The key ideas

The Personal MBA: Master the Art of Business

Josh Kaufman, 2010

Do you need an expensive degree to understand business? Josh Kaufman skipped business school and read the best business books himself. From them, he assembled simple models that explain any enterprise: the five parts of business, testing demand, pricing, teams, and bottlenecks. After this book, you will be able to identify where your own business is getting stuck.

Who it is for

For anyone who wants to understand how business works without spending years and a fortune at business school. And for anyone already running a business who wants to see where it is getting stuck.

Business schools do not create successful people. They simply admit them and then take credit for their success.

A degree costing hundreds of thousands or a shelf of books

Imagine two people who want to understand business. The first enrolls at a well-known business school, studies for two years, and leaves with a degree and a large debt. The second spends evenings reading the best business books, one after another. Which will understand business better a few years later?

Josh Kaufman faced this choice himself. He worked as an assistant brand manager at Procter & Gamble, one of the world’s largest household goods companies. Many people around him considered an MBA, a Master of Business Administration degree, the next step in their career. Kaufman decided that an education costing hundreds of thousands of dollars was not worth it and chose the second route.

From 2005 onward, he maintained a public list of the best business books and called it the Personal MBA. In 2010, that reading grew into The Personal MBA, published in Russian under a title meaning “Be Your Own MBA.” Kaufman does not retell textbooks in it. He draws mental models from hundreds of books: simple concepts that reveal how almost any enterprise works.

The central model sounds almost audacious. Every business, from a coffee shop to a factory, depends on five processes. The first is value creation: understand what people need and make it. Next comes marketing, meaning attention and interest, then sales, then value delivery, meaning fulfilling your promise, and finally finance.

Kaufman tests these five parts with a stark formula. An enterprise that creates no value for others is a hobby. One that attracts no attention is a failure. One that does not sell what it creates resembles a charity. One that fails to deliver what it promises becomes a scam. And one that does not bring in enough money will close sooner or later.

The parts depend on each other like links in a chain, and a strong link cannot compensate for a weak one. Next, you will follow Kaufman through them in six stories: a hundred-million-dollar scooter, a pink bunny suit, a doubled price, a fisherman’s parable, three months of meetings, and an assembly line waiting for engines. Every chapter offers something you can test in your own business this week.

The hundred-million-dollar scooter nobody was waiting for

Dean Kamen was a famous inventor, and people believed in his new project. More than a hundred million dollars went into the Segway: a five-thousand-dollar, two-wheeled scooter that balances itself. Kamen promised it would transform transportation as the automobile had when it replaced the horse-drawn carriage.

The Segway went on sale in 2002, and the company announced that it would sell fifty thousand units a year. Five years later, it had sold around twenty-three thousand. That was less than a tenth of the planned total.

Kaufman emphasizes that the technology was not the problem: it was sophisticated and it worked. Very few people simply wanted to pay five thousand dollars for a strange-looking way to avoid walking or cycling. The enormous market Kamen was counting on did not exist.

This is the book’s first rule, which Kaufman calls the Iron Law of the Market. Every business is limited by the market it serves: its size and quality. An inventor who builds first and looks for a buyer afterward resembles a tailor who makes a magnificent suit before looking for someone it will fit.

How can you test demand before investing money? Kaufman suggests three steps:

• Shadow testing. This is Kaufman’s name for selling something that does not exist yet: tell the customer honestly that it is in development and see whether they will pay. Real customers behave differently from imaginary ones.

• The simplest version. Kaufman calls this the “minimum viable offer.” It is a description, a sketch, and a price: just enough for someone to decide to buy.

• Round after round. Kaufman reminds us that Michelangelo’s David required millions of hammer blows. His iteration cycle is simple: observe what works, generate improvements, choose one, implement it, and measure whether things have improved. Then repeat.

The main mistake here is very human: falling in love with an idea and spending years developing it in silence. The Segway showed how expensive that silence can be.

Read in Livria

About the author

American author Josh Kaufman, a former Procter & Gamble brand manager, created the Personal MBA self-education project. He also wrote The First 20 Hours, about acquiring new skills quickly.

All books by this author: Josh Kaufman

Terms from the book

  • Michelangelo
  • Procter & Gamble
  • MBA
  • Mental models
  • Marketing
  • Goldratt
  • Personal MBA: Kaufman’s self-education project, which he has run since 2005: a list of the best business books and notes about them. The name means a personal Master of Business Administration.
  • Value creation: For Kaufman, the first part of any business: identifying what people need or want and making it.
  • Value delivery: For Kaufman, the fourth part of a business: giving customers what was promised and making sure they are satisfied.
  • Kamen: Dean Kamen, an American inventor and engineer who created the Segway.
  • Segway: A two-wheeled electric scooter that balances itself. It went on sale in 2002.
  • Iron Law of the Market: Kaufman’s concept: every enterprise is limited by the size and quality of the market it serves.
  • Shadow testing: Kaufman’s concept: selling something that is not ready yet while honestly telling the customer that it is still being developed. It shows whether people will actually pay.
  • Minimum viable offer: Kaufman’s concept: the simplest version of an offer that people are already willing to pay for.
  • Iteration cycle: Kaufman’s concept: a repeating process for improving anything. Observe, generate ideas, choose, act, measure, and begin again.
  • Probable purchaser: Kaufman’s concept: the person most likely to buy your particular offer. This is where marketing effort should go.
  • Receptivity: Kaufman’s concept: how ready someone is to hear a message. It depends on what they are told and when.
  • Vibram FiveFingers: Shoes Kaufman uses as an example of an unusual product: they have a separate pocket for each toe.
  • Next best alternative: What a party will do if they do not reach an agreement with you. The stronger your alternative, the more confident you are in negotiations.
  • Pricing power: The ability to raise prices without losing too many customers.
  • Value capture: Kaufman’s concept: the share of the benefit created for a customer that the seller keeps.
  • Sufficiency: Kaufman’s concept: the point where a business brings in enough money to make it worth continuing.
  • Target monthly revenue: The amount that covers all business expenses each month, including living costs for the people working in it.
  • Communication overhead: Kaufman’s concept: the share of time spent coordinating with a team instead of doing the work itself.
  • Comparative advantage: Economist David Ricardo’s idea that it is more beneficial to focus on what you do best and trade with others.
  • Ricardo: David Ricardo (1772–1823), a British economist and one of the founders of classical political economy.
  • Gall: John Gall (1925–2014), an American physician and systems researcher who wrote Systemantics.
  • Constraint: The bottleneck in a system that limits its performance. Until it is widened, speeding up everything else is pointless.
  • Weinberg: Gerald Weinberg (1933–2018), an American programmer and author of books on systems thinking and management.

All terms

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