Master the art of business by reading this book and save tens of thousands and years of your life compared to finishing an MBA program at college. Kaufman distills the important aspects personal and business administration and leadership into easily absorbed chunks, delivered in a logical structure. Key insights:
To remain viable every business needs to design a product (or service) people want, build attention and attract demand for it, turn prospects into paying customers, deliver the product, and bring in enough money to make the endeavor worthwhile.
The 12 types of value are product, service, shared resource, subscription, resale, lease, agency, audience aggregation, loan, option, insurance, and capital. Many organizations offer more than one type
Systems Thinking is an highly effective way to design and improve business processes
Management is assembling small competent teams, communicating current status and end goal, treating people with respect, providing a focused and productive environment, having aggressive but realistic plans, and measuring progress and adjusting as required.
Keep communication overhead (time-talking/time-working) low by using small focused teams
When delegating a task, also communicate the purpose behind the task
The relationship Golden Trifecta involves appreciation, courtesy, and respect
Planning is essential because it helps you understand requirements, dependencies and risks. Plans don’t have to be 100% accurate or predictive to be useful
Monitoring Key Performance Indicators – the performance of critical aspect of your business system – is essential to managing and improving your organization
Removing friction – an process that removes energy from a system – is a good way to increase quality and efficiency
Book details
Full title: The Personal MBA: Master the Art of Business, by Josh Kaufman
Length: 464 pages, or 13 hours and 25 mins on Audible
Introduction to the Personal MBA
Kaufman starts simple by noting that every business needs value creation, marketing, sales, value delivery, and finance in order to remain viable. Take away any one of these five elements and you no longer have a business. Without value you have a hobby, without attraction you have a flop, without sales you have a charity, without value delivery you have a scam, and without profits you have a bankruptcy-in-work. This is true whether the business is Boeing, Facebook, or your favorite local café. What are these five elements?
Value Creation: Discovering what people need or want, then creating it.
Marketing: Attracting attention and building demand for what you’ve created.
Sales: Turning prospective customers into paying customers.
Value Delivery: Giving your customers what you’ve promised and ensuring that they’re satisfied.
Finance: Bringing in enough money to keep going and make your effort worthwhile.
Key insight 1: Understanding business and value creation
In this key insight we are focusing on the first step – value creation. Kaufman describes 12 standard forms of value that owners can choose to offer. Businesses must be at least one, but can be several of these.
Product: Create a single tangible item or entity, then sell and deliver it for more than what it cost to make.
Service: Provide help or assistance then charge a fee for the benefits rendered.
Shared Resource: Create a durable asset that can be used by many people, then charge for access.
Subscription: Offer a benefit on an ongoing basis, and charge a recurring fee.
Resale: Acquire an asset from a wholesaler, and then sell that asset to a retail buyer at a higher price.
Lease: Acquire an asset, then allow another person to use that asset for a pre-defined amount of time in exchange for a fee.
Agency: Market and sell an asset or service you don’t own on behalf of a third-party, then collect a percentage of the transaction price as a fee.
Audience Aggregation: Get the attention of a group of people with certain characteristics, then sell access in the form of advertising to another business looking to reach that audience.
Loan: Lend a certain amount of money, then collect payments over a pre-defined period of time equal to the original loan plus a pre-defined interest rate.
Option: Offer the ability to take a pre-defined action for a fixed period of time in exchange for a fee.
Insurance: Take on the risk of some specific bad thing happening to the policy holder in exchange for a pre-defined series of payments, then pay out claims only when the bad thing actually happens.
Capital: Purchase an ownership stake in a business, then collect a corresponding portion of the profit as a one-time payout or ongoing dividend.
Consider Apple, it offers products (iPhone, iPad, etc), services (premium Genius bar), subscriptions (Apple Music, storage), agency (apps on devices, access to platforms), and insurance (device damage). If you’re starting a business, review this list to be precise in what value you are creating. If you’re already in a business, review the list to see if you can provide more value.
For www.eruditeable.com, we aim to provide value now via agency (selling books for authors as an Amazon Associate). However, in time we may be able to offer unique products (books or artefacts developed by us), a service (consulting or seminars), or audience aggregation (website advertising). Having this list helps one realize the full value of a venture.
As a very useful tool, Kaufman offers a checklist of 10 items as a way to evaluate a potential market. This is a must if you are considering starting a new business or expanding and existing business alongside any other analysis you might choose to complete. Rate each factor from 0 (extremely unattractive) to 10 (extremely attractive) being conservative in your estimates.
Urgency: How badly do people want or need this right now?
Market Size: How many people are actively purchasing things like this?
Pricing Potential: What is the highest average price a purchaser would be willing to spend for a solution?
Cost of Customer Acquisition: How easy is it to acquire a new customer? On average, how much will it cost to generate a sale, both in money and effort?
Cost of Value-Delivery: How much would it cost to create and deliver the value offered, both in money and effort?
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?
Speed to Market: How quickly can you create something to sell?
Up-Front Investment: How much will you have to invest before you’re ready to sell?
Up-Sell Potential: Are there related secondary offers that you could also present to purchasing customers?
Evergreen Potential: Once the initial offer has been created, how much additional work will you have to put into it in order to continue selling?
Once you’ve scored each item add up the total result. If you get below 50, move on to another idea. Above 75, press ahead – the idea has potential. Between 50 and 75 your idea has the potential to pay the bills, but is unlikely to be a huge success with significant effort so plan accordingly.
For transparency, www.eruditeable.com scored 66 on this metric which seems about right to me. I’m pursing this because I’m passionate about self-education for the under-30s and aren’t planning to give up my day job. Here’s a few closing quotes that Kaufman cites in the book related to value creation:
“Make something people want…There’s nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you’ve found a gold mine.” Paul Graham, founder of Y Combinator, venture capitalist, and essayist at paulgraham.com
“So often people are working 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
Key insight 2: Understanding and improving business through systems thinking
The Personal MBA has so much great content it is hard to know which parts to choose as key insights. However, one part I especially liked what Kaufman’s discussion on understanding business as a system. This resonates with my experience as an engineer, pilot, and executive working in complex organizations. Here are a few key insights from the book on systems.
1. Value stream. The set of all processes from the start of your value creation to the end of your value delivery. Being able to visualize and understand your value stream is very important to being able to improve it. Improving it can be by increasing speed, quality, or resilience; or decreasing cost or errors.
For a product manufacturer this would involve raw materials delivery, then initial component manufacture, intermediate component assembly, final product assembly, product packaging, product palletization, delivery to final stores, placement on shelves, and final purchase by customer.
For a restaurant this would involve ingredient delivery, customer arrival and order, order preparation, order delivery, service follow up (e.g. desert), customer payment, and then table and dish cleanup.
For a tax agent service this would involve initial customer welcome, receiving tax information, asking clarifying questions, receiving additional information, completing calculations, explaining results to customer, submitting tax return and delivering the final report.
2. Flows. The movement of resources or information into and out of a system. Inflows are resources moving into a system – like raw materials or customer information in the above examples. Outflows are things moving out of the system like end products, meals, or tax reports. To understand the system you need to understand the overall, and process level system flows.
3. Stocks. Pools of resources that accrue in different parts of the system. This could be raw materials, ingredients, or customer details at the beginning of a system; or final products, meals waiting delivery, or tax return reports awaiting collection at the end of a process. To increase the stock of an item at any stage in a process, simply increase inflows and decrease outflows.
4. Slack. The amount of excess resources in a stock. We see problems with ‘stock levels’ in a system as either shortages or a lack of work; or excessive inventory or an over-worked stage. If a machine breaks down in an assembly line we’d see stocks of materials stack up ahead of the broken machine. Conversely shortages can cause product to stop, as would be the case in running out of raw ingredients at a restaurant.
5. Throughput. The rate at which your system achieves the desired goal. This could be final products manufactured, customers served, or tax returns completed per day – this is known as ‘unit throughput’. You can also have financial measures of throughput such as revenue or profit per day. Throughput is a measure of effectiveness of your value stream. Measuring throughput is the key to increasing it.
6. Constraint. The performance of any system is always limited by the availability of one constraint – what Kaufman calls a ‘critical input’. Imagine a simple chair manufacturing process with five steps as shown below:
Is the daily output of chairs for this system 5 (lowest value), 43 (sum of all values), 10 (most common value), or 8.6 (average of all values)?
The answer is 5 – since step 3 assemble chair has the lowest throughput rate and is thus the bottleneck. And this system would see a buildup in chair parts (stocks) ready for final assembly between steps 2 and 3; and a shortage of assembled chairs (stocks) awaiting painting at step 4.
If you wanted to improve overall system throughput how would you do it? The answer is found in the ‘Theory of Constraints’ which provides a five step process as follows:
Identify the system constraint (step 3 in this example).
Exploit the constraint (operate the machine continuously, make sure there are no breakdowns in the assembly equipment, no faulty products produced).
Subordinate the system to the constraint (move workers from steps 1, 2, and 5 to final assembly, increase assembly time from 8 hours/day to 12 hours/day).
Elevate the constraint by permanently increase the capacity of the constraint (buy additional machines).
Re-evaluate the system to identify if the constraint has moved (it will likely move to step 4 painting chairs in the above example).
By understanding your business as a system comprising value streams, flows, stocks, and constraints that result in unit and financial throughput; you have the tools you need to improve performance. Let’s close the section with a few quotes from Eli Goldratt – author of The Goal and developer of Theory of Constraints.
“What you have learned is that the capacity of the plant is equal to the capacity of its bottlenecks.”
“Since the strength of the chain is determined by the weakest link, then the first step to improve an organization must be to identify the weakest link.”
Key insight 3: Management in six simple principles
Kaufman defines Management as the act of coordinating a group of people to achieve a specific goal while accounting for any Change or Uncertainty. These are Kaufman’s six principles of Management:
1. Small competent groups. Recruit the smallest group of people that can do the job quickly and effectively. Elite small teams are best with size from 3-8 optimum to avoid Communication Overhead (see key insight 4 below).
2. Communicate current status and end goal. Communicate clearly the End Result, who is responsible for what, and the current status. Let the boss use Commander’s Intent (see key insight 5) to explain why the project is important, how it relates to other activities, and the outcomes to be achieved. The boss should not be specific on the process, leaving that to the team itself.
3. Treat people with respect. Use The Golden Trifecta consistently (see key insight 6 below).
4. Focused, productive environment. Create a productive environment, and then let people do their work. Provide them with quality resources and processes; avoid changing their focus at all (or at least often).
5. Aggressive but realistic plans. Have an aggressive plan to complete the project, but don’t have unrealistic expectations regarding certainty and prediction. Understand that while the plan is useless, the planning process is priceless (see key insight 7 below).
6. Measure progress and adjust as required. Measure what you’re doing to see if it’s working, and make the necessary adjustments and Experimentation.
Here’s a quote from Joel Spolsky explaining why managers should let people do their jobs:
“Stop thinking of the management team at the top of the organization. Start thinking of the software developers, the designers, the product managers, and the front line sales people as the top of the organization... The “management team” isn’t the “decision making” team. It’s a support function. You may want to call them administration instead of management, which will keep them from getting too big for their britches.
Administrators aren’t supposed to make the hard decisions. They don’t know enough. All those super genius computer scientists that you had to recruit from MIT at great expense are supposed to make the hard decisions. That’s why you’re paying them. Administrators exist to move the furniture around so that the people at the top of the tree can make the hard decisions.”
Other insights from The Personal MBA
4. Communication Overhead. The proportion of time you spend communicating with your team instead of getting productive work done. Communication is absolutely necessary, but as the size of your team increases, so does Communication Overhead. The solution is simple but not easy: make your team as small as possible. This will save everyone’s time and increase productivity.
5. Commander’s Intent. Means the boss or supervisor explaining why something must be done when assigning a task to someone. The more your taskee understands the purpose behind what must be done, the better he/she will do it. By being clear about the purpose behind a plan, others can act toward that goal without the need of constant communication.
6. Golden Trifecta. This is Kaufman’s way to make others feel important and safe when talking to me: Appreciation, Courtesy and Respect. Appreciation means expressing your gratitude for what others are doing for you, even if it’s not perfect. Courtesy is, simply put, politeness. Respect means honoring the other person’s status. It’s important to apply The Golden Trifecta to all your interactions with people, not just the ones you’re interested in.
7. Planning Fallacy. The tendency for people to underestimate completion times on complex projects. When planning, we imagine a scenario where everything goes well, and we underestimate the likelihood of things that could impact the plan. Planning is ESSENTIAL because it helps you understand requirements, dependencies and risks. Plans don’t have to be 100% accurate or predictive to be useful.
8. Key Performance Indicators. A measurement of the critical parts of a system are called Key Performance Indicators (KPIs), and paying attention to critical measurements can help you improve your business system. Anything that’s not directly related to a core business process or a system’s throughput is probably not a KPI. You shouldn’t need more than three KPIs for of the five parts of a business (so around 15 in total).
9. Friction. Any process that removes energy from a system over time. It’s necessary to continue to add energy to a system when there’s Friction to keep it moving at the same rate. Introducing Friction can sometimes make people behave in a certain way, like having to present a receipt when making a return, which can lower your return rate. But doing this too much can lower your Reputation. Remove Friction from your business to increase quality and efficiency.
10. And SO much more. This book is jam packed with knowledge with the insights here barely scratching the surface. There are 39 nuggets in the Value Creation chapter, 19 in Marketing, 10 in Sales, 13 in Value Delivery, 30 in Finance, 23 in The Human Mind, 32 in Working with Yourself, 24 in Working with Others, 15 in Understanding Systems, 16 in Analyzing Systems, and 20 in Improving Systems. That’s a total of 222 nuggets in this book. And Kaufman provides a web-link to each of them (see end of this summary for those used herein).
Why you should read this book if you’re under 30?
There are two reasons why this book is essential reading for those under 30. First, the chapters The Human Mind, Working with Yourself, and Working with Others are worth the admission price. You’ll learn a huge amount of knowledge that can help you improve your thinking and behaviors in the workplace which can dramatically improve your performance.
More importantly though, the remaining chapters focused on business provide an essential foundation for how businesses actually work. Highly recommended that you read this book if you've finished school and/or college and are in the workplace.
Relationship to other Eruditeable books
#3 – Atomic Habits. This book provides guidance on how to turn the information learned on personal work behaviors into daily habits.
#6 – The Magic of Thinking Big. This book’s focus on continual improvement is made easier with an understanding of business management from The Personal MBA.
#17 – Crucial Conversations. This book will help you have difficult conversations inside your organization with your boss, co-workers, and direct reports; and also externally with conversations with suppliers, regulators and customers.
#19 – Gifts Differing. This book will help you realize more about your personality, and how understand and work with people of all persuasions at work.
#20 – Influence. This book is the foundation treatise on market techniques and is a great complement to The Personal MBA.
#22 – Never Split the Difference. This book is a master class on negotiation strategies and tactics and expands on the content provided in The Personal MBA.
#23 – The Lean Startup. This book complements the business principles described in The Personal MBA especially in relation to startup business endeavors.
Book resources
About the author
Josh Kaufman is the bestselling author of books on business, entrepreneurship, skill acquisition, productivity, creativity, applied psychology, and practical wisdom. Josh's research focuses on business, entrepreneurship, skill acquisition, productivity, creativity, applied psychology, and practical wisdom. His unique, multidisciplinary approach to business mastery and rapid skill acquisition has helped millions of readers around the world learn essential concepts and skills on their own terms.
Josh has been featured as the #1 bestselling author in Business & Money, as ranked by Amazon.com, and his books have sold over half a million copies worldwide. Josh's research has been featured by The New York Times, The BBC, The Wall Street Journal, and many other publications. JoshKaufman.net was named one of the "Top 100 Websites for Entrepreneurs" by Forbes in 2013.
External links
Youtube video
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