"The Personal MBA"

"The personal MBA " by Josh Kaufman is a must read book for any forthcoming Entrepreneur or each and everyone who wants to start a business. It is also a wonderful manual for anyone who needs and intrested to learn the essential aspects of "Business Management".

Introduction :

People always form mental models in order to understand things easier and better. Mental models are concepts which represent an better understanding of how things work. Businesses are complex systems which are madeup of fundamental mental models or elementary business concepts.

Defining a Business:

Every successful enterprise Creates or provides some VALUE that other people need, at a Sum they are willing to pay, in a way that Satisfies the customer's needs and expectations and provides the organisation with Sufficient revenue to make it valuable for the owners to continue operation.

Business have five interdependent core processes:

1.VALUE CREATION : Identifying what people need or want, then doing it.

"Without a good market you're in wrong business"

Iron law of the markets: If you don't have a enormous number of people who really want that you have to offer, Chances of building a viable business are lean. Revenue is completely dependent on individuals wanting what you have to offer.

"Economically valuable skills are those which directly improve one of the core processes of the business".

10 ways to evaluate market :

1. Urgency: however badly do they have it right now?
2. Market size: what percentage individuals square measure buying product like this?
3. Pricing potential: what's the best value a typical client would pay for an answer you provide?
4. Cost of client Acquisition : however straightforward it's to accumulate a brand new customer? , what quantity can it value to come up with an acquisition in each cash and effort?
5. Cost important delivery :How abundant wouldn't it value to make and deliver the worth offered?
6. Uniqueness of supply: however distinctive is your answer or offer versus the competitors offer?
7. Speed to market: however quickly you'll be able to produce one thing to sell?
8. Up-front Investment: what quantity you may ought to invest before preparing to sell?
9. Upsell potential: square measure there any secondary connected offers that you just may also present?
10. Evergreen potential: Once your supply or product has been created ..., what quantity further work does one ought to place in per order ?

12 Standard Forms of Value:

"Don’t be in it just for the money; you’ll quit. Don’t be a crusader without going through the actual feasibility as a business, or it’ll just be a hobby."

1. Product — e.g. toothbrush
2. Service —e.g. tax preparation
3. Shared Resource — e.g. gyms
4. Subscription — e.g. Netflix
5. Resale — i.e. Retail stores e.g. Walmart
6. Agency — i.e. being an agent to someone e.g. an actor’s agent
7. Audience Aggregation — e.g. Facebook
8. Loan — e.g. mortgage
9. Lease — e.g. car lease
10. Option — e.g. movie tickets, licensing rights
11. Insurance — e.g. homeowners insurance
12. Capital — e.g. angel investing for equity

5 Basic Human Drivers:

1. Drive to Acquire : Substantial objects and Immaterialistic things( Influence, power and status).
2. Drive to bond: Desire to feel loved and valued. Business that expedite bonding or makes us feel enticng, regarded or cherished.
3. Drive to learn: Aspiration to satidfy curiosities.
4. Drive to feel Defend: Impulse to feel safe , protect family, ourselves , lovedones and property.
5. Drive to feel: Craving to feel new sensory stimulus, pleasure , intense emotional experiences, excitement, anticipation and entertainment.

HASSLE PREMIUM:

You get to charge to avoid wasting individuals “hassle”. This includes comes or tasks that:

• Take an excessive amount of time
• Take an excessive amount of effort to make sure an honest result
• Involve an excessive amount of confusion, complexity, or uncertainty.
• Distract from the other more priority tasks
• Require expensive or intimidating prior experience
• Require specialized equipment or resources that are difficult to attain

The additional “hassle” you'll take away for a client, the additional you'll charge in terms of a problem premium.

PERCIEVED VALUE: Percieved value determines how much your customers will be willing to pay for what your offering.

The most valuable offers do one or a lot of of the following:

1.Satisfy one or a lot of of a customer’s core human drives

2.Have a simple to examine end-result

3.Command the very best problem premium

4.Satisfy the prospect’s power hunger tendency by providing fascinating social signals

MODULARITY: Modularity refers to the individual nature of offerings, just like the commonplace kinds of price,

• Which will then be bundled for a premium (higher perceived value)
• Or unbundled to convert prospects World Health Organization may not have otherwise bought. Modularity additionally permits corporations to boost and experiment with offerings in isolation so combine and match them supported client feedback and response.

ITERATION CYCLE: Progressive enhancements that range learning and feedback to create selections on future enhancements.

1.Watch what’s happening. What’s operating and what’s not?

2. return up with ideas of what you'll do to enhance

3. Guess that of your ideas can work best

4. Execute on the idea(s) you opt can work best.

5.Measure the results of any changes so as to see impact of changes.

6.Decide whether or not to stay or discard changes.

7. Repeat.

GO FAST THROUGH ITERATION: Go quick through iteration. key's to stay every iteration tiny, clear and fast, basing every iteration on what you learned from every previous iteration and current data/feedback.

Feedback ought to be received from actual potential customers. it's vital to record what folks say however additionally watch what folks do (and compare the difference). Of course, don’t crumble beneath criticism and take critiques with a grain of salt. attempt to browse between the lines likewise, folks may not continually be able to answer the queries you as a product designer or businessperson square measure asking yourself, however they'll purpose you towards sentiment that would guide those choices. A nasty response isn't associate degree emphatic negative critique, however rather total apathy. If folks you're thinking that ought to care concerning it don’t, then that’s a proof of hassle.

The best feedback mechanism is merchandising on preorder. determine what may well be holding folks back from pre-ordering or getting (barriers to purchase)

Trade-offs square measure present however square measure solely accomplished once folks build selections while not the necessity to form a choice, folks can avoid trade-offs (most folks square measure risk-averse once all). however once they do build a choice, within the absence of an ideal choice, folks accept ensuing best different.

When creating selections concerning what to incorporate in your offerings search for Patterns: however specific teams of individuals tend to price some characteristic in an exceedingly bound context. try and specialise in the patterns of your best customers.

Economic Values that people generally consider when making a purchasing decision:

1. Efficacy
2. Speed
3. Reliability
4. Ease of Use
5. Flexibility
6. Status
7. Aesthetic Appeal
8. Emotion
9. Cost - how much do I have to give up to get this

cost conjointly adds to the perceived social station, the perceived quality, and ensuing post-purchase expertise with it (you don’t need to be wrong concerning payment tons of cash on one thing, thus you furthermore may sell it to yourself)

RELATIVE IMPORTANCE TESTING : Relative Importance Testing a group of research techniques to work out what individuals really wish by asking them a series of easy queries designed to simulate real-life trade-offs

Example: Restaurent

a. Orders delivered to table in <5 min

b. Most entrees area unit <$20

c. Appealing Decor

d. An outsized type of choices

ASK: That of those is most vital and that is least important?

You do this until you get a real-world understanding of that of the Economic Values individuals truly care regarding most once forced to come to a decision.

"I believe it’s important to also profile people in order to spot patterns within different demographics/groups/prospects".

Critical Assumptions can fuck your day up if they prove to be wrong. These ar the most things that verify the practicableness of your business venture.

Example of CA: “there’s a market willing to pay at the value i would like them to so as on behalf of me to satisfy my debt obligations and build a profit still. If I build it they'll return.”

You can Shadow check aka run a kickstarter or got wind of preorders simply drive traffic with a landing page.

Create associate MVO (minimum viable providing : no matter you'll be able to flee therewith can enable you to check for purchase feedback and run shadow tests to drive data around sales or actual client interest.

FIELD TESTING: Literally victimization the product you propose to sell therefore you recognize what to enhance or what the expertise is like. Aka BE the client and use that information altogether aspects of the business. victimization what you create daily is that the best thanks to improve the standard of what you’re giving.

2.MARKETING:

"Marketing is the art and science of finding prospects — the people who are actively interested in what you’re offering"

Rule number #1 in marketing is that you need standard attention. Offering value isn't merely enough. Your potential customers attention is bounded.In business, you always want the attention of the peiople who will potentially buy from you, If not you're wasting your time.

"Marketing is more effective when it focuses on the desired end result"

You have to induce people’s attention through promoting and operate underneath the premise that individuals square measure presently preoccupied (because they are).

People square measure continually perceptually filtering— deciding what to listen to and not. you have got to induce around their filters.

Receptivity could be a live of however open individuals square measure to your message (marketing).

It has 2 primary components: What and once.

If the shape of your message suggests that it absolutely was created only for the prospect, it's a lot of seemingly to urge their attention.and the medium matters. Can’t expect to urge detected if you’re email is incoming within the spam folder. Likewise with regular postage.

Timing is additionally necessary, within the day to day sense of once does one best gift folks with selling additionally as once folks square measure most inquisitive about your product.

Point of Market Entry is extremely asked for within the selling world attributable to its price. If you’re AN expecting parent, the primary brands you are available in contact with square measure ones that might influence and benchmark your purchase selections associated with baby stuff from then on. Target splendidly publicised home catalogs that includes baby stuff to expecting mothers supported their searching trends killer.

Qualification is that the method of crucial whether or not a possibility is price it slow or not / are a decent client. Customers WHO need longer, energy, attention, or risk than they’re price to your bottom line shouldn’t be pursued or attracted within the 1st place.

Remarkability may be a live of however outstanding one thing is (duh). there's the word of mouth play and self-advertising model. what proportion will your product or promoting stick out? Being outstanding is that the best thanks to attract attention.

"Skilled marketers focus on getting the attention of the right people at the right time".

Marketing that communicates a desired effect of an acquisition to a possibility is handiest once it focuses on a particular expertise or feeling associated with a Core Human Drive.The communication of that effect is achieved through techniques like image and adding as several sensory inputs that get the prospect to begin considering their lives along with your product or service.

Marketing activities ought to turn out some visceral feeling of need. Your job as a vender isn’t to persuade individuals to need what you’re providing: it’s to persuade themselves that what you’re offering can facilitate them get what they extremely need.

Addressability may be a live of however simply you'll get connected with people that would possibly wish what you’re providing. however available square measure totally different teams of prospects you’ve categorized?

Framing is that the act of action the main points that square measure critically necessary whereas de-emphasizing things that aren’t, by either minimizing sure facts or effort them out entirely. This doesn’t mean lying, however. you continue to inform individuals regarding things they should recognize. Otherwise, you may be harming your reputation.

"Free doesn’t pay the bills but could land you traffic and permission to pursue probable purchasers of your other paid products or services".

Permission is key! having the ability to solicit people’s permission to follow up or to plug to them is efficacious. It’s a key to creating the foremost of a association and following up.

“Asking for permission to follow up once providing free price is more practical than interrupting them. giving real price earns your prospect’s attention, and requesting permission offers you the chance to specialize in communication with individuals you recognize have an interest in what you have got to supply.”

Whenever you offer price to individuals, raise them if it’s okay to still offer price to them within the future. you'll go as way on say what you wish to send individuals and the way it’ll profit them.

A hook may be a single phrase or sentence that describes associate offer’s primary profit. generally it’s a title or catch-phrase. examples used: TFerriss “The 4-Hour Workweek” and Apple’s iPod tagline: “1,000 songs in your pocket”

Call To Action (CTA): “If you would like your prospects to require consequent step that you’re encouraging, you wish to inform them specifically what to try to to.”

“If you think that you’re being too obvious, you’re doing it right”

Best CTAs evoke an acquisition or permission to follow up.

• You can use a narrative to assist you market. folks like “the Hero’s Journey” or a “monomyth”. (person goes on journey, faces a crisis, comes out hero). folks need to be heroes.
• Controversy also can facilitate drive promoting as long as it’s legitimate and not defaming. Keep it civil.
• Reputation is clearly key. Don’t fuck it up by being stupid.

3.SALES:

Turning your prospective customers into paying customers

"You can interact with things that area unit economically valuable. Prospects can solely purchase if you're giving one thing they require."

Trust should be gift for transactions to require place.

Pricing Uncertainty Principle: “All costs area unit discretional and malleable.” It’s associate degree government call. you'll worth one thing anyplace you wish.

However, costs need to be even to an opening or potential client before a dealing will come about.

4 Pricing methods:

1.Replacement price - Usually a “cost-plus” price that means the entire cost of making/replacing one thing and the margin you wish.

2.Market Comparison - what area unit different product of comparable nature priced at?

3.Discounted money flow/net gift price - “How a lot of is it price if it will usher in cash over time?”. Used for things which will create others cash to justify a bigger direct price. DCF/NPV is barely wont to value things which will turn out in progress income - this makes it a typical thanks to value businesses after they area unit bought or sold .

4.Value comparison - (usually the simplest way) what's the worth of your product to the customer? value consequently.

“Discounts attract customers when the offer is a commodity” or items which are price-elastic.

Price-inelastic things have very little fluctuation in demand once there ar worth changes.

When testing totally different valuation ways, there ar sure thresholds wherever you stop appealing to sure segments and begin appealing to segments with totally different characteristics, known as worth transition shock

2 major issues whereas keeping transition shock in mind:

1.Potential profitableness

2.Ideal client characteristics

The best strategy is to line costs to charm to prospects which will make sure you work together with your most fascinating customers during a approach that leads to higher profits.This is obsessed on the business and target market’s expectations.

Value-Based Selling: The process of understanding and reinforcing the explanations why your provide is efficacious to the client. this is often however you support the set worth.This is concerning listening, not talking. It’s all concerning worth to the client

SPIN Selling: four phases of palmy selling:

1.Understanding things

2.Defining the matter

3.Clarifying the short and long and Implications of that downside

4.Quantifying the need- payoff or the monetary and emotional edges the client would expertise when the resolution of the matter.

This technique is concerning building trust and gaining the maximum (amount) data as potential so as to deliver the foremost amount of import to a client (or a minimum of deliver the correct data with the correct framing)

Education based Selling: The process of constructing your prospects additional informed and higher customers. It needs AN direct investment of your time into prospects, however is sometimes worthwhile. You at the same time build trust in your ability to deliver price and your experience whereas creating them higher customers

NBA: Next Best various - or town - Best various to The Negotiated Agreement

When there’s no ground, what's ensuing best alternative? → data of a prospects BATNAs will be used as leverage.Most power belongs to the party that's in a position and willing to steer faraway from a foul deal.

Exclusivity: making a singular provide or quality that alternative corporations can’t match. iPhones - Apple . Exclusive offers maintain high perceived worth. Exclusivity makes the foremost sense for product and services. Sole supply is that the final winner! aka monopolies

3 Universal Currencies

1.Resources - tangible things

2.Time

3.Flexibility - let alone freedoms or liberties

"In every negotiation, one currency can be traded for more or less of the others".

3 Dimensions of Negotiation

1.Setup - The surroundings, mostly. preparation work (setting the stage for a satisfying outcome to the negotiation).

• WHO square measure the concerned parties? square measure they receptive addressing you?
• Do folks apprehend WHO you're however you'll be able to facilitate them?
• What square measure you proposing and the way will it profit them?
• What’s the setting for presenting Associate in Nursing offer?
• What square measure the environmental factors? square measure any outside circumstances moving the outcome?

2.Structure - Of the deal you're proposing. Structuring the terms of a proposal that build the prospects seemingly to just accept.

•  Canwhat is going to|what's going to} you intend and the way will you frame it?
• What ar primary edges of proposal to different party?
• What's their BATNA? however is your proposal better?
• However can you overcome the opposite party’s barriers to purchase/ objections? 
• Are there trade-offs or concessions you’re willing to form to achieve associate degree agreement?

3.Discussion - point out the proposal with the opposite party.

End results consist of:

• Yes, we've got a deal on these terms
• We tend to don’t have a deal quite yet— offering or another choice to contemplate
• No, we tend to don’t have a deal or footing and that we ought to suspend negotiations.

Buffers - Third parties authorised to barter on behalf of somebody may be wont to improve odds of a good outcome and save time.

• Examples include: agents, attorneys, brokers, accountants.

"Be careful of incentive caused bias that happens with people like real estate brokers".

Persuasion Resistance: once an opening senses that they're being convinced or compelled to try and do one thing they're unsure regarding and reactively resists the try + tries to go away the convo.

The more practical strategy, instead, is to gift yourself as associate “assistant buyer”. You’re not pressuring them to administer you their cash, you’re serving to to confirm they invest their resources showing wisdom.

• Triggers embody desperation and chasing. People, like with romantic partners, will sense these items and acquire turned off
• Frame the convo in order that prospects desire square measure|they're} chasing you or are proving their good to be customers.

Reciprocation: A want folks feel to pay back or come back perceived favors or gifts. it's not essentially in proportion to the initial profit provided.

" Will virtually be tiny things like handing folks a bottle of water while not them asking or giving them free samples of something they appear inquisitive about. once there’s effort concerned, folks feel dangerous not reciprocatory. think about instances you get one thing simply to not seem like associate degree asshole WHO created this person invest time and energy into you".

Damaging Admissions will create sellers appear additional honest and trustworthy and increase the chance of sales.

Barriers to purchase: Risks, unknowns, and issues that forestall prospects from turning into patrons. the first job of a salesman is to spot and eliminate these barriers.

5 commonplace Objections:

• It prices an excessive amount of - Tackle with worth primarily based mercantilism -
• It won’t work - Best self-addressed victimization social proof
• It won’t work on behalf of me -Same as above
• I can wait - Use education primarily based mercantilism. particularly if prospect is unaware of their downside.
• It’s too troublesome - Same as above

With a prospect’s attention and permission, you've got to either (1) convert them that the objection isn’t true (2) convert them the objection is orthogonal

Risk Reversal: Removing barrier to buy of associated getting risk. a refund guarantees, as an example. Transferring risk from client to marketer.

Reactivation: Re-engaging past purchasers in an exceedingly new sales cycle or try. Re-convert!

4.VALUE DELIVERY :

"Value delivery involves everythingthing necessary to confirm every paying client could be a happy client.The best businesses within the world deliver the worth they’ve secure in an exceedingly approach that exceeds the customer’s expectations"

Value Stream (or Chain):All the steps and methodes from the beginning of the worth creation process to the worth delivery. It’s a mixture of the 2.

The most effective way to aware of it is to diagram it.

A Distribution channel describes the shape that your price is really delivered to the top user. two types: direct-to-user (or consumer) and mediator.

DTU operates across a single channel - Limited by your own capacity

Intermediary (like retail reselling) operates across multi-channels permitting bigger distribution scale.

Unnatural by counterparty risk - the danger that your partner can hurt your name.Meeting expectations is that the baseline of a cheerful client.

People read Quality = Performance - Expectations

Surpassing expectations is however you increase your worth to the client and acquire viewed as great.

Missing expectations is however you lose customers or get seen as having a low-quality product or service despite the merchandise or service in absolute terms.

"Predictability is that the central dogma of expectation and client retention".

3 Criteria of Predictability:

Uniformity - you deliver a similar factor

Consistency - you systematically deliver a similar factor

Reliability - you systematically deliver a similar factor while not error or delay

Throughput - A very important measurement. Basically, some measured unit / time.

• Dollar throughput: Time to make $1
• Unit throughput: Time to make 1 unit
• Satisfaction throughput: Time it takes to make a satisfied customer

Duplication - ability to dependably reproduce one thing of import. i.e. Factory

Multiplication - Duplication for a complete system or method. i.e. Franchise

Scale : refers to having the ability to duplicate or multiply in response to a rise in demand volume. Determines most potential volume.

"Products typically duplicate better. Shared resources typically multiply better. Humans don’t scale. As a result, service business aren’t very scalable"

Accumulation could be a business thought associated with improvement.Like Toyota Production System (TPS) that iterates on the philosophy of Kaizen - progressive improvement by removing waste from a system.

Amplification is that the thought changes to climbable systems manufacture giant results.

i.e. saving $0.01 isn’t trivial once you square measure saving it across a hundred million units.

Don’t specialise in your competition .Best way to beat your competition is to out-innovate them and to continually specialise in manufacturing exceptional merchandise that exceed shopper expectations. continually specialise in delivering additional worth instead.

Force multipliers relate to tools that multiply productivity/output. typically pricey. one in every of the sole capital expenditures that may be even. industrialDon’t specialise in your competitionplant instrumentality is associate degree example..

Systemization (KEY) - a method created express and repeatable. solely thanks to improve a system is to stipulate the system. Things got to be repeatable.

5.FINANCE:

“Finance is that the art and science of look the money flowing into and out of a business,then deciding the way to apportion it and determinant whether or not or not what you’re doing is manufacturing the results you would like."

"Accounting is that the method of guaranteeing the information you utilize to create monetary selections is as complete and correct as potential.”

Profit Margin: ((Revenue - cost) / Revenue) x100 = %PM

PM will never exceed 100%. Obviously, as a result of the formula is revenue over revenue.

Not an equivalent as Markup that represents however the worth of a suggestion compares to its total value.

Markup: ((Price - cost/ cost) x100 = % M , Higher the worth and lower the value, higher the markup.

Value Capture is that the method of holding some proportion of the worth provided in each dealing.i.e. I consult for a corporation that makes them an extra one hundred,000. no matter I charge them may be a proportion of worth|the worth} created that = value captured. this is often important info for rating and is very true for things that web high returns over time, sort of a force multiplier factor (i.e. factory).The more value you capture, the less attractive your offer is [to your prospective buyer]

2 Dominant philosophies: Maximization & Minimization

MAX: capture the maximum amount worth as doable - Tends to erode client perception

MIN: capture as very little worth as doable whereas the corporate remains comfortable- once one thing is viewed as a “good deal” that sometimes drives the unfold of business to different customers.

Sufficiency - Enough to form it worthwhile past breakeven for the business. Sufficiency is subjective.

“Profits square measure vital however they’re a method to associate end: making worth, paying expenses, compensating the those who run the business, and supporting yourself and your blue-eyed ones. greenbacks aren’t associate finish to themselves: cash may be a tool, and also the quality of that tool depends on what you plan to try and do with it.”

Track sufficiency using “Target monthly revenue” (TMR).

Valuation: An estimate of the complete performence of the of a company.

• Business revenue
• Profit margins
• Bank balance
• Future outlooks

These are all contribute to the total valuation of company.

Cash Flow Statement: A look at a company’s checking account (cash in & money out) and is often watching a selected period

Cash tends to move in 3 areas :

• Operations: selling offers and buying inputs
• Investing: collecting dividends and paying for capital expenditures (cap ex)
• Capital: Borrowing money and paying it back

Free cash flow :Amount of money a business collects from operations — (cash spent on capital instrumentality + assets necessary to stay the corporate operating).

The higher the better; an organization doesn’t got to keep outlay on cap ex so as to usher in revenue.

More cash = Higher resilience.

Income Statement: Additionally known as a P&L (profit and loss), operative or Earnings Statement. It contains AN estimate of the business’s Profit over an explicit amount of your time, once revenue is matched with connected expenses.

General format: Revenue - COGS - Expenses - Taxes = income

Income statements embrace several estimates and assumptions. massive expenses have to be compelled to be amortized, so do massive cash-flows.The incomes statement may be simply manipulated and introduce biases in expense matching.

Balance Sheet: A snapshot of what the enterprise owns and what the business owes at a moment in time. They always cite a specific date.

Formula: Assets - Liabilities = Stockholder Equity

• Assets Are the things the company owns that have value: products equipment, stock, etc.
• Liabilities  Are the obligations the firm hasn’t discharged: loans, financing, etc
• Owner’s equity = company “net worth”. which includes the value of the company’s stock, capital from investors, and retained earnings (profit not paid to shareholders).

Balancing always comes from rearranging the formula

Assets = Liabilities + Stockholder Equity. The balance sheet always balance

By examining the BS - you can determine if a company is solvent.There are also biases that can be introduced to the BS like the value of current inventory, stock price, or % of A/R that will be paid.

Financial Ratios

Profitability ratios: How good the company is at realizing profit

Return on Assets: NP / TA (Total Assets)

Leverage ratios: Tell you how the company uses debt

• Debt to Equity: TL (Total Liabilities) / SE

Liquidity ratios: the ability of a business to pay its debt

• Current ratio: CA / CL
• Quick ratio: CA - Inventory / CL

Efficiency ratios: How well a business is managing assets and liabilities. Commonly uses in inventory management.

• Avg number of days in inventory
• Days sales outstanding

4 ways to extend Revenue:

• Increase the amount of shoppers you serve
• Increase the typical size of every dealings by merchandising additional.
• Increase the frequency of transactions per client
• Raise costs

"Your ideal customer is someone who buys early, buys often, spends the most, spreads the word, and are willing to pay a premium for the value you provide".

If you'll be able to double your costs and lose but 1/2 your customers, it’s in all probability an honest move.

Pricing Power: Refers to the ability to raise costs over time, which is basically related to pricing elasticity.

Lifetime Value: Total worth of a customer’s business over the life of their relationship together with your business.By understanding the LTV of a break, you'll calculate the goop quantity of your time that you just ought to be willing to pay to accumulate a replacement prospect (AAC).

Allowable Acquisition Cost: How much you’re moderately allowed to pay to undertake to amass a replacement client supported their LTV. First sales is “loss leaders” - low introductory costs to determine a relationship with a vendee.

AAC Formula: average customer LTV - Value Stream Costs - (OH / Total Customer Base) x (1 - desired PM)

• Value Stream prices (what it takes to make and deliver the worth secure thereto client over your entire relationship with them)
• OH / Total client Base represents mounted prices required to pay to remain in business over that amount of your time
• OH represents minimum current resources for a business to continue operations

Costs:

Fixed: incurred regardless of what quantity worth you produce. Reductions in fastened prices accumulate.

Variable: directly associated with what quantity worth you produce. Reductions in VCosts area unit amplified.

Cost savings may lead to progressive degradation. i.e. chocolate blended such a lot it’s not even chocolate — it’s chocolate tasteful candy. Avoid decreasing returns (cost savings currently, loss of business later).

Amortization: Depends on an accurate assessment of helpful life, that may be a prediction. Doesn’t work well if you don’t sell what you turn out or if your instrumentality wears out faster than expected.

Purchasing Power: Includes,

• The aggregation of all quick assets at a business’s disposal.
• Includes money, credit, & out there finance.
• It’s what’s accustomed pay your overhead and suppliers.

Cash Flow Cycle: Describes however money flows during a business. created up of:

Receivables square measure guarantees of payment you’ve accepted from others

Debt may be a promise you create to pay somebody at a later date.

Estimating the value of cash may be a approach of creating selections within the face of chance prices. will assist you verify that call to form with cash given the alternatives. very true of investments. greenback here nowadays vs there today/tomorrow — what’s my best return)

Compounding : Is the accumulation of gains over time. Gains reinvested exponentially repose on the investment. (compounded).

Leverage: Is the follow of victimization borrowed cash to enlarge potential gains. [could conjointly enlarge potential losses].

Hierarchy of Funding

1. Personal cash
2. Personal credit
3. Personal loan
4. unsecured loan
5. secured loan (require collateral)
6. Angel Capital
7. Venture Capital
8. Bonds: Company pays investor Associate in Nursing approved rate for an explicit quantity of your time till bond maturity within which case the first loan (bond) quantity is repaid additionally to payments already created.
9. Receivables financing: a special variety of secured loaning. Credit is created accessible for collateral that is management over the business’s assets. This ensures loans square measure paid before something or anyone else.
10. Public Stock Offering: generally employed by angel and VCs to exchange possession for cash. IPO’s square measure merely the primary public stock giving.

Investors increase communication overhead (like bureaucracy). Things find yourself happening additional slowly.

Usually, the simplest thanks to begin a business is to bootstrap and move up the hierarchy of funding as acceptable.

Return on Investment (ROI) is that the worth created from Associate in Nursing investment of your time or resources (or both). Future ROI estimates square measure educated guesses solely.

Sunk prices square measure investments of your time, energy, and cash that can't be recuperated. All that matters is what quantity additional investment is needed vs the reward you expect to get.

Internal Controls: A set of SOPs a business uses to gather correct information, keep the business running swimmingly, and spot bother as quickly as doable.

Budgeting is that the act of estimating future prices and taking steps to confirm that these estimates aren’t exceeded while not smart reason.

Supervision necessary is vital is very important in business that depends on staff or outside companies for important components of its business method.Compliance is important for business in industries subject to gov rules.

Theft and Fraud hindrance is very important to guard against the chance of economic loss by an unscrupulous party.

Public Stock Offering: generally utilized by angel and VCs to exchange possession for cash. IPO’s square measure merely the primary public stock providing.

People typically enjoy learning about Value Creation, Marketing, Sales and Value Delivery – they’re easy to understand and visualize. But when it comes to finance their eyes glaze over. Finance is actually easy to understand if you focus on what’s important.