I’m a reluctant business person. While I’ve had the notion that I could somehow parlay my interest in making/writing into some kind of sustainable lifestyle, it’s only recently that I’ve even started to think about this in business terms. It’s perhaps not that surprising since I’m a preacher’s kid, and I grew up in an environment where discussion about enriching one’s self was not a topic of discussion. Those idyllic times are long past, and today I’m very interested in making money, because I’d like to have the freedom to do what I want in the greater context of achieving personal excellence.
My review copy of Josh Kaufman’s The Personal MBA arrived at just the right time. For the bulk of 2010, I’ve just been getting used to the idea of being a business entity. To give myself some structure, I took a pass at outlining agency processes and drawing maps of my overarching goals, but I must admit that I was still feeling a little lost. Happily, The Personal MBA is the much-needed atlas of the business world that I needed, and it’s helping me understand what I’m up against with greater clarity.
A Useful Compendium of Mental Models
I’m the kind of learner that likes to see the entire landscape of a subject laid lushly before me, and while I like a good story to go with it, I like a good systems breakdown even better. Unlike a lot of business books that have been artfully larded with credibility-boosting anecdotes, The Personal MBA (TPMBA) is as systematically-succinct as books come. Upon opening the book, I got the same feeling I used to get from Lego® technical sets, drooling at the sight of dozens of neatly-molded parts awaiting my creative ministrations. Even as a child, I sensed that while there were untold hundreds of ways the pieces could fit together, there was also an underlying logical structure that had to be obeyed. Failure to grasp this properly, I intuited, would result in a less-than-optimal design. The PMBA likewise has the same potential and constraint, as it is comprised of over two hundred tantalizing business concepts that could form the backbone of a sound business education. With mindful practice and study, a elegant solution to my business challenges seems more surely within my grasp.
The PMBA does not present concepts as “recipes for success”. Instead of parroting the worn case studies and tired management methodologies that seem so common in this category, Kaufman has instead focused on synthesizing the most accurate mental models he could find, and puts them forth within a test-and-confirm methodology that will help you extract the most from them. As an added bonus, The Personal MBA is also a book about being productive, which includes caring for yourself and your people while striving for continuing excellence; there’s a bit of Kaufman’s own world view in there, I think, but it’s one that I find highly compatible with my own.
A Manifesto for Personal Education
You may already be familiar with the original website from which The Personal MBA was born. It’s particularly famous for its manifesto: the business school MBA is a waste of money…if you want to just learn about business. Paraphrasing loosely, an MBA does not guarantee success in the slightest, and according to Kaufman it has but one use: an MBA from a top school is a prerequisite for gaining entrance to the upper echelons of the Fortune 50. The price of admission: about US$250,000.00. Why mortgage your future when you can learn the same principles for a lot less money? From Kaufman’s perspective, paying out that much money in terms of tuition, room & board, and opportunity cost just doesn’t make economic sense.
The PMBA makes some interesting arguments about why business schools persist: the very top schools pre-selects students that are already likely to be successful, while lesser schools trade on the fear and uncertainty that the MBA is the necessary feather to have in one’s cap to succeed. I’ve seen this attitude occasionally in the fine arts too; having an MFA doesn’t mean your work is any better post-degree than if it was before (and yes, I have an MFA). There is perhaps one additional advantage of having an advanced degree, and that’s the experience you had meeting all those other smart people and faculty in your class, who shaped and influenced you into the person you are today. That said, it’s an expensive proposition. If all you really want to know is how to run a successful business from soup to nuts, you don’t need the degree. You’ll miss out on the other shaping influences and opportunities, but really you just need to have good resources and the drive to use them. You need to practice and practice and practice, be smart about your time, and constantly iterate your work until it stands out from the background noise of mediocrity.
The book offers quite a lot more discussion about the relative merits of saving your money and studying business on your own, but I’m not that interested in the debate. I’m just here for the information.
The Personal MBA is comprised of 226 concepts that Kaufman has selected from his analysis of the “thousands of business books” he’s studied over the past five years. Each successive concept builds upon earlier ones, starting with simple definitions of business and then expanding to include supporting concepts. Each concept is presented in one or two pages, and can be read stand-alone. Related business concepts are displayed in bold within the text, so you can go look them up later. At the end of each entry is a link to the corresponding entry on the Personal MBA website, so you can share the link with your friends. It’s very cool, allowing both linear reading and random browsing of the material.
I started reading from the very beginning of the book to the end, taking about two days to power through it. Afterwards, I went back to the beginning and made an Excel spreadsheet of all the chapters titles so I could test my knowledge retention. I found myself thinking of the book as being divided into three “chapter groups”, with each chapter also being dividable into subgroups of related concepts.
The book overall is divided into 12 chapters. Chapter 1 introduces the history and reasoning behind the Personal MBA concept, whose manifesto I alluded to earlier. Chapters 2-6 are the nuts and bolts, covering the “five essential parts of business”. Chapters 7-9 cover the psychological aspects of people, productivity, and leadership in the context of business. Chapters 10-12 are about systems; as business is defined as a repeatable process that produces profit, systems thinking becomes quite handy.
Essential Parts of Every Business
Kaufman doesn’t presume you know anything about business, which is a good way to reset our own assumptions coming into the material. Chapters 2-6, “The Five Parts of Every Business” break down as follows:
- 2. Value Creation – The concepts that allow you to identify and create things of value for a market big enough to support a business.
- 3. Marketing – The concepts that help you connect the value you’ve created with the people who want to buy it.
- 4. Sales – Convincing people to do business with you, and the interesting trickery you can employ to prevent your prospects from choosing the “next best alternative”.
- 5. Value delivery – The system of creation and fulfillment of your business offerings, effectively and efficiently.
- 6. Finance – So you can make a profit and see new opportunities while avoiding bad situations. On purpose!
The flow of each chapter is similar, starting with basic common-sense definitions and then building the more inter-dependent conceptual models on top of them. I’ve been thinking of the mix as “foundation concepts”, “distinctions”, “sanity checks”, and “practical questions”. As an example, there are quite a number of concepts covered in the Value Creation chapter of the book; here’s the list with my annotations, tagged by my interpretation of each article’s intent and the subgroup I’ve placed them:
(Core Business Concepts)
- The Five Parts of Every Business – foundation
- Economically Valuable Skills – distinction
- The Iron Law of the Market – sanity check
- Core Human Drives – foundation
- Ten Ways to Evaluate a Market – practical
- The Hidden Benefits of Competition – psychology
- The Mercenary Rule – sanity check
- The Crusader Rule – sanity check
(Understanding and Manipulating Value)
- Twelve Standard Forms of Value – foundation
- Perceived Value – psychology
- Modularity – practical
- Bundling and Unbundling – practical
(Systematically Creating Value)
- Prototype – foundation
- The Iteration Cycle – foundation
- Iteration Velocity – foundation
- Feedback – foundation
(Ensuring the Market Exists)
- Alternatives – sanity check
- Trade-offs – sanity check
- Economic Values – sanity check
- Relative Importance Testing – sanity check
- Critically Important Assumptions (CIAs) – sanity check
- Shadow Testing – practical
- Minimum Economically Viable Offer (MEVO) – practical
- Incremental Augmentation – practical
- Field Testing – practical
It all flows together marvelously, without muddying the distinction between individual concepts. A lesser book might have introduced a jumble of concepts as definitions, then muddied the meaning of them with misleadingly simplistic narratives about “Sally’s Dry Cleaning” or “Tony’s Lemonade Stand”. TPMBA also manages to avoid the trouble that many jargon-heavy books have with “forward references”, which is the bad practice of explaining what you’re doing now using concepts you haven’t yet explained. While TPMBA can’t avoid it entirely, it does a good job of using forward references in a contextual way so you don’t get hung up wondering what it means. Kaufman is also conscientious in his noting whether a concept hasn’t yet been covered. I approve heartily. Programmers with an appreciation for software design would appreciate this book; it reminds me of good API documentation. It flows well.
The other four chapters cover the rest of the business basics, and are similarly organized: core concepts supported by sanity checks, practical questioning, and psychological insight. If all you read were the first 6 chapters of the book, you’ll have a pretty good foundation for understanding the parts of your business operation.
Psychology of Business
As I alluded to earlier, these are three chapters, The Human Mind, Working With Yourself, and Working with Others that I didn’t expect to find in this book. In each of these chapters you’ll find an excellent distillation of the models that drive people, which are the primary drivers of any business because they’re the part that has the money!
- 7. The Human Mind – This chapter describe how people react and behave to the world around them, from a cognitive and behavioral perspective. If you’ve read and enjoyed books like Freakonomics and Stumbling On Happiness, you’ll probably like this chapter too; the concepts here are a good general roadmap of our blind spots and unthinking reflexes. HANDY.
8. Working With Yourself – A reflective look at the models that impact our own productivity. It’s a nice mini-book in itself, covering the concepts that drive contemporary productivity writing. It’s a useful reference for my own writing, with useful citations. While it doesn’t describe a specific methodology for being more productive, Kaufman sprinkles his own experiences throughout the chapters as examples.
9. Working With Others – This section covers mental models related to leadership and management. If you can absorb the concepts here, you’ll be the enlightened leader that brings people to maximum productivity through the power of influence and genuine humanity. The collection of concepts here are fascinating to anyone interested in organizational dynamics, logical fallacies, and leadership through influence rather than force.
The final chapters of the book are an introduction to systems thinking, as applied to business. I feel this is an topic that will appeal to people who are already systems thinkers; I’m not sure it will make sense to people who are not system thinkers. I could see this being very confusing; if there was a part of the book that needed a diagram backed by a great physical metaphor, this is the place for it.
- 10. Understanding Systems is a general overview of systems concepts, as related to modeling your business as a bunch of interconnected subsystems. The last two parts on Second-Order Effects and Normal Accidents I found entertaining, as these are about the unpredictable events that systems inevitably have to survive. Do you like building sandcastles on the beach to see if they can survive the onslaught of a rising tide? This section is for you.
11. Analyzing Systems provides some general techniques for measuring the performance of a system, how to slice and dice the data to extract useful results, with a reminder that all that data represents real human lives.
12. Improving Systems discusses the concepts related to optimizing and automating an existing system, with the sanity checks that go with it.
p>There’s a lot more that can be said about systems thinking, and these chapters really just scratch the surface. However, it’s a pretty good introduction to the idea that there is such a thing as systems thinking, and that it’s useful to be aware of the fundamental mechanisms (e.g. feedback loops) that drive them. For some readers, it will be quite the revelation.
My impression is that The Personal MBA presents a model on business that has been meticulously constructed from common sense and real relationships with customers. It’s built from Kaufman’s study and filtered through his notion of what makes sense for a business, and this is where the book’s sense of authority comes from. If you are the type of person who bases action on your own thinking rather than blindly following what other people are telling you to do, you’ll probably find that this book speaks your language. If you are the sort of person who likes to see a big map of business from 10,000 feet up and then drill-down to see how the individual parts work together so you understand HOW it all fits, you’ll probably love this book. I certainly do. This book has already saved me quite a bit of time. It contains a critical mass of material for me to think productively about my business, and it’s even indexed and hyperlinked for my convenience. Should I need to investigate a particular topic in more depth, Kaufman recommends the business books that he found most useful for each and every part of the book.
Although I didn’t find the book overwhelming, I can imagine that my artist friends would shrivel up and die on just the first chapter; they are not inherently interested in the patterns and principles that drive business. I’ll let you know what happens. Kaufman does recommend that you feel free to jump around and just read sections randomly, not trying to read it all at once. I think there’s value in that approach; I certainly enjoy picking it up and browsing through it to see what ideas it sparks.
I should again mention that while I find this book comprehensive in its mapping of business knowledge, it’s not the kind of book that will walk you through the steps of making the real decisions about how to run your business. Instead, TPMBA gives you the ability, as Kaufman says, to ask the right questions. The reflection needed answer those questions, as well as the intelligence you need to synthesize your solutions, will have to come from you. There are a few exercises spread throughout the book that will help you, for example, determine whether a particular idea has a sustainable market size, but it’s not a workbook. I imagine that these supporting materials are or will be available on The Personal MBA Website, and indeed I see it has a growing and active reference and course section.
If anything, The Personal MBA is an excellent foundational book on which you can base your business studies. It’s a clearly organized and lucid text that helps you internalize the kind of thinking that will lead to business success. I have a sneaking suspicion that quite a few of the principles in the PMBA could be applied to other fields, but that’s a post for another day.
Disclosure: My own Emergent Task Planner is mentioned in one of the chapters as a tool Kaufman uses. Which is awesome! :)
The Personal MBA by Josh Kaufman
Published December 31, 2010 by PORTFOLIO / PENGUIN
Available at http://book.personalmba.com/