Book Summary and Analysis of The Personal MBA: Master the Art of Business
Life gets busy. Has The Personal MBA been gathering dust on your bookshelf? Instead, pick up the key ideas now.
DISCLAIMER: This is an unofficial summary and analysis.
Josh Kaufman’s Perspective
Josh Kaufman is an independent business teacher, education activist, and author. Josh’s TEDx talk on The First 20 Hours is one of the top 25 most-viewed TED talks published to date, with over 22 million views on YouTube. Josh’s website, joshkaufman.net, was named one of the “Top 100 Websites for Entrepreneurs” by Forbes in 2013.
The Personal MBA is a book that aims to provide you with a degree-level understanding of business without thousands of dollars of debt. Josh Kaufman provides an outline of the business fundamentals required to be economically successful. But he also disproves myths that you need a college education to do well in the business world. Kaufman points out that business leaders are not made in business schools but by their willingness to seek knowledge. The Personal MBA is your opportunity to seek business knowledge on your own terms.
Chapter 1 – Value Creation
Josh Kaufman outlines every business is fundamentally a collection of five interdependent processes, each of which flows into the next:
- Value creation
- Marketing: attracting attention building and demand
- Sales: turning prospective customers into paying customers
- Value Delivery
Any skill or knowledge that helps create value is crucial to your economic success.
Kaufman introduces ERG theory as a foundation for all value creation. ERG stands for Existence, Relatedness and Growth. These are fundamental, but you have to obtain existence, then relatedness, and finally, growth. Once individuals have each of these fundamentals of survival, it is possible to use this as a foundation to make and find friends. Subsequently, once they are satisfied with relationships, they can then focus on doing things they enjoy and improving their skills within these domains.
The Five Core Human Drives
All human beings have five core human drives that significantly impact their decisions and actions.
- The drive to Acquire – The desire to obtain or collect physical objects, as well as immaterial qualities like status, power and influence.
- The drive to Bond – The desire to feel loved and valued by forming relationships with others, either platonic or romantic.
- The drive to learn – The desire to satisfy our curiosity.
- The drive to defend – The desire to protect ourselves, our loved ones, and our property.
- The drive to feel – The desire for new sensory stimuli, intense emotional experiences, pleasure, excitement, entertainment, and anticipation.
The more clearly you can show that your company provides a combination of these drives, the more attractive your services will become.
Evaluating the Market
Kaufman introduces ten ways of evaluating a market:
- Urgency – How bad do people want or need your services right now?
- Market size – How many people are actively purchasing your services or similar services?
- Pricing Potential – What is the highest price a consumer would be willing to pay for your services?
- The cost of customer acquisition- How easy is it to acquire a new customer? Specifically, how much time and money do you have to spend to obtain a new customer?
- The cost of value delivery – How much would it cost you to provide the quality of service required?
- The uniqueness of your service – How unique will your service be compared to other services on the market?
- Speed to Market – How quickly can you create a viable service that can be sold to customers?
- Upfront investment – How much will you have to invest in creating this viable service?
- Upsell potential – Are there other services you could offer to purchasing customers on top of your main service?
- Evergreen potential – Once you have created your initial offer, how much additional work and money will have to be invested to ensure you continue selling?
Choose Markets With Competition
It is better to start a business within a market that has competition. Starting in a competitive market means you already know there are paying customers interested in your idea. Adopting this approach will eliminate your most significant risk as a businessperson, which is not having enough potential paying customers. Additionally, suppose you already know a market exists. In that case, you can work on improving your product rather than wasting time proving that a market exists.
The Most Valuable Offers
Kaufman offers four ways that you can improve the value of the offers you are making others:
- Satisfy one or more of the prospects for core human drives.
- Offer an attractive and easy-to-visualize end result.
- Command the highest hassle premium by reducing end-user involvement as much as possible.
- Satisfy the prospect’s status-seeking tenancy by providing desirable social signals that help them look good in the eyes of other people.
When prototyping, you should never worry about other people stealing your idea. Ideas are one of the cheapest entities. A more critical ability is being able to translate an idea into a reality that creates value.
Prototypes are an effective way of obtaining customer feedback on something close to your chosen offer. Once others have viewed a version of your product, you can evaluate and improve it through iteration.
There are six major steps to iteration:
- Which change to make
Make every iteration small, clear, and quick. Make sure that every iteration is based on what you have learned from previous iterations.
Kaufman provides several tips for how you can get the most of the feedback you receive on your prototype:
- Get feedback from genuine potential customers instead of from friends and family.
- Ask open-ended questions.
- Steady yourself and keep calm.
- Take what you hear with a grain of salt.
- Give potential customers the opportunity to pre-order.
Chapter 2 – Marketing
Marketing is the art and science of finding prospects. Prospects are people who are actively interested in what you have to offer. The essential prospects are qualified prospects. The best companies are exceptional at attracting these prospects quickly and inexpensively.
Kaufman explains that your prospects’ attention is limited. So, you need to filter their attention toward your work. You also need to identify the prospects who are most likely to buy from you. Leading marketers capture the attention of the right people at the right time.
The best way to capture potential prospects’ attention is to promote their feelings of curiosity, surprise, or concern. Always assume your prospect’s attention is preoccupied with something else. This approach forces you to capture their attention rather than merely offering your service. Focus on your desired end result and make this result a distinctive experience or emotion related to a core human drive.
An effective tool while marketing is to make your product the point of market entry. Suppose you can get a prospective customer’s attention as soon as they become interested in what you are offering. In that case, you become the standard by which competing offers are evaluated. While doing this initial marketing, you should emphasize the crucial details while deemphasizing aspects that aren’t important. You can align with this approach by minimizing certain facts or leaving them out entirely.
Controversy can sometimes be used as a marketing strategy. For example, your best approach can sometimes be to take a position that not everyone will agree with. But, if you are constructively using this controversy, you can attract positive attention.
There are five standard objections to marketing:
- It costs too much
- It won’t work
- It won’t work for me
- I can wait
- It’s too difficult
Chapter 3 – Sales
Developing Your Prices
Every successful business relies on sales. Having millions of interested customers is not enough if none of them decide to purchase your product. The sales process begins with these prospects but must end with a paying customer. The best businesses in the world earn the trust of their prospects and help them understand why the product offered is worth paying for. The start of this process is pricing your product in the right way. Kaufman provides four pricing methods within the Personal MBA:
- Replacement Cost – Supports the value of the product by asking the question, “How much would it cost to replace?” This type of pricing is a cost-plus calculation. This means you calculate how much it costs to create, add your desired markup, and price appropriately.
- Market Comparison – Supports the value of the product by asking the question, “How much are other things like this selling for?” This is a very common way of pricing.
- Discounted Cash Flow – Supports the value of the product by asking the question, “How much is it worth if it can bring in money over time?” This type of pricing can only be used for products that provide an ongoing cash flow, such as when marking up the worth of an entire business.
- Value Comparison – Supports the value of the product by asking the question, “Who is this particularly valuable to?” Your product will likely offer benefits to a specific customer. If your product makes things much easier for a high-income group, then you can provide a slightly higher markup without impacting on sales.
You can use other methods to identify your price baseline. That said, you should always focus on discovering how much your offer is worth to the other party. You can then set your price accordingly.
In every negotiation, there are three universal currencies:
- Resources – Tangible items like money, oil, etc.
- Time – The universal limit of capacity
- Flexibility – The cost of not doing something else. This is an opportunity cost.
Kaufman also provides three dimensions of negotiation that can help you gain more of certain currencies:
- Set up – This is setting the stage for a satisfying outcome to the negotiation. You can stack the odds in your favor by doing effective research of the people you will be negotiating with.
- Structure – This includes the terms of your proposal. Create content in a structure that your fellow negotiators will appreciate and accept.
- The discussion – This is where you present your offer. You should discuss or clarify any issues and answer any objections. Once you have removed these Barriers to Purchase you can ask for the sale
Chapter 4 – Value Delivery
You want to try and make your value stream as small and efficient as possible. Your value stream is a combination of your value creation and value delivery processes. The primary reason for shortening the value delivery process is that it minimizes the risk of something going wrong.
Intermediary distribution can increase sales. That said, this form of distribution can require giving up a certain amount of control over your value delivery process. Relinquishing this control also frees up your time and energy, but with the downside of increasing counterparty risk.
The expectations surrounding the delivery of your work can significantly impact your company’s perceived quality. Kaufman calls this the expectation effect. Your company’s quality is determined by your performance, minus your customers’ expectations. That said, your expectations also have to be high for the customer to buy your services in the first place. So, your job is to ensure that you produce sufficient expectations to draw in work, coupled with a performance that exceeds these expectations.
One way to improve the ratio between your customers’ expectations and your performance is your outcomes’ predictability. Customers love predictability. Kaufman provides three primary factors that influence the predictability of an offer:
- Throughput – The rate at which a system achieves its desired goal. The formula for this is calculated by dividing units by time.
- Duplication – The ability to reliably reproduce something of value.
- Multiplication – Duplication for an entire process or system.
Chapter 5 – Finance
Kaufman describes finance as the art and science of watching money flowing into and out of a business, then deciding how to allocate it. It is also the art and science of determining whether what you are doing is producing the results you want.
Accounting is the process of ensuring the data used to make financial decisions is as complete and accurate as possible.
Business is not about what you make. Instead, it is about what you keep. The profit margin percentage is calculated by subtracting cost from the revenue, dividing through by revenue, and multiplying by 100. Kaufman is not claiming that profits are the most important. Profits are important, but they are a means to an end. Instead of getting too hung up on profit, you should be aiming to create value, pay expenses, compensate the people who run the business and support yourself and your loved ones. These are the most critical aspects when running a business. If you can meet each of these requirements, you can confidently claim you are running a successful business.
Kaufman provides readers with four methods of increasing your business’ revenue:
- Increase your number of customers.
- Increase the average size of each transaction your customers make.
- Increase the frequency of transactions per customer.
- Raise your prices.
In this chapter, Kaufman describes a few important terms that you need to learn. They are:
- Compounding – The accumulation of gains over time.
- Leveraging – The practice of using borrowed money to magnify potential gains.
- Funding – Provides the fuel to your business. If your business needs additional capacity, then proper funding can help scale your company up substantially.
- Bootstrapping – Building and operating a business without funding.
Chapter 6 – The Human Mind
Kaufman reminds readers that your mind is essentially a physical system. Things like mental fatigue and emotional distress are just neural signals within our brains when we do not get enough of something we need: nutrients, exercise, or rest. So, one of the most crucial factors influencing your productivity is your ability to take care of yourself.
Laziness is not a bug in our system. It is a feature installed to allow us to avoid expending too much energy. So, you have to actively attempt to change your reference levels for different actions. For example, reading useful books or blogs, or watching motivational documentaries, can help change your reference levels for the better. This point is linked to Kaufman’s recommendation that you should aim to change the structures that influence your behaviors rather than the behaviors themselves.
Motivation is an emotion—NOT a logical, rational activity. Just because your forebrain thinks you should be motivated to do something does not mean you’ll automatically become motivated to do that thing. (If only it were that easy, right?) Very often, Mental Simulations, Patterns, Conflicts, and Interpretations hidden in the midbrain can get in the way of making progress toward what we want to accomplish. As long as there are “move away from” signals being sent, you’ll have a hard time feeling motivated to move toward what you want.”– Josh Kaufman, The Personal MBA
Your motivation can be broken down into two basic desires: Moving toward desirable elements and moving away from undesirable elements. Willpower is different from being motivated. Kaufman describes Willpower as an instinctual override, as it is a way of interrupting our automatic processing.
Focus on Positive Associations
People generally hate losing objects more than they like gaining them because humans are generally loss averse. So, you should try and frame your product as something with a very low chance of being a waste of money. Present your ideas with positive and safe associations. Another way to overcome loss aversion is to use scarcity. People tend to be scared of scarcity. So, if you make your potential customers feel like they could lose the opportunity to buy your product, they are more likely to buy.
Kaufman provides four ways in which you can incorporate scarcity into your marketing:
- Offer limited quantities of products
- Increase prices
- Decrease prices
- Give people deadlines for price reductions
Novelty entices potential customers. So, make sure you use new sensory data to attract and maintain your customers’ attention over the long-term.
Kaufman believes that productive multitasking is a myth. Our mind is not built to multitask. The more things you try to pay attention to at a given time, the more your performance across all domains will suffer. So, aim to focus on only one task at a time and never mix creative work with administrative work. Your productivity across both domains will be heavily influenced if you are switching between them. Focus on producing Maker Schedules, which incorporate large blocks of uninterrupted time. Most people currently produce or have to live by Manager Schedules with time broken down into many small chunks for meetings.
As an outline of how you can avoid too much multitasking, Kaufman suggests using the 3-10-20 method. This method states you can finish three major tasks and ten minor tasks within one day. Kaufman describes a major task as any task that requires more than 20 minutes of focused concentration.
Habits are built over time and become regular actions that support us. Some of the most common positive habits are exercise, hygiene, and nutrition. That said, habits can also be subdivided into four categories:
- Things you want to start doing
- Things you want to stop doing
- Things you want to do more
- Things you want to do less
You can develop habits if you identify triggers within your environment that impact the way you act. Encourage the triggers that prime positive habits and try to remove the triggers that prime unhealthy behaviors. Habits can be difficult to install or uninstall. So, Kaufman recommends putting all your effort into changing one habit at a time.
- Self-elicitation – The practice of asking yourself questions, then answering them. This helps you to create useful insights and creative ideas.
- Counterfactual simulation – Instead of assuming that challenging goals are unrealistic or impossible, counterfactual simulation involves simulating the events and actions required to reach the required outcome.
- Excessive self-regard tendency – A natural tendency to overestimate your abilities. This tendency is particularly common in circumstances where people have little experience.
- Confirmation bias – A tendency for people to pay more attention to information that supports conclusions they have already constructed.
- Hindsight bias – Blaming past you for not knowing something you now know.
- Performance load – Having too many tasks can hugely impact your performance.
Four Ways to Work With Your Body
Your body will always act based on its natural state. So, instead of fighting against this, you should use these four ways to work with your body:
- Learn your patterns by using a notebook or calendar to track how much energy you have during different parts of the day.
- Maximize your peak cycles.
- Take a break. When you are in a down-cycle, it is better to rest then attempt to power through it. Rest and recovery are not optional.
- Get enough sleep. Sleep deprivation will result in a longer down-cycle.
Chapter 7 – Working With Yourself
Your body and mind are the tools you use to get things done. You take these tools with you wherever you go. So, you must learn how to work with yourself. If you manage to master this skill, you will find yourself accomplishing your goals far easier. In the modern world, this can be the difference between a fulfilling career and a draining one.
To help you work better with yourself, Kaufman outlines the only four ways to “do” something. Using these methods for guidance while creating a to-do list will help you be more productive. He calls these the 4 Methods of Completion:
- Completion – Doing the task. It’s best for tasks that only you can do particularly well.
- Deletion – Eliminating the task. It’s effective for anything that’s unimportant or unnecessary.
- Delegation: Assigning the task to someone else. It’s effective for anything that other people can do 80% as well as you.
- Deferment: Putting the task off until later. It’s effective for tasks that aren’t critical or time-dependent.
Kaufman also describes the Five-Fold Why, which is a technique to help you discover what you actually want. Rather than taking your desires at face value, you examine the root cause. He applies these five Whys to wanting to be a millionaire:
- Why do I want a million dollars? Because I don’t want to be stressed about money.
- Why don’t you want to be stressed about money? So I don’t feel anxious.
- Why don’t you want to feel anxious? So I feel secure.
- Why do you want to feel secure? So I feel free.
- Why do you want to feel free? Because I want to feel free.
Chapter 8 – Working With Others
Relationships are all about power and influence. Your influence is your ability to encourage someone to think or act in the way you intend. Compulsion is the ability for you to force someone else to do what you command. You want to aim to increase your influence and reputation rather than your compulsion. Power is tied to your influence and reputation. So, the more people who know your capabilities and respect your work, the more power you will have.
Working with others is an effective way of getting work done quickly and to a higher standard. But effective collaboration relies heavily on strong communication. Kaufman describes communication overhead as the proportion of time you spend communicating with your team members instead of getting productive work done. You always want to minimize this amount of time while not skimping on communication quality. To sustainably lessen your communication overhead, Kaufman recommends keeping your team small. Specifically, keeping your team between three and eight people. Additionally, you need to ensure that each team member feels safe and valued within this team.
Kaufman provides the STATE model as a way of communicating with your team members without challenging their value or provoking anger:
- Share your facts
- Tell your story
- Ask for others’ opinions
- Talk tentatively
- Encourage testing
Kaufman also provides three characteristics that you should always use to help your coworkers improve the working environment: appreciation, courtesy, and respect.
Critical Points for Building a Team
- Kaufman talks about the commander’s intent. Commander’s intent means that you should always tell your team why a particular task must be done, rather than simply allocating work without meaning.
- Planning should never be depended upon and should instead be used to stimulate your team mentally.
- People will always choose to work with people they know and like. So, use referrals as a way of helping your coworkers to connect with new team members.
- Convergence is the tendency of group members to become more alike over time. Kaufman calls this your company culture. Although you want a degree of this, you still want to have some divergence.
The Six Principles of Effective Management
- Recruit the smallest group of people who can accomplish a task.
- Clearly communicate the desired result, including who is responsible for what and the task’s current status.
- Treat people with respect.
- Create an environment where everyone can be as productive as possible. You then need to trust your team members to get the work done.
- Refrain from having unrealistic expectations regarding certainty and prediction. Create an aggressive plan to complete the project. But, be aware that uncertainty and the planning fallacy mean your initial plan will almost certainly be incomplete or inaccurate.
- Measure to see if what you are doing is working. If not, try another approach.
The Five Steps to Alleviating a Constraint
There will always be constraints within a system. That said, Kaufman offers five steps to alleviate these constraints:
- Identification: examining the system to find the limiting factor.
- Exploitation: ensuring the resources related to the constraint aren’t wasted.
- Subordination: redesigning the entire system to support the constraint.
- Elevation: permanently increasing the capacity of the constraint.
- Reevaluation: after making a change, reevaluating the system to discover where the constraint is located.
Chapter 9 – Understanding Systems
Kaufman describes a complex system as a ‘self-perpetuating arrangement of interconnected parts that form a unified whole.’ Businesses are complex systems that lie within even more complex systems of markets, industries and societies. So, it is crucial you first understand each of these systems and how they interact.
Balancing a system is all about understanding risks and uncertainties. Risks are known unknowns. Uncertainties are unknown unknowns. For example, if you are planning to collect a friend from the airport you will understand there is a risk the flight could be several hours late. So, you would plan accordingly by bringing things to do during this wait time. As this is something you can plan for, it is a known unknown. An example of an unknown unknown is being late to pick up your because a meteorite hits your car. You could never have predicted this event based on past events. So, the only way you can prepare for uncertainty is by being flexible, prepared and resilient. These traits will help you respond appropriately when these events occur within your system.
Contemplating Uncertainty is challenging due to the threat of not knowing what’s going to happen. But, Instead of fixating on predicting invisible and unknowable threats, it’s better to channel your energy into enhancing your ability to handle the unexpected. Don’t rely on making accurate predictions as things can change at any time.
Chapter 10 – Analyzing Systems
Systems are the heartbeat of a company. If you feed your company’s system with useless information and ideas, you will receive useless outputs. One way to ensure you are feeding your systems with the best information is by breaking your company’s complex systems into smaller, more manageable subsystems. This is called deconstruction and will allow you to understand better how things are working at the company. Upon considering these individual subsystems’ outcomes, you can better consider your Key Performance Indicators. KPIs are measurements of the critical parts of a system.
Chapter 11 – Improving Systems
To consider how you can improve a system, you first have to consider the null hypothesis. The null hypothesis outlines what would happen if you did nothing to the system or merely assumed any adverse situations were simply by chance.
After considering your null hypothesis and identifying the importance of improving your systems, you then want to consider optimizing. Optimization is the process of maximizing the output of a system or minimizing a specific input the system requires to operate. The most effective optimizing approach is to take the most critical variable in your system and start by focusing all your efforts onto this variable. Follow this same rule until you have focused on all variables. This approach prevents you from attempting to optimize across multiple variables at once, which is highly ineffective.
If you are less worried about your system’s output and more worried about the efficiency with which your team is reaching the preferred output, then refactoring is required. Refactoring is a process of changing a system to improve efficiency without changing the output. One way to improve efficiency is to think about the 80/20 rule. 20% of your inputs will be producing 80% of your outputs. So, consider how you can emphasize the 20% more and improve your 80% efficiency.
Friction is any process that removes energy from a system over time. Hence, friction is one factor that can hugely impact your team’s efficiency. Removing friction will allow your team to work better and feel less exhausted despite achieving the same or better results.
Final Summary and Review of The Personal MBA
The Personal MBA aims to offer exactly that to its readers. Kaufman covers every area of business that someone needs to understand to succeed. Essentially, to become a successful businessperson you have to master:
- Creating, marketing and delivering value.
- Understanding financial terms.
- The intricacies of the human mind.
- Working with yourself and others.
- Understanding, analyzing and improving systems.
Criticism and Rating
While the book tries to be comprehensive, claiming that it can replace an MBA program from a reputable university may be an exaggeration. Nevertheless, we rate this book 4.3/5.
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This article was first published in 2019. It was updated in April 2022.
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