The Personal MBA {summarized}

An in-depth summary of Josh Kaufman’s book, The Personal MBA. 

Written by Stefan Leon.
Feb 3, 2019
Finished reading: Jan. 29, 2019; 417 pages.
Tags: business, startups, education
Rating: 10/10
Who should read this book [or
summary]: Everyone setting out to start a
business or considering getting an MBA.
Synopsis: An extremely high-level book
outlining:
 all the moving parts of
most businesses
 what you need to know in
order to operate a
business effectively
 key definitions of business
terms and concepts
 the fundamentals of being
an owner and working
with others
 creating, analyzing, and improving systems for business
Personal Note: This book was incredibly easy to read but very dense with information. Since this book is basically a
summary itself, a lot of the text included here is meant to be a searchable reference to key terms, ideas, and concepts. That
said, I tried my best to put things in my own words, reinforce certain concepts with real-world examples, and include
some of my own analysis.
Special Resource: This book was written out as 1–2-page subsections covering individual topics that are all available on
Kaufman’s website! [link]. The entire book is available link-to-link on that website.
Legend
// <words> → comment
/* <words> */ → long comment
{ <words> } → in-line comment
i.e. “in other words”
e.g. “for example”
Most of the direct excerpts are properly quoted, though not all. If you’re offended, please lmk.
I hope this serves you well!

Intro
People form mental models in order to understand things.
Mental models are concepts that represent an understanding of how things work.
Businesses are complex systems, that are made up of fundamental mental models or foundational
business concepts.
Defining a Business:
Every successful business creates or provides something of value that other people want or
need, at a price they are willing to pay, in a way that satisfies the purchaser’s needs and
expectations, and provides the business with sufficient revenue to make it worthwhile for the
owners to continue operation. MBA programs are not worth the money.

VALUE CREATION
Without a good market, you’re in the wrong business.
Iron Law of the Markets: if you don’t have a large group of people who really want that you have to
offer, chances of building a viable business are slim.
Revenue is completely dependent on people wanting what you have to offer.
Business has five interdependent core processes:
1. Value creation
2. Marketing
3. Sales
4. Value delivery
5. Finance
Economically valuable skills are those which directly improve one of the core processes of
the business.
5 Basic Human Drivers
1. Drive to Acquire — Physical objects and immaterial things (status, power, influence)
2. Drive to Bond — Desire to feel valued and loved. Businesses that facilitate bonding or
make us feel attractive, well-liked or regarded.
 3. Drive to Learn — Desire to satisfy curiosities. All of academia, workshops, courses, etc.
4. Drive to Defend — Desire to feel safe, protect ourselves, fam, loved ones, and property
5. Drive to feel — Desire for new sensory stimulus, intense emotional experiences,
pleasure, excitements, entertainment, and anticipation
Status seeking is also a thing // drive to acquire status
Humans needs can also be explained by Maslow’s Hierarchy and Clayton Alderfer’s ‘ERG’ (Existence,
Relatedness, Growth) [ link ].
/* But I believe it defines the priority/order of desires rather than the methods to fulfill the desires
themselves. */
10 Ways to Evaluate a Market:
1. Urgency
2. Market Size
3. Pricing Potential
4. Cost of Customer Acquisition
5. Cost of Value Delivery
6. Uniqueness of offer
7. Speed to market
8. Up-front investment
9. Upsell potential
10. Evergreen potential — how much addtl. work is needed to continue selling after the first
sale?
Don’t be in it just for the money; you’ll quit. Don’t be a crusader without going through the actual
feasibility as a business, or it’ll just be a hobby.
12 Standard Forms of Value
1. Product — e.g. toothbrush
2. Service —e.g. tax preparation
3. Shared Resource — e.g. gyms
4. Subscription — e.g. Netflix
5. Resale — i.e. Retail stores e.g. Walmart
6. Agency — i.e. being an agent to someone  e.g. an actor’s agent
7. Audience Aggregation — e.g. Facebook
8. Loan — e.g. mortgage
9. Lease — e.g. car lease
10. Option — e.g. movie tickets, licensing rights
11. Insurance — e.g. homeowners insurance
12. Capital — e.g. angel investing for equity
Hassle Premium
You get to charge to save people “hassle”. This includes projects or tasks that:
 take too much time
 take too much effort to ensure a good result
 involve too much confusion, complexity, or uncertainty
 Distract from other more important priorities
 require expensive or intimidating prior experience
 Require specialized equipment or resources that are difficult to attain.
→ The more “hassle” you can remove for a customer, the more you can charge in terms of a hassle
premium.
Perceived Value determines how much your customers will be willing to pay for what your offering.
The most valuable offers do one or more of the following:
1. Satisfy one or more of a customer’s core human drives
2. Have an easy to visualize end-result
3. Command the highest hassle premium
4. Satisfy the prospect’s status seeking tendency by providing desirable social signals
Modularity refers to the individual nature of offerings, like the standard forms of value,
→which can then be bundled for a premium (higher perceived value)
→or unbundled to convert prospects who might not have otherwise bought. Modularity also allows
companies to improve and experiment with offerings in isolation and then mix and match them based on
customer feedback and response.
Iteration Cycle - Incremental improvements that prioritize learning and feedback to make decisions
on future improvements.
→ Watch what’s happening. What’s working and what’s not?
→ Come up with ideas of what you can do to improve
→ Guess which of your ideas will work best
→ Execute on the idea(s) you decide will work best.
→ Measure the results of any changes in order to determine effect of changes.
→ Decide whether to keep or discard changes.
→ → Repeat.
 Go fast through iteration. Key is to keep each iteration small, clear and quick, basing each iteration
on what you learned from each previous iteration and current data/feedback.
The problem with a direct approach — aka building an end product first — is that you miss all the
opportunities to get feedback and find out earlier what is going to work and not in the hands of a consumer.
Ends up usually being far more costly and wasteful.
Feedback {obviously key} should be received from actual potential customers. It is important to
record what people say but also watch what people do (and compare the difference). Of course, don’t
crumble under criticism and take critiques with a grain of salt. Try to read between the lines as well, people
might not always be able to answer the questions you as a product designer or entrepreneur are asking
yourself, but they will point you towards sentiment that could guide those decisions. A bad response is
not an emphatic negative critique, but rather total apathy. If people you think should care
about it don’t, then that’s a signal of trouble.
The best feedback mechanism is selling on preorder. Find out what might be holding people back from
pre-ordering or purchasing (barriers to purchase)
Trade-offs are omnipresent but are only realized when people make decisions. Without the need to make
a decision, people will avoid trade-offs (most people are risk-averse after all). But when they do make a
decision, in the absence of a perfect option, people settle for the next best alternative.
When making decisions about what to include in your offerings look for Patterns: how specific groups
of people tend to value some characteristic in a certain context. Try to focus on the patterns of your best
customers.
Economic Values that people generally consider when making a purchasing decision:
1. Efficacy
2. Speed
3. Reliability
4. Ease of Use
5. Flexibility
6. Status
7. Aesthetic Appeal
8. Emotion
9. Cost - how much do I have to give up to get this*
*cost also adds to the perceived social status, the perceived quality, and resulting post-purchase
experience with it (you don’t want to be wrong about spending a lot of money on something, so you also sell
it to yourself).
Kevin Maney (author of Trade-Off) explains the list can be split between 1-5 and 6-8 as convenience and
high-fidelity, respectively. Stuff that adds to first five make it more convenient but stuff that adds to the ego-
driven emotions are considered higher fidelity.
Relative Importance Testing a set of analysis techniques to determine what people actually want by
asking them a series of simple questions designed to simulate real-life trade-offs
→ Restaurant Example
a. Orders delivered to table in <5 min
b. Most entrees are <$20
c. Appealing decor
d. A large variety of options
Ask: Which of these is most important and which is least important?
—
You do this till you get a real-world understanding of which of the Economic Values people actually
care about most when forced to decide.
/* I believe it’s important to also profile people in order to spot patterns within different
demographics/groups/prospects. */
Critical Assumptions will fuck your day up if they turn out to be wrong. These are the main
things that determine the feasibility of your business venture.
→ Example of CA: “there’s a market willing to pay at the price I need them to in order for me to meet my
debt obligations and make a profit as well. If I build it they will come.”
You can Shadow Test aka run a kickstarter or set up preorders {or even just drive traffic with a landing
page}.
Create an MVO (minimum viable offering {or product}: whatever you can get away with that will
allow you to test for purchase feedback and run shadow tests to drive info around sales or actual consumer
interest.
Field Testing: Literally using the products you intend to sell so you know what to improve or what the
experience is like. Aka BE the customer and use that data in all aspects of the business. Using what you
make every day is the best way to improve the quality of what you’re offering.

MARKETING
Marketing is the art and science of finding prospects — the people who are actively
interested in what you’re offering
Difference between marketing and sales is that marketing is about getting noticed. Sales is about closing.
 Rule #1 of Marketing is that your potential
customer’s available attention is limited. The
cardinal sin of marketing is to be boring.
You have to get people’s attention through
marketing and operate under the premise that people
are currently preoccupied (because they are).
People are always perceptually filtering—
deciding what to pay attention to and not. You have to
get around their filters.
Receptivity is a measure of how open people are
to your message (marketing).
→It has two primary components: What and When.
If the form of your message suggests that it
was created just for the prospect, it is more
likely to get their attention.
And the medium matters. Can’t expect to get
noticed if you’re email is arriving in the spam folder.
Likewise with regular postage.
Timing is also important, in the day to day sense of
when do you best present people with marketing as
well as when people are most interested in your product.
Point of Market Entry is highly sought after in the marketing world because of its value. If you’re an
expecting parent, the first brands you come in contact with are ones that could influence and benchmark
your purchase decisions related to baby stuff from then on. Target famously advertised home catalogs
featuring baby stuff to expecting mothers based on their shopping trends. Killer.
Qualification is the process of determining whether a prospect is worth your time or not / will be a
good customer. Customers who require more time, energy, attention, or risk than they’re worth to your
bottom line shouldn’t be pursued or attracted in the first place.
Remarkability is a measure of how remarkable something is (duh). There is the word of mouth play
and self-advertising model. How much does your product or marketing stick out? Being remarkable is the
best way to attract attention.
Skilled marketers focus on getting the attention of the right people at the right time.
Seek to market to probable purchasers (prospects that are most likely to buy)
Marketing that communicates a desired end result of a purchase to a prospect is most
effective when it focuses on a distinctive experience or emotion related to a Core Human
Drive.
The communication of that end result is achieved through techniques like visualization and adding as many
sensory inputs that get the prospect to start thinking about their lives with your product or service.
Marketing activities should produce some visceral feeling of desire. Your job as a marketer isn’t to
convince people to want what you’re offering: it’s to convince themselves that what you’re offering
will help them get what they really desire.
Addressability is a measure of how easily you can get in touch with people who might want what
you’re offering. How addressable are different groups of prospects you’ve categorized?
Framing is the act of emphasizing the details that are critically important while de-emphasizing things
that aren’t, by either minimizing certain facts or leaving them out entirely. This doesn’t mean lying,
however. You still inform people about things they deserve to know. Otherwise, you could be harming your
reputation.
Free doesn’t pay the bills but could land you traffic and permission to pursue probable purchasers of
your other paid products or services.
Permission is key! Being able to solicit people’s permission to follow up or to market to them is
valuable. It’s a key to making the most of a connection and following up.
“Asking for permission to follow up after providing free value is more effective than interrupting them.
Offering genuine value earns your prospect’s attention, and asking for permission gives you the opportunity
to focus on communicating with people you know are interested in what you have to offer.”
→ Whenever you provide value to people, ask them if it’s okay to continue to provide value to them in the
future. You can go as far as to say what you want to send people and how it’ll benefit them.
A hook is a single phrase or sentence that describes an offer’s primary benefit. Sometimes it’s a title or
catch-phrase. examples used: TFerriss “The 4-Hour Workweek” and Apple’s iPod tagline: “1,000 songs in
your pocket”
Call To Action (CTA):
“If you want your prospects to take the next step that you’re encouraging, you need to tell them
exactly what to do.”
“If you think you’re being too obvious, you’re doing it right”
Best CTAs ask for a sale or permission to follow up.
You can use a narrative to help you market. People like “the Hero’s Journey” or a “monomyth”. (person
goes on adventure, faces a crisis, comes out hero). People want to be heroes.
Controversy can also help drive marketing as long as it’s legitimate and not defaming. Keep it civil.
 Reputation is obviously key. Don’t fuck it up by being stupid.

SALES
Sales converts prospects into customers
You can transact with things that are economically
valuable. Prospects will only buy if you are offering
something they want.
Trust must be present for transactions to
take place.
Pricing Uncertainty Principle: “all prices are
arbitrary and malleable.” It’s an executive decision. You
can price something anywhere you want.
→ However, prices have to be justified to a prospect or
potential buyer before a transaction can take place.
4 pricing methods:
1. Replacement cost - typically a
“cost-plus” value meaning the total
cost of making/replacing something
plus the margin you want.
2. Market Comparison - what are
other products of similar nature
priced at?
3. Discounted cash flow/net present value - “How much is it worth if it can bring in
money over time?”. Used for items that will make other people money to justify a larger
upfront cost. DCF/NPV is only used to price things that can produce ongoing cash flow -
this makes it a common way to price businesses when they are bought or sold.
4. Value comparison - (usually the best way) what is the value of your product to the
customer? Price accordingly.
“Discounts attract customers when the offer is a commodity” or items which are price-
elastic.
Price-inelastic items have little fluctuation in demand when there are price changes.
When testing different pricing strategies, there are certain thresholds where you stop appealing to
certain segments and start appealing to segments with different characteristics, called price transition
shock.
2 major considerations while keeping transition shock in mind:
1. Potential profitability
2. Ideal customer characteristics
[IMPORTANT]: The best strategy is to set prices to appeal to prospects that will ensure you work with
your most desirable customers in a way that results in higher profits.
→ This is dependent on the industry and target market’s expectations.

Value-Based Selling
The process of understanding and reinforcing the reasons
why your offer is valuable to the purchaser. This is how you
support the set price.
 This is about listening, not talking. It’s all
about value to the customer
SPIN Selling: 4 phases of successful selling:
1. Understanding the situation
2. Defining the problem
3. Clarifying the short-term and long-term
implications of that problem
4. Quantifying the need- payoff or the financial and
emotional benefits the customer would experience
after the resolution of the problem
→ This methodology is about building trust and gaining as
much information as possible in order to deliver the most
amount of value to a customer (or at least deliver the right
information with the right framing).
Education Based Selling
The process of making your prospects more informed and
better customers. It requires an upfront investment of time
into prospects, but is usually worth it. You simultaneously
build trust in your ability to deliver value and your expertise
while making them better customers
NBA: Next Best Alternative - or BATNA - Best
Alternative to The Negotiated Agreement
When there’s no common ground, what is the next best
alternative? → Knowledge of a prospects BATNAs can be
used as leverage.
Most power belongs to the party that is able and willing to
walk away from a bad deal.
Exclusivity: creating a unique offer or quality that other
firms can’t match. iPhones → Apple {for now}. Exclusive
offers maintain high perceived value. Exclusivity makes
the most sense for products and services. Sole source
is the ultimate winner! aka monopolies
3 Universal Currencies
1. Resources - tangible items
2. Time
3. Flexibility - giving up freedoms or liberties
In every negotiation, one currency can be traded for more or
less of the others.
3 Dimensions of Negotiation
1. Setup - the environment, mostly. Prep work
(setting the stage for a satisfying outcome to the
negotiation).
— Who are the involved parties? Are they open to
dealing with you?
— Do people know who you are how you can help
them?
 — What are you proposing and how does it benefit
them?
— What’s the setting for presenting an offer?
— What are the environmental factors? Are any
outside circumstances affecting the outcome?
2. Structure - of the deal you are proposing.
Structuring the terms of a proposal that make the
prospects likely to accept.
— What will you propose and how will you frame
it?
— What are primary benefits of proposal to other
party?
— What is their BATNA? How is your proposal
better?
— How will you overcome the other party’s
barriers to purchase/ objections?
— Are there trade-offs or concessions you’re
willing to make to reach an agreement?
3. Discussion - talk about the proposal with the other
party.
End results consist of:
— Yes, we have a deal on these terms
— We don’t have a deal quite yet— counteroffer or
another option to consider
— No, we don’t have a deal or common ground
and we should suspend negotiations.
Buffers - 3rd parties empowered to negotiate on behalf of
someone can be used to improve odds of a favorable
outcome and save time.
→examples include: agents, attorneys, brokers, accountants.
Be careful of incentive caused bias that happens with
people like real estate brokers.
Persuasion Resistance: When a prospect senses that
they are being convinced or compelled to do something they
are unsure about and reactively resists the attempt + tries to
leave the convo.
The more effective strategy, instead, is to present yourself as
an “assistant buyer”. You’re not pressuring them to give you
their money, you’re helping to ensure they invest their
resources wisely.
 Triggers include desperation and chasing. People,
like with romantic partners, can sense these
things and get turned off
 Frame the convo so that prospects feel like they
are chasing you or are proving their worthiness to
be customers.
Reciprocation: a desire people feel to pay back or return
perceived favors or gifts. It is not necessarily in proportion
to the original benefit provided.
/* can literally be small things like handing people a bottle
of water without them asking or giving them free samples
of anything they look interested in. When there’s effort
involved, people feel bad not reciprocating. Think of
instances you buy something just to not look like an asshole
who made this person invest time and effort into you. */
Damaging Admissions can make sellers seem more
honest and trustworthy and increase the likelihood of sales.
Barriers to purchase: Risks, unknowns, and concerns
that prevent prospects from becoming buyers. The
primary job of a salesperson is to identify and
eliminate these barriers.
5 Standard Objections:
1. It costs too much
→ Tackle with value based selling
2. It won’t work
→ best addressed using social proof
3. It won’t work for ME
→ same as above
4. I can wait
→ use education based selling. Especially if
prospect is unaware of their problem.
5. It’s too difficult
→ same as above
With a prospect’s attention and permission, you
have to either (1) convince them that the objection
isn’t true (2) convince them the objection is
irrelevant
Risk Reversal: Removing barrier to purchase of associated
purchasing risk. Money back guarantees, for instance.
Transferring risk from buyer to seller.
Reactivation: Re-engaging past clients in a new sales cycle
or attempt. Re-convert!

VALUE DELIVERY
Value delivery involves everything necessary to
ensure every paying customer is a happy customer.
The best businesses in the world deliver the value
they’ve promised in a way that exceeds the
customer’s expectations
Value Stream (or Chain)
All the steps and processes
from the start of the value
creation process to the value
delivery. It’s a combination of
the two.
→ The best way to understand
it is to diagram it.
A distribution
channel describes the form
that your value is actually
delivered to the end user. 2 types: direct-to-user (or
consumer) and intermediary
DTU operates across a single channel
→ limited by your own capacity
Intermediary (like retail reselling) operates across multi-
channels allowing for greater distribution scale.
→ constrained by counterparty risk - the risk that your
partner will hurt your reputation
Meeting expectations is the baseline of a happy
customer.
People view Quality = Performance - Expectations
Surpassing expectations is how you increase your value to
the customer and get viewed as great.
Missing expectations is how you lose customers or get seen
as having a low-quality product or service regardless of the
product or service in absolute terms.
Predictability is the central tenet of expectation and
customer retention.
3 Criteria of Predictability:
1. Uniformity - you deliver the same thing
2. Consistency - you consistently deliver the same
thing
3. Reliability - you consistently deliver the same
thing without error or delay
Throughput* - a very important measurement.
→ Basically, some measured unit / time.
— Dollar throughput: Time to make $1
— Unit throughput: Time to make 1 unit
— Satisfaction throughput: Time it takes to make a satisfied
customer
Duplication - ability to reliably reproduce something of
value. i.e. Factory
Multiplication - Duplication for an entire system or
process. i.e. Franchise
Scale refers to being able to duplicate or multiply in
response to an increase in demand volume. Determines
maximum potential volume.
Products typically duplicate better.
Shared resources typically multiply better.
Humans don’t scale. As a result, service business
aren’t very scalable.
Accumulation is a business concept related to
improvement.
Like Toyota Production System (TPS) which iterates on the
philosophy of Kaizen - incremental improvement by
removing waste from a system.
Amplification is the concept that small changes to scalable
systems produce large results.
i.e. saving $0.01 isn’t trivial when you are saving it across
100 million units.
Don’t focus on your competition. Best way to beat your
competition is to out-innovate them and to always
focus on producing remarkable products that
exceed consumer expectations. Always focus on
delivering more value instead.
Force multipliers relate to tools that multiply
productivity/output. Usually costly. One of the only
capital expenditures that can be justified. Factory
equipment is an example.
Systemization (KEY) - a process made explicit and
repeatable. Only way to improve a system is to outline the
system. Things need to be repeatable.

FINANCE
“Finance is the art and science of watching the
money flowing into and out of a business,then
deciding how to allocate it and determining
whether or not what you’re doing is producing the
results you want.
Accounting is the process of ensuring the data you
use to make financial decisions is as complete and
accurate as possible.”
Profit
Margin: ((Revenue -
cost) / Revenue) x100
= %PM
*PM can never exceed 100%.
Obviously, because the
formula is revenue over
revenue.
Not the same as markup which represents how the price of
an offer compares to its total cost.
Markup: ((Price - cost/ cost) x100 = %M
 Higher the price and lower the cost, higher the
markup.
Value Capture is the process of retaining some percentage
of the value provided in every transaction.
i.e. I consult for a company which makes them an additional
100,000. whatever I charge them is a percentage of the
value created which = value captured. This is critical
information for pricing and is especially true for things
which net high returns over time, like a force multiplier (i.e.
factory).
 The more value you capture, the less attractive
your offer is [to your prospective buyer]
2 Dominant philosophies: Maximization & Minimization
 MAX: capture as much value as possible
→ Tends to erode customer perception
 MIN: capture as little value as possible while the
company remains sufficient.
→ When something is viewed as a “good deal” that
usually drives the spread of business to other
customers.
Sufficiency
Enough to make it worth it past breakeven for the
business. Sufficiency is subjective.
[woke]: “Profits are important but they’re a means to an
end: creating value, paying expenses, compensating the
people who run the business, and supporting yourself and
your loved ones. Dollars aren’t an end to themselves: money
is a tool, and the usefulness of that tool depends on what you
intend to do with it.”
Track sufficiency using “Target monthly revenue” (TMR).
Valuation
An estimate of the total worth of a company.
 Business revenue
  Profit margins
 Bank balance
 Future outlooks
→ These all contribute to the business overall valuation.
—
Cash Flow Statement:
A look at a company’s bank account (cash in & cash out) and
is always looking at a specific time period.
Cash tends to move in 3 areas:
 Operations: selling offers and buying inputs
 Investing: collecting dividends and paying for
capital expenditures (cap ex)
 Capital: Borrowing money and paying it back
“Free cash flow”:
Amount of cash a business collects from operations — (cash
spent on capital equipment + assets necessary to keep the
company operating).
 The higher the better; a company doesn’t have to
keep spending on cap ex in order to bring in
revenue.
More cash = Higher resilience.
Income Statement:
Also called a P&L (profit and loss), Operating or Earnings
Statement. It contains an estimate of the business’s Profit
over a certain period of time, once revenue is matched with
related expenses.
General format: Revenue - COGS - Expenses - Taxes =
Net Profit
 Income statements include many estimates and
assumptions. Large expenses have to be
amortized, and so do large cash-flows.
 The incomes statement can be easily
manipulated and introduce biases in
expense matching.
Balance Sheet:
A snapshot of what the business owns and what the business
owes at a moment in time. They always cite a specific date.
formula: Assets - Liabilities = Stockholder Equity
 Assets are things the company owns that have
value: products equipment, stock, etc.
 Liabilities are obligations the firm hasn’t
discharged: loans, financing, etc
 Owner’s equity = company “net worth”.
Includes the value of the company’s stock, capital
from investors, and retained earnings (profit not
paid to shareholders).
Balancing comes from a rearrangement of the formula:
Assets = Liabilities + Stockholder Equity. The
balance sheet always balance.
 By examining the BS - you can determine if a
company is solvent.
 There are also biases that can be introduced to the
BS like the value of current inventory, stock price,
or % of A/R that will be paid.
—
Financial Ratios:
Profitability ratios: How good the company is at realizing
profit
 Return on Assets: NP / TA (Total Assets)
Leverage ratios: Tell you how the company uses debt
 Debt to Equity: TL (Total Liabilities) / SE
Liquidity ratios: the ability of a business to pay its debt
 Current ratio: CA / CL
 Quick ratio: CA - Inventory / CL
Efficiency ratios: How well a business is managing assets
and liabilities. Commonly uses in inventory management.
 Avg number of days in inventory
 Days sales outstanding
—
4 Methods to Increase Revenue:
1. Increase the number of customers you serve
2. Increase the average size of each transaction by
selling more.
 3. Increase the frequency of transactions per
customer
4. Raise prices
** Your ideal customer is someone who buys early,
buys often, spends the most, spreads the word, and
are willing to pay a premium for the value you
provide.
 If you can double your prices and lose less than
half of your customers, it’s probably a good move.
Pricing Power:
Refers to the ability to raise prices over time. Related to
price elasticity.
Lifetime Value: Total value of a customer’s business over
the lifetime of their relationship with your business.
 By understanding the LTV of a prospect, you can
calculate the max amount of time that you should
be willing to spend to acquire a new prospect
(AAC).
Allowable Acquisition Cost:
How much you’re reasonably allowed to spend to
try to acquire a new customer based on their LTV.
First sales can be “loss leaders” - low introductory prices
to establish a relationship with a buyer.
AAC Formula: average customer LTV - Value
Stream Costs - (OH / Total Customer Base) x (1 -
desired PM)
 Value Stream Costs (what it takes to create and
deliver the value promised to that customer over
your entire relationship with them)
 OH / Total Customer Base represents fixed costs
needed to pay to stay in business over that period
of time
 OH represents minimum ongoing resources for a
business to continue operations
Costs:
  Fixed: incurred no matter how much value you
create. Reductions in fixed costs
accumulate.
 Variable: directly related to how much value you
create. Reductions in VCosts are amplified.
Cost savings could lead to incremental degradation. i.e.
Milk Chocolate emulsified so much it’s not even chocolate —
it’s chocolate flavored candy. Avoid diminishing
returns (cost savings now, loss of business later).
Amortization: Depends on an accurate assessment of
useful life, which is a prediction. Doesn’t work well if you
don’t sell what you produce or if your equipment wears out
quicker than expected.
Purchasing Power:
The sum total of all liquid assets at a business’s disposal.
Includes cash, credit, & available financing.
It’s what’s used to pay your overhead and suppliers.
Cash Flow Cycle: Describes how cash flows in a business.
Made up of:
 Receivables are promises of payment you’ve
accepted from others
 Debt is a promise you make to pay someone at a
later date.
Estimating the Time Value of Money is a way of making
decisions in the face of opportunity costs. Can help you
determine which decision to make with money given the
alternatives. Especially true of investments. {spending a
dollar here today vs there today/tomorrow — what’s my best
return)
Compounding
is the accumulation of gains over time. Gains reinvested
exponentially build upon the investment. (compounded).
Leverage
the practice of using borrowed money to magnify potential
gains. [could also magnify potential losses].
—
Hierarchy of funding
 1. Personal cash
2. Personal credit
3. Personal loan
4. unsecured loan
5. secured loan (require collateral)
6. Bonds: Company pays bondholder an agreed upon
rate for a certain amount of time until bond
maturity in which case the original loan (bond)
amount is repaid in addition to payments already
made.
7. Receivables financing: a special type of secured
lending. Credit is made available for collateral
which is control over the business’s receivables.
This ensures loans are paid before anything or
anyone else.
8. Angel capital
9. Venture capital
10. Public Stock Offering: typically used by angel
and VCs to exchange ownership for money. IPO’s
are simply the first public stock offering.
Investors increase communication overhead (like
bureaucracy). Things end up happening more slowly.
Usually, the best way to start a business is to bootstrap and
move up the hierarchy of funding as appropriate.
Return on Investment (ROI) is the value created from
an investment of time or resources (or both). Future ROI
estimates are educated guesses only.
Sunk costs are investments of time, energy, and money
that cannot be recuperated. All that matters is how much
more investment is required vs the reward you expect to
obtain.
Internal Controls:
A set of SOPs a business uses to collect accurate data, keep
the business running smoothly, and spot trouble as quickly
as possible.
Budgeting is the act of estimating future costs and taking
steps to ensure that these estimates aren’t exceeded without
good reason.
Supervision is important in business that relies on
employees or outside firms for important parts of its
business process.
Compliance is necessary for business in industries subject to
gov regulations.
Theft and Fraud Prevention is important to protect against
the risk of financial loss by an unscrupulous party.
 In all of these areas it’s useful to have a
dispassionate 3rd party audit your data and
control processes.

THE HUMAN MIND

For the sake of simplicity we
can think of the brain as
having three layers:
1. hindbrain -
responsible for
actual actions -
moving signals
through spinal cord
and nerves that
result in physical
actions.
2. midbrain - processing sensory data, emotion,
memory and pattern matching. Constantly
predicting and sending that info to the hindbrain,
which readies our bodies for immediate action
→ associated with radio announcer and the
hindbrain is the radio.
3. forebrain - conscious engagement of the mind -
self awareness, logic, deliberation, inhibition and
decision. Halts automatic action until it is done
‘thinking’ in which case the other two brains can
resume normal function.
“one of the best things you can do to get more done
is to dissociate yourself from the voice in your
head.”
/* basically, we are not our thoughts. I am not a two year
old that is distracted at the sight of any new object or an
adolescent distracted by a fat ass at will */
People act to control their perceptions.
I perceive cold, therefore I put on a jacket. Obviously, the
environment is a major factor of perception. It also dictates
which actions are possible to bring the perception under
control.
Overtime
 If a worker is controlling for income, paying more
for overtime will usually lead to more overtime
work.
 If a worker is not controlling for income, raising
overtime pay might actually cause them to work
less because they will reach their price point
faster. {this is also true for the taxi drivers that
make their target revenue earlier than usual and
go home early instead of maximizing their revenue
by staying as long as they normally would.}
At the heart of perceptions are reference levels - a range
of perceptions that indicate the system is “under control”.
3 kinds of reference levels:
1. set point: minimum or maximum value.
2. range: two set points. A range of acceptable
values.
3. error: the set point is 0 or null.
If you want to change a behavior, you must either
change the system’s reference level or change the
environment in which the system is operating.
People are lazy: Conservation of Energy principle.
If you want to change a behavior, don’t try to change the
behavior directly. Change the structure that influences or
supports the behavior, and the behavior will change
automatically.
Reorganization is a random action that occurs when a
reference level is violated but you don’t know what to do
to bring the perception back under control. So, you try
different things (reorganize) until the reference level
changes or the perception is agreeable again.
Conflict*
Occurs when two control systems try to change the
same perception.
The white and black wolf. One wants a thing and perceives
working as “sleep.” The other wants to work and perceives
working as “the move.” They are both control systems that
will lead to different actions.
 Conflicts can only be resolved by changing
the reference levels — how success is defined
by the parties involved — and is best done by
changing the structure of the situation.
 Each party in a conflict have different reference
levels which are influenced by a situation or the
environment.
i.e. for procrastination - setting aside time for rest assures
the sleep control system that there will be a time for sleep
which decreases the perception of loss when doing work.
—
The human mind constantly relies on prior patterns and info
to make interpretations in the absence of information. Our
brains are smart enough to fill in the gaps of missing
information.
→ Which is why we can see Abraham Lincoln at 20 meters
in Salvador Dali’s painting ‘ Gala Contemplating the
Mediterranean Sea, which at Twenty Meters Becomes the
Portrait of Abraham Lincoln’.
Worldwide rights ©Salvador Dalí. Fundació Gala-Salvador Dalí (Artists Rights Society), 2017 / In the USA ©Salvador Dalí
Museum, Inc. St. Petersburg, FL 2017. Photo © Joseph Siciliano USA, 2016
 Reinterpretation is possible
because our memory is
fundamentally impermanent.
New memories basically
change the whole thing. We
can even use new memories
and information to reinterpret
old memories which are saved
in new locations with the
alterations we’ve made to it.
—
Motivation
Motivation is an emotional state that links the parts of our
brain that feel with the parts that are responsible for action.
Can be broken down into two different desires:
1. Desire to move toward things that are desirable
2. Desire to move away from things which are
undesirable
Motivation is not a logical, rational activity—It’s
an emotion. Just because you feel motivated doesn’t mean
you’ll actually take some action. If there are any “move away
from” signals being sent, you can be taken off the path
towards whatever you are “motivated” to do.
Inhibition is the ability to temporarily override our natural
inclinations.
Willower is the fuel of inhibition.
Willpower can be depleted.
—
Loss aversion is real.
people feel the pain of loss more than the enjoyment of
equivalent gains.
 Best way to overcome loss aversion is
to reinterpret the risk of loss as “no big
deal”. We choose our interpretations of things we
perceive!!! Even losses.
Threat lockdown
A phenomenon where we are in a protection mode which
makes it difficult to do anything but fixate on a threat.
 If experiencing TL, the worst thing is to try to
repress it. It will be like a little kid trying to get his
mother’s attention while being ignored. The cry
for attention will eventually get so loud and strong
that it cannot be ignored.
Cognitive Scope Limitation
Basically, people can be lazy in their thinking or simply don’t
spend enough time thinking about things (from either
laziness, lack of time, or fatigue).
 The “newspaper rule”: A simulation that asks your
forebrain to run through a decision as if it were
going to be published on the front page of Times
where all of your friends and family would see it
so that you avoid making decisions that are
morally or ethically compromising or otherwise
“slp” (‘slp’ meaning unconscious, stupid, or
illogical — used frequently).
 The “grandchild rule”: Evaluating a decision with
the long-term consequences in mind such as I’m
imagining that your grandchild will give you
feedback on the decision in 30-40 years. (or that it
affects them).
Absence blindness* (important)
A cognitive bias that prevents us from identifying what we
can’t observe (slp).
 i.e. you don’t see a manager working that hard to
put out fires [but that’s because they are avoided
in the first place by responsible and efficient work
+ systems].
 Praise the manager that is low-drama who quietly
and effectively gets things done.
Contrast: in business, the principle that our perceptions
are influenced by information gathered from the
surrounding environment [we contrast things with others
in the environment]
  i.e. Economist Web vs Economist
Print vs Economist Web + Print pricing
experiment & case study by Nobel Prize
economist, Dan Ariely [link].
Scarcity
 Encourages people to make decisions quickly.
 Adding a scarcity element to an offer can
encourage people to take action quicker.
Adding scarcity to an offer:
1. Limited Quantities
2. Price Increases - inform prospects the price will go
up in the near future
3. Price decreases (discount expirations)
4. Deadlines - offer deadlines.
Novelty
Critical if you want to attract and maintain attention over a
long period of time.

WORKING WITH YOURSELF

Your body and mind are tools to get things done.
Akrasia*
The experience of knowing or
feeling that we should do
something but we don’t do it.
 It’s a general feeling
that you “should” do
something, without
necessarily deciding
you should do it
{like a
maybe/someday list
in Trello}
 The “should” feeling sticks around but doesn’t
lead to action, which generates frustration
 In Greek - “Lacking command over oneself”
  It is a barrier to getting things done
Akrasia seems to have 4 components:
1. A task
2. A desire/want
3. A “should”
4. An emotional experience of RESISTANCE (R)
 R: You can’t define what you want
 R: You believe the task will bring you closer to
something that you don’t want
 R: You can’t figure out how to get where you want
from where you currently are
 R: You idealize the desired end result to the point
that you estimate a low chance of achievement,
leading to loss aversion
 R: The “should” was established by someone else,
leading to persuasion resistance.
 R: A competing action in the environment
promises immediate gratification
 R: The benefits of the action are distant leading to
near/far thinking when compared to ‘closer’
immediate or concrete actions
The examples given in the book include tasks that we
typically say to ourselves in that ‘should’ fashion such as ‘I
should make a salad for dinner instead of mac-n-cheese’, or
‘I should give so-and-so a call’, or ‘I should test my business
idea with a landing page project’. But we don’t. We engage
in our habitual behaviors and procrastinate.
/* The difference here between akrasia and
procrastination is that procrastination is the
mechanism with which we delay action on a task
while akrasia is the feeling that we get when we are
presented with the option to choose to do the thing we
‘should’ do, but don’t. I.e. I’m procrastinating doing the
dishes by watching tv, but I feel akrasia while i’m watching
tv because I should be washing the dishes.*/
—
Monoidealism: the state of solely focusing your energy
and attention on one thing ONLY, without conflicts. Also
called the “flow” state, like when I’m writing this summary
{ideally}.
 Conflicts kill productivity, progress, decision
making, and adherence to a system.
Flow is a state of focus without conflict.
To enhance transition into FLOW:
 Eliminate potential distractions and interruptions
 Eliminate inner conflicts before starting to work
 kick-start the Attention process by doing a “dash”
(a Pomodoro [link])
→ the philosophy is that the transition into flow
takes between 10 and 30 min on average so you
should commit to working at least that much
(which is when it’s hard) and give yourself the
permission to stop and do something else at the
end if you want, though that rarely happens.
Meditation is a form of monoidealism “resistance
training”. The same technique of recapturing awareness to
breath is the principle behind bringing yourself back to work
when we are distracted. {key}
Cognitive Switching Penalty occurs when shifting
attention from one thing to another. This is a friction cost,
but basically, the less you switch the less pay a cognitive
cost.
Kaufman (the author) recommends “batching” and
references Paul Graham’s Maker/Manager schedule [link].
It makes sense to group activities based on the nature of the
work, like meetings, chores, and creative work.
 Maker’s schedule is large uninterrupted chunks of
time.
 Manager’s schedule is smaller chunks for
meetings and administrative tasks
It is important to avoid unproductive context
switching to get more done with less effort!
Four Methods of Completion
1. Completion
→ Best for tasks that only you can do particularly
well
2. Deletion
→ Unimportant and unnecessary items should be
deleted (as in the Eisenhower Matrix [link])
3. Delegation
→ Effective for anything a person can do 80% as
well as you can. {important}*
4. Deferment
→ For non-critical and not time-dependent tasks
Credit: James Clear

MIT - Most
Important Task
The critical task that
creates the most
important results
you’d like to achieve.
“If i were only to
accomplish one thing
today, what would
have the greatest
impact or what would
I be happiest about?”
—
GOALS
A statement that clarifies precisely what you want
to achieve.
Well-formed goals
 help you visualize
what you want to
achieve
  make you excited about achieving it, leading
to motivation to achieve it
When goals are well formed, our brain can use mental
simulation to visualize what the achievement of the goal
looks like.
/* This is exactly what Master Key System [link] and
Psycho-Cybernetics [link] (among others like Ask and It Is
Given [link]) advocate for {find these books on my
Mindset Book List here}. Clarity in our mental image
of the end result activates our automatic success
mechanism (Psycho. language) and puts things in motion
for its achievement through automatic planning,
attraction, and alignment with it. */
Decisions to achieve a goal allow the mind and your ASM to
start putting things in motion for its achievement.
You won’t plan if you’re uncertain whether or not you
actually have that goal. If you doubt, you won’t follow
through on the necessary steps in the way you would if you
didn’t doubt your achievement, leading to self-fulfilling
prophecies.
Usually the reason we don’t achieve our goals is
because we stand in our own way.
“When you don’t achieve a goal, it is
indicative either that you didn’t really want
it or you tried to negotiate on the price” —
Rudyard Kipling
PICS format
Positive: refers to motivation. Goals are something you
move toward not away from. Be positive in you goal setting.
Generating more income vs getting out of debt.
Immediate: refers to the time scale. You should be willing
to make progress on your goals immediately, not sometime
in the future. If it’s not that important, don’t pretend to
work on it now, because it will only get in the way of you
achieving your other goals. Don’t quit in the dip [ link ]
either. Start on achieving your goal when you are ready and
don’t stop unless you realize that you don’t want it or the
price is not what you’re willing to pay.
Concrete: refers to the ability to see the results in the real
world. Basically, you should know when you’ve
accomplished what you’ve set out to achieve.
Specific: ability to define the what, when, where of your
achievement. {i don’t necessarily think the specifics matter
as much as the end result does}
Goals should be under our control
Goal is to exercise 30 minutes a day vs to lose 30 pounds. In
other words, get invested in the system. Make the system
the goal.
Also, make changing your mindset a goal. So, for tasks that
are currently difficult for you, make the goal to change your
mindset around it (remove conflict). We should have
goals to love to do the work we don’t or like the people that
give us the hardest time (and can’t avoid).
Kaufman thinks it is a mistake for people to set goals
for states of being (i.e. happiness) — the quality of our
present experience.
 Emotional experiences aren’t achievements
because they fluctuate over time {valid}. So, being
happy, might not be the end goal, though you can
use your knowledge of the feeling of happiness to
imagine it resulting from the achievement of some
other goal and amplify your clarity and
reinforcement of desire for its achievement.
 States of Being are decision criteria, not goals—
ways of understanding whether or not your
actions are leading to your desired results. /* This
is the a central tenant of Ask and it is Given,
whereby our emotions are the feedback
mechanism that indicates whether or not we are
on our way to the achievement of things we want
to realize/manifest. */
Author breaks down states of being beyond the general
sense to give himself a more specific definition. So, instead
of feeling happy, what does that actually look like? It could
be to be surrounded by good friends and family, have time
to yourself to write and play music, or create, and have
romance with a partner.
{this is a good point. this can really guide the thinking on
goal setting}
Habits
Regular actions that support us.
Most habits take 4 forms:
1. things you want to start doing
2. things you want to stop doing
3. things you want to do more
4. things you want to do less
Habits typically require some willpower to create.
Guiding structures will facilitate the forming of adherence to
new or even existing habits. (i.e. have a fruit bowl out and
hide the cookie jar)
Habits are easier to instill when you look for triggers to
attach a habit to. (i.e. stretch every time you wake up)
For best results, try to install one new habit at a time.
Priming
A method of consciously programming our brain to alert us
when particular info is present in our environment and
consciously influencing our Pattern Matching capabilities.
 prime your brain to look for things you want to
notice and your brain will almost always find it
(mindset)
Decision
The act of committing to a specific plan of action. Comes
from the Latin word “decidere” which means to cut
off. /* yes, we cut off other paths, and other things. It’s
hard because of buyers remorse and loss aversion, but
these are simply heuristics */
 No decision large or small is made with complete
information..
 We often attribute indecision with being
uninformed.
  The world is too complicated to make accurate
decisions
 Once you acquire 40-70% of the
information, go with you gut
 Failure to make a decision is itself a
decision! (We can’t stop time)
 When facing difficulty making a decision, ask
“which experience would I prefer to have?”
Root Cause Analysis
Conducted to find out what our real motivations are.
Understanding why.
 When we discover the root causes of our goals we
can develop other strategies for achieving what
we actually want.
→ One technique is 5-Fold Why.
Ask “why?” 5 times. In a spirit of curiosity. Until you get to
an “I want it”.
Next action is the next specific, concrete thing you can do
right away to move a project forward. (Getting Things Done
philosophy [link]). If you know what the “done” state looks
like, you can focus on “doing” what will get you there (taking
next steps). So have clarity of what completion looks like.
Externalization takes advantage of our perceptual
abilities by giving our brains a way of re-inputting the
information in a new way such as through speaking or
writing.
 Useful if used as a tool to examine plans, goals,
and actions.
 Jotting down events for later review in a
diary format is useful, but using a journal
as a problem-solving tool is even more
useful.
Self-Elicitation is the process of asking ourselves
questions and answering them to grasp important insights
or generate new ideas.
→ 5 fold why and how are examples of this process.
When you are faced with analyzing behaviors that don’t
serve you, try the ABC method of SE (Antecedent, Behavior,
and Consequences)
1. Antecedent: what was happening before? (thoughts,
circumstances, people, feelings, activities)
2. Behavior: What were you doing and thinking?
3. Consequences: Result. Was it pleasant or not?
When uncertain about what questions to ask yourself, try
asking “ What are the best questions I could ask myself
about this situation?”
Counterfactual simulation - A visualization technique
that is unrestricted by “facts” or current circumstances. You
are only limited by imagination. This method can help
discover hidden opportunities you previously assumed
weren’t possible. // simulate hypotheticals
Parkinson’s Law “Work expand’s so as to fill the
time available for its completion.”
“Ignorance more frequently begets
confidence than does knowledge”
— Charles Darwin
One of the best ways to figure out whether or
not you’re right is to actively look for
information that proves you’re wrong.
Confirmation bias
Is the tendency for people to pay attention to inform that
supports them and ignore information that doesn’t
Changing the past is outside our internal locus of
control
Humans are not machines.
The ideal of human productivity is not acting like a robot
—
Your goals may have mystique about them. But, no job,
position, or project is flawless. All come with their tradeoffs.
Learning what they are in advance gives you a major
advantage: you can examine an option without idealizing it,
then choose if it’s really what you want to do before you
start. This will aid in the long term commitment to the day-
to-day next actions.
Avoiding Hedonic Treadmill: Over time, our joy from a
new thing will fade. We become adapted. and the danger is
to be on the hedonic treadmill we are constantly in a cycle of
achievement, joy, reference adjustments, and new desires
for achievement.
 One way to avoid this is by knowing your
monetary point of diminishing returns
 Focus on health and energy
 Spend time with people you enjoy
 Remove chronic annoyances
 Pursue a new challenge (grow)* // very
important.
Keep your attention on what you’re doing to build
the life you want to live, and it’s only a matter of
time before you get there.
Be careful with attachment. We can become attached to
an idea, a person, a strategy, etc. But attachment can keep us
from dealing with the unexpected or from considering a
better alternative. It will limit flexibility. Which is why
always holding root causes in mind is key. Leave the field
flexible for different plays.
Most people should budget a personal R&D, just
like companies do.
→ Spend some money on anything that will improve skills
and capabilities. Books, conferences, courses, etc.
Our ability to save is limited; Our ability to earn is
not. (you can only save what you earn)
On anticipating rejection: Make the other party tell you
no.
 If you assume rejection, go test that. Make the
other party say it before assuming it’s a given.
WORKING WITH OTHERS
Power:
The ability to influence the
actions of other people.
We can’t really control people,
but we can act in ways that
encourage people to do the
things we suggest.
2 Fundamental forms
of Power:
1. Compulsion — force
2. Influence — encourage
Power is a neutral tool (not good or bad); represents your
ability to get work done through other people.
The more power you have the more you can ultimately
accomplish, but it comes with great responsibility {yes!}
*If you don’t have a plan, your actions will be determined
by someone else. If you defer decisions to other people, you
will be led by those with a plan.
The best way to increase your power is to do things
that increase your influence and reputation.
Comparative Advantage
Its better to focus on your strengths than your weaknesses
and trade on that basis.
 true in an organization as it is in economies:
“strengths-based management” — where people
do what their best at and work with other
specialists for their other needs.
“No man is an island. Focus on what you
can do well, and work with others to
accomplish the rest.”
— John Donne
Communication Overhead* (important)
The proportion of time you spend communicating with
members of your team instead of getting productive work
done.
 The more team members you have to work with,
the more you have to communicate with them to
coordinate action.
 Communication OH increases ‘geometrically’ until
the total percentage of time each individual must
devote to group communication approaches 100
percent.
Derek Sheane Beyond Bureaucracy:
“8 Symptoms of Bureaucratic Breakdown”:
1. The invisible decision — No one knows how or
where decisions are made (no transparency)
2. Unfinished business — too many tasks are
started and not carried through to completion
3. Coordination Paralysis — Nothing can be
done without checking with a host of
interconnected units
4. Nothing new — No radical ideas, inventions, or
lateral thinking (possibly stemming from a lack of
initiative) *
5. Pseudo-problems — Minor issues are
magnified out of proportion (probably because it’s
easier to put out a fire and spending time
identifying problems (or people to blame), than it
is to do important work. This becomes a form of
resistance)
6. Embattled Centers — The “center” (HQ, core,
etc) battles for consistency and control against
local/regional units
7. Negative Deadlines — Deadlines for work
become more important than the quality of work
being done [AVOID at all costs!]
8. Input domination — Individuals react to inputs
(their inbox or in-tray) as opposed to their own
initiative. (reducing creativity and adding to
‘nothing new’)
The solution to Communication OH is simple, but
not easy: reduce your team size as much as
possible.
 The recommendation for effective teamwork is
THREE to EIGHT people. Keep teams “ELITE &
SURGICAL”.
Everyone has a fundamental need to feel important.
The more important you make someone feel, the more they
will value your relationship with them.
Make someone feel important by undivided focus:
 Paying attention
 Listening intently
 Expressing interest
 Asking questions
—
Effective Communication
 Some people will put others down to feel smarter
or more important…
What putting others down actually accomplishes is
shutting down effective communication.
Effective communication can only happen when the two
parties feel safe.
When people start to feel threatened or unimportant in a
conversation, they start “stonewalling” aka shutting down
communication.
People have a need to feel safe when expressing what’s on
their minds and talking about things that are Important to
them.
For communicating without provoking anger or
defensiveness:
Crucial Conversations “STATE Model”
1. Share your facts - Lead with facts. They are less
controversial and insulting. (be prepared to locate
a source and also make sure they are understood
as facts - get confirmation)
2. Tell your story - Explain from your point of
view, WITHOUT INSULTING OR JUDGING
 3. Ask for others’ paths - Ask for the other
person’s side of the situation and what they
intended, and what they want. (v. imp. to know
intention, b/c then the person feels more
understood and you guys can agree on the
intention rather than the “how”. This will make
the conversation feel safer.)
4. Talk tentatively - avoid conclusions,
judgements, and ultimatums
5. Encourage testing - Make suggestions AND
ASK FOR INPUT, and discuss until you reach a
productive and mutually satisfactory course of
action.
Always remember to not pass judgement and focus on
making the other party feel important.
—
Golden Trifecta: Treat people with appreciation,
courtesy, and respect.
Appreciation - expressing gratitude for what others are
doing for you even if it’s not quite perfect.
Courtesy - Politeness. “accepting small inconveniences on
behalf of another person.
Respect - “is a matter of honoring the other person’s
status”. Respect other people as an individual.
The golden trifecta stems from the golden rule - treat others
the way you want to be treated. Apply the GT to all
interactions.
 Treating other people poorly sends a clear signal
to others that you cannot be trusted.
—
People are far more likely to comply with a request if you
give them a reason why. /* but I think this has a neg
correlation with the familiarity you have with the
requestor + a factor of how much you care about being
liked */
Humans are predisposed to look for behavioral causes.
Commander’s Intent is a better method of delegating
tasks: Tell a person why a task needs to be done when
assigning a task to someone.
“The more your agent understands the purpose behind your
actions, the better they’ll be able to respond appropriately
when the situation changes.”
 Commander’s Intent alleviates Communication
OH.
If you’re a competent professional, nothing is more
demeaning than someone else defining and scrutinizing
your work to the last detail. People hate being told exactly
what to do.
When delegating responsibilities, always assign tasks to
a single owner with a clear deadline. Only then will
people feel responsible for getting things done.
—
Planning Fallacy: People have a persistent tendency to
underestimate the amount of time it will take to accomplish
things.
 The more complex the project, the more
interdependencies. The more interdependencies,
the higher the chance something will not go
according to plan. (the more moving parts there
are…)
Hofstadter’s Law: “ It always takes longer
than you expect, even when taking into
account Hofstadter’s Law.”
— Douglas Hofstadter
“People overestimate what they can get done in {6} months
and underestimate what they can accomplish in {6} years.”
Most plans drastically underestimate the slack necessary to
make a plan accurate. Slack being extra time to overcome
obstacles or changes, etc.
“No battle was ever won according to
plan, but no battle was ever won without
one…plans are useless, but planning is
indispensable.”
— Dwight D. Eisenhower
Plans are useful, although inaccurate. The mere act of
planning helps you better understand requirements,
dependencies, and risks before starting.
The value of planning is in mental simulation.
Use plans, but don’t rely on them
—
Referrals make it much easier for people to decide to
work with someone they already know
 They transfer the quality of being known and liked
{huge advantage}
 Even obscure commonalities (same area code,
college, etc.) can close the gap of being unknown
and invoke familiarity
—
“Clanning”
Humans naturally tend to form distinct groups from each
other:
→ instinctual human behavior {evolutionary}
Convergence
The tendency for group members to become more alike one
another over time. True for a company culture where people
working at a certain place adopt similar characteristics,
behaviors, and philosophies {& hobbies}
“The tallest blade of grass is the first to be
cut”.
The norms of the group work to bring people away from
tails of the bell curve into the middle. Violating norms sends
social signals that you don’t belong {a primal human’s worst
fear!}. {Convergence could even explain conformity amongst
people in groups}
Divergence is the tendency of groups to differentiate
themselves from other groups over time (i.e. hipsters).
 the norms of the groups constantly change to
avoid being identified with other groups {this is
hipster counter-culture 101}
Social Signals
“Tangible indicators of some intangible quality that
increases a person’s social status or group affiliation” {or,
conversely, decreases that person’s social status or
affiliation}. They are statements of identity.
People will spend a lot of money on social signals because
people are ego-driven, comparative creatures with a need to
belong and measure one’s worth against a reference point
subjectively determined according to external indications
(like from other people).
 Social Signals may not be dependable data points
for correctly associating people to what they are
signaling. (i.e. wealth or happiness)
 However, SS’s do have economic value.
 SS’s relate back to people’s core human drives
(acquisition, bonding, learning, defending, and
feeling). If a business owner can effectively embed
a social signal related to a prospect’s core human
drive(s), then the offering becomes stronger.
Social Proof, like testimonials, is a social signal that a
product or service is acceptable or valuable to other people.
To the extent that someone viewing your offering can
connect with the people showing their support for it, does
the social proof for your offering increase in value/effect.
 That’s why testimonials that connect with a
prospect’s uncertainty (i.e. ‘I was uncertain about
this product, but bought it anyway and am
thrilled I did’) are most effective. People can
connect/relate with that person.
People have an inherent tendency to comply with authority
figures. (something that begins in childhood)
 Work to become an authority figure on the
subject matter of your business and it will
increase trust in consumers and prospects
—
‘Commitments, even small ones, make it more likely that
individuals will take actions constant with those
commitments in the future’
  ‘Obtain a small commitment, and you’ll make it
far more likely that others will comply with your
request’
Incentive-Caused bias ‘explains why people with a vested
interest in something will tend to guide you in the direction
of their interest.’
“Don’t ask the barber if you need a
haircut”.
On Compensating Salespeople. From Norm Brodsky
and Bo Burlingham:
Most companies have commission based structures that
incentivize closing a sale. Closing more sales nets a person
more commission. But salespeople become hyper-focused
on closing sales regardless if those sales weren’t profitable or
in the long-term interest of the company.
 By compensating people on a salary basis and
giving generous bonuses based on long-term
performance, B&B encouraged them to focus on
making profitable sales versus sales at any cost.
Basically, sometimes incentives create
unintended Second Order Effects
 Incentives are tricky because they inevitably
interact with our Perceptual Control systems.
 i.e. Giving an employee a bonus or raise for doing
something good can result in them stopping what
got them the reward. The reward already existed—
internally {perhaps}. When you pay someone for
actions they would otherwise do from internal
motivation, you reduce their inner drive to
complete it because the reward now makes the
action a part of their job.
 Perceptual Controls beat incentives every
time.
—
Modal Bias: ‘the auto-assumption that our idea or
approach is the best.’
  In the absence of evidence to the contrary, the
HiPPO rules (the Highest Paid Person’s Opinion).
 ‘If you are a leader or manager, it pays to
consciously suspend your judgment long
enough to thoroughly consider the
perspectives and suggestions of the people
you work with.’
—
Pygmalion Effect: People tend to rise to the level of other
people’s expectations of them
Named after mythical Greek sculptor, Pygmalion, who
sculpted a woman so perfect and beautiful that he fell in love
with his statue. He prayed to Aphrodite (gdss of love) who
took pity on him and brought his statue to life.
 Explains why most relationships are self-fulfilling
prophecies.
 “give others a great reputation to live up to”
(HTWFAIP philosophy #7 in “be a leader” [link])
 ‘Paradox of Pygmalion Effect’ is that as we
increase our expectations of others → the chances
that they rise to meet them increases, but so do
the chances that we will be disappointed.
The expectation effect means ‘our perception of the
quality of someone’s work is a function of our original
expectations’.
Attribution error
The fallacy of blaming others’ characters when they screw
up, but blaming externalities when we screw up.
 Give people the benefit of the doubt unless a
particular behavior clearly becomes a pattern.
When faced with issues [or crises]: focus on options {b/c
it’s all about moving forward.}
—
Management
is the act of coordinating a group of people to achieve a
certain goal while accounting for uncertainty and change.
6 principles of effective management:
1. Recruit the smallest group of people possible to
accomplish the goals, remembering that some
people will be better than others (comparative
advantage). Small elite teams are best.
2. Clearly communicate the end result, who is
responsible for what, and the current status.
3. Everyone should know commander’s intent, the
reason why it’s important, and know the specific
parts they are responsible for
4. Treat people with respect. (Golden trifecta:
appreciation, courtesy, and respect). Make
people feel important. Working together under
a mutually supportive environment fosters
clanning.
5. Create an environment for productivity. Provide
the best equipment and tools to reinforce the work
people are doing. Shield your team from
distractions (like bureaucracy and meetings)
6. Refrain from having unrealistic expectations
regarding certainty and prediction.
7. Update the plan as you go along. Reapply
Parkinson’s law to find the shortest feasible path
to completion that works, given the necessary
trade-offs required by the work.
8. Measure progress and compare. If what you’re
doing is not working, consider a different
approach and run an experiment.
9. A primary fallacy of effective management is that
the initial plan is perfect and should be followed to
the letter. Wrong. Allow room for learning
and iteration throughout the process.
10. Effective management plans for learning,
requiring constant readjustments along the way.
11.Measure performance across KPIs
 Management should be thought of as a
support team for the core value producing
workers, not as the “decision-making team”. {this
is particularly hard to swallow because usually
 management is the party with the full
understanding of the goals and business
strategy, and you can’t have the crew running
the ship - you need a captain}
 “Try to get everyone to have a gigantic brain in
their area and you provide a minimum amount of
admin support to see them humming along”
{again, this is traditional silicon valley
philosophy}
—
Performance-Based Hiring
Good employees and contractors are not necessarily the
people with the fanciest resumes or perform best in an
interview: the best hires are people who get things
done and work well with other members of your
team.
The golden rule of hiring: the best prediction of
future behavior is past performance
On recruiting:
 describe what the applicant will actually do on a
day-to-day basis if they work for you, with as
much detail as possible.
 Identify an acid test to screen applicants: ask a few
basic questions that require a certain amount of
specialized knowledge in the field to answer
 Once promising candidates are identified, ask
each one to show examples of 2-3 of their best
projects to date
 they do not have to be directly related, but should
be work the applicant is proud of and believe
highlights their skills
On Checking references, ask:
 Would they work with the candidate again?
 If they hesitate or talk around the question, it’s a
no.
  If you can’t reach a reference when you call, leave
a message and ask them to contact you if the
candidate is extraordinary. If they are, they will; if
not, they won’t.
Skip Interviews; Field Test Candidates Instead
Finally, give promising candidates a short-turnaround
project or scenario to see how they think, work, and
communicate first hand.
 The outcome should be a deliverable of some
kind: a report, a pitch, an asset, or a process
 Bring the candidate in to meet and present their
results. Let this presentation replace the interview
Don’t put the candidate in an artificial
environment. Let them use the tools and resources they
are comfortable using. They should be able to contact you.
→ The purpose of the project or scenario is to evaluate the
candidate’s actual work in a realistic environment.
Assignments like these should be short - only a couple of
hours of work.
If you look for past performance and evaluate a
candidates work firsthand, you’ll make much better
hires
—

UNDERSTANDING SYSTEMS
A complex system is a self-
perpetuating arrangement of
interconnected parts that
make up a whole.
Businesses are complex
systems within even more
complex systems
(markets, industries,
societies)
Gall’s Law
“A complex system that works is invariably found to
have evolved from a simple system that worked. The
inverse proposition also appears to be true: A complex
system designed from scratch never works and
cannot be made to work. You have to start over,
beginning with a simple system.”
— John Gall, systems theorist
To take the extreme example - imagine building something
from scratch without relying on anything someone else has
discovered (virtually not possible). We always use things
that already work to build or create with, otherwise we’d be
starting at true square 1. Everything built will thus be built
upon the work of other people, even the simplest items.
Systems are no different. Build a system that works and
build upon it. Add a new variable and see if the system still
works. Imagine if you tried adding two or more variables? If
it fails, you don’t really know the cause…instead, iteratively
build the system so you know that it performs correctly at
each build stage. Then you’re just adding and optimizing,
but you don’t lose your base.
To explain why complex systems cannot be developed from
scratch, we revisit Gall.
 “All complex systems that work evolved from
simpler systems that worked. Complex systems
are full of variables and interdependencies that
must be arranged just right in order to function”
 Gall’s Law is where environmental selection test
meets system design. Environmental selections
test meaning is more like a survival test — the
environment will not sustain that which does not
meet its selection tests.
 If you want to build a working system, the best
approach is to build a simple system that meets
the environments current selection tests first, then
improve it over time.
 Iteration and incremental augmentation over time
will produce complex systems that work, and,
ideally, even as the environment changes
Flow
Flows are movements of resources into and out of
the system.
inflows are resources moving in
outflows are resources moving out.
Follow the flows to understand how the system works.
 Examine what’s coming in and what's coming out
to understand how the system works.
Stock
By following a system’s flows you will find places
where resources tend to pool together.
Stock refers to a pool or holding tank of resources.
i.e. a bank account is a pool of money waiting to be used.
Inventories. Customer queues. Waiting lists.
Stocks are affected mathematically by inflows and outflows.
Slack
Slack is the actual amount of resources in a stock. More
resources = more slack. (makes sense in the traditional way
we think of slack)
 In a biz, you want slack to be just right. not too
much where you have assets tied up to heavily in
one stock and not too little where a lack of slack
could create a constraint that affects the business.
 Large stocks grant flexibility, but come at a cost,
especially when thinking of stock of inventory and
its related costs.
Constraint
“Once you eliminate your number one
problem, number two gets a promotion” —
Gerald Weinberg
The performance of a system is always limited by
the availability of a critical input.
“Theory of Constraints”:
Any manageable system is always limited in achieving more
of its goal by at least one constraint.
Five Focusing Steps to use to identify and
alleviate a constraint:
1. Identification: examine the system and find the
limiting factor. (where do bottlenecks exist?)
2. Exploitation: ensuring the resources related to
the constraint aren’t wasted. (identify the ‘waste’
in a bottleneck.)
3. Subordination: redesign the entire system to
support the constraint. (redesign to facilitate
alleviation - further waste reduction even at a
penalty in other areas(reasonably))
4. Elevation: permanently increase the capacity of
the constraint. (add new resources or upgrade
existing resources)
5. Reevaluation: After making changes, reevaluate
the system to locate the constraints.
—
Feedback loops:
Exist whenever the output of a system becomes one of the
inputs in the next cycle.
Feedback is how systems learn.
Balancing loops:
Dampen each system cycle’s output, leading to system
equilibrium and resistance to change. i.e. Tennis ball falling
and each bounce getting smaller due to friction and air
resistance.
 They stabilize the system, dampening oscillations
and keeping the system in a certain state
 Perceptual control systems are usually balancing
loops. i.e. thermostat
Reinforcing loops amplify the system’s output with each
cycle.
  Tend to lead to runaway growth or decay over
time. i.e. price war
 Compounding is an example of runaway growth
(a reinforcing loop)
Stock is influenced by several loops all pulling it in different
directions. i.e. bank account that has many input sources
and outputs, all related to different systems.
// I don’t really understand this section that well.
—
Autocatalysis:
A reaction whose output produces the raw materials
necessary for an identical reaction.
An autocatalyizing system produces the inputs necessary for
the next cycle as a by-product of the previous cycle,
amplifying the cycle. Autocatalysis is a compounding,
positive, self-reinforcing feedback loop. i.e. television
advertising in the 20th century which had a great return on
investment, which was reinvested, yielding greater returns,
until it reached the massive scale it’s at. worth noting, that it
is no longer as lucrative considering the saturation of
advertising and the rise of the internet.
 Doesn’t have to be money; “network effects” and
“viral loops” are examples. i.e. someone viewing a
video on YT and sharing it.
 *If your business includes some autocatalyzing
element, it will grow more quickly (i.e. sticky,
shareable software)
—
“Reality is that which, when you stop
believing in it, doesn’t go away” — Philip K.
Dick
No system stands alone.
An environment is the structure in which a system
operates and influences or impacts the system’s flows or
processes, changing the output of the system.
  When the environment changes, the system must
change with it to continue operating. aka
adaptability is key.
Self-perpetuating systems (like business and organisms)
must meet the environmental conditions necessary to exist.
Selection test is an environmental constraint that
determines which systems continue to self-perpetuate and
which ones die. (literally, the “environment” tests us. failure
= death)
 Instead of survival of the fittest, it’s more of “death
of the unfit”
 As the environment changes, so do the selection
tests.
 STs are ruthless [but really just objective]
—
Uncertainty
Nobody knows the future.
Risks vs Uncertainties
Risks are known unknowns
Uncertainties are unknown unknowns
You can’t reliably predict the future based on past events in
the face of uncertainty. Unexpected or random events can
always occur suddenly, which can have major impacts on
goals and plans.
No matter how stable or predictable things seem,
unpredictable “black swan events” can change everything in
an instant.
Black swan:
The problem of induction: A philosophy concept that
basically says that by using inductive methods of inference
(observing past instances) you will be right until you are
wrong aka until you see a black swan. Until you see every
swan that exists, you can never assume the statement “all
swans are white” is true.
  All you can do is be flexible, prepared, and
resilient enough to react appropriately if and
when black swan events occur.
Planning for flexibility in response to uncertainty by
scenario planning (discussed later) is far more useful
than pretending to know the future.
Change
“It is not the strongest of the species that
survives, not the most intelligent, but the
one most responsive to change.” — Charles
Darwin
All systems change. No such thing as a system ‘in stasis’.
Plans that do not take change into account are of
limited value.
Because of heuristics and the human ability to pattern
match, we tend to see patterns where none exist and tend to
attribute changes to our skill if the changes are good or
misfortune if they’re bad (fooled by randomness [link]).
You will never develop your business to the point
that everything is perfect and unchanging.
—
Nothing in the world exists in isolation. Most things
are inherently interdependent, and complex systems are full
of interdependencies.
A dependency is an input that’s required before the next
stage of a process can take place. The more dependencies
there are in a system, the higher the likelihood of delay or
system failure.
Tightly coupled systems are highly interdependent
systems where the processes in a system are tightly coupled,
increasing the likelihood that a failure, delay, or change in
one part of the system will have an effect in another part of
the system.
 These systems are typically time
dependent, rigidly ordered, and have very
little slack.
  There’s often one path to a successful outcome,
and a failure in any part of the system can cascade
to the rest of the system
→ Eliminating a dependency makes a system less tightly
coupled
Critical path contains only the tasks that must be
completed in order for the project to be finished on
schedule. (a project management term).
 Any delay or task on the critical path will delay the
entire project.
Loosely coupled systems have low degrees of
interdependence. They are more relaxed and usually not
time dependent (asynchronous systems).
 May be able to use parallel processing
— completing multiple steps at a time
 Usually have plenty of slack and have more than
one strategy to accomplish the goal
Counterparty Risk
“The man who makes everything that leads
to happiness depend upon himself, and not
upon other men, has adopted the very best
plan for living happily” — Plato
If the system relies on other people in order to
function, this poses a major risk to the operation of
the system {think outsourcing software development for a
tech startup}
Counterparty risk is the possibility that other people
won’t deliver what they have promised.
Too much counterparty risk increases the risk of
catastrophic system failure.
Counterparty risk is amplified by the planning
fallacy. **
 Remember people are always optimistic about
plans and deadlines.
  Make plans and commitments, but always have a
plan for when the project doesn’t go as expected.
 When the system does rely on the performance of
someone outside your control, do all that you can
to prepare for the possibility that they won’t
perform as expected.
Second Order Effects: The consequences of the
consequences of an action.
i.e. rent control NYC. Hard to have predicted the resulting
housing crisis {but some foresight could help}
 Uncertainty guarantees that we won’t be able to
completely understand or predict second order
effects.
Approach making changes to a complex system with
extreme caution: what you get may be the opposite
of what you expect
Normal Accidents
“shit happens”.
In a tightly coupled system, small risks accumulate.
Enough accumulation makes errors or accidents inevitable.
The larger and more complex the system, the higher the
likelihood that something will eventually go wrong.
i.e. Challenger or Colombia shuttle failures.
Overreacting to normal accidents is
counterproductive.
Fight our instincts!
 Locking things down and adding more systems
only makes the system more tightly coupled (bad),
increasing the risk of future accidents.
 The best way to avoid normal accidents is to
analyze breakdowns of “close calls” when they
happen.
/minimize the risk of the same issue reoccurring
without adding more systems that could potentially
fail.
Analyzing Systems
Systems must be analyzed as they’re working.
(you can’t tell time to stop just so you can
understand the world better)
Deconstruct the system to
understand it. This is the
reverse engineering aspect of
Gall’s law (a complex system is
made up of simpler systems
that work)
 Separate complex
systems into the
smallest possible
subsystems
If there are more than 7 or 8
variables or dependencies in the system, you start to suffer
from cognitive scope limitation.
 analyze the subsystems up to this point and how
they interact with one another
1. Where does the subsystem begin?
2. What flows are involved?
3. What processes take place inside the system?
4. Are there feedback loops?
5. What happens if inflows don’t come in?
6. Where does the system end?
7. What are the outflows?
Interdependence remains an important factor
when deconstructing. Knowing the triggers and
endpoints guides the understanding of the
interdependencies.
 triggers are what makes a subsystem start
 endpoints are what makes a subsystem stop
Measurement is the process of collecting data as the
system is operating (duh).
 There to help us avoid absence blindness — we
have a hard time seeing things that aren’t present.
“what gets measured gets managed” —
Peter Drucker
KPIs are the measurements of the critical parts of the
system. Not everything can be a KPI and it is highly
dependent on the system and goals of the system.
 We establish KPIs to not waste time,
attention, and resources measuring things
that don’t help us make improvements.
KPIs are usually related to the 5 parts of every business or
throughput
Value Creation:
 How quickly is the system creating value?
 What is the current level of inflows?
Marketing:
 How many people are paying attention to your
offer?
 How many prospects are giving you permission to
provide more information (key)
Sales:
 How many prospects are becoming paying
customers?
 What is the average customer’s LTV?
Value Delivery:
 How quickly can you serve each customer?
 What is current complaint/returns rate?
Finance:
 What is your profit margin?
 How much purchasing power do you have?
 Are you financially sufficient?
Try to limit # of KPIs to 5. It’s tempting to build a
dashboard that contains every piece of information
you’d ever want to see. Resist the temptation.
If you overload yourself with too much data, you’ll be far less
likely to see changes that are critically important.
→Dig deeper into data as necessary
→Don’t get caught up in vanity metrics
Trend analysis is usually impractical to conduct on a day to
day basis, considering the rate of change for things in a
system isn’t always proportionally correlated with change in
results or output.
—
Garbage in, garbage out refers to the output of a system
directly correlated to the quality of the inputs.
 this can refer to the data you collect when
measuring
 mostly refers to the actual quality of inflows into a
system
Tolerance — an acceptable level of “normal” error in a
system. As long as errors don’t exceed a certain threshold,
urgent intervention is not required.
“Perfection is impossible.”
In the Service Level Agreement (SLA) you can promise
to compensate customers if errors exceed a certain
threshold.
 Tight tolerances are an indicator of quality (and
usually have a corresponding price tag)
—
Analytical honesty:
Measuring and analyzing acquired data dispassionately [and
objectively].
 don’t look at your data with rose-colored glasses:
always strive to be honest with ourselves about
what the data indicates can be improved.
 This is key when picking KPIs. don’t pick vanity
metrics. keep it honest
Context:
Using related measurements to provide additional
information about the data being examined. i.e. knowing
expenses when reviewing revenue. Context is everything.
Aggregate measurements are worthless when it comes to
making improvements because they lack context.
Examine no measurement in isolation:
Always look at measurements in Context with other
measurements
Ratios
Method of comparing two measurements against each other
 Return on Promotion — Marketing dollar
spent : revenue collected
 Profit per employee — DL : profit
 Closing ratio — Prospects engaged : prospects
sold
 Returns/Comlplaints ratio — Sale : Returns
Be creative. Study the business and construct ratios
that highlight the critical aspects of the system
Sampling — The process of taking a small percentage of
total output at random and using it as a proxy for the entire
system. i.e. blood drawn for a blood analysis is a sample
used as a proxy for entire blood supply.
Depending on how quickly and accurately we need to spot
errors, increase or decrease sampling [and thus
measurement] rate.
Random “spot checks” are a form of sampling [as well as
quality control].
Sampling is prone to bias if the sample is not truly
uniform or random.
Margin of Error
Refers to an estimate of how much you can trust your
conclusions from a given set of observed samples.
 Beware of misleading conclusions based on small
or misrepresentative sample sizes [how to read a
graph 101]
“It aint what you don’t know that hurts
you. It’s what you know that aint so.” —
Will Rogers.
Typicality: identifying a normal or ’typical’ value for some
important measurement. i.e. using mean, median, mode,
and midrange to determine what is ‘typical’.
 Calculating the median and comparing it to the
mean can tell us if the average is being influenced
by data points at the tails of the distribution curve.
  A midrange is the value halfway between the
highest and lowest data points in a set of values.
This is not the median, since the median refers to
the value of the data set at the 50%-tile position,
whereas midrange identifies the absolute value
between the highest and lowest data points in a
data set calculated by adding the two points
together and dividing by 2.
—
Causation: a complete chain of cause and effect.
Correlation is not causation. Refers to association,
but cannot be proved to be causal.
 The more you can isolate the change in the system
from other factors, the more confidence you can
have that the change you made intentionally
actually caused the results you see.
—
Norms are measures that use historical data to provide
context for current measurements.
i.e. seasonality determined by trends in sales according to
the date of sale.
Norms are useful for examining current data and having a
baseline to compare the measurements to a previous ‘norm’.
 Only valid as long as the measurement protocol
has not changed. If you change how you measure
something now, the measurement with the old
method is no longer a valid norm to compare
against, because it’s now comparing apples to
oranges.
 You have to be consistent with measurement in
order to use norms. V imp.
Proxy measures one quantity by measuring something else.
i.e. Votes are a proxy for political will of a country. or proxies
used in scientific measurement, like how the distance to the
sun was determined or what the speed of light is.
 Useful proxies are closely related to the primary
subject. Make sure it is actually related to the
intended subject.
  The better the correlation, the better the proxy
—
Segmentation
A technique that involves splitting a data set into well-
defined subgroups to add additional context.
 splitting data into subgroups can help uncover
previously unknown relationships.
3 Common ways to segment customer data:
Past Performance: segmenting customers by past known
actions
 LTV calculations are a form of PP segmentation.
i.e. segmenting customers by existing vs new
customers
Demographics: segmenting customers by external
personal characteristics
 You can use personal information to determine
who may be probable purchasers. Obviously
important for things that are demographic specific
i.e. gender or age-targeted products. Going deeper
on demographics can reveal subgroups that are
better or worse customer segments.
Psychographics: Segmenting customers by internal
psychological characteristics i.e. surveys, assessments, focus
groups.
 These are attitude or worldview that influence
how people see themselves and the world at large.
 Particularly useful for crafting a marketing and
sales strategy, or even going as deep as to shape
the value being created and at the very least each
value proposition
Humanization — The process of using data to tell a story
aka translate the data into real-world examples and
understanding
 When analyzing data from a system, it’s easy to
forget that it often pertains to the actions of real
human beings {so KEY!}.
  This technique will make analysis efforts more
useful. It requires extra work and is KEY.
IMPROVING SYSTEMS
“The purpose of understanding and analyzing systems is to improve them…”
Since human beings are predisposed to doing
something rather than nothing, it leads to:
Intervention Bias — humans are likely to
introduce unnecessary changes to feel in control of the
situation, when perhaps the best action is to not act.
→ usually, the result is an increase in waste,
bureaucracy, or communication overhead.
To avoid intervention Bias, create a null hypothesis
(like in statistics or econ). “What would happen if you
did nothing or assumed the situation was an accident
or error?” [important]
→ examine the null before proceeding with an
intervention. If things are a normal accident, it is an
error to overreact.
Optimization
 “the process of maximizing the
output of a system or minimizing
a specific input the system
requires to operate.”
 typically revolves around KPIs
Maximization focuses on a system’s throughput. i.e. optimizing for measurable results, like # of
customers served, earnings, or units sold.
Minimization focuses on in-process inputs required for the system to operate. i.e. minimizing costs to
optimize for margins. “I want less of input x to produce more of unit y”
The author makes an important note that you cannot optimize for more than one variable because at
that point you are making a trade-off. More importantly, when coupling changes, you are confounding the
results of each input and simply arriving at correlations and not causations. Basically, by isolating a variable
for a set amount of time, you can more reliably determine whether the changes you make to optimize
variable x are working or not and what other changes it may have in the system or process as a whole. Pick
the most important variable to optimize and concentrate on it.
Refactoring — {a type of change to the system}
 “the process of changing a system to improve efficiency without changing the output of the
system”.
/* basically, I want the same outcome, but is there a better or more efficient process to achieve this? */
Refactoring begins by deconstructing a process or system and then looking for patterns.
 Break it down: what’s most important? what is constrained? what is the order of
operations and can it be changed?
 When you see things that don’t make sense (i.e. temporary solutions that were made
permanent) you can change them.
 Once patterns emerge, the system can be rearranged or grouped to put similar processes
or inputs together.
The critical few — the minority of inputs that produce the majority of the output. (The Pareto
principle aka the 80–20 principle) i.e. 20 percent of customers amount to 80% of revenue or orders; 20
percent of the labor force is as effective as the other 80.
 Non-critical inputs are significant opportunity costs.
“Find the inputs that produce the outputs you want, then make them the focus of most of your time and
energy. Ruthlessly weed out the rest.”
“All good things are subject to diminishing returns.”
 This extends to analyzing and optimizing a system. Optimize and refactor the critical few
and then evaluate if optimizing or refactoring the system further will cost more compared
to what will be saved or produced.
—
Friction
 “Any force or process that removes energy from a system over time.”
 “In the presence of friction, it is necessary to continue to add energy to a system to keep it
moving at the same rate over time.”
 “Removing small amounts of friction consistently over time accumulate are
improvements in both quality and efficiency.”
 /* The author uses the example of Amazon that has made online shopping a virtually frictionless
experience — from “free” prime shipping to one click buys and more, the experience has very little friction.
*/
Friction can also be used to get people to behave a certain way such as the introduction of friction in a
return policy so that people are less likely to return something. This must be balanced to avoid hits to
reputation.
Automation refers to a system or process that can operate without human intervention.
 best for well defined, repetitive tasks.
 automation allows you to scale via duplication and multiplication.
The paradox of automation
“the more efficient the automated system, the more crucial the contribution of the human operators of
that system”
 If an error occurs, it’s up to the human operators to identify the error and stop the damage
from multiplying. Like Toyota’s $5 billion recall when there was that faulty accelerator
pedal in 2009. That’s the multiplication effect of automation.
 Efficient automation makes humans more important, not less.
The irony of automation
“The more reliable the system, the less human operators have to do, so the less attention they pay to the
system while it’s in operation.”
Humans get extremely bored if things stay the same and things will stay the same the more reliable the
system is.
→This makes it very difficult for human operators to notice errors.
 To avoid errors from multiplying, rigorous batch sampling and testing for quality control
(QC) is paramount.
 and if there’s a way for keeping an operator mentally stimulated and engaged, there’s less
room for boredom and missed errors.
Standard Operating Procedure (SOP)
“A predefined process used to complete a task or resolve a
common issue.”
 A well-defined SOP will reduce friction and
minimize willpower depletion.
 SOPs also allow for effective delegation and
training. New people can be brought up to speed
quickly and critical operating procedures are not
at risk for being lost if something happens to the
operators that hold the knowledge.
 Review SOPs on a periodic basis (like 2–3
months) so that things remain efficient.
Checklists!
 “an externalized, predefined SOP for completing a
specific task.” You make one when you want to
make sure that a specific task is being carried out
correctly every time.
 Creating a checklist will help you define a system
for a process that hasn’t been formalized’
/* The real benefit here cannot be overstated. When you
break down a task by each individual step, record your
progress and the time it takes, you get a real life breakdown
of what it takes to get that thing done. Having this
information you can review a checklist as a way to improve
the overall process or a piece of the system. And, from here
you can create the best version of an SOP that will be
delegated and have an accurate estimate of time and
requirements that you can measure performance against
when that task gets delegated. */
 Using checklists can help important tasks not get
overlooked when there is a lot to do or people
aren’t mentally on point during work.
Cessation
the choice to intentionally stop doing something that’s
counterproductive.
“ There is nothing so useless as doing
efficiently that which should not be done at
all.” — Peter Drucker
Like operating with absence blindness and trying to limit
intervention Bias, where you don’t do anything when
something goes wrong (because maybe it’s a normal
accident or making a change would complicate the system
unnecessarily and create waste), sometimes the best thing to
improve a system is to stop doing so much.
Kaufman describes an example used by another author
(Fukuoka), that deems foolish the man that makes a hole in
the roof and rushes to patch up the hole when it rains and he
sees his roof rotting, deeming himself a hero/intelligent for
fixing the roof.
/* The author is basically making a point for patience. Let
things play out. Yet, cessation, based on the definition,
would imply that we identify an action in our process that is
counterproductive and so we stop that, instead of acting on
recent data that things have changed negatively (perhaps
because of things out of our control. Yet, this point is
illustrated by examples of doing nothing in the face of an
observed “negative” change. So I take his point about
cessation separately and take the content of this part to
reinforce what was stated earlier about doing nothing and
avoiding intervention bias. */
Resilience — Your ability to adjust strategy and
tactics as conditions change.
 Usually the difference between surviving and
death
 Being flexible comes at a price, however.
(important). If you sacrifice things that would
keep you safe in common changes to conditions
(i.e. lower demand, geo-political volatility, natural
disaster, technology changes, etc.) because you
were all in on growth or sales, then you made your
own bed when those conditions do occur.
Things that make your business resilient:
1. Low (or none) outstanding debt
2. Low overhead, fixed costs, and operating expenses
3. Substantial cash reserves for unexpected
contingencies
4. Multiple independent products/industries/lines of
business
5. Flexible workers/employees who can handle many
responsibilities well
6. No single points of failure
7. fail-safes/backup systems for all core processes.
8. [my inclusion] Large amounts of insurance
 Resilience isn’t sexy because the positive benefits
suffer from absence blindness
Fail-safe
“a backup system designed to prevent or allow recovery
from a primary system failure.” i.e. generator for when the
power goes out; Broadway shows with understudies to lead
performers; external HDs for system backups
 Fail-safes have to be developed beforehand for
obvious reasons
And as much as possible, never have a single critical point of
failure.
Stress Testing
“The process of identifying the boundaries of a system by
simulating specific environmental conditions.”
 you can stress test a website for a massive influx of
visitors and see how your server does
 could you keep up with a day you have a product
defect and you have 10x the amount of customer
service inquiries?
 if you had a sudden order for more units than you
ever anticipated, could you keep up?
Try to run actual stress tests that simulate an event that
would put a major strain (stress) on your systems whether it
be production, customer support, PR, etc. Use this data to
know your boundaries.
Scenario planning
“The process of systematically constructing a series of
hypothetical situations, then mentally simulating what you
would do if the scenario occurred.”
 This is counterfactual simulation aka
hypotheticals.
This is the essence of effective strategy.
 With scenario planning, you aren’t reliant on a
strategy that only takes into account one version
of the future, but multiple ones you’ve planned for
and simulated, reducing your risk of being caught
completely off guard when conditions change.
Regularly spend non-negotiable time to step back
and plan for the future.
Sustainable Growth Cycle
A cycle Kaufman has noticed successful businesses go
through.
1. Expansion — here the company is focused on
growing. New offers are tested, new markets are
explored, new business units are built and staffed,
and future plans are created. Early data is
collected for later use.
2. Maintenance — company focuses on executing the
current plan. Marketing, Sales, and Value Delivery
 parts of the business are in full operation and an
emphasis is placed on exploring the full potential
of the current business structure.
3. Consolidation — Analysis phase. Information of
performance is analyzed in detail. Waste gets cut
back. Critical Few inputs, customers, and
processes are given more resources.
“A business that fixates on expansion but shortchanges
maintenance and consolidation will experience the
commercial equivalent of cancerous growth.”
 “Parts of the business will grow out of control,
consuming too much time, energy, and resources
compared to what they contribute to the health of
the business.”
Have an Experimental Mindset
 best way to learn something is to jump in and try
it.
 constant experimentation is the only way to prove
theories of what will work and won’t
 All failures are temporary. You learn the most
from what doesn’t go well.
 experimentation is learning through ‘play’.
The last quote in the book:
“A truly good book teaches me better than to read it. I must soon lay it
down, and commence living on its hint. What I began by reading, I must
finish by acting.”
— Henry David Thoreau

phew. If you made it to the end, I commend you on taking this subject seriously. Undoubtedly, I have left
things unclear due to fluctuations in my thoroughness and discipline to summarize (and not just write out
definitions). Whatever is unclear you can read in its entirety from Kaufman on his website, with full context
and examples in individual and extremely digestible explanations [ link ].
Thanks for viewing and/or reading, and I appreciate your applause!
If you found this summary useful, please please please let me know in the comments or Twitter. It
reinforces my labor to bring it to a public audience instead of keeping it private.
Any other feedback is greatly appreciated.
https://medium.com/stefans-book-summaries/the-personal-mba-summarized-282619217a58