Book: Financial Intelligence for Entrepreneurs, Karen Berman and Joe Knight

Review

A great book if you don’t have a background in economics/accounting or if you want to refresh the knowledge.

Buy on Amazon.com.

tl;dr

Separate out whatever is most important so that you can track it easily. Highlight what is changing, which numbers are where they are supposed to be, and which ones are not. Operating profit margin percentage (gross profit minus operating expenses) indicates how well you are running the entire business. Train your team on financial literacy. Open Book Management (OBM) at its best creates an environment where employees feel that they are part of the success – and are at risk for the failure – of the business.

Summary

The matching principle is a fundamental accounting rule for preparing an income statement. It simply states, “Match the costs with the associated sale to determine profits in a given period of time—usually a month, quarter, or year.”

In short, the point of these comparative income statements is to highlight what is changing, which numbers are where they are supposed to be, and which ones are not.

The one big rule: many numbers on the statement reflect estimates and assumptions.

Separate out whatever is most important so that you can track it easily.

Operating profit, or EBIT, is a good gauge of how well you and your management team are running your business.

Calculate percent of and percent change on your statements.

What is the balance sheet? It’s no more, and no less, than a statement of what a business owns and what it owes at a particular point in time.

Assets must equal liabilities plus owners’ equity.

A change in one statement nearly always has an impact on the other statements.

Gross profit margin percentage: revenue minus costs of goods/services.

Operating profit margin percentage: gross profit minus operating expenses. Indicates how well you are running the entire business.

You need to determine the ratios that are important in your business and then calculate and interpret them

Percent of sales: express each line item not only in dollars but as a percent of sales.

Sustainable growth rate: net income/revenue x revenue/assets x assets/equity = ROE (return on equity)

Often people analyze investments only to justify them. We recommend that you do the analysis and take into account what it tells you before you decide to make capital investments in your business.

Working capital = current assets – current liabilities

DSO (days sales outstanding) – that is, the average number of days it takes to collect on these receivables. The longer a company’s DSO, the more working capital is required to run the business.

When everyone in the business understands the company’s objectives and works to attain them, it’s easier to create an organization built on a sense of trust and a feeling of community.

The more that organizations trained their people in financial literacy, in other words, the better the organizations did. Do the training yourself. Teach some of the basics of finance to everyone.

We also suggest posting them on a scoreboard and comparing past performance with present performance and future forecasts.

As with your dashboard, make sure the scoreboard is clear, straightforward, and easy to see.

Business owners often assume their employees know more about financial measurement than the employees really do.

Open Book Management (OBM) at its best creates an environment where employees feel that they are part of the success—and are at risk for the failure—of the business.

Book: The Subconscious Mind In Business, Robert Updegraff

Review

A classic from 1929. It’s really hard to find and it costs an arm and a leg to buy (printed scan book is ~$30). It’s short and has some interesting stories, however you’ll get 99% of it by reading my summary below.

Probably all of us have found ourselves finding a solution to a problem when we were not actively thinking about it. We might have gone for a walk, working on a hobby or just went for a shower. This is the subconscious mind at work. When you give it time and relax, ideas start popping up that you haven’t thought of them when you were actively thinking about solutions.

I hoped this book would go into detail on how to do this effectively, however the lesson is just “leave the desk and relax”. Simple, really.

tl;dr

Desks are not thinking machines. Do not plan or think about business when behind a desk. When stuck with a problem, leave it and focus on something else. A solution will come up on its own later. Part of your day, do whatever you want to do, is pleasant and puts the mind at ease.

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Book: Differentiate or Die, Jack Trout

Review

Similar lessons to author’s previous book, Positioning, but worth a read nonetheless. Lessons here can be a difference between a failed or a successful company. Also great lessons for successful companies that don’t want to fail.

Buy on Amazon.com.

tl;dr

Quality is not a difference, it’s a given. When the market is confused, the leader wins. Every aspect of your communication should reflect your difference. Oversimplify your message. The more variations you attach to the brand, the more the mind loses focus. If you can’t get everyone to prefer you, find a group that will. When you chase after another target segment, chances are you’ll chase away your original customer. Differentiating has got to line up with the perceptions in the mind, not go against them.

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Book: Maverick!, Ricardo Semler

Review

If you’re not an entrepreneur for the ego-trip of being “the boss”, then this is one of the best books you can read. It emphasizes empowering your team, giving them more information, responsibility, power to make decisions, profit sharing, … In Semco’s case, the results speak for themselves. The Brazilian conglomerate has been one of the best to work for in the country for decades and it has survived through turbulent times in 90’s Brazil. The author credits a lot of the success to the methods described in the book.

At our company, we already had a lot of these elements, however the book gives a good guide on how to go even further.

Absolute must-read.

Buy on Amazon.com.

tl;dr

Workers are responsible adults outside the job, regard them as such on the job. Empower workers, give them autonomy to do the job. Open books, full information – everyone should know where the company stands. Flexible work hours. Minimize documents. Managers vote on each others proposals. Manager evaluations by subordinates.

A company should trust its destiny to its employees.

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Book: Traction, Gabriel Weinberg and Justin Mares

Review

Great overview of the most common and effective marketing channels, how to test them and how to scale up. Fantastic for startups and a great reminder for existing businesses.

Buy on Amazon.com.

tl;dr

19 traction channels. Brainstorm ideas for all channels and do a quick test for the promising ones. Then focus solely on the channel that gave you the best results. Targeting niche blogs is one of the most effective ways to get first customers. Build easy-to-use micro tools that are easily found and shareable.

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Book: Positioning, Al Ries and Jack Trout

Review

The first edition of this book was published in 1987, but the lessons are as important today as they were 30 years ago. If you can get through the outdated examples, this book gives fantastic advice on how to position a product in an overcrowded market. Highly recommended.

Buy on Amazon.com.

tl;dr

Positioning the product in the mind of the prospect. Not creating something new and different but manipulating what is already there to retie connections that already exist. Do not try to change the mind of the prospect. Oversimplify your message. Select a position that no one else has a firm grip on. Consistency – keep at it year after year. Name should begin the positioning process by telling the prospect what the product’s major benefit is. Avoid initials. Do not use an existing name for really new products. Keep in mind the line-extension trap.

The first rule of positioning is: To win the battle for the mind, you can’t compete head-on against a company that has a strong, established position. You can go around, under or over, but never head to head.

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Article: What Google Learned From Its Quest to Build the Perfect Team, NY Times

Review

This is just a bit longer article on NY Times but it has some very important lessons I thought should be noted and shared.

tl;dr

Create a safe, respectful environment where everyone feels safe to talk and contribute. If this is done well, you can expect all team members speak roughly the same proportion. Team members must be able to talk about hard topics and feel heard.

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Book: Titan: The Life of John D. Rockefeller, Ron Chernow

Review

A very long and fascinating read about one of the great American industrialists and/or Robber Barons. The book is brilliantly written, putting you at the center of The Gilded Age. Although it’s very long, never once was I bored and many times looked forward to reading and immersing myself into the late 19th and early 20th Century.

Besides Rockefeller and his family, you will read about many other, well known people that shaped the US (and the world) as we know it today: Andrew Carnegie, J.P. Morgan, Henry Ford, Cornelius “Commodore” Vanderbilt, Joseph Pulitzer, Baron Alphonse de Rothschild,  Lelan Stanford, Sigmund Freud, James Joyce,…

A very enjoyable read and something to keep you company for a few weeks, if not months. Besides great storytelling there is also some surprisingly relevant business advice which I’ve compiled below.

Buy on Amazon.com.

Summary

John D. Rockefeller drew strength by simplifying reality and strongly believed that excessive reflection upon unpleasant but unalterable events only weakened one’s resolve in the face of enemies.

“A man of words and not of deeds is like a garden full of weeds.”

Searching for oil was wildly unpredictable, whereas refining seemed safe and methodical by comparison. Before too long, he realized that refining was the critical point where he could exert maximum leverage over the industry.

One of Rockefeller’s strengths in bargaining situations was that he figured out what he wanted and what the other party wanted and then crafted mutually advantageous terms.

“Success comes from keeping the ears open and the mouth closed.”

On employees: At first, he tested them exhaustively, yet once he trusted them, he bestowed enormous power upon them and didn’t intrude unless something radically misfired.

Part of the Standard Oil gospel was to train your subordinate to do your job.

“Has anyone given you the law of these offices? No? It is this: nobody does anything if he can get anybody else to do it… As soon as you can, get some one whom you can rely on, train him in the work, sit down, cock up your heels, and think out some way for the Standard Oil to make some money.”

He was always careful to couch his decisions as suggestions or questions.

Standard Oil created demand as well as satisfied it, and its obliging agents helped consumers clean lamps and burners to enhance their use.

Book: Start Small, Stay Small, Rob Walling

Review

Great intro into building a small software company. Some really good advice on finding and serving your market.

Buy on Amazon.com.

tl;dr

Order of importance is market, marketing, aesthetic, function. Go into niche markets and create focused products. Target small businesses and consumers. Create complementary products not products across niches. Build an email list. Outsource tasks and automate processes.

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Book: Hooked – How To Build Habit-Forming Products, Nir Eyal

Review

A must read. If you build any kind of products, you need to read this book.

Buy on Amazon.com.

tl;dr

Customers are less price-sensitive about products around which they have formed habits. They increase the dependency by storing value in the product. Two factors for habits: frequency and utility. The more users invest time and effort into a service, the more they value it. Identify habitual users, codify the steps they took (“Habit Path”) and modify the product to fit the new insights.

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