Your Current Mental Models Suck: 8 Big Disciplines That Will Boost Your Mental Models

I believed, incorrectly, that for you to build a profitable business, you were required to know everything about the business. You needed an MBA from a prestigious university, and you were an expert in:

  • Business Creation
  • Value-Creation & Testing
  • Marketing
  • Sales
  • etc.

But over the course of many failures, I began to understand that obtaining expertise is more of a popularity contest, instead you should be developing the insight to solve interesting problems. I have found that the people who are labeled ”so good” are given that title, not because of their expertise but because they have mastered certain principles.

Charlie Munger’s Devotion to Mental Models

What are these principles: the thorough understanding of a few essential concepts that provide significant value. How do you then go about learning these principles? You must develop mental models. Josh Kaufman, the author of the Personal MBA shares:

”Mental model are concepts that represent your understanding of how things work.”

When you understand how business works, you can quickly build mental prototypes to test your preliminary ideas against the problem, and quickly iterate until you find the solution.

Warren Buffet states, ”Charlie can analyze and evaluate any kind of deal faster and more accurately than any man alive. He sees any valid weakness in sixty seconds. He’s the perfect partner.”

Buffet is describing his business partner Charlie Munger, who shares:

I’ve long believed that a certain system - which almost any intelligent person can learn - works way better than the systems most people use [to understand the world]. What you need is a latticework of mental models in your head. And, with that system, things gradually fit together in a way that enhances cognition.”

Munger continues:

”Just as multiple factors shape every system, multiple mental models from a variety of disciplines are necessary to understand that system… You have to realize the truth of biologist Julian Huxley’s idea that, “Life is just one damn relatedness after another.” So you must see the relatedness and effects from the relatedness.”

The Backdoor to Your Mental Models

So how do you build these multiple mental models? You read. You focus on big disciplines:

  1. Physics — Seven Brief Lessons On Physics by Carlo Rovelli
  2. Biology — The Origin of Species by Charles Darwin
  3. Psychology — Mindset by Carol S. Dweck
  4. Philosophy — Meditations by Marcus Aurelius
  5. Literature — Upstream by Mary Oliver
  6. Sociology — Man’s Search for Meaning by Victor E. Frankl
  7. History — Sapiens by Yuval Noah Harari
  8. Business — The Personal MBA by Josh Kaufman

The books listed are recommendations but they are a good starting point. You are not looking for expertise in these disciplines, you are working towards mastery, and by mastery, I mean leveraging your new mental models to solve interesting problems.

Building a latticework of mental models does not mean you will become the next Charlie Munger, the hope sits squarely on you being able to enhance cognition so you can see the relatedness of the solutions and apply them to the problem.

Danger! You Don’t Need an MBA: 7 Spectacular Books on Business Creation

I have always thought that business was an enigma. You?

I maintained a mental model that business was an intricate lattice of failures, products, debt and human capital. Why, because I spent little time in educating myself on how business works. Not to mention the traditional idea that “business is complicated” and its management is best left to the MBAs.

In The Personal MBA: Master the Art of Business, Josh Kaufman explains that business is not complicated at all:

At the core, every business is fundamentally a collection of five Interdependent processes, each of which flows into the next:

  1. Value Creation. Discovering what people need or want, then creating it.
  2. Marketing. Attracting attention and building demand for what you’ve created.
  3. Sales. Turning prospective customers into paying customers.
  4. Value Delivery. Giving your customers what you’ve promised and ensuring that they’re satisfied.
  5. Finance. Bringing in enough money to keep going and make your effort worthwhile.

In essence, the mental model that you have been force fed is a lie. Business is not complicated nor does it require an MBA at the helm. Principally, business is leveraging people and systems in a repeatable process that delivers value for allot of paying customers.

How do you learn about the processes without attending a fancy graduate school, you can start by reading:

  1. The Personal MBA: Master the Art of Business by Josh Kaufman
  2. Go It Alone by Bruce Judson
  3. The Lean Startup by Eric Ries
  4. Street Smarts by Norm Brodsky & Bo Burlingham
  5. Ready, Fire, Aim by Michael Masterson
  6. Escape from Cubicle Nation by Pamela Slim
  7. Bankable Business Plans by Edward Rogoff

These seven books will give you a fundamental understanding of how to build a profitable business.

Kaufman continues to share:

”Business is not (and has never been) rocket science— it’s simply a process of identifying a problem and finding a way to solve it that benefits both parties. Anyone who tries to make business sound more complicated than this is either trying to impress you or trying to sell you something you don’t need.”

So why isn’t everyone starting a business? Simple, most people don’t have the education on how to make a business profitable. They don’t understand how to create value, market, sell, deliver value and most importantly manage cash flow. If you want to start a business, then you must educate yourself on how to start a business: that is the new mental model.

What Will Be Your Great Story: James C. Collins Says It’s Discipline

Do you want to be the best in the world at your core competency? What is your core competency? Are you unsure?

James C. Collins, the author of Good to Great: Why Some Companies Make the Leap... and Others Don’t, explains:

“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.”

Some strategies can help you find what you can be great at, here is what has helped me:

  1. Investigate your curiosities. Yes, that means take every curiosity you have ever had and explore them with an eye towards liberally killing them.
  2. Interrogate your passions. Once you have liberally killed many of your curiosities, what you have left must be interrogated with a bias towards a purpose.
  3. Your purpose.” You have filtered out what you do not love. Now find a world problem and see if your passion helps solves that problem. If it does, you have found a purpose.

Unfortunately, the purpose may not be what you will great at; it might only be another experiment on the journey of finding your greatness.

Are You Gambling With Your Company: 10 Ways to Evaluate a New Market

Are you looking at entering a new market, but you doubt your success. It’s a valid worry, but one in which Josh Kaufman, the author of the Personal MBA, explains can be mitigated:

”Rate each of the ten factors below on a scale of 0 to 10, where 0 is extremely unattractive, and ten is extremely attractive.”

From page 45 of the Personal MBA, I am listing the Kaufman’s Ten Ways to Evaluate a Market:

  1. Urgency. How badly do people want or need this right now?
  2. Market Size. How many people are actively purchasing things like this?
  3. Price Potential. What is the highest price a typical purchaser would be willing to spend for a solution?
  4. Cost of Customer Acquisition. How easy is it to acquire a new customer? On average, how much will it cost to generate a sale, in both money and effort?
  5. Cost of Value Delivery. How much would it cost to create and deliver the value offered, both in money and effort?
  6. Uniqueness of Offer. How unique is your offer versus competing offerings in the market, and how easy is it for potential competitors to copy you?
  7. Speed to Market. How quickly can you create something to sell?
  8. Up-Front Investment. How much will you have to invest before you’re ready to sell?
  9. Upsell Potential. Are there related secondary offers that you could also present to purchasing customers?
  10. Evergreen Potential. Once the initial offer has been created, how much additional work will you have to put into it in order to continue selling?

Now total the ten items.

If your score is below 50 then dump the idea, it is a poor use of your limited resources. If your score is above 75, it’s a good idea and time to commit serious resources to the venture.

If your idea is between 50 and 75, you might have a good idea, but the idea needs a bit more baking.

You want to run through this exercise before you set sail on your next idea. This activity allows you to kill ideas liberally while keeping the good ideas ready for prototyping.

The Dilemma of Building a Product No One Wants

You have a significant problem. One that if you do not fix and quickly will be the undoing of your dream of building a profitable business. What is it? You are developing a product in a shroud of secrecy: stealth mode if you will.

Why, because you think that someone will steal your idea and then your unique selling proposition will be lost. In all honesty, you need to get over yourself. Ideas are cheap, and your idea is not so revolutionary that others are plotting its theft.

Your Ideas Are Just Plain Stupid

Josh Kaufman, the author of The Personal MBA, explains:

“Don’t be shy about showing potential customers your work in progress.”

Kaufman continues to share:

”Ideas are cheap — what counts is the ability to translate an idea into reality, which is much more difficult than recognizing a good idea.”

Making an idea happen is challenging work. It’s even more challenging when you build it, and no one cares. They don’t care because you never took the time to learn what your real customers want.

Why the Prototype is Sensational

The only way to understand what potential customers are looking for in a product is to get feedback. The best way to get feedback is the prototype. Kaufman explains:

”All your Prototype has to do is represent what you’re offering in a tangible way so that your potential customers can understand you’re doing well enough to give you good feedback.” He continues: ”As you show your prototype to potential customers, you’ll get a steady stream of ideas and feedback.”

You must make feedback a crucial part of your early learning opportunities. As you learn, want real customers want you build a better product over time.

What are the Priorities for Your Business

What are the priorities for your business:

  • Hiring employees?
  • Signing a lease?
  • Filing out paperwork?

Yes, those items are necessary To Dos but they are not the propriety.

Michael Masterson, the author of Ready, Fire, Aim: Zero to $100 Million in No Time Flat, explains:

”The big mistake most wannabe entrepreneurs make — they spend most of their time, attention, energy, and capital on things such as setting up an office, designing logos, printing business cards, filing forms, writing contracts and refining the product.”

So what is the only priority you as an entrepreneur should be concerned about — sales. Why, because sales is what generates cash flow so you can sustain your business.

Masterson continues:

”In starting a business, this is what your priorities and sequence of activities should be:

  1. Get the product ready enough to sell it, but don’t worry about perfecting it.
  2. Sell it.
  3. Then, if it sells, make it better.

That is a much better sequence of priorities which can help you build a company that one day will run itself, without you.

Are You a Business Genius or an Idiot

Yes, the primary goal of any business is to make profit, otherwise what you have is a hobby. But before you make the first sale Seth Godin, the author of If You’re Clueless About Starting Your Own Business , shares:

”The first thing you need to do is assess your own strengths and weakness. Explore your motivations and discover whether of not you have what it takes to make it all happen.”

I have found that many entrepreneurs have great ideas on the path to profit but are ill-equipped to make it all happen. Why because you did not take the time to build the skills necessary to build your business.

Michael Masterson, explains:

”To start a business and keep it growing, you need to be able to correctly identify the most important problem, challenge, and opportunity you face at any given time.”

Masterson continues:

“In addition to that, you need to become good at five basic skills:

  1. Coming up with ideas
  2. Selling products
  3. Managing systems
  4. Developing superstars
  5. Taking action

Ideas are useless unless you have the skills to make it all happen. Now, you don’t need to have the skills before starting your business, but you should focus on acquiring the skills as quickly as possible. In the interim, surround yourself with people that have the skills. If you do, you might just become a business genius.

The 4 Stages of Growing Your Company

Unfortunately, there is no map when it comes to building a company that generates millions in revenue. Fortunately, success does leave clues: artifacts of opportunities, challenges, and problems. I know it’s easier if someone just gave you a map to the dreams of Avarice.

But success is not a gift it's difficult emotional work.

Micheal Masterson, the author of Ready, Fire, Aim shares:

”Here is my updated idea about the four stages of entrepreneurial growth and the most important problem, challenge and opportunity that presents itself at each stage:”*

1. Stage One: Infancy - $0 to $1 million in revenue.

  • Main Problem: You don’t really know what you are doing.
  • Main Challenge: Making the first profitable sale.
  • Main Opportunity: Achieving a minimum critical mass of customers.

2. Stage Two: Childhood - $1 million to $10 million in revenue.

  • Main Problem: You are only breaking even or may even be losing money.
  • Main Challenge: Creating many additional, profitable products quickly.
  • Main Opportunity: Increasing cash flow and becoming profitable.

3. Stage Three: Adolescence - $10 million to $50 million in revenue.

  • Main Problem: Your systems are strained, and customers are noticing.
  • Main Challenge: Turning the chaos into order.
  • Main Opportunity: Learning how to establish useful protocols and manage processes and procedures.

4. Stage Four: Adulthood - $50 million to $100 million in revenue.

  • Main Problem: Sales may slow down and even stall.
  • Main Challenge: Becoming entrepreneurial again.
  • Main Opportunity: Getting the business to run itself.

The stages that Masterson lists are critical in understanding not only at what stage your business is in but also identifying the main problem of each evolution of your business. Yes, there is no map but what Masterson has provided is nearly as important: a framework on how to get to the next stage.

* These stages were copied word for word from Micheal Masterson’s Ready, Fire Aim pages 19 and 20.

How Do You Find The Best Job in the World

You want to find the best job in the World? I mean you would be a fool if you said anything other than, ”YES!” But take a moment to be a kid again and daydream: ”What would be the best job in the World?”

Micheal Masterson, the author of ”Ready, Fire, Aim,” describes: “They say that the three most important decisions in life are:”

  • What you do.
  • Where you do it.
  • With whom you do it.

Masterson continues:

”To have a great career, you must choose work that gives you satisfaction, a working environment that is pleasing, and coworkers who make it easier for you to achieve your objectives.”

Yes, everything Masterson has listed sounds great, but let me ask you another equally important question: “Why should you have the best job in the World?”

Are you a linchpin? Have you taken the time to build your career capital? Do you have the experience of fighting through the dip? Or are you part of the remarkable average?

From my experience most people are not linchpins, nor have they built career capital nor have they ever fought through the dip. And those characteristics are what is required of you if you are ever to enjoy the best job in the World.

Masterson explains:

”But I soon discovered the truth about entrepreneurship that the freedom it gives you is usually the freedom to work twice as long and twice as hard as you ever did, even if you thought you were working too much for someone else.”

You have already decided that you want to have the best job in the World. But, will you choose to:

  1. Be a linchpin. Seth Godin shares: “Linchpins are the essential building blocks of tomorrow’s high-value organizations.”
  2. Build career capital. Cal Newport states: “… develop rare and valuable skills..”
  3. Push through the dip. Seth Godin explains: ““The Dip creates scarcity; scarcity creates value.”

If you decide that finding the best job in the World is too much work, that is your choice. But keep that in mind when you are wondering: ”Why does that guy get to work the best jobs in the World?”

Because he made the choice.

When You Are The Boss

You have said it numerous times: ”If I were the boss things would be better.” You think:

  • I won’t act like the boss.
  • I will be everyone's friend.
  • And, know one would ever take advantage of me.

Unfortunately, reality slaps you in the face when you are the boss, and you realize:

  • You have to be the boss.
  • Everyone can’t be your friend.
  • And people will take advantage of you.

Norm Brodsky, the author of The Knack, explains:

”There are actually two types of mistakes that people typically make when they’re new to the boss’s role. The first involves their relationship with employees. The second has to do with their assumptions about their own job.”

No, you can’t be a friend to your team members. Although, you must treat them with respect and add value to the relationship. What you must not forget is that the relationship between you and your team is based on business.

As the boss, more specifically a leader, your main responsibility is to add value to your team. If you are not adding value, then you are hurting the team.

Why Failure Is A Good Friend

Failure is a characteristic that is baked into the DNA of any business venture. I look forward to failing. I welcome it as a life long friend that I have not seen in over a decade. Why because failure, if you are paying attention, is a mentor.

Yes, failure is a defeat, and too many failures will force you, to prematurely give up on building a profitable business. Fortunately, there is an inoculation to failure, Norm Brodsky, the author of The Knack, explains:

”They often ask me what it takes to be a successful entrepreneur, and I tell them that the most important quality is resilience. I’m talking about the ability to bounce back from failure, to turn around a bad situation, to profit from your mistakes.”

I would also add that with resilience you must have an insatiable hunger to learn from your failures. They are a tag team:

  1. Failure stops you from making a bigger mistake.
  2. Learning shows you how to improve on that mistake.
  3. Resilience gives you the energy to start again.

Brodsky shares that experiencing failure forced him to develop a habit:

”You have to watch, listen, ask questions, experiment, make changes, refine your concept, and constantly develop your customer base.”

By taking the time to learn and be resilient, your failures will eventually build a strong business that will not only generate profit but help you live a better lifestyle.

How To Lose Customers

Are you plagued by a fear of losing too many customers?

There are many reasons why you might lose customers, but there are two primary reasons:

  1. Raising prices.
  2. Creating rules.

Norm Brodsky, the author of The Nack shares:

”I have a little game I like to play. I keep track of the number of episodes of bad customer service I hear about, or experience, over a six-month period and use that as a rough gauge of the general level of customer service in my part of the World.”

Raising Prices.

Obviously, you need to raise prices of your products. Unfortunately, if you raise the prices infrequently and too much, you will lose customers.

The better option is to raise prices incrementally and frequently; this gives your clients time to acclimate to the new pricing.

Creating Rules.

Rules are necessary especially as your company grows but some rules are based off a knee-jerk reaction. Brodsky explains: ”In most cases, it’s not the employee who creates the problem. It’s the employer. How? Usually by establishing a bad rule.”

So instead of making a bad rule why not investigate the problem and treat it as a learning moment. By looking at the problem as an opportunity to improve the process, you empower customer service and keep the customers happy.

Running a successful business is an exercise in feedback and iteration. It’s critical that you collect customer feedback and create an environment where the information can be experimented on, and implemented if it works or dropped if it does not work.

That is your responsibility as an owner, to build an environment where your team can test the feedback loop and add what will make your company successful.

How The Magic of Numbers is Essential to Your Business

Are you keeping track of your company expenses? How about your revenue? But are you keeping track of the cost of goods, gross profit and gross margin of every type of product?

I never did. Yes, like you I kept track of expenses and revenue because I need to track profit against my yearly goal, but that was the extent of managing the company numbers.

Norm Brodsky and Bo Burlingham, the authors of The Knack, share an amazing piece of advice, one that I wish I knew early on:

”Here’s the best piece of advice I can give to anyone starting a business: from day one, keep track of your monthly sales and gross margins by hand. Don’t use a computer. Write down the numbers, broken out by product category or service type and by customer, and do the math yourself, using nothing more sophisticated than a calculator.”

The exercise can be as simple as taking a sheet of file paper and tracking sales and gross margins by product category. Which give you insight to which are your good products and customers, and those that are dragging you down.

Once you have identified what is dragging you down Brodsky and Burlingham recommend:

”There are basically four ways to deal with this type of situation. You can raise your prices. You can reduce your manufacturing costs. You can say no to low margin business. Or you can find other products that you can sell at higher margins.”

By following the strategy, you should start seeing larger profits which will help you in supporting yourself and building the business.

Why Does Your Business Plan Need to be Down and Dirty

I have launched about four different companies and a dozen or so products. Each of those attempts has been met with a miserable fate: failure. There is a laundry list of reasons why I failed repeatedly, but the primary reason I failed was that I did not have a business plan.

Do you have a business plan?

Norm Brodsky and Bo Burlingham, the authors of The Knack , a book on how street smart entrepreneurs can learn to manage the unpredictable startup ecosystem, share:

”A business plan lays out what you expect to do.” The two continue. ”You need it, so you’ll know if you have a viable business.”

A viable business? I thought, of course, my business is viable I am in a competitive market. Unfortunately, my premise was not only immature but grossly inaccurate.

I based my businesses success on the popularity of the market: everyone is starting a website, everyone is consulting and everyone is making lots of money, so I am also going to make lots of money.

So I assumed success, and without proof, I barreled forward with a shopping cart full of:

  1. Weak goals
  2. A defective awareness of a business plan
  3. And a third-rate understanding of viability

It’s no wonder why I have been unsuccessful at building a new venture beyond a fledgling startup. Brodsky and Burlingham warn:

”What I am listening for are goals that can’t be achieved by business, or goals that will get in the way of the business, or goals that are totally unrealistic given the particular business you’re looking at.”

So I took a long weekend hacked Josh Kaufman’s “ Creating A Personal Masterplan”, and:

  1. Created my S.M.A.R.T.goals
  2. Educated me on viability, to accurately understanding cash flow
  3. And finally developed a basic business plan

After completing the exercise I felt confident in my chances of building a business that will reach critical mass, Brodsky and Burlingham share some insider expertise:

”Now, when I say the business plan, I don’t mean anything elaborate. I’m talking about a modified, down-and-dirty income statement and cashflow statement. I just want a reasonable expectation of sales by month for a year.”

Many businesses never break free of being a fledgling startup. While there might be an infinite number of reasons, in my experience it’s been the lack of proper planning and execution . If you want to give your startup a good chance of achieving its targets, then I suggest taking the time and developing a down-and-dirty business plan.

3 Strategies On How To Improve Your Startups Growth Rate

With an eye on what a lean startup requires to grow Eric Ries, the author of The Lean Startup, writes:

”A startup’s job is to 1. rigorously measure where it is right now, confronting the hard truths that assessment reveals, and then 2. devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan.”

Are you scheduling time on the calendar to exhaustively examine your company’s current position, relative to your business plan? Yes, you are documenting revenue, cost, profit, and your core competencies but are you focused on growth?

A startup is a volatile ecosystem which is plagued with uncertainty so measuring success by milestones paints an inaccurate picture of the company’s growth, Ries explains the issue:

”I asked the team a simple question that I make a habit of asking startups whenever we meet: are you making your product better? They always say yes. Then I ask: how do you know? I invariably get this answer: well, we are in engineering, and we made a number of changes last month, and our customers seem to like them, and our overall numbers are higher this month.”

You are hitting your milestones. Your customers are content. Profits are higher this month than last month. Now on to the next milestone, right? Not so fast. While the wins are significant, how do you know those characteristics are what your rate of growth depend on?

There is a danger in relying on “vanity metrics;” making the product better is not an exercise in metrics but in testing assumptions:

1. Ries shares that you must leverage the minimal viable product (MVP):

”This single MVP would test most of the startup’s assumptions and establish baseline metrics for each assumption simulation.” Ries continues: ”An MVP allows the start up to fill in real baseline data in its growth model—conversion rates, sign-up and trial rates, customer lifetime value, and so on.”

2. Ries considers that tuning the engine is a critical step in improving the product:

”Every product development, marketing, or other initiative that a startup undertakes should be targeted at improving one of the drivers of its growth model.” Ries continues: ”A good design is one that changes customer behavior for the better.”

3. Ries concludes that after the engine is tuned a decision needs to be made — to pivot or preserve:

”If we’re not moving the drivers of our business model, we’re not making progress. That becomes a sure sign that it’s time to pivot.”

For every initiative that your startup undertakes don’t rely on assumptions but focus on the process: establish the baseline, tune the engine and make a decision to pivot or persevere. The super power of Ries’ strategy is to help you align your efforts in building a product the customer wants.

Entrepreneurship Is A Leap Of Faith

When I was in the Army the drill sergeants would repeat the same phrase: assumption is the mother of all fuck-ups. At first, I did not understand why the sergeants kept repeating the statement. But after failing at some seemingly simple tasks, I quickly explained the rationale: nothing is going according to the plan.

Eric Ries, the author of the Lean Startup, echoes the statement:

”Every businesses plan begins with a set of assumptions. It lays out a strategy that those assumptions as a given and precedes to show how to achieve the company’s vision. Because the assumptions haven’t been proven to be true (they are assumptions, after all) and in fact are often erroneous, the goal of a startup’s early efforts should be to test them as quickly as possible.”

The assumption gap was my main downfall in the tasks that was given to me by my drill sergeant. Why, because I entertained assumptions that were based on similarities, past experiences, or poor planning, Ries writes:

”Acting as if these assumptions are true is a classic entrepreneur superpower. They are called leaps of faith precisely because the success of the entire venture rests on them. If they are true, tremendous opportunity awaits. If they are false, the startup risks total failure.”

There is an inoculation to this leap of faith: the test.

In the Army, questioning orders were not encouraged but figuring out the best method to execute an order was nurtured. When we were ordered to carry out a task, we not told how to perform the task. Those of us that spent the time discussing alternatives, backup plans, or doing dry runs succeed more than we failed.

Those that assumed a particular outcome failed; Reis continues:

”The first challenge for an entrepreneur is to build an organization that can test these assumptions systematically. The second challenge, as in all entrepreneurial situations, is to perform that rigorous testing without losing sight of the company’s overall vision.”

Some entrepreneurs follow the just do it school of thought. While that philosophy does have its merits, you are courting failure by trusting the assumptions. There is only one course of action; you must take measures to check quality, performance, or the reliability of the assumption.

Yes, it will take longer to launch the product but when you validate the assumption what you will get is a product that customers will want to buy.

Learning To Add Value

Eric Ries, the author of the Lean Startup, shares:

”Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects.”

So how do you measure progress, by:

  • The work that is proceeding according to plan?
  • The work being of high quality?
  • The costs being under control?

While the characteristics are a real litmus test of progress, they can also lead to you building a product that no one wants. How did you get to that point, by making assumptions about how customers will use your product. These mental models might have been formed by customer surveys or market trends.

Unfortunately, these models only paint a partial picture of your business prospects.

If you want to build a product that customers want to use, you need to focus on learning what the customer values.

Ries explains:

”Note that this is different from asking customers what they want. Most of the time customers don’t know what they want in advance.”

Ries continues:

”Thus, validated learning is backed up by empirical data collected from real customers.”

There are multiple strategies to test assumptions: build a prototype or create a minimal viable product: then allow real customers to use the product. Your responsibility is to collect feedback so you can align the product with the customers’ real needs.

If you don’t focus on validated learning, you will naturally produce more waste, than value.

The Intrapreneur and Value Creation

The entrepreneur's mindset has little to do with building a business and more to do with developing necessary skills. Neil Kane, Michigan State University Director of Undergraduate Entrepreneurship and Innovation, shares:

”These include: initiative and self-direction, risk-taking, flexibility and adaptability, creativity and innovation, critical thinking and problem solving. Other definitions include the ability to see opportunities, marshal resources and create value.”

If you focus on the skills mentioned above: do you think those skills are exclusive to entrepreneurs? Or could those same skills help you succeed within a business where you are an employee?

Eric Reis, the author of The Lean Startup, shares:

”Entrepreneurs who operate inside an established organization sometimes are called “intrapreneurs” because of the special circumstances that attend building a startup within a larger company.”

I have a life long friend that was hired to work at a Fortune 500 company. He was recruited to lead a newly formed team whose main responsibility was to behave like intrapreneurs — to see opportunities, marshal resources and create value.

Reis continues:

”I have come to believe that intrapreneurs have much more in common with the rest of the community of entrepreneurs than most people believe.”

I recently spoke with my friend and asked him why did the company take on this new mindset. He explains the CEO is looking at new management disciplines. Essentially, the CEO wants to cultivate innovation from the bottom-up.

The mindset is entrepreneurial and focuses on:

  • Fast cycle testing
  • Pivoting based on customer feedback
  • Uncovering new sources of value

Reis makes an excellent argument:

”The amount of time a company can count on holding on to market leadership to exploit its earlier innovations is shrinking, and this creates an imperative for even the most entrenched companies to invest in innovation. In fact, I believe that a company’s only sustainable path to long-term economic growth is to build an “innovation factory” that uses Lean Startup techniques to create disruptive innovations on a continuous basis.”

My friend and his team have capitalized on some opportunities and have added value to both company and customer. As a result, the mindset has slowly infected other parts of the company; he is witnessing re-birth of culture, focusing on intrapreneurship.

The Fear of Bureaucracy

Do you find it difficult to manage your startup’s success? Is your company steeped in chaos when a new product is launched? Are you struggling to keep your business focused on its vision? Do you need a solution?

The answer is simple management or more specifically better management.

To be honest with you each time I launched a new company, a new product or took on a new project, my mindset defaulted to execution. I was hyper-focused on making an impact and not taking the time to understand how to manage.

Eric Ries, the author of The Lean Startup, shares:

“An a result many entrepreneurs take a “just do it” attitude, avoiding all forms of management, process, and discipline. Unfortunately, this approach leads to chaos more often than it does success.”

Why, because entrepreneurs fear that management breeds bureaucracy which eventually stifles creativity. That is what I thought about management, so I either avoided the conversation or gave it minimum attention. Unfortunately, my results were typically the same -- chaos.

In order, for you to successfully navigate the traitorous waters of entrepreneurship, you will need managerial discipline. By investing energy in a coherent management paradigm, you start cultivating the mindset of preventing the failures brought on by chaos, through what Eric Reis calls validated learning.

Reis continues to share:

“It can give entrepreneurs clear guidance on how to make the many trade-offs decisions they face: whether and when to invest in process; formulating, planning, and creating infrastructure; when to go it alone and when to partner; when to respond to feedback and when to stick with vision; and how and when to invest in scaling the business. Most of all, it must allow entrepreneurs to make testable predictions.”

That is a critical argument, without the guidance of validated learning startups fall victim to their tremendous vision and build products based on assumptions and create products that no one will pay for.

Instead of relying on assumptions, place your trust in the feedback loop that nourishes the constant adjustments to your product. Reis continues to state that the product is the result of pivots based on the Build-Measure-Learn Feedback Loop:

”I call that a startup’s vision. To achieve that vision, startups employ a strategy, which includes a business model, a product road maps, a point of view about partners and competitors, and ideas about who the customer will be. The product is the result of this strategy.”

So a startup is not just one activity, it’s a portfolio of activities:

  1. Acquiring new customers
  2. Serving current customers
  3. Pivoting to improve the product
  4. Listening to customer feedback
  5. Marketing the product
  6. Building a team focused on results

A startup is a complex organism which is always fighting to balance the portfolio of activities so that it can become profitable. So the startup's success squarely sits on your ability to manage, or more specifically on your capacity to plan adequately or and execute properly.

How Do You Test and Fund Your Idea? Josh Kaufman Founder of the Personal MBA Has a Plan

Do you have an idea for a product? Maybe you have a Moleskine notebook labeled “My Stupendous Ideas.” Where, according to you, each idea is worth millions. Unfortunately, instead of making the idea a reality you’re making an excuse, “If I had the money and time I would build the world’s best widget.”

If I had to guess, neither the lack of money or time is holding you back. What’s the issue: you are holding you back, it’s the internal conversation that you are not good enough. While there are countless strategies on how to manage the internal conversation, I have found one bulletproof strategy — just do it.

Execution is a robust approach to making your idea happen. Author Gary Vaynerchuck explains that execution is everything:

Amazing ideas happen all the time. I’ve had great ideas. The guy sitting next to you as you read this has great ideas. The girl you see on the bus in the morning has great ideas. But once you have that idea, the next step is to go and do it. Just make it happen.

So I snatched my Moleskine notebook labeled “My Stupendous Ideas” chose an idea and did it. As I was executing my idea I quickly discovered two important items:

  1. Stealth Mode
  2. And Funding

Why Stealth Mode Is Plain Stupid

Each time I executed an idea I worked feverishly in the shadows. Why, in stealth mode because there is a popular theme amongst entrepreneurs that your product must be built in secrecy, otherwise an unscrupulous entrepreneur will steal it. Josh Kaufman, the founder of the Personal MBA, disagrees with the popular belief:

“Stealth mode diminishes your early learning opportunities, putting you at a huge early disadvantage. It’s almost always better to focus on getting feedback from real customers quickly as you possibly can.“

I would preface Kaufman’s argument by saying, “because you make your idea public does not mean another entrepreneur will execute like you…. there will be differences in passion, purpose, skill set, and available financing.” Kaufman continues to share:

“Don’t be shy about showing potential customers your work in progress. Ideas are cheap what counts is the ability to translate an idea into reality, which is much more difficult than recognizing a good idea.“

So how do you show potential customers what you are working on, the prototype. The prototype is an early representation of your product. It does not have to be a physical product; the prototype can be a flowchart, a computer rendering or a diagram. The purpose of the prototype is as Kaufman explains:

“As you show your Prototype to potential customers, you’ll get a steady stream of ideas and feedback that will help you make your offer even better.”

People Love Your Prototype, But Now What?

So your prototype is garnering attention, and you are even getting pre-orders. So you now need to build the product but where will you get the capital? There are some financial solutions that you can pursue. The most agreeable would be bootstrapping. Kaufman explains:

“Bootstrapping is the art of building and operating a business without funding. By limiting yourself to the use of personal cash, personal credit, the business’s revenue, and a little ingenuity, you can build extremely successful businesses without seeking funding at all.”

I use bootstrapping as my financial solution. This philosophy allows me to have 100% control over my business. But if you want to grow your business beyond bootstrapping you will need outside capital to improve your purchasing power.

Kaufman illustrates nine funding strategies, all of which I have quoted from The Personal MBA:

  • Personal Cash. “Is by far the best form financing. That is where most entrepreneurs begin by financing themselves.”
  • Personal Credit. “Is another low-cost method of financing. As long as your needs don’t exceed a few thousand dollars.”
  • Personal Loans. “Are typically made by friends and family.”
  • Unsecured Loans. “Are typically made by banks and credit unions.”
  • Secured Loans. “Requires collateral. If you don’t make the payments, the lender can legally seize the property promised as collateral.”
  • Bonds. “Are debt sold to individual lenders, the business asks individuals or other companies to loan them money directly.”
  • Receivables Financing. “Is a special type of secured lending unique to businesses. Receivables Financing can make millions of dollars in credit available.”
  • Angel Capital. “An individual private investor, someone who has excess wealth they’d like to invest in a private business.”
  • Venture Capital. “This takes over where Angels leave off. Venture capitalists are extremely wealthy investors with very large sums of capital.”
  • Public Stock Offering. It involves selling partial ownership of the company to investors on the open market.*

I have found that deciding which financial option to use depends on where you want to take your company. If being a solo-entrepreneur is all the altitude you want then bootstrapping might be all the funding you require. But if you are looking at going IPO then you will need to leverage a vehicle such as venture capital.

So I end my conversation with you as I began it. Do you have an idea for a product or service?

If you do, then I have given you two fundamental building blocks. Unfortunately, there is no guarantee that if you follow my advice, you will build a product that others will buy. My hope is that you are walking away from this article a more informed entrepreneur.