Modern Wisdom - #215 - Josh Kaufman - The Key Principles Of Running Any Business

Episode Date: August 31, 2020

Josh Kaufman is a skill acquisition expert and an author. The Personal MBA is one of the best selling business books from the last 10 years and today we revisit the key lessons Josh has uncovered through his research and experience. Expect to learn why you don't need to go to business school, the 5 things every business needs to be able to do, how your personal development can limit your business development and much more... Sponsor: Get Surfshark VPN at https://surfshark.deals/MODERNWISDOM (Enter promo code MODERNWISDOM for 85% off and 3 Months Free) Extra Stuff: Buy The Personal MBA - https://amzn.to/2D7LXGd  Follow Josh on Twitter - https://twitter.com/joshkaufman  Get my free Ultimate Life Hacks List to 10x your daily productivity → https://chriswillx.com/lifehacks/ To support me on Patreon (thank you): https://www.patreon.com/modernwisdom - Get in touch. Join the discussion with me and other like minded listeners in the episode comments on the MW YouTube Channel or message me... Instagram: https://www.instagram.com/chriswillx Twitter: https://www.twitter.com/chriswillx YouTube: https://www.youtube.com/ModernWisdomPodcast Email: https://www.chriswillx.com/contact  Learn more about your ad choices. Visit megaphone.fm/adchoices

Well, hello friends. It is a very welcome return to podcasting for me. After a small hiatus to recover from my Achilles surgery, I am fully operational. And the next month of podcasts is probably the modest that we've ever had in nearly three years of running the show. Today we are starting with the author of one of the best selling business books of the last 10 years. Josh Kaufman's The Personal MBA has a 10th tenure anniversary edition where he's read on everything

and today we get to go through all of his best principles for how to operate a business. I did five years and got two business degrees and spent 30 to 40 grand and Josh told me that I just didn't need to do it at all. So perhaps this will save you half a decade of your life and 40 grand. And if it does feel free to pay me some of the money, but there's so much cool stuff today. Josh's insight into business is really reflected

in my personal experience, which is usually a great suggestion, great idea that he knows what he's talking about in other news. In fact, before we get into another news, I just wanted to say thank you to everyone that reached out to me while I was laid up and kind of feeling sorry for myself over the last few weeks.

Very much miss this outlet. The reason that I think my recovery has been so quick since my operation, which was only two weeks ago from when I'm recording this, a big part of that is that I want to get back to doing podcasts. I've created quite a heavy schedule for September to distract me from kind of everything being a little bit slower and more difficult and stuff like that. And you as a listener are a big part of that. You are a huge part of the motivating reasons that I have to get out of bed in the morning

and to ensure that I'm still reading and developing and trying to create the best show that I have to get out of bed in the morning and to ensure that I'm still reading and developing and trying to create the best show that I can. And I genuinely believe that by the end of this year we're going to see just how good modern wisdom can be. And I'm really glad that you're along for the ride. So thank you. But for now, it's time for the wise and wonderful Josh Kaufman. I need to put a disclaimer out before we get started. Usually the camera is not right up to my face. If you're watching on YouTube, you will be able to see this.

This is the first horizontal cast that I've done since my Achilles repair recovery. So my foot is currently all the way over there in the air. And I'm back here, but we're making it work. We're anti-fragile. And today we are celebrating the 10 year anniversary of the personal MBA. Man, how does that feel? It feels great. It feels surreal. Like I remember writing the first draft of the book and it doesn't feel like 10 years ago. But it's been really gratifying to see how much people all over the world have enjoyed it and found it useful.

It's always an interesting experience going back and editing things that you wrote 10 years ago. The past year and a half, two years that I've been working on this project has been very interesting from a personal time capsule standpoint. My writing has changed my thoughts about a lot of things have changed. So it was great to be able to revisit this particular work and really update it for 2020 and beyond. Have you, when you go back through things, have you found that much about your thinking has

has changed have you got a sort of curling your toes a couple of little bits here and then you think oh my god why did Josh 10 years ago think that. The thinking overall I'm happy to say is still really solid. I used a lot of adverbs 10 years ago, and I don't why. I will have to go back into my Word document and figure out how many adverbs I deleted, and it is in the probably mid-thousands. So just like, I think as a beginning, right, this is something that I think

beginning writers do a lot. You want to emphasize the things that you're emphasizing in your head as you write. And the way to add that emphasis is adverbs or italics or exclamation points getting really excited. And so for me, it was like being able to take a step back and say, okay, you can get this point across far more effectively

by being clear and simple and concise in your language and let the construction of the sentences do the work instead of trying to underline and bullet point everything in the manuscript. I think that's a really good principle, Manna. I think part of it's probably to do with maybe confidence of getting a little bit older, you know, like having the belief and the hope that the audience is there for what you're writing as opposed to needing to give it the bells and whistles and then bellish it. And I think as well as part of getting older, you just realize people have, you know, you have a finite number of books that you can read, even if you're like 16, you have a finite number of books that you read, and as you get older, you need to be more and more selective. So

therefore, if you can get the point across in fewer words, then I think you've definitely done a good second pass there. So my main question upon reading the intro to the personal MBA, you will have some strong thoughts about business school and business degrees in general. Did I need to spend five years at university and get two degrees to be able to run my business? Probably not. No. I think there are many things to be said about universities and degrees in general. universities and degrees in general. I think the fairest universal thing to say is that the vast majority of people in the world can benefit by learning a lot more about business.

And in order to do that, you don't necessarily have to quit your job, go back to school, borrow a bunch of money, spend a lot of time. The essentials of business are very clear and very straightforward and relatively few in the grand scheme of things. And so spending some dedicated time learning what those fundamental principles are, how they work, why they're important, that's a great use of time for pretty much everybody. The set of people who are well-served by existing business schools is relatively small. And I think if your primary goal is to start a business, work independently, be in control

of your destiny, you're far better by starting your business on your own and skipping the debt part and investing all of that into the actual business, then going to school and having both the time investment but then also the financial investment, having to recover that over the course of your career, ends up being a pretty big weight for a lot of people. Yeah, well, I mean, my business partner sat next to each other in our first-ever seminar. So I started operating my business from essentially the exact same time. It was like the start of his was fired on university

and on becoming an entrepreneur on the same day. And, man, I did a three-year bachelor degree with one year in industry and then a master's in international marketing. And just all I saw was this massive bifurcation between what I was learning in class and what I was experiencing in practice and the particular industry that I went into go saw me give me a broad cross section HR marketing accounting B2B B2B, B2C, like, because everything, everything. And I was like, I am sick. What do I need to know?

Henry Ford's scientific model of management for, like, why do I need to understand about Kaizen and Lezé Fair, like, autocratic management styles and stuff like this? It felt so archaic. And maybe it's been updated a little bit, like there wasn't even a module on social media when I was there. So it might have caught updated a little bit, like there wasn't even a module on social media when I was there.

So it might have caught up a little bit, but something tells me that it hasn't. So what do you learn? Typical formal MBA, what do you learn? So a lot of the formal MBA is about, MBAs make some assumptions about what you're going to do when you get out, right? You're going to be the CEO of a retail

or manufacturing operation. You're going to go into corporate finance or you might go on to be a CFA or a CPA in certain circumstances. Or now it's hedge fund manager is the big kind of newer entry since I went through, which doesn't capture what a lot of business people hope for their careers right now. There's much more to focus on entrepreneurship and independence starting your own thing,

running your business on your own terms. That some of the classic things that are taught in business school, like for example, Michael Porter's Five Forces. Very useful from a corporate large Fortune 50 corporate strategy standpoint. If you're starting a new business from scratch, you don't have to think very much about Porter's Five Forces. There are 5,000 other things that to think very much about Porter's 5 forces. There are 5,000 other things that will be more useful for you to start with.

I don't know about you, but the thing that struck me, because I did a business undergrad as well, it was a five-year program that had an extended internship component, which I thought was the most useful part of the whole thing. Operating an industry teaches you a lot. But the thing that struck me on the academic side of things was that there was never an attempt to define what businesses are or how they work in like the grand when we say we're doing business, what is it exactly that we're trying to do here? Having some organizing theory around what this is, how it works, why it's important, how to do it better, it would be very useful. Business academia is still extremely siloed. So the finance

professors teach the finance stuff, the operations folks, teach the operation stuff, and there's very little attempt to try to bring that all together into a cohesive understanding of what it is we're trying to do here, and what does it look like when we're doing it well. Man, I felt that very, very harshly that the synthesizing of all of these different points of view were just totally, totally, totally absent. What are the fundamental principles that underpen being an effective business operator? Yeah, this is funny. I'm kind of flabbergasted that I'm the person who wrote this book.

Because when I started the project, I was looking for a book like this that was probably written by a business school professor 50 or 60 years ago. And as far as I could tell, it just didn't exist. So the whole genesis of the project is like, well, this is important. It doesn't exist yet. So let's, here we go. Let's make one. So the way that I organize business knowledge

is around a framework called the five parts of every business. And it's really an attempt to define exactly what businesses are and what businesses do regardless of industry, market, organization, size, regardless. Every business has five parts and only five parts. Every business creates something of value.

They attract the attention of people who might be interested in that thing, which is marketing. They sell that offer to people who want to buy it, which is sales. They deliver what they've promised to their buy it, which is sales, they deliver what they've promised to their paying customers, which is value delivery, and then there's finance. You look at all the money flowing out, you look at all the money flowing in, and you answer two very

important questions. A is more money flowing and then flowing out, if not, you have a problem. And B is it enough? Is it enough to make all of this time an effort and stress and frustration worth it? And that's really it. Like every business from the largest Fortune 500 to the smallest, like just getting started in your garage workshop kind of venture, every single business operates in that flow with the same set of problems, with the same set of questions, with the same set of criteria on, is this working or not? The scale might be very different, but the fundamentals are exactly the same.

So to me, that's where you start. Business is this, the set of five things that you must do, if one of them is missing, it's not a business. It's a hobby or a nonprofit or a flop or a scam or a bust. Like that's, you can't get rid of any of them. And so using that as the fundamental organizing principle behind, this is what we're doing when we're doing business You you get all sorts of wonderfulness out of that. So first of all for each of those concepts or for each of those stages of the business there are really only 30 on average concepts

that are really important to understand in each of those areas. And so it's very straightforward to say, okay, I'm trying to attract attention and gather interest in what it is that I've made. How do I go about doing that? And so understanding the fundamental principles of attention and demonstration. And all of the things that allow businesses to attract attention and make people interested, understanding that small handful lets you do that job way better than you would be able to do if you didn't understand those things.

So the whole organizing concept of the personal MBA is okay. Here's what we're doing. Here's the small set of things that you need to understand to do that well. And then by understanding those, you can be in a practical business situation or have a practical problem. Say, this reminds me of something that I learned and you pull the concept and use it in the situation in which it's designed to be used. I love the beautiful simplicity, man, and having the feedback from the real world, you know, having stuff that is emergent bottom up rather than kind of dictatorial top down just seems. We're not, if you were a business, when you are not here to armchair philosophies about what is the best way to run a business?

Like that ugly business businesses out there, people that do like, sewage removal and like, you know, like, create nuts and bolts and stuff like that. They just need to know what works. So, if it's as simple as you've made out there, why do people overcomplicate business so much? Or why do they overestimate how complex business is perhaps would be better question? I think there are a couple of different reasons.

I think a charitable way of putting it is there are a lot of people who operate in business, who want to be seen as smart and sophisticated insiders. And so they tend to use large fancy words and explain things with the great deal more complexity than they actually require. Here's a good example from the book. In marketing, I talk about branding, which is a word that's thrown around way too much. And people will wax philosophical for years if you let them about the value of branding, the importance of branding, what makes a good brand, all of that stuff.

If you reduce that very complex can to an outsider seem like this impenetrable thing that experts know how to do and people who don't have experience don't know how to do. If you reduce that to reputation and you do things that will likely result in you increasing or earning a good reputation and you stop doing things that will probably decrease that reputation, you are 98% of the way there to branding, the rest of it is graphic design.

So it's just like, I think there's this tendency with people like, they just want to seem smart and special. And I think all of us as business people, you know, whether we're on the corporate side or whether we're starting that's really, that's a hallmark of sophistication and intelligence when you can look at a situation and find the simplicity in it and ignore all of the things that are mostly distractions and don't add a lot of value. I think sadly business is not the only industry which is cursed with this particular preclivity of people, right? It is the mark of a charlatan to explain a simple thing in a complex way. It is the mark of a genius to explain a complex thing in a simple way.

And it's pervasive across absolutely everything. You know, it's got me thinking there were you were talking, I can't remember, Tyron Woodley come to me. UFC champion X UFC, I want to say middleweight champion. And he had this philosophy about his fighting, which was if you win, nothing else matters. Like his argument is that if you are successful at the end result of the thing that you are supposed to do, everything that came before doesn't mean shit. He wasn't big in a sort of smack talking

and he kind of, he's all right with the press but he just sort of cracks on. And maybe his fighting style isn't like the most exciting but he was, he just dominated people. And it's the same with this. Like it doesn't need the bells and the whistles and you're adding friction into your own system which is giving all of

your competitors an advantage. You don't decide to do that by using the crazy terms or by having 20 meetings a month about the graphic design and the branding and stuff like that. Here's a story for you, man. So Bruce Duckworth, the co-founder of Turner Duckworth, the graphic design company, they were the people that made the Amazon's Smile logo. Oh nice. So late 1990s, Amazon's just breaking out of selling books, they're starting to do all other stuff, and then they go to Bruce and his partners, and he sat down with Jeff Bezos, who at the time, he's not a richest man on the planet, but he's still pretty big time. Anyway, they put across to him the eight to Z, the smile with the little arrow and

there's like load of clever stuff going on when you actually, I didn't realize it was eight to Z that arrow goes from eight to Z and that were the bits and pieces. And Jeff sat down and he says, I love it. Bruce, brilliant, fantastic. And he's got his, Jeff's got his cronies with him. And they say, right, brilliant, should we start? We'll start split testing, we'll focus group it. And Jeff's like, no, no, no, no, no, no, we don't need to do that, like it's fine. And I'm like, ah, Jeff, it's, we're a quite a big company.

This is a, this is a large decision for you to make off the back of a whim. Like we really, and they sort of push back against him. And Jeff turned around apparently in the meeting and said, anyone who doesn't like that logo doesn't like puppies. And that was it. Yeah. That's the level of non-bullshittery that you want to get your business to. Yeah. And when you think about it, another corporate branding graphic design sort of thing, FedEx is very famous for the arrow that's in the shape, which is cool if you notice it. But if you had to gauge on a scale of 0 to 100, is the success of FedEx because they have a little hidden arrow in their logo

or because they can get a package from point A to point B overnight, wherever it is in the world, what do you choose? Like they could just spell their name and it would be fine. So yeah, there's an enormous amount of value and power in being able to look at a business or a business situation and identify very quickly what are the things that are going to be most important? What is going to determine success or failure in this instance?

And what are all the things that you can just afford to ignore or not pay attention to? How much of success in business is that elimination? Quite a bit. And I would say that in conjunction with something else that's really important, which is experimentation. So you see businesses that tend to succeed over a long period of time,

have a process of continually trying new things, gathering data about what works and what doesn't, and they keep doing the things that work and they stop doing the things that don't. So I think Amazon is a great example of this in terms of the large company culture, and smaller businesses do this all the time. If you are responsible for putting food on your table and you are doing a bunch of things that aren't attracting attention or closing sales

to get revenue in the bank account so you can pay your own paycheck, that's a problem. And so you see particularly early stage businesses that do really well, they avoid making dumb mistakes. So betting the farm on something that is, in reality, an experiment, but they just don't have good data yet. And so avoiding mistakes or decisions,

betting everything on something that's not tested, but you also see them testing a lot of different things and then gathering data about what works and what doesn't, and then shifting resources towards the things that do indeed work. I suppose that's a massive advantage. We often hear about this economies of scale, you know, the increased friction in having to communicate between 45 different area managers and flights and you know all the endless emails but that's a perfect example of real economy of scale the fact that you just have so many resources Endless computer space, you know like bottomless pits of money that you can continue. Just everyone wants to work for you because your ability to talent recruit is super high.

So yeah, I think it's nice to see the diseconomies of scale kind of being battled back. I got, I was quite fatalistic about scaling up businesses for a little while and then thankfully companies like Google and Facebook and Amazon that have a flexible approach to a large size business, I think, have really, really changed that. So in your experience, what are the most common errors that you see people making

by the new businessmen or established ones? Okay, one of them is related to what you just said, which is a concept in the book, in the people section. So the book is structured three primary parts, business, people, and systems. And so when you think about it, businesses are created by people to serve other people for the benefit of people.

So understanding human psychology and how people work, that's a really important thing to know. And so in the working with people chapter, there's a concept called communication overhead. And you can think of it in terms of for every person that you need to communicate with on a day-to-day basis to do your job. The larger that group becomes, the higher and higher and higher percentage of your time and energy is spent communicating, sharing information among the group of people

that you're working with, not necessarily working on value creation marketing sales, value delivery, and finance. And so that's a very real cost. I don't know if you've ever worked in a large corporate environment. I worked for a Fortune 50 company, huge CPG company, global proctor and gamble for seven years.

And a good dramatic example of this is that I was responsible for measuring the effectiveness of online advertising for PNG's brands online with all the advertising that they were doing on the internet. It was new. So, I was trying to figure out, all right, we're spending $X million of a year in banner advertisements on the homepage of MSN.com. Does that work? And in that role, I was responsible for talking with probably 30 or 40 people who had a

stake in what this looked like when it was done. And when the project was done, I went back and looked at my schedule. I spent three solid months just talking to people trying to get them on the same page to create a proposal of what this might look like after we do a pilot run. And so there's a certain amount of like, yeah, in a big company, you have all of these resources, you have potentially millions of dollars, you have very smart people to work with, and yet, when the group becomes so big, people spend most of their time communicating with each other

and not necessarily pushing the work forward in a way that actually creates value. One of the advantages that small companies have and one of the reasons that I chose to leave the corporate world and do my own thing is your communication overhead goes way, way down. If it's just you or a team of two or three, the research says that up to about eight in terms of a team who is that is dedicated to do a specific thing is ideal because every additional team member adds capacity, but the group never becomes so large that you're spending more time and energy on communication and coordination

versus actually doing the work the team is ostensibly responsible for completing. Does that make sense? That's the business equivalent of Dunbar's number. Absolutely. So, yeah, can you get them around a normal sized office table if you can't, you know, like those rough, the rough like diet guides, it's like, well, you should be looking to eat around about a handful. It's like, you don't need to measure it.

It's like, just get a business table. If everyone can sit around it, great. If they can't, maybe a bit big. Yeah. I, we've brought up Amazon a couple times in our discussion. I think their internal way of describing this concept, if I'm getting it right, is two pizza teams. Like, if you need to order two pizzas to have a late night business meeting, if you get beyond that threshold, you're too big, you need to split this team

into different groups. I love it. It's a nice way of visualizing the same thing. Yeah, I love it. So, okay, what are the common errors? So, we've got this kind of, I guess, the dis-economy of scale, or just generally in efficiency in terms of friction, excessive meetings, too much back and forth. What else? What are some of the common errors? So I would say not enough experimentation, which we've talked about previously. There's an example. One of the new concepts

in the 10th anniversary edition of the book is called Exploration and Exploitation. And so this comes from a famous study in decision theory and computer science, which is I would have to preface this. I do not condone gambling in any way, shape, or form. But this is the example that they use in the research literature. So this is the example that I'll use.

Imagine you walk into a casino and there's a row of slot machines in front of you. You don't have to pay money to play. The only cost that you pay is your time. So you go up, there's this row of machines and your job, one of those machines pays out way more than the others do, but you have no idea which one. So the research question is, what is the process that you use to figure out that best option in the world of all of the options that you could take. The insight is fascinating. So when you start with no information, the first strategy is pretty clear. You just play machines at random and you collect some data from the world about what's giving you a good result and what's giving you a less good result.

And then over time, you shift more and more in the direction of doing the thing that you know gives you a good result consistently. So as a percentage of your time, your highest option becomes more and more and more of your total decisions made, or time and energy invested. But, and this is a critical part, the optimal strategy is never to choose what you think is the best option and do that 100% of the time. The best option is to always devote a certain percentage of your time to experimenting and gathering information. Because there's a very real possibility that you get into what's usually called in statistics or analysis, a local maxima, right?

By a fluke of statistics, one option looks like it's the best, but it's not the best in the grand scheme of all of the options you have at your disposal. So always dedicating a certain amount of your time to exploration, to trying new things, gathering new data, seeing what works is absolutely critical. It's critical if you are a massive company who is very comfortable selling the products that you've always sold, it's critical if you're just starting something new and you're not sure of all the things that you could offer to customers, which would have the highest uptake or have the highest profitability. I think most people don't think about experimentation enough as both a learning strategy, but also a how to maintain your competitive edge over a long period of time strategy. It's the same fundamental process, and it gets you both of those

rewards, so that makes it really important. That's the interesting thing there from a game theoretical perspective is it's not just you playing the slot machines. There's actually a bunch of competitors who are all in maybe not playing your slot machines, but they've got like the floor above and the floor below. And all of the slot machines are all linked in together somehow and they might stumble across the slot machine, which actually pays out jackpot. and they might stumble across the slot machine, which actually pays out jackpot. It's like you're writing my book like on this conversation. There's another concept in the book

called the Hidden Benefits of Competition, which is exactly that. Most people view competition as a bad thing. And this is particularly a beginning entrepreneurs classic mistake of, you have this brilliant idea for a business that's going to be awesome. And then you go to Google and you type it in. You're like, oh man, someone's doing this already. I can't do it now. This is terrible.

So having competition is a wonderful thing from multiple perspectives. The first is that in the Explore Exploit framework, it's like you get to watch other people play this game and you get to notice what does well and what doesn't without spending your own time and energy and resources playing the game. It's a much faster way of collecting information from observing the world around you and gathering knowledge and data from that.

The other thing, which is really important particularly for beginning entrepreneurs to understand, if people aren't interested in spending money on what you have to offer, there is absolutely no possible way that your business will work. This is an idea called the Iron Law of the Market. If there is not a market of people who are willing to pull out their wallet checkbook or credit card and say, yes, please, I'll take one. You're screwed. There's nothing you can do. The nice thing about having competition is it is a 100% guarantee that you're on the

right side of the iron lot of the market. You know people are spending money. You're watching them do it. If you're looking at all of these different options and you have a choice between an offer where there is a clear established group of people who are spending money or a completely green field that you think is new to the world. Bet on the one where people are spending money, that's probably a higher percentage bet for you.

I think the cliche quote is, idea is the constant execution as the multiplier. And there's that, that pita teal quote, which is any idiot can learn by experience. I prefer to learn by the experience of others. Yes, absolutely. Yeah, I think the multiplier thing came from Derek Sivers, right? It's like, yeah, an awesome idea with yogurt or non-existent execution is maybe worth $10. But an awesome idea with awesome execution with an awesome market can be worth billions. So yeah, it really helped this is where particularly for people who are new to business, it helps

to have a solid understanding of what it is you're trying to do and how it works. Because the number of people who will start a business without thinking once about the market or doing any sort of market research is astounding. The number of people who will put together an offer and not do math about if this offer is financially sustainable, is huge. And so just having the term of art for this sort of thing is a mental model, a mental representation of what a business is, what its parts are, how it works, how they interact with people. In the same way that people have a mental model of how it is you drive a car, and what's

supposed to happen when you step on the gas pedal, and what's not supposed to happen when you step on the brake, you get a sense very quickly of something unexpected happens. This is bad for me. I should do something right away. We're just trying to do the same thing for business. Understand what it is, understand what you should be seeing or noticing about what it is you're trying to do, and that allows you to make very quick and very accurate, valuable decisions in the moment about what you should either start doing or stop doing.

Here's something that me and every friend I know that is an entrepreneur, young entrepreneur has come up against, I want to hear your thoughts on this, whether your experience has been similar. We had for the first five to 10 years of running our business, an absolutely irrational fear of raising the price. I was terrified of raising the price. So I would say as another little heuristic people to watch out that as

new to business, you can probably raise the price more frequently than you think, especially if you've got demand. Yeah, I'm curious to hear from your perspective looking back on it, why your price was low in the first place and what caused you to raise it. What was that experience for you? I run club nights and we had a particular discounted entry before 11 o'clock on our Saturday and we were rammed beyond belief. Like so crazy busy, we totally cornered the market. But me and my business partner felt that our success was on such a knife edge, it's

a particular quirk of our industry that it is very fickle, very fast moving. It occurs on a weekly cadence as well, so you've got like week after week after week, which is kind of performance, and you're always obsessing over this week versus last week numbers, revenue, top line, bottom line stuff like that, very unique sort of industry to be in. And we had this stupidly low price, but that was what we thought had got us success. And I remember, we were talking about putting it up from £2.50 to £3.00 to get into the biggest best club night in the city. And I remember the night before sleepless

night because I was adamant that that was going to be the beginning of the avalanche that would snowball to topple the company. Like that 50 pens man, that 50 pens, we're going to do it. And I'm like absolutely crappin' my pants, whereas now me and my business partner having sort of swallowed the very, very large red pill we needed to understand that, we're more than happy when we see the demand, like basic economics, what do you do

when demand outstrips supply? Like the fundamentals, and yeah, I've got two co-hosts on the show, Johnny and Yusuf, that all of the listeners will be familiar with. And they were doing diet and training plans, personalized diet and training plans, for like 35 pounds, and it would take them hours, hours and hours and hours, and they were terrified, and I'd gone through this situation,

and I was saying, boys, that, that plans worth like 100 or 200 pounds, and they had to swallow the fear as well. gone through this situation and I was saying boys, that plans worth like a hundred or two hundred pounds. And they had to swallow the fear as well. Is this something you see elsewhere? It's just a quirk of the north of England. Abs, no. This is an absolute universal thing. Every entrepreneur experiences it. And a lot of it, a lot of the time it comes from feelings of insecurity, right? You don't know if people are gonna like what you're offering. Rejection feels really big and scary, and most of us given the option

would prefer to avoid it. And so we think that the best way to get people to like what we're offering and take us up on the deal is to make sure that the price is so low that it would be objectionable to no one. And so the rule of thumb, I've done consulting and advising for many years, and the rule of thumb for beginning entrepreneurs is take the price that feels like

the gut, obvious, this is where I should start, triple it and you're almost in the ballpark. No way. Of where you should start. Yeah. And it's taken me in some instances a lot of persistence and persuasion to get people to test it. I'm curious in your experience, did you see or what happens to demand when you raise your pride? So mine went up.

Yeah, why do you think that is? This is a really important thing to understand. So I could argue that maybe people use prices and indicate with quality that there's a little bit of price signaling going on. There was some other externalities that were happening. Like we just had the market and we were doing well. Us having more money allowed us to reinvest more money, which made the product better, which meant that we were more competitive. We could spend more money on marketing.

It also meant that we didn't obsess so much over time on the accounts, which meant that we spent less time on the backend and more time on the front end, driving revenue, driving doing things that drove revenue rather than obsessing over how much we had. It's just raising the price is such a wonderful feeling because it's the thing that you were doing yesterday, but more money for you. Right. Right. Nothing else changes. Or it's just free money. Right, nothing else changes. Or, can you say, what changes? It is a good thing because you're right.

You can reinvest in marketing. You can have a better quality value delivery process. You're stressed less, so you don't have to count your pennies and you can invest that time in energy and making the offer better. One of the things that I expanded quite a bit in the new edition of the book, is what you mentioned first was the status issue. Social status is a huge ingrained part of the human brain over millions of years of development.

And understanding social status dynamics, particularly social status dynamics with respect to price, opens up a lot of opportunities that aren't necessarily intuitive before you learn that relationship. So, tangible example, a Rolex does not tell time better than a time X. It actually tells time worse. It's not as good at the thing that a watch is supposed to do, but that's not the point. The point is it is expensive, it is visible,

it is exclusive, it sends a signal to other people about intangible or what would otherwise be intangible qualities of the person who is wearing the watch. That's the value and that's the reason why people are willing to spend frankly way too much money on on something that in the grand scheme of things is not super important, it's because of that social signaling component. And so in the economics literature, this is called a Veblin. Good, Veblin was an economist.

And Veblin goods, you know, bringing up supply and demand earlier, Veblin goods are the exception to that very familiar pricing curve because for status signaling goods, demand goes up when price goes up. Which is just, that's the industry you want to be in, man. That's super weird. That's the yacht. That's the yacht and the retire at 35 industry. That's where we want to be.

Yeah, it's, that will have been turned up to 11 as well, given social media, we're all self-branders, the, uh, transparency of what we do with our money and how we spend our lives is now in itself a shop window for other people to watch. Yes. Yes. And you, you get the performative aspects of social media specifically because of social status. It's it's not Let me inform people of an accurate representation of what my day looks like It's how do I construct and broadcast an image that makes me look good in front of other people that I care about and It's a it's a very very different of thinking, which is beneficial in two ways. The first is that from a business perspective, if you think explicitly about social status,

status signals, quality signals, all of those things, their legitimate ways to make your offer better and more attractive to more people. You can improve and offer a great deal just by thinking a little bit about when people buy this or when people use this, how does it influence how they are perceived by the people around them that they care about? The other thing is for you, as a decision maker, both as an individual and as a business person. You can get so much mileage about thinking about status considerations from the other angle just for a second of like, am I buying this because it's going to be effective?

Or am I buying this because I really want to look good? Classic entrepreneur example, waste of time at the beginning, stressing about logos and business cards. Zero percent correlation with the success of your business. Absolutely zero. But it feels like this really critical thing that you need to put a lot of thought and care and attention to because this is how you're representing your new position in society, your new responsibilities, your new how you stack up with regard to everybody else. And so understanding this on the personal level can help you, it saves an enormous amount of time and energy because you can kind of diffuse the things

of like, yeah, I don't need to be spending time working on this stuff right now. I'm gonna pay attention to the things that actually matter. There's a quote from a Daniel Schmackt and Berger episode who I did with a little while ago, and he says, the more I reflect on the biological predispositions that arise, the less I am controlled by them.

Yes. And oh my god if that isn't true. You do, like I say I've run nightclubs for 14 years now. The popping bottles let's spend a grand on vodka that the five people sat around the table can drink like a quarter of. The glass is more expensive than the liquid inside of it. I actually had a sociologist who lady called Ashley Mearson. You might like a book, it's called VIP. She did ethnographic research. I'll send you everything I've wanted to do.

She became a party girl and followed the biggest promoters around L.A. and Miami for six months, as part of her ethnographic research for this into status signaling. What's it called? High or waste signaling or something like that, basically. You buy something where people can see that you couldn't even drink that much. You couldn't even drink that much. You couldn't even eat that much. Like you don't even, it's the 75 car garage that people know you can't even drive those cars once per week per year. Like that's, that's why here's something that's the person element of business is really, really what fascinates me. The question

I had for you was, where do you think someone's performance in business is a projection of their personality? And whether there's a point where business development is limited by a lack of self development? I think that, yes, that is broadly true. That I think the more you develop yourself and your skills and your abilities in the areas, call it the economically valuable areas of business, value creation, marketing sales, value delivery finance, the better you are at those things, or some subset, right? So the nice part about larger companies

is you can have specialists in those areas instead of having to do all five of them yourself. So I think it's true that the more skilled you are in those five things, the more successful you're going to be. I think successful is important to qualify because successful is doing something that you enjoy in a way that pays the bills for you, that is not entirely draining and allows you to live, whatever the definition of a good life is for you. So, a tangible example here. I have quite a few friends in industry, very successful at building companies. very successful at building companies.

Their revenue is between 10 or 100x mine. They are in the 50 to multiple hundreds of employees category. And I've had a real good up close look at the inside of their business and what their life looks like running the business. And if I tried to do what they're doing, I would be miserable every minute of every day for the rest of my life or however long I ran this business. It is not for me. And so I think there's a there's a very underrated part. The personal

side of business is deciding what kind of life you want to live, what kind of work is rewarding to you. How do you want to spend your time? Who do you want to spend it with? And for me, success in business is getting closer and closer to that ideal of you're doing what you like, with people you like on projects that are interesting and on the other side of things, eliminating stress or eliminating worries

or eliminating lower value less things you care less about in favor of the things that you care intensely about. And so, I think business in particular because there is a numerical figure attached to it, right? How much did your business bring in this year? How many employees do you have? How many millions of dollars of venture capital? Did you raise in your A-round? You know, there's, getting back into the status consideration, there's the game'smanship that goes on in terms of, you know, well, you know, it's not enough to have a company that earned $100 million in profit this year. If the company over there got $101 million in profit,

that way of thinking in the absolute is absolutely nuts. So I think it's really important in the best thing that you can do for yourself is be very, very clear in defining what it is you're trying to do and why, what's important to you and what's not. And then just it gets back to the experimentation bit. Notice what's happening around you as you make decisions in your business or in your career. And notice when you're getting closer to that ideal or when you make decisions that gets

you further away from what you want. I think especially if you are someone who's sort of classically working class who's grown up perhaps in a household which is work is a labor, work is something that you have to do not get to do. You can carry that puritan work ethic over quite easily into operating a business. I certainly found myself doing that. I wonder whether on it, you see that quite typically. Oh, absolutely. I've seen it in my own life. So, so good example is I remember the day when I told my father that I was going to quit my job at big company to start my own thing. And so for backgrounds, dad was a

elementary school teacher and then a principal of small farm town school Northern Ohio in the United States. And straight out of college, I made as much maybe a little bit more in my big company job than he had made in his 25, 30 year career at that point. So from his perspective, what are you doing? Like you have this amazing job. It's only upside from here. Why would you throw away the secure thing in order to chase something that may not be as good?

And the answer to that for me was that the environment that I wanted to work in, the types of projects I wanted to do, and the latitude that I wanted to have over my own day-to-day life and decisions, was not compatible with the large company job. And so even if it paid less in the short term, I was willing to trade this short thing for a chance at maybe getting closer to something that would be more ideal for me.

And in retrospect, it was the best decision I ever made, because had I not done that thing, I would not have been able to experiment my way into something that worked in a really wonderful fashion. I think a lot of people, particularly people who, like me, I didn't have a business background growing up. I grew up in a small town. My conception of business was that there were places where people went to draw a paycheck. Like I knew, I didn't understand anything about it. I think if you come from

a working class background, or there are a lot of folks who grow up in rural environments and don't have the day-to-day exposure of what this kind of life looks like, it can be really challenging to break away from those conceptions of what you're supposed to do or how things are supposed to work in favor of an uncertain experiment that feels like it may turn out well or may turn out not so well. The nice part about it is that in terms of building a business that gathers enough income to support yourself in a comfortable fashion.

That is way, way, way more accessible than most people assume it is if you don't come from a background where people do this in a common basis. There's a strategy in pick-up artistry called You Are the Prize and it basically suggests that as you step into the frame with the person that you're trying to speak to that you should come from a place of abundance, not a place of scarcity. And that as a strategy for business, is so, so useful, because it stops the neuroticism of what ifs? What if I make this jump to something that I know I love but might not succeed and I lose the secure thing

that's behind me? Well, you already got the secure thing that's behind you, you'll probably just get it again. Or maybe even the thing you wanted won't happen, but you'll get a better secure thing around the corner. Or whatever it might be, I think far too many people have such pervasive imposter syndrome that it sort of secures them, it glues them to the spot. And remembering that imposter syndrome really can only smash itself up against the success of your reality so many times before it's not imposter syndrome anymore, it's more like an addiction. It's more like a thought addiction that you've got on your side where you're just not

prepared to give yourself the credit that you're due. It's like, look, go for it, man. Like go and do the thing. Go and do the thing. And if it doesn't work, you will make something else work. You've got this far. You've got the talents, the skills that you've got the passions that you've got, whatever it might be. And if anyone's got any reservations about that, realize how scary it is for you to think about doing that. And realize that not only you competing with everyone with your potentially superior skill set, but that by making the decision, that is the separating factor. By deciding that you do the thing, you are in the top 1% regardless of skill, regardless of experience, regardless of background, all of that stuff, you're in the top 1% by making

the leap and the reason that you can tell that that's the truth is how terrif viscerally, like, us bendingly terrifying if the real Steve right now. Absolutely. There's another similar trick in the same vein that I have gotten a lot of myelogynyf and highly recommend. And it comes to making requests of people very relevant to our previous conversation on pricing. So let's say you do what I recommend, which is triple your price and see how it goes. The first thing that people will say is like, oh no, nobody's going to sign up for

that. Nobody's going to pay me that. There's no possible way. The mental trick is make other people tell you no. Don't assume the rejection before the rejection actually happens. Make the request. And if they're going to say no to it, make them tell you no. And just that shift of, okay, this might not work, but I'm going to make the ask, and I'm going to get the data before I decide whether this is a good idea or not. It prevents an enormous amount of self rejection or closing off potentially viable, worthwhile lines of experimentation and inquiry because you didn't have the courage to make the offer and just see if that was something that would work or wouldn't. So this very often comes up in a less entrepreneurial, more job context of looking at a job posting

and be like, oh, they would never hire me for that. Like I don't have five years of experience in some weird technology they're asking for, or I don't have any, of experience in some weird technology they're asking for, or I don't have any, I have a work in this field before, whatever. No, apply to the job anyway. Make them tell you no. Wanting to get a promotion, wanting to start a business and make an offer to see if it works.

Just having that mindset of, I'm not going to assume that people don't want this or this doesn't work for other people. I am going to try it if it doesn't work. Okay, I got data, that's useful. But very often it does. And you're absolutely right, you have to put yourself out there

and actually ask or do the thing to get that accurate data. Otherwise, you're just assuming something is a fact about the world that may not necessarily be accurate. Being comfortable with rejection is a power as super power. Being able to take it and not feel like Eurego's being destroyed and just take it what it is Well, maybe it was the wrong time. Maybe it was the wrong price. Maybe they've already got a Insurance provider Computer systems manufacturer or whatever it might be like it's a good way to be anti-fragile Josh man Yeah, I have loved today. It's been absolutely absolutely awesome

Super fun hanging out Thank you so much for having me on. This has been fun. Yeah, it's been great, man. So the personal MBA, the 10th anniversary edition, will be linked in the show notes below. Where else do you want to send people? Any other stuff that they should check out of yours online? Yeah, so two things. So the personal MBA website, personal MBA.com, you can find a list of all the key terms in the book. You can find a recommend reading list. So all of the business books I recommend, if you want to go deeper in any of these topics, they're all cited referenced on there. And then trying to take my own advice, I am constantly doing research and experimentation in all sorts of different topics. And so if you're interested in more of the R&D side of me, JoshKoffman.net is my website. You can

find a lot more about my other research in learning and skill acquisition, research into uncertainty and change, and some of the more philosophical practical side of ambition. It's probably a good way to put it. You can find all of my other books at JoshCopement.net. Josh, we have to get you back on for that one. I might have to have the Batman alter ego. I've had Bruce Wayne. And now we're going to Batman on and we can do, we can do another one.

I am happy to hang out any time. I am happy to hang out any time.