profit to continue for quantitative analysis, recommends turning numbers into knowledge by jonathan g koomey for accounting, recommends accounting made simple by mike piper how to read a financial report by john a tracy others 5 processes 1 value creation discover needs and create 2 marketing attract attention 3 sales convert attention into transactions 4 delivery giving what you agreed 5 finance bring in enough money exercise: describe businesses in those terms core human drives 1 acquire get objects or status 2 bond feel valued or form relationships 3 learn satisfy curiosity or advance credentials 4 defend achieve sense of safety or avoid risk 5 feel new sensory stimulus or pleasure ways to evaluate a market 1 urgency how badly do people want it or how critical is timing 2 size how many people will/are buy 3 pricing how much will people pay 4 customer acq how easy to get customers 5 cost of deliv. how much to deliver product 6 uniqueness how many competitors, how easily can they copy 7 speed to mark. how fast can you start selling? 8 up-front cost cost to get started 9 upsell ease can you easily add secondary offers on sales? 10 ongoing cost will sales require continued $ and labor after they're made? exercise: rate businesses 1-10 on those features suggestion: 50 or below is bad, 50 - 75 sustainable but meh, 75+ promising idea competition at least demonstrates the existence of a market can also examine competitor to get insight doing so as a customer can be very useful don't forget that your interests might not generalize to a large enough market seek advice or prototype 12 forms of economic value (things/ways to make money) 1 product create and sell 2 service provide help 3 shared resource charge many for access to an asset lets you profit from access to something people can't/don't purchase individually e.g. access to gym equipment 4 subscription ongoing benefit for an ongoing fee 5 resale purchase (wholesale) and resell 6 lease charge one for temporary use of asset 7 agency market or sell on behalf of another 8 aggregation acquire demographic, charge for access 9 loan lend money for later interest 10 option charge for the right to some later action 11 insurance sell risk distribution 12 capital purchase stake in business exercise: categorize businesses or supply chains, or break down a business in these terms e.g. look at what goes on at a typical store: resale business, employs agents, provides insurance (return policy or warranty) or a movie theatre shared resource (movie screen), options (tickets), product & resale (snacks), ... perceived value someone might value a reusable pool cleaning kit at $50, but a pool cleaning service at $250/month modular strategies business can segment its economic value operations, allow consumers to engage by choice with each bundling combine values, like phone subscription + product, or just buy-one-get-one-free sorts of things (people like lots of little things) unbundling e.g. split cd into single track mp3 purchases can capitalize on sales that would otherwise not happen, at the cost of ones that might have prototype to obtain feedback at early stages before massive commitment iteration process watch observe what's going on with the product ideas what needs improving, how can it be improved guess predict cost/benefit of ideas which ... decide which action to take act design a test and do it measure assess the results, maybe implement somewhere in there you should define the problem (implicity in testing if you haven't by then) optimize iteration cycle time it's systematic improvement getting feedback seek objective sources don't forget open ended questions (but compare answers to their actions) don't get offended, negative feedback is useful try to break down responses, look for truth under bad or negative responses real test: provide the chance to preorder or subscribe you can do this even without a product or intent to make one, e.g. "sorry" page as long as you're not burning all your potential customers to discovery actual desires, ask for explicit trade-off decisions sorting choices rather than independent scoring everyone thinks everything is important, explicitly ask which is more important make them sort random subsets to help get better info alternatives example: if you're a not-hip, cheap, big menu diner across from a hip, expensive, small menu restaurant you're probably chosen for your options and cheapness so if you have to invest in making more things cheaper/faster, or making things hipper, which do you do? you can diversify your brand if you have the money to do multiple but it won't make sense factors in people's sense of value 1 efficacy how well does it work 2 speed how quickly 3 reliability can it be dependend on 4 ease of use effort 5 flexibility how much can it do 6 status how will people perceive me using it 7 aesthetics does it look nice 8 emotion does it make me feeeeel 9 cost roughly these fall in categories of convenience or luxury hard to do both businesses usually benefit from optimizing one more than the other critically important assumptions the things that your business relies on in order to actually function eg enough paying customers at such price points and growth rates try to test these cheaply shadow testing selling an offer before it really exists helps get super accurate sales data early e.g. fitbit was announced and presold before it got investment to produce can log and process people in advance just don't charge people until you can sell it minimum viable _____ essentially the weakest prototype that someone will purchase might not even function (kind of shadow testing) e.g. yoga studio might just have a web site, sign up form, advance sign up with option to cancel & refund if plans fall through direct people to the site and measure results mvp and shadow testing can help validate assumptions incremental augmentation using iteration to improve the product offer lets you upgrade while minimizing risk if you need to expand past small steps, develop a new prototype and treat it like a new business field test --------------------------------- MARKETING --------------------------------- people need to know about and value your offer attention can be good, bad, or neutral (this is about whether it converts to sales) receptivity does a person want your message? affected by content, time, morals, appearance people notice effort and personalization remarkability weird or awesome stuff gets spread by word of mouth probable purchaser direct your marketing toward the right people at the right time this is the point of understanding demographics, segmenting users, etc attracting people who won't purchase (or otherwise generate value) is a waste end result people buy things for what it gives them, not what it is try to identify the core human drive or appreciated aspect qualification determine whether a potential customer is worth it some customers cost more than they're worth example: Progressive (car insurance) leverages their spent cost of evaluating you to potentially turn you away and encourage you to go to another insurer if they believe you cost too much point of market entry people sometimes don't care about a market then suddenly become interested (eg child birth) potential customers are very receptive and valuable at this point find out when this happens if possible this can establish you as a baseline addressability how easy is it to contact or send your message desire it's hard to (legitimately) make somebody want something they don't already want market solutions to existing desires help them see they already want it visualization test drives and interaction build attachment exploit natural tendency to imagine life framing people change response based on the presentation of identical choices emphasize the positives, help direct attention but don't lie, it harms reputation free like test driving opportunity to engage, ask for more interaction or commitment permission people don't like to be invaded by ads or offers, sometimes even good ones the general key is to make interactions high value hook short phrase that quickly conveys value or generates interest focus on user perspective (eg #songs vs storage space) call to action be clear and simple direct attention and interest to an action be stupid obvious anywhere a user might end up narrative people like stories, it can add perceived value be clear, compelling, near usual tropes controversy can generate attention and discussion (this is an example of providing people the opportunity to generate their own value by talking about you) but can risk reputation reputation not directly in the business's control influenced through actions (others being able to recommend you is a form of them deriving value from you) ------------------------------ SALES ------------------------------ transaction exchange of value, the way money flows into the business trust required (on both sides) for transaction can be built with reputation, 3rd parties, or signalling common ground overlapping options/interests between the parties pricing uncertainty principle prices are always arbitrary and able to change (this is clearly false?) customers need to accept or understand why the price is what it is four pricing methods 1 replacement cost how much to build a new one 2 market comparison how much does similar stuff sell for 3 net present value account for later revenue generation 4 value comparison who wants it, what features value-based selling understand and reinforce why your offer is valuable helps increase likelihood of transaction listen, be clear, develop trust what you learn can help you frame 4 phases of selling 1 understand the situation 2 define the problem 3 clarify short and long term implications of the problem 4 quantify the benefits of resolving the problem education based selling inform your customers make them relaxed and more knowledgeable about the products helps convey value and also develop trust next best alternative know what you'll do if there's no sale try to know what they'll do helps price and frame three universal currencies resources, time, flexibility three dimensions of negotiation setup, structure, discussion create an environment conducive to a deal prepare strategy in advance (account for no) setup: who's involved, do they know you and your product, what are you proposing, how does it help them, is it in person or phone etc, do recent events affect the discussion structure: what will you propose and how to frame it, what is their next best alternative, how is yours better, how will you overcome objections and barriers, acceptable trade-offs discussion: explain and talk, ends with yes, counter, or no buffer third party to negotiate on your behalf helps guard against awkward tense situations negotiates more effectively slows down negotiations (can be good or bad) be aware of incentives that might affect agent behavior reciprocation people have a reflex to pay back favors helps build reputation and likelihood of call to action succeeding damaging admission admitting to flaws or negatives of the product can increase trust barriers to purchase risks, unknowns, concerns job in sales is to identify and eliminate these 5 standard objections and ways to address them 1 costs too much people feel bad about spending money framing, value-based selling 2 it won't work concern about the capability of product 3 not in my case have special requirements social proof, referrals 4 not needed now not aware of current problem needing to be fixed 5 too difficult apparent effort to get and use education based show how the objection is inaccurate or irrelevant risk reversal people hate risks and feeling stupid when selling, you are the risk try to transfer risk to yourself see: refunds, warranties reactivation convincing old customers to buy again lapsed customers are probably more interested than average person they already understand the value and had a need for it ---------------------------- VALUE DELIVERY ---------------------------- value stream set of steps and processes from start of creation to completion of delivery to customer combination of value creation and delivery tracing through it can help find places to improve distribution channel how your value is delivered to the end user direct or intermediary letting someone else step in relinquishes your control, this has pros and cons expectation effect quality is performance at or above expectation if you can overperform, sometimes it's better not to promise it but just let the customer be surprised predictability people value consistency and reliability in repeat sales throughput the rate at which you produce your goal measure of the effectiveness of value stream need to clarify the goal or objective dollars, units produced, satisfied customer generation if you record it, you can iterate duplication ability to reliably reproduce something valuable multiplication like duplication but for an entire system, not just a product e.g. franchising single businesses have upper limits on production scale the ability to duplicate or multiply as volume increases accumulation continual improvement of a system via small changes adds up bad things can also accumulate be aware of the hard to notice, slow, but significant cumulative impact amplification small changes in scalable systems produce huge results barrier to competition improvements to your value stream make it harder for competitors to keep up force multiplier tools can help amplify invest in them when you can afford the delayed return general rule: the only good use of debt is to access force multipliers you couldn't get otherwise systemization make processes explicit and repeatable this help examine and improve things helps keep employees focused, communicate ------------------------------- FINANCE ------------------------------- profit margin difference between revenue and expenses as a percentage of expenses eg spend 1 to get 2 is 100% profit margin spend 2 to get 3 is 50% ((3 - 2) / 2) helps motivate ongoing business also provides savings to deal with potential decline in profit value capture retaining some value in each transaction percentage again eg your deal saves the customer $1mil and you charge $100k, you capture 10% aggressive approach is to try to maximize it increases profit but can harm reputation, trust, customer satisfaction, etc (i.e. the things that indirectly affect later profit) minimization preserves value for customers, provides some long term benefits as long as you're retaining enough to sustain, you don't have to push aggressively unless you're going to get fired or something sufficiency the point when business generates enough profit to justify continuing to run it paul graham calls it "ramen profitable" can track Target Monthly Revenue 4 methods to increase revenue 1 increase number of customers (marketing, reputation, expansion) 2 increase average size of transactions (upsell, increase variety) 3 increase frequency of transactions 4 increase prices (this is because they noticed revenue = sum over customers of #transactions * #size of transaction * prices) (or other similar identities) remember that some customers are not worth the effort pricing power ability to raise prices over time if you're not a huge ingrained company, you can experiment and test price changes helps maintain sufficiency over time (account for inflation) lifetime value the projected value of a customer to the business over time can use this to justify delivering increased value to the customer eg don't do more than $1 worth of work to get $1 from a tourist but you might do $100 worth of work for someone to sign up for a subscription that will on average get $100 (+ interest, opportunity cost, etc) over time allowable acquisition cost like last point, how much can you profitably spend to acquire new customers this is the marketing component of LTV good for subscription models or things with high loyalty negative first sales are called "loss leaders" you're indirectly spending to develop customer relations to calculate: (LTV - (value stream costs) - (overhead)/(# customers)) * (1 - profit margin) example if LTV is $2k over 5 years, and value creation & delivery costs $500 that leaves $1500, if overhead is $500k over 5 years and you have 500 customers, that's $1k per customer that leaves $500 revenue before marketing per customer if you want 60% profit margin, you can spend .40*500 = $200 on trying to get each customer overhead minimum ongoing costs to run the business salaries, rent, utilities, repairs, etc decreasing overhead helps sufficiency "burn rate" costs: fixed and variable fixed: incurred no matter what value you create. overhead decreasing them accumulates variable costs: related to created value. the more shirts you make, the more fabric you need to buy raw materials, usage based utilities, hourly workers, etc decreasing them is amplified by volume incremental degradation accumulated effects can eventually undermine quality customers may eventually perceive the sum of many unnoticeable changes breakeven the point when the business recoups initial investment and starts generating wealth for owners amortization spreading the cost of an investment over its estimated useful life can do it over time or over # of produced units, etc helps figure out whether large investments are good ideas (I think it's also a tax/accounting thing, spreading costs over multiple years) purchasing power the total of liquid assets able to be deployed, cash, credit, ... having people owe you a lot doesn't necessarily mean you can spend that money need this for overhead, etc cash flow cycle how revenue, expenses, receivables, credit work in the company description of the movement of money receivables are promises of payment from others debt is your promise to pay someone else make sure to track when it's due try to get paid as early as possible (ideally before you even commit costs to build products) debt should only be used in emergencies or in order to facilitate growth that would otherwise be impossible opportunity cost the value you give up by making a decision people have difficulty noticing the value of things they're not doing but be careful about overanalyzing, diminishing returns time value of money money now is worth more than the same money later because of the potential generation of wealth and inflation compute present value to compare across time compounding when things can be reinvested at similar rates, they grow exponentially leverage using borrowed money to magnify gains (or losses) hierarchy of funding funding helps provide the ability to carry out valuable operations that wouldn't otherwise be possible faster or larger make sure you're using it to do something you couldn't otherwise do the alternative is to bootstrap from smaller operations funding sometimes just debt based, sometimes control based suggested hierarchy / ladder view of funding 1 your own cash risk your own savings 2 your own credit risk your own reputation 3 personal loans friends and family, risk relationships 4 unsecured loans institutional lending, no collateral 5 secured loans institutional, requires collateral 6 bonds sell debt to individuals, complicated (investment banks) 7 receivables financing loan with receivables as collateral ------ line between loans and capital investment 8 angel capital individual private investor, e.g. 10k to 1m for 1 to 10% ownership 9 venture capital institutional investor, larger investment & control 10 public stock offer sell partial ownership on open market (investment banks) be aware of how much power you're giving up, investors might want to fire you bootstrapping building a business without funding risk being beaten to market, or never getting there return on investment the net value created from an investment of time or resources helpful for comparing alternatives can compute if it already happened, otherwise predict sunk cost investments that can't be recovered once made avoid the trap of continuing a project because you've committed previous investments only focus on the value of moving forward ----------------------------- THE HUMAN MIND ----------------------------- caveman syndrome suggesting to stay aware of how social and emotional stuff evolved in premodern time the gas tank take care of yourself high quality, variety of food exercise regularly aesthetics & studies show mental benefits sufficient sleep enough but not too much sun experiment with routines the onion brain roughly, brains are layers along some evolutionary development basic functioning, instincts, sensory processing, pattern matching, inhibition & decision one way to model the brain is: it's a horse and you're a rider it already has some built in intelligence that you steer if you try hard, you can change it sometimes it hits weird things and you need to train or reassure it be aware of it and dissociate yourself perceptual control people act when perceptions get too far away from acceptable ranges helps explain why same stimulus can produce different results workers who already feel like they have a good work & pay trade-off might not care about new overtime bonus need to account for perceptions and different acceptable ranges reference level the acceptable range stuff from above set points min/max values ranges pair of min,max values for a single feature error a 0 set point if you want to change behavior, you either need to change reference levels or the environment define and track your own reference levels to help change behavior conservation of energy people are lazy combined with reference levels, explains why people might not try to improve their situation try to learn a lot and expose yourself to other reference levels to motivate yourself guiding structure the structure of your environment is the biggest factor in behavior changing the environment can make all the smaller parts and willpower stuff easier can be fictitious changes, like "this part of the hallway is quiet zone, but you can talk once you reach ___" reorganization sometimes you don't know what's wrong or how to fix it, just a sense random attempt to change normal but not necessarily productive it's an attempt to expand experiences and discover new approaches conflict when two control systems compete to affect the same perception eg procrastination vs need to get things done when both an air conditioner and heater are running real conflicts only resolved when perceptions or reference levels change pattern matching just by paying attention to the world your brain tries to build models of it experimentation helps expose and correct models the more accurate patterns you've accrued, the better you are at things mental simulation ability to simulate the consequences of actions minds naturally try to predict (based on those models) quick, thoughtless kind happens based on rapid tracing through ingrained associations interpretation and reinterpretation in the absence of information, your brain fills in gaps using its models these can be accurate or inaccurate can be updated by new information and totally change repeatedly recalling and rewriting info can help change it in your brain process for reinterpreting past events: 1 identify the bad pattern 2 name the underlying belief 3 identify source of belief in memory, including sensory detail if possible 4 describe possible alternative interpretations 5 realize that original belief is product of interpretation, not total reality 6 consciously reject original belief as inaccurate 7 consciously accept reinterpretation as accurate try to reinterpret to get a view that helps increase present & future benefit, not necessarily accuracy motivation emotional state linking feelings to actions about moving toward desirable things and away from undesirable things drive to avoid bad things generally more powerful than moving toward good ones remember that motivation systems evolved in different environment conflicts can prevent you from acting on things you want to do remove the avoidance stuff to help inhibition ingrained habits run pretty easily on autopilot, but sometimes you need to override them willpower is what allows inhibition willpower depletion the ability to override instincts is powerful but takes effort can be depleted over time, biologically uses glucose adjust your environment to make willpower less necessary or more efficient it's easier to not buy ice cream now than to resist eating it throughout the week provide easier alternatives, this leverages your natural laziness it eventually runs out, this is normal and not necessarily a character flaw loss aversion people hate losing things more than they like getting them ~ 2x as strong of a feeling (even if they didn't really have it there's an effect) part of why people are risk averse best way to overcome it is to try to reinterpret the loss casinos abstract the losses of players so help offset this effect provides more tangible benefits to help more part of why risk reversal is important exploit your better ability to accept loss than the customer people hate feeling stupid threat lockdown when your brain goes into protection mode and stops functioning at an awesome high level often an overreaction in modern situations even awareness of the possibility of threat can cause it mental simulations can get too into it don't try to actively repress the sense of threat studies show this doesn't work and sometimes makes it worse instead try to think "okay, I see the threat, but it's safe to go anyway" 1 convince your mind the threat wasn't real 2 convince your mind the threat is handled over time you accumulate stress hormones, and it will take time to get out of the feeling try to put your body in less stressful situations, exercise, sleep, etc cognitive scope limitation there are limits to how much a person can keep track of and care about outside of this, sometimes we don't even process things right knowing about 1 death vs knowing about 1 million vs knowing about 1.1 million people sometimes make stupid decisions not because they're evil, but because they weren't aware or didn't even think about it try to personalize an issue to avoid this newspaper rule assume your decision was on the front page of the news, what would friend think of it grandchild rule imagine 30 years from now you have to explain your decision to your grandchild association your brain automatically generates connections (fire together wire together sort of stuff) notice how commercials exploit this to avoid this yourself, try to objectively analyze and measure things absence blindness people don't easily notice what isn't there makes it hard for them to value preventative things, even if they work really well a great skill is to identify and account for potential problems unfortunately others might not recognize your accomplishments keep aware of this: an effective but boring manager might be your best employee people can overvalue action when doing nothing is a better alternative accruing experience can help alert you to missing features checklists and schedules can help avoid this problem contrast our perceptions effortlessly detect contrast can be used to influence purchase decisions "pricing camouflage" large values near small values makes the small values seem insignificant useful for upselling, or conveying a sense of value framing helps control perception of contrast you can compare your product to much more expensive but not necessarily interchangeable alternatives scarcity people like to wait, sometimes forever the threat that offers disappear triggers loss aversion and encourages action now 1 limited quantity might miss the opportunity 2 price increases convey that price will go up 3 sale if you convey it is temporary and price will go up 4 deadline time limited blatant artificial scarcity can backfire, feel manipulative don't say "limited supply of ebooks" but you can say "price will double after the first 1000 sales" novelty people lose interest and attention rapidly, order of 10 minutes, 30 if super motivated novelty combats loss of focus try to break up content into < 10 min modules, lead with hooks ------------------------------ WORKING WITH YOURSELF ------------------------------ monoidealism the state of focusing all energy and attention on one thing without conflicts flow state eliminate distractions and interruptions it's hard to get into complex tasks, but easy to fall out kick-start attention by doing a dash set aside 10 - 30 minutes for a small burst of work, then try to to transition into more work timer technique set timer for 25 minutes, during which you focus on a single task after, take a 5 minute break meditation is a form of resistance training cognitive switching penalty the cost of changing focus or attention you spend some effort and time just transitioning from one task to another a kind of friction group similar tasks together to help minimize four methods of completion completion doing the task yourself deletion eliminate the task if it's not worth doing delegation assign to someone else who will do it well enough cheaply enough deferment deprioritize it, come back to it later most important tasks a critical task that creates important results not everything is critical what are 2 or 3 most important things to do now what things if completed now would make the biggest difference setting artificial deadlines can help get these done categorizing things like this can help you ignore potential interruptions eg okay to ignore a call now, this is a critical task with a deadline goals statement clarifying precisely what you want to achieve if your goal is fuzzy, it's hard to simulate and plan, motivate once you have a goal and decide to go for it, your brain starts trying to find paths to it most useful if framed as positive, immediate, tangible, specific easiest if they are framed as actions you can take, not results of ongoing action it's okay to learn that a goal isn't what you wanted and update it states of being a quality of present experience people sometimes mistake a state like happiness for an achievement they can "get" try to break down a state into more actionable components "want to be happy" vs "feel free to choose what I work on, minimize stressful interactions" habits regular actions that support us small habits accumulate require willpower to create, can be eased by changing environment set up triggers or links to existing habits to remind and make them easier focus on one habit at a time, willpower is limited priming make the brain more likely to notice or react to situations (uses the fire together wire together sort of stuff) conscious or unconscious goal setting helps prime decision act of committing to a specific action always made with some missing information (otherwise, it's not really a decision) not acting is an implicit decision loss aversion contributes to procrastination if the decision is very difficult, it's often because it doesn't really matter it's just hard to distinguish between similar options to help break ties, think about which experiences are more interesting five-fold why technique to help discover what you actually want, root causes once you have a goal, keep asking why until it just hits a primitive "because I want it" might be easier to obtain the more fundamental thing five-fold how method for connecting desires to actions repeatedly, inductively ask how helps generate smaller, more actionable pieces helps motivate next action the next specific thing you can do to help move toward the goal can focus on this instead of the entire project externalization brains often handle outside information better than inner stuff take advantage of perceptual abilities by converting internal thoughts into an external form reinput information from multiple channels write, speak, etc to force yourself to convey and absorb info in different ways self-elicitation ask yourself questions and try to answer them good questions can reframe or expose subtleties, lead to new insights behavior question method thing try logging and figuring out these things about the behavior you want to change before: when did it happen, with whom, what was going on, where, what were you thinking/feeling behavior: what did you start doing, thinking, feeling after: what were the results, what pleasant aspects, unpleasant aspects try to develop a habit of assessing things using this counterfactual simulation applied imagination actively consider hypothetical situations and let your mind predict assume it's already happening, see what happens next parkinson's law work expands to fill the time available observation that suggests imposing (realistic but challenging) deadlines split your day into small chunks and think about how to waste as few as possible doomsday scenario when counterfactual simulation takes all the worst case turns realistic ones usually still lead to something manageable, even if it sucks try to reinterpret failures, see positive learning aspects, accrued contacts, etc externalize fears to help expose that they're overreactions excessive self-regard tendency dunning kruger effect the natural tendency to overestimate your own knowledge and abilities optimism is good, but check your assumptions incompetent people overestimate their skill, fail to recognize skill of others, don't understand how much they don't know, but can recognize their incompetence later when trained starting to learn forces you to confront being consciously incompetent which leads to feelings of diminished confidence humility and awareness helps self-correct this problem advisors can help inform you of your stupidity can assess yourself by setting a target and watching how you fail develop relationships with people who know more and will disagree with you confirmation bias natural tendency to pay more attention to information that supports your current beliefs to combat, actively look for things that prove you wrong, and assess them remember, people hate feeling stupid or wrong hindsight bias natural tendency to feel stupid about failures or to think they were more obvious than they were remember decisions are always based on incomplete information, and models always have some inaccuracy so some failures have to happen unfortunately sometimes as a result of misdirected attention, but this is inevitable as well try to reinterpret mistakes in more positive way focus on what about it helps you when moving forward even if its just "well, now I understand the importance of ___ and won't forget it as easily" performance load the more tasks you have, the worse your performance tends to be risk failure, underperformance, burnout set limits to help avoid this problem but don't forget that this can have consequences a crazy manager who expects you to work 20 hour days could fire you if you say no like cash reserves, scheduled time reserves helps account for surprises downtime isn't necessarily wasteful energy cycles be aware of your natural tendency to work better on different tasks at different points in the day 1 learn your own patterns track how you feel at different parts of the day 2 maximize your peaks plan your day to take advantage of your good times 3 take breaks it's more efficient to rest during down periods 4 get enough sleep prolonged sleep deprivation exaggerates down periods stress and recovery try to learn how much you can take, how your body handles it, and how you recover then try to operate at a good, sustainable rate testing make testing a habit try something new and apply iteration cycles to your life random approaches or read about others and try it out externalize your results suggested structure: observations, knowns, hypotheses, tests, results example questions: how much sleep, what foods are good, when are you most productive, when do you get good ideas, what stresses you mystique mystery and unknown factors can make things seem more attractive than they really are hard to account for the negative aspects that aren't obvious try to have conversations with people who've actually done it try to learn the real trade-offs involved locus of control understand what you can actually change trying to control things you can't is wasted effort and stressful environment & situations control a lot of things you can't avoid setting goals that conflict with these things attachment attachment to specific plans or ideas limits flexibility and reduces chance of success apply the concepts about sunk cost to yourself determine and accept when plans are no longer feasible, and adapt personal research and development don't forget to invest in your own testing, education, and infrastructure creates opportunities and increases efficiency ability to save at a fixed income is limited, ability to increase income is less limited growth mindset your skills and abilities are able to change and develop remaining aware of this makes you more likely to continue despite difficulty ----------------------------- WORKING WITH OTHERS ----------------------------- power the ability to influence the actions of other people influence or compulsion, the difference is mostly in the subjects feeling everyone relies on some kind of power to accomplish things increase influence and reputation accept that you are part of the politics even if you don't like it comparative advantage it's more efficient to segment responsibilities and specialize (but remember the risks associated with not diversifying) even in individual person things: you can build it yourself or hire a contractor and take a part time job in that time diversity creates value if you can capitalize on skill differences self-education is still useful because it gives you a baseline ability to evaluate the work of others communication overhead the friction & cost of devoting effort to relaying information big companies suffer from bureaucracy and communication growth symptoms of breakdown 1 invisible decision lack of transparency in the decision making process 2 unfinished business lots of started tasks, few completed ones 3 coordination paralysis too many interconnected things to check with 4 nothing new no new ideas, lack of initiative 5 pseudo problems magnification of minor issues 6 embattled center lots of conflicts with small or regional teams 7 negative deadlines deadlines become more important than quality 8 input domination individuals spend all their effort reacting instead of proposing solutions make teams smaller and leave people out to help solve this when including them causes more work than it creates in benefit studies suggest teams of 3 to 8 people (but popular bezos quote is something about "two pizza teams") think elite and surgical strike force kind of teams small teams require less communication and develop more efficient communication methods having the right language is important importance everyone wants to feel important, and values relationships that make them feel important conversely, people devalue things that make them feel unimportant people can detect fake personalization happens naturally if you pay attention, honestly ask questions, and attempt to understand (you don't have to be their best friend, just their best vendor) safety putting others down harms effective communication people disengage from conversations they don't like criticism or even a sense that they're being scrutinized can trigger this sometimes unavoidable but there are better and worse ways of doing it STATE model Share facts facts are easier to treat objectively than inferences, start with them Tell your side explain your point of view, what you saw from the facts vs expectations, avoid judgment Ask for others' get other side, what they saw, expected, intended Encourage test offer and request suggestions to improve the process for both sides golden trifecta appreciation express gratitude even if things aren't perfect courtesy politeness, accepting small inconveniences respect honor their status, don't be rude to waitstaff reason why people are more likely to comply with requests if you give a reason even if it's a stupid reason and not much more than just a "because" but avoid weird status things commander's intent when you assign tasks, explain why and the intended purpose of the task avoid trying to micromanage and control how it is done, if possible this makes people feel less important and interested makes them dependent on you when the plan hits a snag if people understand why and the purpose, they are better able to adapt independently delegate the hard part of adapting to the people who are experiencing the challenge bystander apathy natural tendency to avoid acting in the presence of others who could act 1 encourage personally standing up and taking responsibility until explicitly relieved by someone with more experience 2 direct commands and requests clearly and to specific individuals so that they feel more compelled ensure tasks have single, clear owners and deadlines even if that person is allowed to delegate to a team planning fallacy people are bad at planning and have a tendency to underestimate cost and time plans rely on guesses and interpretation, i.e. gap filling and models interdependence increases risk and are hard to imagine the sense probably has to be built through experience unless you can do awesome stats what happens if there's a delay and then someone gets sick and then a storm hits unfortunately, accounting for this needed slack is usually looked down on individual plans are often useless but the act of planning is useful referrals people prefer to interact with those they know and like referrals help transfer someone's trust you can only get it if the person feels generous or if you will perform well and generate more trust obscure commonalities can help generate trust from same area, background, etc clanning natural tendency to form distinct groups and view others as objects to break this down, need to form a sense of larger connection challenges to solve together united by common enemy be aware of this tendency and how you might fall into it yourself convergence and divergence convergence tendency to become like others in your group used conciously, can help change habits more easily and adapt traits divergence tendency for groups to drift apart and specialize consider how your social group relates to your goals social signals tangible indicator of some intagible quality about social status or group affiliation they have real value so offer them in a product if you can build associations social proof people have a tendency to follow and mimic others testimonials realistic ones do better people are desensitized to "this is the best" prefer relateable stories like "I was doubtful, purchased anyway, very pleased" authority people have a tendencey to trust authority figures, even if they're fictitious authority figures it's a social status thing develop reputation and authority be mindful of your own biases, and the biases of others if you have authority commitment and consistency people feel bad about being inconsistent or breaking promises might be more likely to agree to later action than do it now and then feel more compelled to do it then when called on to keep promise eg think about "carts" in online stores this can be subtle: if a customer expresses interest, you can do something that clearly requires effort, like pull heavy item off the rack to show them, provokes need to reciprocate incentive-caused bias people with a vested interest will guide you toward their interest eg agents paid on commission want to close deals, not necessarily maximize your value sales agents might be motivated to harm long term reputation of company for personal benefit suggestion: drop commission, pay by salary and long-term focused bonuses (eg repeat customers) stock options dont necessarily induce long-term activity just drive up the stock price right before exit incentives interact with perceptual control systems employee bonus for something good might make them stop working if they suddenly become weirdly aware of it and lose interest ie play becomes a chore modal bias the assumption that our idea or approach is best businesses often (incorrectly) defer to the highest paid or ranking person this is why data-driven stuff is important encourage inhibition and awareness, keep open mind, look for validity pygmalion effect people have a tendency to perform to the expectations others have of them good or bad treat coworkers like they show promise, perform well this doesn't mean to expect them to perform unrealistically expectation effect our perception of someones work is affected by our expectations about it attribution error tendency to blame the character of others when they fail, but blame circumstances when we fail sometimes someone excels despite pressing circumstances and we only see the failure not how it could have been worse try to find out what led to a situation, and what the person did to mitigate it option orientation instead of focusing on problems, focus on solutions when you convey problems, try to include options and show initiative offer cost/benefit and open it for review or follow up questions management coordinating a group to achieve a goal while accounting for change and uncertainty 1 recruit small group that can accomplish the task effectively, use comparitive advantage 2 communicate desired result, delegate clearly and to specific people, explain status of project convey commander's intent and reason why 3 appreciation, courtesy, and respect, encourage team cohesion and usefulness of manager 4 create environment for productivity, remember cognitive switching penalty 5 maintain realistic expectations, make aggressive plans, but account for planning fallacy and uncertainty, reassess as you go, and maintain sustainable effort 6 measure results using key indicators, update them if needed, experiment --------------------------- UNDERSTANDING SYSTEMS --------------------------- gall's law functional complex systems typically grow from functional simple systems rather than having been designed in total from scratch kind of like bootstrapping complexity has to do with the difficulty of designing interdependency and accounting for uncertainty prototyping and iteration are usually more effective (generally, iteration is an local optimization method the math behind this is it's hard to figure out optima of complicated spaces easier to guess and then move in the right direction but this risks getting stuck in local optima which is why new guesses and big jumps need to be made) flow movement of resources into and out of system or subsystem inflow, outflow stock pool or reserve of resources during flow, resources tend to or need to accumulate somewhere happens when inflow is higher than outflow or when intentionally reserved for safety you can adjust these numbers as absolutes or as a ratio try to put stock to use or minimize it if you don't need it for safety slack excess stock over operating needs might need it for safety, or just have it and not need it remember that storage costs money, but running out costs money too constraint the limited availability of critical inputs five focusing steps 1 identification examine system to find limiting factor 2 exploitation ensure component resources are deployed well for that factor eg reallocate or restructure employee schedules 3 subordination redesign the system around the constraint eg make another input more difficult, but this one much less 4 elevation permanently increase the capacity for this constraint typically expensive, like buying more manufacturing equipment 5 reevaluation after change, reassess, the top constraint might have changed feedback loop whenever the output of a system is part of the inputs of the next cycle this is how systems learn reinforcing loops amplify output with each cycle, runaway growth or decay autocatalysis concept from chemistry (self catalyst) when output produces the inputs needed to start again, amplifying the cycle compounding feedback loop environment the structure in which the system operates primarily impacts flows selection test environmental constraints that determine which systems can self perpetuate and which die off think about evolution they change when environment changes this is why established businesses can die if they don't adapt fast enough and new businesses can come into existence if you identify the selection tests more accurately than others you can specialize and fit better (this is a general theme for patterns and replication) uncertainty risks are known unknowns we are aware of the variable but we don't know its value uncertainties are unknown unknowns we don't even know the variable and its impact all you can do is try to be robust and resilient so that you can react when others can't it's hard to justify accounting for these to people who don't accept their reality you can't historically justify unknown events you can't quantify their impact but they're a reality not accounting for them is a gamble that often pays off so sometimes you need to pretend they don't exist in order to compete people hate uncertainty, because of loss aversion and threat lockdown plan for flexibility rather than trying to guess which crazy thing will happen change it happens. interdependence complex systems often have high interdependence form of risk "critical paths" need to be followed, failure along the chain cascades changes and improvements can propogate try to minimize dependencies and sequence dependence dependency has a risk and cost, so removing it at a cost might be okay counterparty risk possibility that other people will fail to deliver what you need from them the risk of your systems dependence on someone else's amplified by the planning fallacy your partners also can't predict the future try to account for their possible failure even if that's just a backup plan on who to go to next second order effects the consequences of consequences typically unexpected and unintended sometimes directly conflicting with the intended consequences blowback sort of stuff normal accidents the occurence of problems is normal when new problems are discovered, try to find ways to solve them which do not add to complexity ie don't solve problems by introducing more failure points use problems to identify areas for improvement to avoid problems, decrease interdependency or provide multiple paths to succesful outcomes ---------------------------- ANALYZING SYSTEMS ---------------------------- deconstruction systems are often too complicated to understand all at once separate into subsystems and build up understanding from there learn how to black box parts of systems subsystems are sometimes arbitrary definitions, make useful and convenient definitions diagram, flow chart, understand in/out flow, implications about the system measurement collecting data while running the system helps avoid absence blindness if you want to improve something, you need some kind of measurement of it to get feedback (you have to decide what to measure this is typically informed by experience and intuition but you can experiment with it) key performance indicator the critical measurements you decide to make bad variables can mislead or just be useless and divide attention easy to measure is not the same thing as important, there's a trade-off many measurements are indirect ways to get at something more important understand the implications behind assigning value to measurements eg lines of code written kind of measures productivity, but super efficient coders might be undervalued by it this can create bad incentives if you reward lines of code produced understand that measurements are usually just shadows of what you're really interested in questions to help determine KPIs, based on 5 parts of every business value creation how quickly is it creating value, how are inflows marketing how many people noticing us, how many people are interacting, providing access sales how many are becoming paying customers, what is LTV value delivery how quickly can you serve, what are returns or complaints finance profit margin, costs, purchasing power, sufficiency garbage in garbage out in production and also in decision making bad data leads to bad decisions try to understand assumptions about the data and determine its quality analytical honesty measure and analyze data disapassionately and objectively understand that some teams will have an incentive to keep measurements inaccurate eg inflated visitor counts have systems evaluated by people who are not invested or incented to find problems context use related measurements to provide additional info about data an indicator on its own isn't useful eg revenue is not helpful without knowing costs understand how measurements influence and relate to each other if you don't understand why an indicator changed, look at other or more simple indicators for help sampling taking a small random percentage of something to estimate a value for the whole thing can passively draw sample from data or actively, secretly go into your business and interact with it prone to bias if not really random confidence interval an interval and associated confidence for where the actual value of a variable is a measure of confidence in a particular analysis generally gets better with more samples (depends on assumptions about underlying distributions, that's how stats theory works) ratio when you divide something by something else helps describe relation between two values which vary similarly with scale (because k*a / k*b is the same as a / b) eg conversion percentage is #buyers / #visitors useful ratios return on assets (equipment), capital (borrow), marketing, employee hiring complaints per sale mean median mode midrange mean sum of values divided by how many values simple but skewed by outliers median the number such that half the values are below and half are above specific example of a percentile (namely, 50th) comparing mean and median can tell you the direction of skew mode the most frequent value that occurs in the data this is a common, typical value if data is smooth, this helps find clusters in data you can measure multiple "local" modes midrange the value halfway between the minimal and maximal value points (i.e. (m + M)/2 ) easy but skewed by outliers correlation and causation causation is the relation between something happening and its effect a strong relationship where if you manipulate the earlier thing, you control the later thing kind of a temporal thing correlation is just a detected pattern in data it might suggest causation, but it could be totally coincidental, or backwards it's harder to isolate variables in complex systems don't run conflicting tests at the same time norms historical data that provides context for current measurement eg data might have seasonal fluctuation, you need to account for this during tests over seasons proxy obtaining info about a variable by measuring something else sometimes it's too hard to measure something directly, so you have to infer or understand it via other stuff (this is how LTV is predicted, for example, you have to estimate it based on measurements like acquisition rates, retention rates, conversion rates, transaction sizes and frequencies) the validity of proxies is demonstrated by formulas (eg you can write LTV = sum over ...) or by intuitive/experienced understanding of correlation (don't be mislead by correlations though the book mentions a study saying stuff like 88% of the time a region has the mouse cursor the user also looks there, etc you might conclude that cursor position is a great proxy for visual attention but maybe that other 12% is super important, higher weight areas) segmentation splitting data into subgroups to help apply more granular context averages have the inherent downside of masking important information eg knowing orders increased 50% is one thing knowing they stayed the same in California but doubled in Texas is another (think about a topographical map showing the height of regions the average elevation of the US doesn't demonstrate the mountains, valleys etc it gets more accurate as you break it down further) three common ways to segment 1 actions group by previous actions known in sales data 2 demographics observable personal characteristics like age and income 3 psychographics internal personal characteristics like attitudes or values humanization don't forget human aspect try to use data to understand a real human story or experience eg decreasing phone wait time from 10 to 8 minutes sounds big in percentage but is pretty much just as bad from the user perspective segmenting users can help identify different kinds of users, their experiences and desires create fictional user personas and interpret through that perspective ------------------------------- IMPROVING SYSTEMS ------------------------------- optimization trying to achieve some target or quality of a performance indicator maximization, minimization, etc often involves trade-offs refactoring improving a system to make it more efficient without changing the output deconstruct the system, look for patterns and order, evaluate constraints the critical few a common theme is that most value is derived from a few factors, people, etc 80/20 idea this affects where you should direct focus improve the few factors, important factors by a little improve the impact of the many, less important factors by a lot this is part of why segmenting is important similarly a lot of trouble might be from a few users you might be able to remove or ignore diminishing returns when things start generating less and less value as you invest more and more it's often better to do many things pretty well than one thing at the super best top level ever try to be aware of this transition, and shift focus to something with better ROI friction the processes that remove energy from a system try to identify it and incrementally improve automation operation without human intervention if you're repeatedly doing the same thing and there are implicit rules, see if you can automate it paradox of automation automation is an amplifier if it's going well, it's way more efficient if it breaks, it might destroy a lot quickly eg causing expensive recalls if you automate and don't have observation, you might not notice opportunities to improve people inherently learn patterns and might think about problems that arise automation requires more consolidated, critical oversight irony of automation the more reliable the system, the less oversight is required, so the less attention gets paid but this makes it harder to notice the failures use rigorous and ongoing testing standard operating procedure predefined process to address a task or common issue helps reduce friction and willpower needed checklist externalized standard op procedure for completing something helps ensure things aren't forgotten people easily forget things that should be trivial to them because of stress or busy environments cessation choosing to stop doing something that is counterproductive we have a tendency to try to fix or improve things sometimes it's better to just drop the project or to choose to not act resilience having the flexibility to deal with uncertainties or risks never optimal to have this in the short term but long term it's the only thing that keeps you around cash reserves, scheduled free chunks of time, diversification, etc low debt, low overhead, flexible workers, distributed points of failure, backup plans fail-safe a backup system for critical primary system failures avoid having single points of failure diversify backup plans stress testing identify the boundaries of your system by simulating environmental conditions find out what breaks your system scenario planning systematically constructing hypothetical situations and imagining and planning what to do don't try to predict unknowable things aim for likely situations and flexible strategies the middle path the balance between too much and not enough try to understand the range of options experimental mindset incline yourself toward testing and paying attention to results so that you can learn patterns --------------------------- APPENDIX A --------------------------- The book has a book list for different topics covered ------------------------------------------------- QUESTIONS TO HELP IMPROVE YOURSELF AND BUSINESS ------------------------------------------------- my body what is the quality of my diet, do I get enough sleep, am I managing my energy well each day, am I managing my stress well, do I have good posture, how can I improve my ability to observe the world what I want what achievements would excite me, what states do I want to experience each day, are my priorities and values clearly defined, can I make decisions quickly and confidently, do I focus on what I want or what I don't want fears do I have an honest list of fears I have, have I confronted how to handle each, can I recognize self limitation, am I pushing myself clarity and focus do I systematically externalize what I'm thinking, can I make it easy to capture my thouhgts quickly, what has my attention, am I asking myself appropriate helpful guiding questions, do I focus on individual tasks or try to multi task, do I reflect on things confident, relaxed, productive do I have a good planning method, am I organized just enough, up to date list of projects, do I review committments regularly, do I take breaks from work, am I consciously working on better habits, best performance what do I enjoy, what am I good at, what environments are best for me to work, how do I learn best, how do I prefer to communicate and work with others what is holding me back right now happiness how do I define success, is there another way to achieve this success, how often do I compare myself to others, am I living below my means, if I could only keep ____ things what would the be, can I separate necessity from luxury, what am I grateful for