CIRCLE OF COMPETENCE

The Personal MBA by Josh Kaufman

​

Book Review:

• While I didn’t necessarily enjoy reading this book - it’s relatively dense and written in a textbook-like format - I would certainly recommend it to others. It’s absolutely packed with useful concepts and frameworks, and it would behoove almost anyone in business to get a high-level understanding of so many commonly discussed topics. 

 

Frameworks:

• Core Human Drives as a Value Proposition

  • At the core, all successful businesses sell the promise of some combination of money, status, power, love, knowledge, protection, pleasure, and excitement. The better you articulate how your offer satisfies one or more of these drives, the more attractive your offer will become.

    • For instance, let’s say you own a Residential Damage Restoration Business. You're not in the business of mold removal! You're in the business of keeping your clients’ loved ones healthy and safe. As soon as you recognize that simple differentiation, you’ll be able to more effectively market your offering.

    • For more examples, Michael Girdley recently wrote an excellent thread on this topic.

 

• Ten Ways to Evaluate a Market

  • The Ten Ways to Evaluate a Market provide a back-of-the-napkin method you can use to identify the attractiveness of any potential market. Rate each of the ten factors below on a scale of 0 to 10, where 0 is terrible and 10 fantastic...Anything between 50 and 75 has the potential to pay the bills but won’t be a home run without a huge investment of energy and resources.

    1. Urgency - how badly do people want or need this right now? (Renting an old movie is typically low urgency; seeing a new picture on opening night is high urgency, since it only happens once.)

    2. Market Size - How many people are actively purchasing things like this? (The market for underwater basket weaving courses is very small; the market for cancer cures is massive.)

    3. Pricing Potential - what is the highest average price a purchaser would be willing to spend for a solution? (Lollipops sell for $0.05; aircraft carriers sell for billions.)

    4. Cost of Customer Acquisition - how easy is it to acquire a new customer? On average, how much will it cost to generate a sale, both in money and effort? (Restaurants built on interstate highways spend little to bring in new customers. Government contractors can spend millions landing procurement deals.)

    5. Cost of Value Delivery - how much would it cost to create and deliver the value offered, both in money and effort? (Delivering files via the Internet is almost free; inventing a product and building a factory costs millions.)

    6. Uniqueness of Offer - how unique is your offer versus competing offerings in the market, and how easy is it for potential competitors to copy you? (There are many hair salons, but very few companies that offer private space travel.)

    7. Speed to Market - how quickly can you create something to sell? (You can offer to mow a neighbor’s lawn in minutes; opening a bank can take years.)

    8. Up-front Investment - how much will you have to invest before you’re ready to sell? (To be a housekeeper, all you need is a set of inexpensive cleaning products. To mine for gold, you need millions to purchase land and excavating equipment.)

    9. Upsell Potential - are there related secondary offers that you could also present to purchasing customers? (Customers who purchase razors need shaving cream and extra blades as well; buy a Frisbee, and you won’t need another unless you lose it.)

    10. Evergreen Potential - once the initial offer has been created, how much additional work will you have to put into it in order to continue selling? (Business consulting requires ongoing work to get paid; a book can be produced once, then sold over and over as-is.)

    • Obviously, completing any simple calculation like this is incredibly subjective and every person will come up with a different result for the same opportunity. Because of that, the actual numerical output isn’t that important. What’s important is your inputs. If your input for a given factor is particularly high or low, ask yourself why that’s the case, what might impact that input, and how you might be able to increase it or decrease the value by changing the way you’re thinking about the opportunity.

 

• Controversy as a Marketing Tactic

  • If you want an audience, start a fight. —IRISH PROVERB

  • Controversy means publicly taking a position that not everyone will agree with, approve of, or support. Used constructively, Controversy can be an effective way to attract Attention: people start talking, engaging, and paying Attention to your position, which is a very good thing.

    • Whether you love him or hate him, it’s hard to ignore Elon Musk. And when you look at the market cap of Tesla, it’s tough to say that he isn’t one of the most effective marketers alive. Elon knows how to raise controversy with the intent of driving eyeballs (and dollars) to his businesses.

 

• Mental Models for Large Decisions

  • [There are] several ways of making it easier to internalize the results of large decisions. The “newspaper rule” and the “grandchild rule” are effective ways of personalizing the results of your decisions. 

    • Newspaper Rule: Assume your decision was publicized on the front page of tomorrow’s New York Times, and your parents and/or significant other read it. What would they think? 

    • Grandchild Rule: Imagine that, thirty or forty years from now, your grandchild gives you feedback on the results of your decision. Will they laud you for your wisdom or reprimand you for your stupidity?

  • If you owned a restaurant today (mid-pandemic), should you continue to operate your business at full capacity? 

    • Using the Newspaper and Grandchild Rules may help you consider this question by incorporating a bit of hindsight.

 

• Absence Blindness

  • Absence Blindness is a cognitive bias that prevents us from identifying what we can’t observe. Our perceptual faculties evolved to detect objects that are present in the Environment. It’s far more difficult for people to notice or identify what’s missing.

    • When evaluating employees, it’s easy to fall into the trap of being wowed by the individual who is constantly solving problems heroically. But what about the person that stays under-the-radar, never seems to face many major problems, and keeps the machine running smoothly? That person may be a more effective manager, it’s just that we’re hard-wired to miss their effectiveness because of a lack of problems.

 

• Time Management

  • Since it can take ten to thirty minutes to get into the zone, setting aside ten to thirty minutes for a quick burst of focused work can make it much easier to get into the zone quickly. If you’re not productive by the time the dash is over, you have permission to stop and do something else. That’s rarely the case: once you get started, it’s easy to keep going. 

    • To try this, set a 30-minute timer when you get started working. Turn off your phone, and focus on one task until the timer goes off. At the end of the period, you’ll find that you’ve gotten over that initial hump and will be able to keep going much easier.

 

• Commander’s Intent

  • Commander’s Intent is [an excellent method for] delegating tasks: whenever you assign a task to someone, tell them [what you want to accomplish and] why it must be done. The more your agent understands the purpose behind your actions, the better they’ll be able to respond appropriately when the situation changes.

    • While you may know what you want to accomplish from the office of HQ, you may not know how your employees can best carry out that mission. By using Commander’s Intent, you align on a strategy while empowering your team to achieve your directives in their own creative ways.

 

• Earned Regard (aka Trust Battery)

  • Earned Regard is a subjective estimate of how much Trust you have built with an individual over time. When you demonstrate competence, reliability, good judgment, skill, or the capacity to deliver positive results, your Earned Regard tends to increase. When you demonstrate the opposite, your Earned Regard with that individual decreases.

    • Earned Regard is critical in life and business, and it’s possible to build Earned Regard in a systematic way. You can do this by making a list of your most important professional relationships and ensuring that you touch base with them every so often.

 

• Gall’s Law

  • Here’s Gall’s Law: 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. Complex systems designed from scratch will never work in the real world, since they haven’t been subject to environmental selection forces while being designed.

  • Gall’s Law is why Prototyping and Iteration work so well as a Value Creation methodology. Instead of building a complex system from scratch, building a Prototype is much easier—it’s the simplest possible creation that will help you verify that your system meets critical Selection Tests.

    • This Law of Systems is the basis for The Lean Startup method and is key to solving problems and building products in an efficient manner.

 

• Turtles Over Tigers

  • Planning for Resilience as well as performance is the hallmark of good management. Resilience is not sexy, because the benefits suffer from Absence Blindness. It can, however, save your hide when times get tough. Think less like a tiger and more like a turtle and your business will be able to withstand pretty much anything.

  • Examples of Resilient businesses:

    • Low, preferably zero debt

    • Low overhead, fixed costs, and operating expenses

    • Substantial cash reserves for unexpected contingencies

    • Multiple independent products/industries/lines of business

    • Flexible workers/employees who handle many responsibilities well

    • No single points of failure

    • Fail-safes/backup systems for all core processes