5 Parts of every business
- Creates and delivers something of value
- That other people want or need
- At a price they’re willing to pay
- In a way that satisfies the customer’s needs and expectations
- So that the business brings in enough profit to make it worthwhile for the owners to continue operation.
Kaufman, Josh. The Personal MBA: A World-Class Business Education in a Single Volume (p. 38). Penguin Books Ltd. Kindle Edition.
5 Interdependent core parts
- 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.
Kaufman, Josh. The Personal MBA: A World-Class Business Education in a Single Volume (pp. 38-39). Penguin Books Ltd. Kindle Edition.
5 Core Human Drives
- The Drive to Acquire. The desire to obtain or collect physical objects, as well as immaterial qualities like status, power, and influence. Businesses built on the drive to acquire include retailers, investment brokerages, and political consulting companies. Companies that promise to make us wealthy, famous, influential, or powerful connect to this drive.
- The Drive to Bond. The desire to feel valued and loved by forming relationships with others, either platonic or romantic. Businesses built on the drive to bond include restaurants, conferences, and dating services. Companies that promise to make us attractive, well liked, or highly regarded connect to this drive.
- The Drive to Learn. The desire to satisfy our curiosity. Businesses built on the drive to learn include academic programs, book publishers, and training workshops. Companies that promise to make us more knowledgeable or competent connect to this drive.
- The Drive to Defend. The desire to protect ourselves, our loved ones, and our property. Businesses built on the drive to defend include home alarm systems, insurance products, martial arts training, and legal services. Companies that promise to keep us safe, eliminate a problem, or prevent bad things from happening connect to this drive.
- The Drive to Feel. The desire for new sensory stimulus, intense emotional experiences, pleasure, excitement, entertainment, and anticipation. Businesses built on the drive to feel include restaurants, movies, games, concerts, and sporting events. Offers that promise to give us pleasure, thrill us, or give us
Kaufman, Josh. The Personal MBA: A World-Class Business Education in a Single Volume (pp. 42-43). Penguin Books Ltd. Kindle Edition.
10 Ways to Evaluate the Market
- Urgency — How badly do people want or need this right now? (Renting an old movie is typically low urgency; seeing the first showing of a new movie on opening night is high urgency, since it only happens once.)
- Market Size — How many people are actively purchasing things like this? (The market for underwater basket weaving courses is very small; the market for cancer cures is massive.)
- Pricing Potential — What is the highest price a typical purchaser would be willing to spend for a solution? (Lollipops sell for $ 0.05; aircraft carriers sell for billions.)
- Cost of Customer Acquisition — How easy is it to acquire a new customer? On average, how much will it cost to generate a sale, in both money and effort? (Restaurants built on hightraffic interstate highways spend little to bring in new customers. Government contractors can spend millions landing major procurement deals.) Cost of Value
- Delivery — How much would it cost to create and deliver the value offered, both in money and effort? (Delivering files via the Internet is almost free; inventing a product and building a factory costs millions.)
- 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? (There are many hair salons, but very few companies that offer private space travel.)
- Speed to Market — How quickly can you create something to sell? (You can offer to mow a neighbor’s lawn in minutes; opening a bank can take years.)
- Up-Front Investment— How much will you have to invest before you’re ready to sell? (To be a housekeeper, all you need is a set of inexpensive cleaning products. To mine for gold, you need millions to purchase land and excavating equipment.)
- Upsell Potential — Are there related secondary offers that you could also present to purchasing customers? (Customers who purchase razors need shaving cream and extra blades as well; buy a Frisbee, and you won’t need another unless you lose it.)
- 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? (Business consulting requires ongoing work to get paid; a book can be produced once, then sold over and over as is.)
12 Standard forms of value
- 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, 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 predefined 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 predefined period of time equal to the original loan plus a predefined interest rate.
- Option. Offer the ability to take a predefined 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 predefined 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.
Kaufman, Josh. The Personal MBA: A World-Class Business Education in a Single Volume (pp. 49-50). Penguin Books Ltd. Kindle Edition.
Perceived Value determines how much your customers will be willing to pay for what you’re offering. The more valuable a prospect believes your offer is, the more likely they’ll be to buy it, and the more they’ll be willing to pay. The most valuable offers do one or more of the following: Satisfy one or more of the prospect’s Core Human Drives. Offer an attractive and easy-to-visualize End Result (discussed later). Command the highest Hassle Premium by reducing end-user involvement as much as possible. Satisfy the prospect’s Status Seeking tendency by providing desirable Social Signals (discussed later) that help them look good in the eyes of other people.
Kaufman, Josh. The Personal MBA: A World-Class Business Education in a Single Volume (pp. 64-65). Penguin Books Ltd. Kindle Edition.
The Iteration Cycle
The Iteration Cycle is a process you can use to make anything better over time. There’s nothing wasteful about the inevitable changes and revisions that these artists made to their creations: every iteration brought the project one step closer to completion. Iteration has six major steps, which I call the WIGWAM method: Watch— What’s happening? What’s working and what’s not? Ideate— What could you improve? What are your options? Guess— Based on what you’ve learned so far, which of your ideas do you think will make the biggest impact? Which?— Decide which change to make. Act— Actually make the change. Measure— What happened? Was the change positive or negative? Should you keep the change, or go back to how things were before this iteration?
Kaufman, Josh. The Personal MBA: A World-Class Business Education in a Single Volume (pp. 68-69). Penguin Books Ltd. Kindle Edition.