There’s hardly a better book on learning the basics of business management – like making plans, selling things, and being a good leader – than “The Personal MBA: Master the Art of Business” by Josh Kaufman.
It’s one of the best resources for learning the fundamentals of building a career as a manager or an entrepreneur, with or without an MBA.
I first read it a decade ago while I was still completing on my undergraduate degree.
I read it again this summer, and found myself feeling just as inspired as I did the first time.
But this time I decided to squirrel away my favourite sections, so I can share and revisit them.
My favourite lessons from the chapter on Value Creation.
The chapter starts with a quote from Paul Graham, and this note won’t be complete without it:
“Make something people want… There’s nothing more valuable than an unmet need that is just becoming fixable. If you can find something that you can fix for a lot of people, you’ve found a gold mine.”
— Paul Graham, Founder of Y Combinator
In the book, Kaufman writes:
“The value you create can take on one of several forms, but the purpose is always the same: to make someone else’s life a little bit better. Without value creation, a business can’t exist – you can’t transact with others unless you have something valuable to trade.”
On understanding the core human drives, Kaufman explains the ERG theory:
“ERG theory: people seek existence, relatedness, and growth, in that order. When people have what they need to survive, they move on to making friends and finding mates. When they’re satisfied with their relationships, they focus on doing things they enjoy and improving their skills in things that interest them. First existence, then relatedness, then growth.”
Kaufman explains how all businesses sell some combination of:
- money,
- status,
- power,
- love,
- knowledge,
- protection,
- pleasure,
- and excitement.
The more clearly you articulate how your product satisfies one or more of these drives, the more attractive your offer is.
Any market where value creation can be monetised will attract competition.
And good competition is a boost when you know how to use it. Kaufman explains;
“The best way to observe what your potential competitors are doing is to become a customer. Buy as much as you can of what they offer. Observing your competition from the inside can teach you an enormous amount about the market: what value the competitor provides, how they attract attention, what they charge, how they close sales, how they make customers happy, how they deal with issues, and what needs they aren’t yet serving.”
My career in marketing has given me the chance to work with some of the most exciting brands in the world.
It has been a privilege and an invaluable learning experience.
It has also given me a deep appreciation for boring businesses – like tax accounting, plumbing, or market research.
Boring businesses can be immensely rewarding and valuable because they make life work.
People will pay for things that they believe are too much of a pain to do themselves.
Value creation is solving problems that make someone else’s life easier.
It’s about the person on the receiving end of the service, not about you or what’s convenient for you to deliver.
Kaufman recommends you focus on providing the most significant benefits and the highest status in a way that requires the least amount of effort and frustration from the end-user.
This is how you increase the Perceived Value of your offer.
This leads to the most important lesson of all.
Cultivating a growth mindset when managing products or services.
Ideas on their own are relatively worthless. They’re just ideas.
But discovering whether or not you can make them work in reality is the most important job of any entrepreneur or manager.
According to Kaufman, Iteration is a structured form of learning that helps you make your offering better; the faster you learn, the more quickly you’ll be able to improve. And you should make it a priority to get through the Iteration Cycle as quickly as possible.
And all product improvements require feedback.
To get feedback, you need to listen more than you talk.
Kaufman recommends having a few open-ended questions prepared that will give the conversation a bit of structure, but otherwise encourage the other person to do most of the talking.
Short questions in the journalistic style typically work best:
- Who?
- What?
- When?
- Where?
- Why?
- How?
Kaufman emphasises that you should “watch what they do and compare their actions to what they say“.
All feedback isn’t equal.
“The worst response you can get when asking for feedback isn’t emphatic dislike: it’s total apathy. If no one seems to care about what you’ve crated, you don’t have a viable business idea.” (Kaufman, 2010).
Want to know what someone really thinks about your product?
Get them to their put money where their mouth is.
In Kaufman’s view, “Whenever possible, give the people who are giving you feedback the opportunity to pre-order the offering. If a significant number of people take you up on the offer, you’re in good shape: you know that you have a solid offering and you immediately boost your cash flow.”
You can’t talk about cost without talking about alternatives.
Why?
Because value is always relative.
You need to be aware of the alternatives that your customers face when they’re deciding to buy (or not buy) from you.
Use that knowledge to determine what to include and what to leave out of your offering.
Comparing user feedback with user actions points you in the right direction.
Looking for patterns pays off because specific groups typically value a certain characteristic in a certain context.
And no decision you ever make, about what to include or leave out, will make everyone happy, because there is no such thing as a product that is for everyone.
Kaufman concludes, “So perfection shouldn’t be your goal. By paying attention to the patterns behind what your best customers value, you’ll be able to focus on improving your offering for most of your best potential customers most of the time.”
He goes on to say that any improvement you make to an offer can be thought of in terms of improving convenience or fidelity.
But it’s incredibly difficult to optimise for both at the same time.
This means that the most successful offerings strive to provide either the most convenience or the most fidelity amongst their competitors.
I’m almost at the end of the chapter and there’s no better way to summarise it than this quote:
“Things which matter most must never be at the mercy of things which matter least.”
— Johann Wolfgang Von Goethe, 19th century dramatist, poet, and polymath
The final theme is choice.
Kaufman explains that customers only accept trade-offs when they’re forced to make a decision.
Because if the perfect option existed, they’d buy it.
But since The Perfect Offering exists only in myth, buyers will settle for the Next Best Thing.
A set of critical assumptions will make or break the continued existence of your business and “the more accurately you can identify these assumptions in advance, and actually test whether or not they’re true, the less risk you’ll be taking and the more confidence you’ll have in the wisdom of your decisions”.
I’ll end this note on my favourite passage from this chapter:
“Using what you make everyday is the best way to improve the quality of what you’re offering. Nothing will help you find ways to make your offer better than being its most avid and demanding customer.”
— Josh Kaufman, The Personal MBA