The Personal MBA by Josh Kaufman provides a detailed guide on business operations, identifying five critical processes that support any business: creating value, marketing, sales, delivering value, and managing finances. Kaufman also recommends strategies to optimize these processes for achieving success.
This guide covers Kaufman’s recommendations for managing the five business processes in four parts, with a focus on finance throughout:
- Part 1: Create valuable solutions
- Part 2: Attract attention
- Part 3: Drive sales
- Part 4: Deliver satisfaction
Part #1: Create Value That Satisfies Needs
Kaufman emphasizes that successful businesses must prioritize providing value in exchange for something.
In Part 1 of the guide, we’ll cover the five fundamental needs driving people’s desires, how they assess the value of products/services, and ways businesses can provide valuable solutions. Additionally, we’ll highlight the importance of researching the profitability of potential products/services before developing them.
People Want to Fulfill Their Basic Needs
Kaufman asserts that despite appearing to have diverse preferences, people buy products/services to fulfill five basic needs:
- To feel good about themselves by improving their well-being, appearance, status, and satisfying their sensory desires.
- To connect with others, romantically, platonically, and professionally, both online and offline.
- To learn and grow, academically/professionally, and pursue hobbies/interests.
- To feel safe by protecting themselves, loved ones, and possessions from potential threats.
- To avoid effort by eliminating tasks that consume too much time, energy, or require specialized knowledge/resources.
Schools of Thought on What Motivates Us to Want Things
Understanding the motivations and timing of consumer decisions is essential for psychologists and marketing specialists, although Kaufman’s needs discussion doesn’t cover how we prioritize them.
By combining Kaufman’s list with four theories, we can explain why we desire certain things and how we prioritize them. Alderfer’s ERG theory groups our basic needs into three categories: Existence, Relatedness, and Growth. Maslow’s Hierarchy of Needs categorizes our needs into five levels: Physiological, Safety, Love and Belonging, Esteem, and Self-Actualization.
Murray’s Psychogenic Needs
According to this theory, basic needs are divided into two categories: Primary needs, such as the need for food and water, are essential for our survival and biological demands. Secondary needs, which fall into five categories – ambition, materialism, power, affection, and information – are crucial for our psychological well-being.
According to this theory, there are three core needs that drive our desires: autonomy (the need for control), competence (the need for achievement), and relatedness (the need for meaningful relationships).
How People Judge the Value of Products and Services
Kaufman states that people’s needs vary based on their circumstances, and they only show interest in offers that address their discomfort. For instance, a recently divorced person may be more receptive to romantic connection services than a happily married person.
When assessing the value of an offer, people consider both objective factors like reliability and cost-effectiveness and subjective factors like how it makes them feel and how it affects their image.
Businesses Align Offers With What People Want
Kaufman suggests eight ways for businesses to meet the five basic needs that drive purchasing decisions: create or buy products, offer services for a fee, create an asset and charge for access, supply products and services through subscriptions, rent out physical property, provide brokerage services for a commission, create and monetize attention, and lend money or offer insurance.
How You Sell Depends on What You’re Selling and Who You’re Selling To
Osterwalder and Pigneur’s (Business Model Generation) provide five different markets that business ideas fit into, each requiring a specific marketing and sales approach. These markets are not fixed, and it depends on the nature of the product or service and the target audience. Once you have determined the best approach for your business, consider which market suits your offer the best. The five markets are as follows:
- Mass Market: Selling to a large customer base with similar needs.
- Niche Market: Selling to a small customer base with unique requirements.
- Subdivided Market: Offering slightly different products and services to meet different customer needs.
- Diversified Market: Offering distinctly different products and services to unrelated customer groups.
- Multi-Sided Market: Serving interdependent customer groups, with an approach that appeals equally to both parties.
Evaluate Potential Products and Services Before Investing in Them
Kaufman advises businesses to test the viability of products and services before investing in them. To do this, ask yourself five questions:
Question #1: How Much Will It Take to Get It Out There?
Assess the time and financial commitment needed for developing, marketing, and distributing your product or service. Determine required resources and anticipate fixed and variable costs, including research and development, rent, salaries, supplies, and utilities.
Question #2: How Will You Finance It?
Consider the need for funding and the associated risks. If you plan to borrow money or seek investors, weigh the advantages and disadvantages carefully.
Loans are easy to apply for, have tax-deductible interest payments, and improve your credit score with repayments. However, they require personal assets as collateral, have to be repaid with interest even if your business fails, and can result in higher interest rates with multiple loans.
Question #3: How Much Demand Is There?
To determine market demand for your product or service, try these strategies:
- Analyze how many people are searching for similar products using SEO tools.
- Refer to public reviews and social listening tools to understand how people value existing products.
- Research competitors’ pricing for similar offers.
- Also, keep in mind that demand can fluctuate based on availability, seasonal trends, and economic/natural events.
Question #4: How Much Competition Is There?
Assess your product’s competition and strive to differentiate your offer to stand out from others and win customer loyalty in a crowded market.
How to Analyze the Competition
Experts advise entrepreneurs to identify their competitors’ strengths and weaknesses in four ways:
- Attend professional conferences and trade shows to observe competitors’ offerings and customer interactions.
- Analyze competitors’ website and SEO strategies using online tools to examine keywords, site traffic, and ranking.
- Examine competitors’ social media presence to learn about their platforms, content, followers, and customer responsiveness.
- Sign up for competitors’ newsletters to gain insights into their email marketing strategies.
Use this information to improve your product or service until it matches or exceeds what’s currently available. For instance, if you discover that your competitors are slow to respond to customer concerns on social media, develop a plan to enhance your social media strategy and provide better customer service.
Question #5: How Much Potential Is There to Expand Your Offer?
Think about how you can expand your offer to increase future sales and profits. Can you modify your offer or offer complementary products to meet additional needs?
Overestimate the Risks of Proceeding With Your Idea
Kaufman advises that when you’re passionate about your product or service, it’s easy to overlook potential obstacles and underestimate risks. To avoid this, intentionally seek out reasons why your idea may not work to make more accurate plans and increase your chances of success.
Part #2: Entice Attention
The second step in a business’s journey is to attract potential customers by tailoring its marketing approach. It’s crucial to appeal to people who’ve already shown interest in the offer. This section of the guide will cover how to make your offer more appealing.
Identify People Who Might Be Interested in Your Offer
Kaufman suggests that people are busy and make quick decisions about what’s worth their time. To get noticed, successful businesses target those who’ve expressed an interest in similar offers and focus on converting them into paying customers. It’s a waste of resources to advertise to those who have no interest in what they offer. For instance, promoting a vegan recipe book to someone who bought a book on offal won’t work, but promoting it to someone who bought a raw food recipe book would.
Persuade Them to Want What You’re Offering
To make your offer attractive to potential customers, Kaufman suggests four tips.
- Keep your message concise and to the point.
- Identify when your target audience is most receptive to your content.
- Demonstrate the benefits of your offer to evoke positive emotions and a fear of missing out.
- Use endorsements from respected individuals to establish trust.
Part #3: Encourage Transactions
The third important process for businesses is to secure sales and make a profit. In this section, we’ll cover tactics used to encourage sales and strategies for determining prices.
Customers Feel No Sense of Urgency to Hand Over Their Money
To ensure successful transactions, businesses need to act fast once they have potential customers’ attention.
However, customers tend to take their time in making a purchase decision, which is why businesses should use limitations and money-back guarantees to encourage them. Limitations, such as limited availability or an expiration date for discounts, create a sense of urgency, while money-back guarantees build trust and alleviate doubts.
How to Price Your Offer
To balance fair pricing with profit, Kaufman recommends four strategies:
- Manufacturing cost + profit: Calculate the cost of production and add desired profit per sale.
- Comparative pricing: Set prices based on the average of similar offers. Lower prices attract more customers, but higher prices signal superiority.
- Long-term value: If selling an asset that generates ongoing income, set the price based on its projected earnings over time.
- Subjective value: Determine how much your offer is worth to specific customers based on their needs and set prices accordingly.
How to Increase Profits Without Raising Your Prices
To boost sales revenue, businesses often resort to raising prices. However, there are three other ways to achieve this, as suggested by Kaufman:
- Increase the number of customers making a single purchase.
- Encourage customers to spend more by purchasing additional products or services.
- Encourage existing customers to make more frequent purchases.
Part #4: Fulfill Expectations
Businesses need to prioritize customer satisfaction to ensure success. This involves optimizing resources and procedures to meet customer needs.
Satisfied Customers Are the Key to Long-Term Success
Kaufman believes that satisfying customer expectations after a sale is as important as attracting new customers for business success. Satisfied customers provide long-term revenue and positive reviews, while disappointed customers lead to lost revenue, negative reviews, and damage to reputation. This repels potential customers and requires additional expenses to repair the damage, hindering business success.
Optimize Systems and Procedures to Ensure Satisfaction
Kaufman advises businesses to prioritize efficient and reliable operations for customer satisfaction and success. To achieve this, businesses must understand all tasks involved in their product or service and make incremental improvements through streamlining, cost-cutting, and resource improvement.
Prioritize Improvements That Will Make the Most Impact
Kaufman advises prioritizing impactful improvements for efficient and profitable business operations. Consider the impact and possible consequences of changes on your operations before proceeding. Separating your list of improvements into priority and non-priority items can help you allocate resources effectively.