Introduction — Why You Don’t Need an MBA
Josh Kaufman’s career began at Procter & Gamble, one of the biggest companies in the world. Over time, three things became clear. Large companies move slowly, and good ideas often died because too many people had to approve them. Climbing the corporate ladder got in the way of doing great work, because so much energy went into politics and turf wars. And the daily frustration was wearing down health, happiness, and relationships. “The longer I stayed in the corporate world,” Kaufman writes, “the more I realized I wanted out.”
Business school looked like the obvious next step. But a closer look showed it made little sense. The top schools only admit people who are already smart and driven enough to succeed, MBA or no MBA. Business schools don’t create successful people. They accept them, then take credit for their success. A study by Jeffrey Pfeffer and Christina Fong found that getting an MBA has zero correlation with long-term career success, whether you finish at the top of your class or the bottom.
The money is worse. Christian Schraga, who earned an MBA at Wharton, used a technique business schools teach to measure what a top program is worth over ten years. The answer came out to about negative $53,000. By that math, it takes twelve years of solid work just to break even. The degree does help you get interviews at big companies, but that boost mostly fades within three to five years. After that, employers care more about what you’ve done than where you went to school.
The classes are also built around running giant corporations, even though small businesses make up 99.7 percent of all employers in the United States. Learning complicated financial formulas isn’t the same as learning how to run a business.
So instead of business school, the book comes from thousands of business books, hundreds of interviews with professionals, and years of starting businesses, all boiled down. The model is Warren Buffett and Charlie Munger. With no formal business education, they built a company worth over $195 billion by understanding how businesses work, how people work, and how systems work. That’s the shape of this book, too, and it’s easier to learn than it sounds. When you first study a field, it seems like you have to memorize a million things. You don’t. Most fields rest on three to twelve core ideas, and everything else is a mix of them. Clear language leads to clear thought, and clear thought is the real benefit of an education. The first idea is the simplest one: what a business actually is.
Chapter 1 — Value Creation
Paul Graham, who founded the startup program Y Combinator, gave the plainest business advice there is: “Make something people want.” If you find something broken that you can fix for a lot of people, Graham said, you’ve found a gold mine. The world is full of ways to make other people’s lives a little better. Your job in business is to notice what people don’t have enough of, then find a way to give it to them.
That leads to a working definition. A business is a repeatable process that creates something valuable, that other people want, at a price they’ll pay, delivered in a way that satisfies them, with enough profit left over to keep the owners going. Take any one piece away, and you have something else. A venture that doesn’t create value is a hobby. One that doesn’t attract attention is a flop. One that doesn’t sell is a nonprofit. One that doesn’t deliver what it promises is a scam. And one that doesn’t bring in enough money will close. Those five parts give the first half of the book its shape: creating value, marketing, sales, delivering value, and finance. Each one flows into the next.
So what do people want? Harvard professors Paul Lawrence and Nitin Nohria found four core drives behind almost every choice we make. We want to acquire things and status. We want to bond with other people. We want to learn. And we want to defend ourselves and the people we love. The book adds a fifth, the drive to feel, which is our hunger for pleasure and excitement. In the end, every successful business sells some mix of money, status, power, love, knowledge, protection, pleasure, and excitement.
Picking the right market matters most. Neither a great team nor a great product will save a bad market. A quick test is to rate a market from zero to ten on ten questions. How badly do people want this right now? What would they pay? How fast could you start selling? You can offer to mow a neighbor’s lawn in minutes, but opening a bank takes years. Add up the scores. At 50 or less, move on. At 75 or more, go full speed ahead. And don’t pick one for the money alone. Business always takes more effort than you expect, so choose a market that interests you enough to keep going.
The most expensive mistake is building something nobody wants, so test early. Ask real potential customers, not friends and family, who love you too much to be honest. The worst response isn’t dislike. It’s a shrug. If nobody cares about what you’ve made, you don’t have a business. The most useful feedback of all is whether people will pay, and you can find that out before the product exists, as long as you’re honest that it’s still being built. When Fitbit’s founders announced their idea, they started taking preorders that same day with little more than a description and a few drawings. They collected card numbers but didn’t charge anyone until the product shipped. Orders rolled in, and a month later investors put up $2 million. This is called Shadow Testing. All you need is the smallest offer that will get someone to pull out their wallet.
From there, you improve it in small loops. Watch what’s happening, come up with ideas, pick the one you think will matter most, make the change, and measure what happened. A few quick loops will tell you what people actually want before you bet the farm. And the best way to improve what you make is to use it yourself every day. Of course, making something people want only matters if they know it exists.
Chapter 2 — Marketing
“The cardinal marketing sin,” Kaufman writes, “is being boring.” People who don’t know you exist can’t buy from you, so no business survives without marketing. Marketing is simply finding people who are interested in what you offer. Their attention has to be earned, though, because you’re competing with everything else in their life.
In Purple Cow, Seth Godin points out that a field of brown cows is boring. A purple cow makes you stop the car. Being remarkable is the best way to get noticed, and advertising is the tax you pay for being unremarkable. It also helps to stop trying to reach everyone. Focus on the people most likely to buy, and try to reach them the moment they first become interested. That’s why so many new parents come home from the hospital with a free care package of diapers, rash cream, and formula. Companies like Procter & Gamble and Johnson & Johnson know that the first brand you meet becomes the standard you judge the others by.
It’s almost impossible to make someone want something they don’t already want. Your job is to show people how your offer gets them what they already desire. Think about test-driving a car. At the dealership, you compare horsepower and gas mileage. Behind the wheel, you feel the engine and picture pulling into your driveway while the neighbors look on. You’ve stopped comparing and started wanting. So talk less about features and more about the end result. Help people picture their life after they say yes.
Giving something valuable away for free is one of the fastest ways to get attention. Think of the free samples at the grocery store. Then ask for permission to follow up. As Godin puts it, “Selling to people who actually want to hear from you is more effective than interrupting strangers who don’t.” Every message should end with one clear next step, like entering an email address or buying the product.
Good marketing also means knowing who isn’t a fit. Progressive Insurance will quote you a price if you’re the kind of driver it wants. If you’re not, it will tell you where to get a better deal. Over time, your reputation does more than any ad. People keep buying from businesses they respect and send their friends. But attention alone doesn’t pay the bills. At some point, somebody has to decide to buy.
Chapter 3 — Sales
Nobody wants to make a bad decision or get taken advantage of. So selling is mostly helping people understand what matters and showing them you can deliver what you promise. Without some trust, no sale happens. The surest way to build it is a reputation for dealing fairly over time, and wanting the same thing your customer wants: their problem solved.
Then there’s the question of price. Picture selling a house. You could price it by what it would cost to rebuild, what similar houses nearby sold for, or how much rent it could bring in. Or you could ask who would find this particular house especially valuable. That last question is where higher prices come from. Charging more can even bring in better customers. The person who buys a Bentley isn’t shopping for a Camry.
The best salespeople listen more than they talk. They ask about your situation, your problem, what that problem is costing you, and what fixing it would be worth. Kelsey, the author’s wife, worked as a sales consultant in a bridal shop. Kelsey’s job was to help brides relax, then teach them how gowns are made and what to look for. A customer who understands the choice trusts the person who helped them understand it.
Pushing does the opposite. The harder a salesperson pushes, the more the buyer pulls away. The sales teacher Zig Ziglar suggested acting like an “assistant buyer” who helps people make a good choice. Desperation hurts, too. Nobody wants to date someone who’s desperate for a relationship, and nobody wants to buy from someone desperate for their money. What helps is generosity and honesty. Give real value up front, and people want to return the favor. Admit the small flaws, and people believe the rest. When Kaufman shopped for a used car online, a dealership in Denver photographed every detail, including a small chip in the paint. That one chip made the rest of the listing easier to trust.
Most buyers raise one of five objections. It costs too much. It won’t work. It won’t work for me. I can wait. It’s too hard. You can answer the first by showing the value. Software that saves a business $10 million a year is practically free at $1 million. Stories from customers just like the buyer answer the next two. Teaching answers the last two, because people often don’t realize they have a problem until someone shows them. And you can take the risk off the buyer entirely with a guarantee to make it right if things go wrong. And if it comes down to negotiating, remember this: the power belongs to whoever is able and willing to walk away. A sale is a promise. Now the business has to keep it.
Chapter 4 — Value Delivery
Zappos could advertise faster shipping. Instead, it often upgrades orders without saying a word, because a surprise is worth more than a promise. The idea fits in a simple equation: quality equals performance minus expectations. Customers judge you against what they expected to get. The best way to beat expectations again and again is to give people a bonus they didn’t see coming. Happy customers buy again and tell their friends.
They also want to count on you. Good delivery is uniform, consistent, and reliable. That means the same thing every time, the same quality over time, and no errors or delays. It helps to know how fast your business works. How long does it take to earn another dollar of profit, make another product, or create another happy customer? If you don’t know, finding out is the first step toward getting faster.
Growth comes from copying what works. McDonald’s knows how to copy a Big Mac. Starbucks knows how to copy a latte. More importantly, both know how to copy an entire store, which is why there are thousands of each. When a Starbucks gets too crowded, the fix is to build another one, sometimes right across the street.
Once a process can be copied, small improvements add up fast. Somewhere right now, a Toyota engineer is making a small change to the company’s production system. Toyota workers make over 1 million of these changes every year. One candy bar doesn’t matter, but hundreds do. The bigger the system, the bigger the payoff from a small improvement. Good tools multiply your effort, too. A $10 shovel will dig a foundation, but if you build houses for a living, the backhoe is worth it. When you feel overloaded, build better systems. All of this only lasts, though, if more money comes in than goes out.
Chapter 5 — Finance
An executive on his first vacation in fifteen years met a fisherman on the dock of a small coastal village. The fisherman had caught plenty of fish in only a little while. So why not stay out longer and catch more? The fisherman said he had enough. He slept late, fished a little, played with his kids, took a nap with his wife, and played guitar with friends in the evening. The executive, a Harvard MBA, laid out a plan. Buy a bigger boat, then a fleet, then a factory. Move to the city. In twenty years, take the company public and make millions. “Then what?” the fisherman asked. Then you could retire, the executive said, sleep late, fish a little, play with your kids, and play guitar with your friends. Soon after he got home, the executive quit his job.
Money is a tool. Profit matters, but it’s a means to an end. Business isn’t about what you make. It’s about what you keep. The first target is sufficiency, the point where a business brings in enough to be worth continuing. Paul Graham calls it “ramen profitable,” meaning enough to pay the rent and buy cheap noodles.
Many business schools teach you to squeeze every possible dollar out of each sale. It’s smarter to take as little as you need to stay sufficient. A good deal keeps customers coming back and sends their friends your way. Nickel-and-dime them, and they leave. And there are only four ways to grow revenue anyway: serve more customers, sell more each time, sell more often, or raise prices.
Costs deserve the same attention. Benjamin Franklin warned that “a small leak will sink a great ship.” The lower your overhead, the longer you can keep going while you figure things out. But cutting costs only helps so much. Creating more value is the better path. Watch your cash, too. A customer’s promise to pay feels like a sale, but IOUs aren’t cash. You’re a business, not a bank.
Time works for you when you’re patient. At 5 percent interest, a dollar in the bank doubles in fourteen years. Borrowed money can multiply your gains, but it multiplies your losses just as much. Outside funding works like rocket fuel. If the business is pointed in the right direction, it speeds things up. If not, it blows up. So grow on your own cash and revenue for as long as you can. And when a project isn’t working, remember that money already spent is gone. Don’t keep pouring concrete into a bottomless pit. Every one of these choices is made by a human mind, and that mind has quirks worth knowing. So the book turns from how businesses work to how people work.
Chapter 6 — The Human Mind
“Don’t be too hard on yourself,” Kaufman writes. “We’re all running demanding new software on ancient hardware.” Your mind is first a physical system. What feels like mental fatigue is often your body asking for food, exercise, or rest. So sleep seven to eight hours a night, go for a walk, and get about ten minutes of sunlight in the morning.
It also helps to know that you aren’t the voice in your head. That voice is more like a radio announcer with the attention span of a two-year-old after a triple espresso. It points out things that might be interesting or dangerous, but it isn’t always right. Meditation is just breathing and watching the voice without believing everything it says. Over time, it gets quieter.
People don’t simply react to rewards and punishments. We act to close the gap between what we see and what we want. Overtime pay shows how this works. Raise it, and some employees work more. Others already earn what they want, so they reach their number sooner and work less. If you think your weight is fine, you won’t change your diet. Nothing moves until you notice a gap.
Your surroundings shape you more than your intentions do. “Your environment will eat your goals and plans for breakfast,” says the writer Steve Pavlina. Willpower runs out as the day goes on, which is why the ice cream wins at 8:30 at night. So spend a little willpower changing your surroundings. While writing this book, the author used an app that shut off the internet for a few hours at a time. One decision replaced a hundred.
A few more quirks are worth knowing. We feel a loss about twice as strongly as an equal gain. When layoffs are rumored, people stop working and start worrying, so if cuts must happen, do them quickly and all at once. We don’t notice what’s missing, so nobody sees all the problems a great manager prevents. Checklists help you look for them. And attention doesn’t last. In Norman Mackworth’s classic study, people watching for a clock hand to skip lost focus after ten minutes. Even with bonuses at stake, nobody lasted past thirty. That’s why each section of this book is short. Knowing how minds work helps most when the mind is your own.
Chapter 7 — Working with Yourself
We’ve all known we should do something and then not done it. “I should quit smoking.” “I should write a will.” The Greeks had a word for this: akrasia. The “should” sticks around but never turns into action. Usually something is causing the resistance. Maybe you can’t define what you want, or the “should” came from someone else, or something easier promises a reward right now.
Getting started is the hardest part, so make it small. Set a kitchen timer for twenty-five minutes, focus on one task, then take a five-minute break. Group similar work, too. Write in the morning and save calls for the afternoon. Each morning, list your two or three most important tasks and try to finish them by ten o’clock. Work tends to expand to fill the time you give it.
Set goals you can control. “Lose twenty pounds” is a result, and a bad day on the scale can crush you. “Exercise thirty minutes a day” is an action. It also helps to ask why you want something, five times in a row. Why a million dollars? So you’re not stressed about money. Why? So you don’t feel anxious. Keep going, and the real answer might be that you want to feel free. There are many ways to feel free that have nothing to do with a million dollars. Then ask how, and connect that big desire to a next action you can take today.
Get your thoughts out of your head. Problems that feel impossible in your mind often shrink once they’re on paper. When a fear holds you back, write down the worst that could happen. It works like handing a flashlight to a child who’s afraid of monsters under the bed. And keep a little humility. Look for the evidence that proves you wrong, and keep friends who will tell you when you are.
Finally, work with your energy instead of against it. Your body runs in cycles of about ninety minutes, so take breaks when you’re low. If Winston Churchill could find time to paint during a world war, you can find time to rest. And remember that more success won’t make you happy on its own, because we get used to new things fast. Here’s what does last: earning enough money, taking care of your health, spending time with people you enjoy, removing daily annoyances, and taking on new challenges. As George Vaillant said of the long-running Harvard Study of Adult Development, “The only thing that really matters in life are your relationships with other people.” Kaufman’s test for success is simple: are you doing work you like, with people you enjoy, while earning enough? Those people matter at work, too, because almost nothing big gets done alone.
Chapter 8 — Working with Others
No one is good at everything, and that’s fine. Build on your strengths and team up with people who are good at the rest. Keep teams small. Studies of teamwork usually recommend groups of three to eight people. Past eight, each new person costs more in meetings and messages than they add in work.
Everyone wants to feel important, whether it’s a customer, an employee, or a friend. Giving people that feeling is simple. Pay attention, listen closely, and ask questions. The book sums up How to Win Friends and Influence People in three words: appreciation, courtesy, and respect. One of the best definitions of courtesy is “accepting small inconveniences on behalf of another person.” Leaders who put people down to feel smarter get the opposite. People stop talking when they don’t feel safe.
People are more willing to help when you tell them why. A general who tells a commander exactly how to take a hill has to give new orders every time things change. A general who explains why the hill matters lets the commander adapt on the spot. Be specific about who’s responsible, too. If someone collapses in a crowded store and you yell, “Someone call 911,” everyone assumes someone else will. Point at one person and say, “You, call 911,” and they will.
We also become like the people we spend time with. Jim Rohn put it this way: “You are the average of the five people you spend the most time with.” If your friends aren’t supporting your goals, find new friends. Expectations shape people, too. Most people rise to what others expect of them. And when someone messes up, check the circumstances before you judge them. We blame other people’s character for their mistakes, but we blame our own mistakes on circumstances.
When you hire, remember that the best predictor of future work is past work. Ask to see a candidate’s best projects. When you call their references, ask one question: would you work with this person again? If they hesitate, the answer is no. Then create a place where good people can do their work and get out of their way. A team, it turns out, is a system. So is a business, and that’s where the last part of the book goes next.
Chapter 9 — Understanding Systems
Complex systems that work almost always grow out of simple systems that worked. That’s why the book keeps coming back to starting small. Build the simplest version, see if people buy it, then add to it.
Every system has at least one limit that holds the rest back. In The Goal, Eliyahu Goldratt showed that if you find that bottleneck and ease it, the whole system speeds up. Some systems also feed themselves. Every time someone shares a funny video, several more people see it and share it again. If your business has something like that built in, it’ll grow faster than you expect.
Systems also have to pass tests to survive. A business has to create enough value, bring in enough money, and earn enough profit to keep going. When the world changes, the system has to change with it. In The Black Swan, Nassim Nicholas Taleb explains why that’s so hard to plan for. For centuries, people in Europe believed all swans were white. Then Dutch explorers found black swans in Australia in 1697, and one sighting overturned the rule. You can’t predict events like that. All you can do is stay flexible, prepared, and strong enough to respond when they come.
Good systems also don’t depend on one person. The author Tim Ferriss used to approve the fix for every customer service problem at the company personally. Then the staff got permission to solve any problem that cost less than $400 without asking. The business ran more smoothly, and Ferriss stopped being the bottleneck. Still, be careful with changes. As Stephen Covey wrote, “While we are free to choose our actions, we are not free to choose the consequences of our actions.” Change a complex system carelessly, and you may get the opposite of what you wanted. That’s why it pays to study a system before you touch it.
Chapter 10 — Analyzing Systems
“If you can’t understand it,” says the technologist Eric Evans, “you can’t change it.” The way to understand a big system is to break it into parts and study how they fit together. Then measure what matters. What gets measured gets managed. But measure everything, and you’ll drown in data. Pick a few key numbers for each part of the business. How many people are paying attention? How many are becoming customers? How quickly can you serve each one? What’s your profit margin?
Numbers need an honest reader. It’s easy to see what you want to see, so ask someone with nothing at stake to look at your results. And never judge a number on its own. Compare it with another, like how much revenue each dollar of advertising brings in, or how many prospects end up buying.
Be careful about what numbers prove. Say people who have heart attacks eat an average of 57 bacon double cheeseburgers a year. Do cheeseburgers cause heart attacks? Not necessarily. Those same people also take 365 showers a year and blink 5.6 million times. Two things happening together doesn’t prove one caused the other.
Split your data into groups, and you’ll see more. Knowing orders rose 87 percent this month is good. Knowing that 90 percent of the new orders came from women in Seattle is better. It also helps to turn numbers back into people. When Kaufman developed cleaning products at Procter & Gamble, the team used research data to invent a customer named Wendy. Instead of studying charts, they could ask a simpler question: would Wendy like this? Once you understand a system that well, you can start to improve it. And often the first step is to do less.
Chapter 11 — Improving Systems
Picture a company that lets employees buy any book they need, no questions asked. It works well until one employee orders hundreds of novels for fun. Many companies would cancel the policy and require a manager’s approval for every book. That punishes everyone who used it well. The right response is to talk to the one person and change nothing else. When something goes wrong, we feel the urge to add rules just to feel in control. Most of the time, the rules make things worse.
When you do make changes, work on one thing at a time so you can tell what actually helped. Look for the few inputs that produce most of the results. Often, fewer than 20 percent of customers bring in more than 80 percent of the revenue. Tim Ferriss found that 5 out of 120 customers brought in 95 percent of the revenue. By focusing on those five, Ferriss doubled monthly income and cut work from eighty hours a week to fifteen. But more isn’t always better. One cookie is great, and two are even better. A hundred are worse. Once you’ve picked the easy wins, stop polishing. Perfectionism is a trap.
Checklists catch what busy people forget. Even pilots with decades of experience run through them before every takeoff and landing, because a skipped step can hurt everyone on board. And sometimes the best move is to do nothing at all. The Japanese farmer Masanobu Fukuoka skipped the chemicals and machinery that nearby farms used and did only what was necessary. His fields were among the most productive in the area.
Prepare for trouble before it comes. A resilient business carries little debt, keeps costs low, holds cash in reserve, and has no single point of failure. The oxygen masks on an airplane are wasted money until the cabin loses pressure. By the time you need a backup system, it’s too late to build one. So test what you’ve built. The author once tested a personal website by flooding it with fake visitors to see when it would break. The book of Proverbs puts it simply: “A prudent person foresees danger and takes precautions.”
Healthy businesses move through seasons. They expand into new ideas, settle in to run what works, then step back to cut what doesn’t. The right balance keeps changing, and you only find it by trying things. “What I began by reading,” Henry David Thoreau wrote, “I must finish by acting.” So keep this book close and review it every few months. When students once asked Warren Buffett, then the richest person on earth, what superpower to wish for, the answer was “I’d like to be able to read faster.”
Buffett and Munger never went to business school. They just understood how businesses, people, and systems work, and they kept learning for sixty years. That’s the whole curriculum. It doesn’t come with a diploma, but it doesn’t come with the debt either.