Business
I thought that this section would be more tailor-made to understanding how businesses work and more related to external views on business. Aka, you do not work there.
Business fundamentally operates on five core processes according to the Personal MBA: value creation, marketing, sales, value delivery, and finance. These interconnected processes form the backbone of any successful enterprise.
Core Business Concepts
Understanding businesses requires grasping several fundamental economic principles. Economics is relevant to understand how businesses operate within market systems where prices signal value and resource allocation. The efficiency of markets depends not on officials understanding them, but on the incentive structures they create.
Business strategy involves making choices about how to compete and create value. Companies must decide where to compete and how to win in those markets.
Management is relevant to understand how leadership becomes critical as businesses scale. Leadership involves not just directing resources but enabling people to excel. Understanding how Bureacracy is important here. The larger
Business Models and Value Creation
Modern businesses increasingly rely on platform effects and network externalities. Aggregation theory explains how companies with zero distribution costs, zero marginal costs, and zero transaction costs can dominate markets. This explains the success of many technology companies.
Personal MBA is relevant to understand the paradox of automation, which shows that increased automation often makes human operators more crucial rather than less important. When systems fail, skilled humans must quickly identify and resolve issues. Understanding Michael Porter made me appreciate the concept of competitive advantage, which centers on either cost leadership or differentiation.
Value delivery often involves understanding customer segments and their specific needs. The nine economic values people consider when evaluating purchases:
- Efficacy
- Speed
- Reliability
- Ease of use
- Flexibility
- Status
- Aesthetic appeal
- Emotion
- Cost
Institutional Perspective
Large businesses function as institutions with their own internal logic and constraints. Seeing Like a State and Humanocracy are relevant to understand how organizations develop their own momentum and interests that may diverge from stated goals.
Corporate hierarchies create information asymmetries and incentive misalignments. Moral Mazes is relevant to understand how corporate structures often reward political skill over productive contribution. I also did find the Stealing the Corner Office and Survival of the Savvy quite intersting to understand organizaiton.
The Capitalist Manifesto is relevant to understand the concept of “welfare entrepreneurs,” showing how businesses can become adept at seeking government support rather than market success. This represents a fundamental distortion of business incentives. Again and again, understanding incentivces and how they work are such a critical skill that I would highly stress prioritizing it for everyone that works above the api layer.
Consulting and External Perspectives
Consulting is relevant to understand how businesses actually function versus how they claim to operate when viewed from an external perspective. Stakeholder management becomes crucial, distinguishing between gatekeepers, resources, authorizers, network nodes, tech influencers, and sponsors.
The consulting perspective reveals that businesses often struggle with basic execution despite having sophisticated strategies. Communication overhead and bureaucratic breakdown symptoms frequently plague larger organizations.
Links
- MBA DIY Reading List
- Metaphors of an organization
- Aggregation theory Zero distribution costs. Zero marginal costs. Zero transactions
- Baumol Effect Wages in low productivity increasing sectors have to increase to compete with higher productivity sectors
- Monopsony A single buyer controls the market as the major purchaser of goods and services
- Hotelling’s law It is beneficial for producers to make their product as similar as possible
- Understanding Michael Porter
- Personal MBA
- The Capitalist Manifesto
- Basic Economics
- Management
- Consulting
- Economics
- Replacing Middle Management with API
Thoughts
- Shadow work, aka offloading work to your customers. A good example is moving from a call center to having your customers navigate help pages. The business is giving you the responsibility to find the answer yourself. The same can be said about ordering flights and understanding what you need to put into the system.
- I think understanding businesses can sometimes be compared to understanding systems and institutions, especially for large companies.
- Milton Friedman is right, the only thing a business does is make money for shareholder, how is the only thing. Anything else is monopoly residue.
- Business success often comes down to execution rather than strategy. Many companies have sophisticated plans but struggle with basic implementation.
- The larger a business becomes, the more it resembles a government institution with similar bureaucratic challenges and incentive problems.
- Competitive advantage is temporary. As noted in Basic Economics, competition tends to erode profits over time unless barriers to entry exist.
- Information asymmetry creates opportunities for both value creation and exploitation. Businesses that can bridge information gaps often find profitable niches.
- The paradox of choice affects business strategy. Having too many options can paralyze decision-making, both for businesses and their customers.
- Network effects and platform dynamics increasingly determine business success in the digital economy. Winner-take-all markets become more common.
- Businesses that fail to adapt to changing customer preferences and technological shifts rarely recover. Creative destruction is an ongoing process.