Influence and Power

The other sections of Business and Government are the areas that one can provide Influence and Power.

  • Did you give people a Why instead of just the What?
  • Have you asked people to commit to the smallest things? i.e next meeting, next step, next small project.
  • Are you treating other people with empathy? Remember:
  • The other person is human.
  • They have their own fears, insecurities, love of different things from you and aspirations.
  • They may also think differently from you. Visually, Verbally, Written. Figure out how you can better
  • Delegate your team’s success, assume your team’s failure. (The buck stops with you.)

Sales

Are you thinking in terms of the buyer?

  • What is the problem they are having?
  • How can we make their life easier?
  • What would make them love us?
  • How can we surprise them?

Negotiation

  • Give people a choice
  • Allow them to voice their concerns first
  • Sales is a therapy session and problem solving session
  • Don’t talk about the price at all until the very end. First figure out the problem you are trying to solve.
  • Be detailed and answer questions. These people are paying you to help them. The goal is to make them better.
  • Learn to be patient.
  • It is okay to say, “I don’t know”. You will not know how to do everything and pretending you know everything is a good way to show you are scatter brained. People hire experts so be a professional.
  • Learn to be assertive and learn to be submissive at the right times. Sales is a matter of power and desire. But you have to be up and down in terms of when the power is given and when it is taken away.

Emails.md

  • Don’t be wishy washy. Be confident and assertive. Examples:
    • “The reason I’m calling is…”
    • “Tell me who-how-when-where-what…”
    • “I’m super busy bringing on new clients, but I do have a slot available at 11:00 am.”
    • “Why don’t we go ahead and get that set up?”
    • “I’ll be visiting a client not far from your office on Monday. I can pick you up for lunch.”
    • “A lot of my customers are telling me that they’re having problems with XYZ. What do you feel is your biggest challenge?”
    • “How about we meet at 2:00 pm?”
  • When replying give a why. This will make it much more likely that they take action.
  • When replying to a prospect be helpful, like you are already a part of their team. Give them choices, and options and additional resources to consider when making choices. Be like a person already on their team, ready to help. Don’t come off as a sales person trying to sell them. If you already help the choice to be a part of the team is much easier.
    • “Here are some options for people in your situation…”
    • “We found these to be helpful in making appropriate decisions…”

Decision Making

The principle of intervention, like that of healers, is first do no harm (primum non nocere); even more, we will argue, those who don’t take risks should never be involved in making decisions.

This large payoff from stubborn courage is not limited to the military. “Never doubt that a small group of thoughtful citizens can change the world. Indeed, it is the only thing that ever has,” wrote Margaret Mead. Revolutions are unarguably driven by an obsessive minority. And the entire growth of society, whether economic or moral, comes from a small number of people. – Skin in the Game

  • Do not let the mind become clouded inside; keep it broad, and place your wisdom in that broad place. It is very important to polish both wisdom and mind earnestly.
  • Even when the action is extraordinarily lively on the battlefield, you should take the principles of the martial arts to the extreme and keep your mind unmoved.
  • Here is the reason: when you attack quickly and indiscriminately, without knowing the mind of your opponent, you will confuse your own rhythm and make it difficult to gain the victory. -Book of Five Rings
  • Motivation is more like a skill, akin to reading or writing, that can be learned and honed. Scientists have found that people can get better at self-motivation if they practice the right way. The trick, researchers say, is realizing that a prerequisite to motivation is believing we have authority over our actions and surroundings. – Smarter Faster Better: The Transformative Power of Real Productivity, Charles Duhigg
  • What makes Pixar special is that we acknowledge we will always have problems, many of them hidden from our view; that we work hard to uncover these problems, even if doing so means making ourselves uncomfortable; and that, when we come across a problem, we marshal all of our energies to solve it.
  • In any creative endeavor, there is a long list of features and effects that you want to include to nudge it toward greatness—a very long list. At some point, though, you realize it is impossible to do everything on the list. So you set a deadline, which then forces a priority-based reordering of the list, followed by the difficult discussion of what, on this list, is absolutely necessary—or if the project is even feasible at all. You don’t want to have this discussion too soon, because at the outset, you don’t know what you are doing. If you wait too long, however, you run out of time or resources.
  • – Creativity, Inc.
  • This is the nature of management. Decisions are made, usually for good reasons, which in turn prompt other decisions. So when problems arise—and they always do—disentangling them is not as simple as correcting the original error. Often, finding a solution is a multi-step endeavor. There is the problem you know you are trying to solve—think of that as an oak tree—and then there are all the other problems—think of these as saplings—that sprouted from the acorns that fell around it. And these problems remain after you cut the oak tree down. – Creativity, Inc.
  • The executive who wants to be effective and who wants his organization to be effective polices all programs, all activities, all tasks. He always asks: “Is this still worth doing?” And if it isn’t, he gets rid of it so as to be able to concentrate on the few tasks that, if done with excellence, will really make a difference in the results of his own job and in the performance of his organization.
  • Decisions are made by men. Men are fallible; at their best their works do not last long. Even the best decision has a high probability of being wrong. Even the most effective one eventually becomes obsolete.
  • One needs organized information for the feedback. One needs reports and figures. But unless one builds one’s feedback around direct exposure to reality—unless one disciplines oneself to go out and look—one condemns oneself to a sterile dogmatism and with it to ineffectiveness.
  • The effective decision-maker does not start out with the assumption that one proposed course of action is right and that all others must be wrong. Nor does he start out with the assumption, “I am right and he is wrong.” He starts out with the commitment to find out why people disagree.
  • As a result, decision-making can no longer be confined to the very small group at the top. In one way or another almost every knowledge worker in an organization will either have to become a decision-maker himself or will at least have to be able to play an active, an intelligent, and an autonomous part in the decision-making process.
    • Effective Executive

Decide, Simplify, Execute, Validate

DecideMost things in life have two doors so figure out which one makes most sense to go through.This decision making should be done through the OODA LoopObserve and Orient towards where you need to go and who is going to lead the pack in your growth.Go toward that goal.
SimplifyAfter you decide use the 80/20 rule to simplify what you are going after.If you decide you need to get 100% there you will never get there.Instead find the 20% of the decision that will lead to 80% of the value for that decision.Simplify until you get to that point
ExecuteExecute on your decision and run fast to get the 20% you built done.
ValidateAfter you go with your decision you need to validate that your decision was in fact the correct decision.This will require that you go back and see if the decision that you made was in fact valid.

Meetings

Structuring Meetings

Books

High Output Management

Books

High Output Management

  • What decision needs to be made?
  • When does it have to be made?
  • Who will decide?
  • Who will need to be consulted prior to making the decision?
  • Who will ratify or veto the decision?
  • Who will need to be informed of the decision?

Effective Executive / Managing Oneself by Peter Drucker

  • Look for disagreements even if overall the main task is in order
  • Feedback analysis
    • Make a decision
    • Every 6 months review the decisions
  • Once a decision has been made and worked on you need to go check on it.
    • Is it the work you want.
    • What were the failures and mistakes?
    • Were certain things not met?
    • Was the project too big to chew?
    • Was work not held to high standard.
    • All of these are important. What you lead with creates the culture that you want. You shouldn’t expect less
  • When making a decision think of boundary conditions
    • Will you want to live with this if it is going to last a while
    • What are the limitations and who will need to run this in the future. Are we making it too complicated for them?

Conflict Resolution / Negotiation

Loss Aversion

  • When making a decision a natural reaction is loss aversion.
    • It is worst to loss something than to gain something
    • So what are you willing to lose to make a gain?

Probability and Statistics

  • Life is not absolutes with making decisions with incomplete information.
  • We will never have perfect information and we will never have definite assessments of everything.
  • The best we can assume is that

Game Theory

You have strategy A and your opponent will respond best with strategy B that best helps them. However, you may hit zero sum games where you both lose in that case it may be better to create a partnership or cartel like structure so that they win as well. Or you need to figure out how to compete based on different strategies. What is your competitive strategy and what are the strategies of your competitors.

Figure out from game theory with your orientation.

What game re they playing?

What game are you playing?

What would be their strategy based on information available?

What strategy would be good for partnering?

What strategy would be good for competing?

What do you have

House Advantage

  • In any decision making situation there maybe unknowns and there may be a likelihood that there could be a big failure.
  • However, one aspect of this decision making should be that you need to create a House Edge for yourself.
    • In any Casino game the Casino has a slight advantage over the player giving the Casino positive odds over a long enough timeframe.
    • You must create the same odds for yourself however small over time.
    • On a long enough basis your odds in your decision making should be in your favor and not advantage your opponents.
  • You have to look at situations where you are advantaged and figure out how to setup yourself that your long term advantage is on you.

Decisions Under Chaos

  • Life is Chaos.
  • We work with incomplete information and we also work with information as it is given us.
  • Also any small change can have drastic consequences.
  • It is important to understand these things when doing things.

Atomic Decisions

  • Decision Making depletes willpower.
  • A lot of decision will deplete energy from that which is important.
  • So it is important to make decisions atomic such that you don’t have to decide.
    • You basically do and don’t have to think about it
  • Should get up at the same time and do same activity.
  • Should not waiver from the time.
  • Need to figure out hard activities
  • Have skin in the game. It is hard to make decisions from a far.
  • If you believe in something playing on the sidelines doesn’t cut it.
  • Is the task you are deciding to do a lateral task? Does it help you grow in anyway or are you only doing it because it is comfortable?
    • sometimes it feels nice to be in the bunny slopes because you can go down and not fall but then you just get good at doing easy stuff and never get to do the bigger more challenging tasks that require real strength and change.
    • so when picking a task really figure out if when you have made a decision for the millionth time if it is still a decision you want to make or a decision you will have someone who you trained to make do, or maybe you will automate it?
  • Remember it is okay to say no to things, saying no to a 100 small things so you can work on the big thing, but also note that big thing is made of a 100 small things.
    • So a decision is how does it play into the bigger picture?
    • Ensure that there is growth.

How are you a Pawn? (Foucault)

  • Figure out if you are a pawn in someone else’s game.
    • Without understanding if you are a pawn you won’t have autonomy.
    • Need to understand the power structures that make you a pawn.
  • We are all pawns in a bigger game that we may not even be aware of.
    • How does being a pawn affect your power?
  • What are the powers acting on you that define who you are?
    • Parents
    • Society
    • Colleagues
  • We are the product of our environment and surroundings and when we hang out with people who are like minded we start becoming influenced by their behavior.
    • This power that is taken in is how we behave.

Influence and Power

  • Micro-commitments. Have people commit to the smallest things. Next meeting, next step, next way to talk to people, small project to start.
  • Slow Down When Speaking. Slow it down. Calm it down. speeding things makes people think they are not heard. Listen, Don’t Interrupt
  • Positive playful voice. Relax and smile while talking even when on the phone.
  • Tell the Illness, Sell the Cure
  • Be Funny
  • Ask How and Why questions. (Makes them think)
    • Give People a Why, they are more likely to listen to you
  • When asking a question make them do the work to figure out the answer. It makes them think they came up with the answer
  • Mirror the Other Person
  • Label all bad things the other entity can say about you. It cuts the power of their criticism.
  • Get the other side to say no as soon as possible. No is a default because people fear change. So get to no early so the other side can then be more open to your ideas. “What about this doesn’t work for you?” It also makes them feel safe. Persuade from their perspective.
  • Get them to say “That’s right.” A challenger with bunch of questions from their perspective.
  • Say that we only want “what’s fair.” This puts the other person in a predicament of whether they are good or not.
  • Don’t say I understand because it makes you sound like you are not listening to them.
  • Ask for help. Let them feel like they are in control

Notes

Sales as competition what they like about their current vendor it pulls out the negative. As it doesn’t makes people follow their consistency bias.

People thinking emotionally and apply logic to their emotion.

Sales is about sales not the relationship

  • People tend to fail at sales because they want to be liked and accepted instead of disrupting the bias.

For sales need to be empathetic a lot. 80% listening and 20% solving their problem.

  • But the solving of their problem has to be done in a way that puts you ahead.

Todo

Customer Development

  1. How do you do customer development? #next
  2. How do you ask customers for what they want?
  3. What are the jobs to be done?

Effective Communication

How to have effective meetings?High Output ManagementWrite how to have one off meetings
Learn: How do I effectively communicate my ideas for others to understand?
How do I communicate clearly?Learn: How do I communicate more succinctly when communicating ideas?Learn: How to speak more clearly?
How do I get through conflict?Crucial conversationscreating conversations: improvisation in everyday discourseNote Crucial Conversations as a section on Conflict Resolution
Learn: How do I effectively communicate what my objective and outcome should be for tasks?Learn: How do I effectively hire vendors?
How do I effectively communicate my ideas so others can achieve them?How do I get through complicated decisions?
How do I deal with conflict and resolution?
All things in life adjust to stress.Stress creates homeostasis which means you can take on additional stress which means you can grow more.This also means mistakes are a stress on the system. Learning from the mistakes are how you improve the state of the system overall.
Time Management• Include slack into your time.• You cannot move at 100% all the time and not should you.• You need slack time for your brain to recharge as a muscle.• This slack time actually makes things better long term because your brain is able to relax and think about problems differently• Slack doesn’t mean not having definite goals. Slack just means that you cannot have 100% throughput in all things. You have to have some amount of give for things to move forward.

Influence and Power

Influence and Power

Never Split the DifferenceMirror the Other PersonLabel all bad things the other entity can say about you. It cuts the power of their criticism.Get the other side to say no as soon as possible. No is a default because people fear change. So get to no early so the other side can then be more open to your ideas. “What about this doesn’t work for you?” It also makes them feel safe. Persuade from their perspective.Get them to say “That’s right.” A challenger with bunch of questions from their perspective.Say that we only want “what’s fair.” This puts the other person in a predicament of whether they are good or not.Don’t say I understand because it makes you sound like you are not listening to them.Ask for help. Let them feel like they are in control
Book: Influence
Book: Charisma Myth
Book: Crucial Conversations
Book: How to Make Friends and Influence People
Book: 48 Laws of Power
Existing PrinciplesMicro-commitments. Have people commit to the smallest things. Next meeting, next step, next way to talk to people, small project to start.Slow Down When Speaking. Slow it down. Calm it down. speeding things makes people think they are not heard. Listen, Don’t InterruptPositive playful voice. Relax and smile while talking even when on the phone.Tell the Illness, Sell the CureBe FunnyAsk How and Why questions. (Makes them think)When asking a question make them do the work to figure out the answer. It makes them think they came up with the answer
What are some latest research on exerting power?
What great ancient texts showed the use of power?
How does one internalize the use of power?
Learn: How do you influence people?Charisma MythInfluenceHow to Make Friends and Influence PeopleNever Split the DifferenceCrucial Conversations

Leader / Manager

LearnDoAdvance
Learn: How do I become a good leader so that I can effectively delegate my tasks and get them accomplished?Learn: What does it mean to be a leader?Leaders Eat LastLaws of Human Nature by Robert GreenePrinciplesBe an effective delegator Delegate more tasks from my plateSystematize as postulatesPlan hour a day managingsetup hiringlearn how to hireplan day aroundtasks
Learn: How do I do effective Goal Setting?the practice of managementHigh output managementFirst Thing FirstLearn: How do I setup an effective organizational agenda?Only the Paranoid surviveManaging for Results

Influence and Power

  • To get where you want to go you need to be able to influence and exert power.
    • People may scoff at this principle but it is important to exert a level of power.
  • Power is an important human dynamic and it is what powers and runs group sociology
    • It is therefore important to understand how to exert and use it for your gains.
  • You have to want and be able to manipulate people to get what you want.
    • To do that you need two skills:
      • concrete decision making
      • conflict resolution and negotiation
  • Having good decision making capabilities allows you to move forward.
    • A decision is a stake in the ground in whatever way you are going but it is a stake.
    • However, a decision can be made to go forward or backwards
      • So having a good series of decisions backing you up leads you to gain trust and hence power.
  • Conflict Resolution and Negotiation
    • A lot of power also resides in how you handle when getting angry and how you negotiate what you want.
    • These are the times where other people perceive you in a certain light.
      • How you handle conflicts shows how you handle under pressure
      • How you negotiate shows how you get what you want

Decision Making

Column 1Column 2Column 3
How do you make effective decisions?PrinciplesHigh Output ManagementDrucker

Books

  • paradox of choice

Strategy

  1. Strategy
    1. MentalModel: War
      1. Archery
      2. Paintballing
      3. Books
        • [ ] The Mind of War: John Boyd and American Security
        • [ ] No easy day
        • [ ] Arthashastra
        • [ ] A Vision So Noble by Daniel Ford
    2. What games give you the best available strategy?
      1. Chess
      2. Poker
    3. Who were the titans of industry and what were their strategies?

Self-Branding

  • You are a brand and what you are to the world is an image.
  • How you use social media or not, how you interact with people, how you talk and behave all affects your branding.
  • Your brand is also pretty important in things like promotions, clout and more.
  • It is important to build your brand for how other people perceive you.
    • Your image also affects how people perceive your work, and how they think you behave.
  • Marketing
    • Tell a Story
  1. Pitching
    1. Mental Model: Story Telling
      1. How do you effectively write a story?
      2. How do you effectively tell a story?
      3. How do you write effectively?
        • [ ] On Writing Well
  2. How do you move from Early Adopters to Mainstream?
    • [ ] Inside the Tornado
  3. Methods
    1. Website

Power Why Some People Have It

chapter 8

You need to maintain your reputation because that is what is most important in getting a promotion and what prep pee think of you.

So you need to cultivate your image carefully and make sure that it is sustainable

People are based off first impressions so you need to cultivate that impression on others

So it might be that you have to leave and start a new to have the image that you want.

Writing is a good way to promote yourself

Situational Awareness

Sports Psychology & Stress

Dress

It is important to dress and change clothes as a changing of ritual or changing of form.

· You don’t need to dress well all the time but the way you present yourself is important in how people perceive you.

· Don’t be the clothes you wear but also don’t be taken lightly because of the type of clothes you wear.

· Clear your clothing once in a while and buy new stuff. Ask yourself if something is past its prime. It maybe is.

Make an offer instead of a request they are more likely to respond

Hiring

  • “Will you admire this person?”
  • “Will this person raise the average level of effectiveness of the group they’re entering?”
  • “Along what dimension might this person be a superstar?”
  • -Amazon Shareholder Letter
  • “I believe high standards are teachable. In fact, people are pretty good at learning high standards simply through exposure. High standards are contagious. Bring a new person onto a high standards team, and they’ll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread. And though exposure works well to teach high standards, I believe you can accelerate that rate of learning by articulating a few core principles of high standards, which I hope to share in this letter.”
  • “Another important question is whether high standards are universal or domain specific. In other words, if you have high standards in one area, do you automatically have high standards elsewhere? I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest. When I started Amazon, I had high standards on inventing, on customer care, and (thankfully) on hiring. But I didn’t have high standards on operational process: how to keep fixed problems fixed, how to eliminate defects at the root, how to inspect processes, and much more. I had to learn and develop high standards on all of that (my colleagues were my tutors).”
  • “What do you need to achieve high standards in a particular domain area? First, you have to be able to recognize what good looks like in that domain. Second, you must have realistic expectations for how hard it should be (how much work it will take) to achieve that result – the scope.”
  • “Unrealistic beliefs on scope – often hidden and undiscussed – kill high standards. To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be – something this coach understood well.”
  • “We don’t do PowerPoint (or any other slide-oriented) presentations at Amazon. Instead, we write narratively structured six-page memos. We silently read one at the beginning of each meeting in a kind of “study hall.” Not surprisingly, the quality of these memos varies widely. Some have the clarity of angels singing. They are brilliant and thoughtful and set up the meeting for high-quality discussion. Sometimes they come in at the other end of the spectrum.
  • “Here’s what we’ve figured out. Often, when a memo isn’t great, it’s not the writer’s inability to recognize the high standard, but instead a wrong expectation on scope: they mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more! They’re trying to perfect a handstand in just two weeks, and we’re not coaching them right. The great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two. The key point here is that you can improve results through the simple act of teaching scope – that a great memo probably should take a week or more.
  • “So, the four elements of high standards as we see it: they are teachable, they are domain specific, you must recognize them, and you must explicitly coach realistic scope. For us, these work at all levels of detail. Everything from writing memos to whole new, clean-sheet business initiatives. We hope they help you too.

Management

  • If you investigate companies that have failed, you will find that many employees knew about the fatal issues long before those issues killed the company. If the employees knew about the deadly problems, why didn’t they say something? Too often the answer is that the company culture discouraged the spread of bad news, so the knowledge lay dormant until it was too late to act.
  • A healthy company culture encourages people to share bad news. A company that discusses its problems freely and openly can quickly solve them. A company that covers up its problems frustrates everyone involved. The resulting action item for CEOs: Build a culture that rewards—not punishes—people for getting problems into the open where they can be solved.
  • – Hard thing about hard things
  • Wherever knowledge workers perform well in large organizations, senior executives take time out, on a regular schedule, to sit down with them, sometimes all the way down to green juniors, and ask: “What should we at the head of this organization know about your work? What do you want to tell me regarding this organization? Where do you see opportunities we do not exploit? Where do you see dangers to which we are still blind? And, all together, what do you want to know from me about the organization?”
  • The definition of a “routine” is that it makes unskilled people without judgment capable of doing what it took near-genius to do before; for a routine puts down in systematic, step-by-step form what a very able man learned in surmounting yesterday’s crisis.
  • Every one of Lee’s generals, from Stonewall Jackson on, was a man of obvious and monumental weaknesses. But these failings Lee considered—rightly—to be irrelevant. Each of them had, however, one area of real strength—and it was this strength, and only this strength, that Lee utilized and made effective.
  • Every survey of young knowledge workers—physicians in the Army Medical Corps, chemists in the research lab, accountants or engineers in the plant, nurses in the hospital—produces the same results. The ones who are enthusiastic and who, in turn, have results to show for their work, are the ones whose abilities are being challenged and used. Those that are deeply frustrated all say, in one way or another: “My abilities are not being put to use.”
  • If one disciplines oneself to ask about one’s associates—subordinates as well as superiors—“What can this man do?” rather than “What can he not do?” one soon will acquire the attitude of looking for strength and of using strength. And eventually one will learn to ask this question of oneself.
  • – Effective Executive

Management

  • Everyone is a manager at the company with the factir being that they are owners of their realm of concern
  • Hoeven this doesn’t mean they are not responsible for the total action
  • However there are people who can remove impediments
  • They connect the group to a huge purpose
  • A manager is not a side job it has to be a full time affair that includes certain tasks. Ensuring work is moving forward, removing impediments, 1:1s, Coburn resolution, etc.

Management

A lot of management of a project or task is creating clear expectations and it is okay if you don’t know how to fill everything. The goal is to get better.

Remember:

  • The other person is human.
    • You can’t manage everyone the same, each person has to be managed differently depending on their skills and experience. Some you have to manage everyday others you can go a month or so in between.
  • They have their own fears, insecurities, love of different things from you and aspirations.
  • They may also think differently from you. Visually, Verbally, Written. Figure out how you can better communicate.
  • Do not micromanage. Let people do their thing and suggest improvements.
  • Make ideas seem like it is coming from them. Have a deadline.
  • Best Way to Explain
    • Sales
  • Tasks
    • Plan an hour a day for management and creating leverage on your projects. Just because you say to do things doesn’t mean that they automatically happen so you need to be able to effectively create time for nudging people on tasks, figuring out next set of tasks for people to do, and ensuring that people who are more advanced are going in the direction you want them to go in.
  • Create Competition among your workers as this will encourage faster and better outcomes.

Effective Meetings

  • “Why are we having this meeting? Do we want a decision, do we want to inform, or do we want to make clear to ourselves what we should be doing?” They insist that the purpose be thought through and spelled out before a meeting is called, a report asked for, or a presentation organized. They insist that the meeting serve the contribution to which they have committed themselves. -Effective Executive
  • Meetings should a have a create objective and result and next action.
  • “Thus the chairman must have a clear understanding of the meeting’s objective-what needs to happen and what decision has to be made. The absolute truth is that if you don’t know what you want, you won’t get it. So before calling a meeting, ask yourself: What am I trying to accomplish? Then ask, is a meeting necessary? Or desirable? Or justifiable? Don’t call a meeting if all the answers aren’t yes.”
  • “What should be discussed at a staff meeting? Anything that affects more than two of the people present. If the meeting degenerates into a conversation between two people working on a problem affecting only them, the supervisor should break it off and move on to something else that will include more of the staff, while suggesting that the two continue their exchange later.” – High Output Management

1:1s

  • One of the fundamental tenets of Intel’s managerial philosophy is the one-on-one meeting between a supervisor and a subordinate. Its main purposes are mutual education and the exchange of information. By talking about specific problems and situations, the supervisor teaches the subordinate his skills and know-how, and suggests ways to approach things. At the same time, the subordinate provides the supervisor with detailed information about what he is doing and what he is concerned about. Obviously, one-on-ones take time, both in preparing for them and in actually holding them—time that today’s busier manager may not have. -High Output Management
  • “What should be covered in a one-on-one? We can start with performance figures, indicators used by the subordinate, such as incoming order rates, production output, or project status. Emphasis should be on indicators that signal trouble. The meeting should also cover anything important that has happened since the last meeting: current hiring problems, people problems in general, organization problems and future plans, and — very, very important — ~potential~ problems. Even when a problem isn’t tangible, even if it’s only an intuition that something’s wrong, a subordinate owes it to his supervisor to tell him, because it triggers a look into the organizational black box. The most important criterion governing matters to be talked about is that they be issues that preoccupy and nag the subordinate. These are often obscure and take time to surface, consider, and resolve.” -High Output Management
  • “ A key point about a one-on-one: It should be regarded as the subordinate’s meeting, with its agenda and tone set by him. There’s good reason for this. Somebody needs to prepare for the meeting. The supervisor with eight subordinates would have to prepare eight times; the subordinate only one. So the latter should be asked to prepare an outline, which is very important because it forces him to think through in advance all of the issues and points he plans to raise.” – High Output Management
  • Praise people based on effort not for being smart. They will work harder and want a bigger challenge.
  • When assigning tasks. Tasks should be assigned based on the paradox of choice. Fewer options can lead to the work being done more effectively.
    • Manager needs to figure out what the 80/20 of this is.
    • These tasks should be a part of the bigger vision and goals.
  • 1:1 Meeting Agenda
    • ReIterate the vision
    • Tell them goals we are using to get there
    • Define outcomes and help them define key results.
      • See where they are to achieving key results
    • Ask for what could use improvement.
    • Where is there deficiency in communication
    • Capture mistakes and things that may kill the company.
    • Ask any improvements that they can use from you.

Create Safety

  • By creating a place for safety people will be more willing to tell you what is wrong without hiding things behind your back.

Communication

Tasks

Meetings

  • Take 30 Seconds to Write Down the key points after a meeting.
    • Do it immediately and only 30 seconds.

Problems / Issues

  • When you have a problem ask the five whys.
    • Each why should be answered specifically with names of people involved and what is happening.
  • Have a standard place of collecting issues

Brainstorming

  • but too much concern for creating a “safe environment” for criticism actually kills the ability to think constructively and creatively, because you’re focusing on the other people rather than the material at hand. – Mind for Numbers
  • It is better for people to prebrainstorm and come with a list of ideas than to brainstorm in a group. If brainstorming as a group the loudest speaker sort of narrows the idea and people go based on that as opposed to a diversity of ideas which is what you want when brainstorming.

Receiving Feedback

  • Compassionate Detachment. Detach yourself from the area that you are being critiqued or where you are receiving feedback.
  • Have a growth mindset. How can you take their feedback and apply it to your work?
    • Tell yourself: “This is for me to grow.”
  • Organization
    • Hierarchy
    • Retrospectives
  • Leadership
    • Ownership
    • Role
  • Communication
    • Email

Meetings

  • 1:1s
  • Feedback
    • Mistakes
    • Retrospectives

1:1s

Every person needs to be taken care of at a personal level as well as career development, and current development. This means we need to ask the following questions quarterly:

  • Where do you want to be in 18 months?
  • What can we do to help you get there?
  • What do you think is holding you back from getting there?
  • How can I help?

A weekly 1:1 needs to ask the following:

  • What’s on your mind this week?
  • On a scale of 1 to 5 how do you feel? Why do you feel that way?
  • On a scale of 1 to 5 how do you feel about work? Why do you feel that way?
  • What one thing can make you happier?
  • What one thing could be eliminated to make you happier?
  • What feedback do you have for me?

Influence and leadership

• Ensure the other person’s maslov’s hierarchy of needs are being met

Pods

A team needs to be small. This is a 2 Pizza Team of about 5-8 people. This is the optimal size of a team that can function without a lot of communication overhead. To do this a Pod has to also work independently and be able to be extracted and moved elsewhere if need be.

The Pod needs to have the Why and How of the Organization but it needs to work autonomously. It needs to figure out its own plans on execution.

Objectives and Key Results

Decide

Goals / OKRs

  • To go to your goals you need to have goals that are measurable.
  • OKRs are a great way to do this.
  • OKRS should have three sets
    • Yearly
    • Quarterly
    • Monthly
  • Quarterly is too long for right now and it spreads out the time to get tasks done. So do the OKRs monthly.
  • • These could also then be used for Investor Updates
  • OKRs are intents not what to do. They need to give a way of what a win looks like not give the directions for winning

Objectives and Key Results

  • Measuring what matters begins with the question: What is most important for the next three (or six, or twelve) months? Successful organizations focus on the handful of initiatives that can make a real difference, deferring less urgent ones.
  • – Measure What Matters
  • To go to your goals you need to have goals that are measurable.
  • OKRs are a great way to do this.

Todo

  • Best way to set goals is through OKRs: Objectives as Key Results
  • This gives you a blueprint of what you are trying to achieve and the specific actionable metrics that are useful to know if you actually met your goals.
  • OKRs should allow you to fulfill your vision but be actionable and have deadlines.
  • The goals are important since it gives you a goal post to achieve
  • To attain a goal you have to apply the learnings backwards.
    • What are the series of learnings you need to do to effectively reach your goal
    • From there you need to then advance the next layer by bringing your own input into the change
  • Your goals for each quarter should fit on 1 page. There should theoretically be only 1 major OKRs for the whole organization otherwise there are too many things to keep track of and you will lose focus.
    • 1 Page forces you to focus

Effective OKRs

  • Where do you want to go?
  • What are 3 things you can do to get there?
    • Specific & Time Bound
    • Aggressive But Realistic
    • Measurable & Verifiable

Points:

  • Does your goal track to the overarching company goal?
  • Does your goal address the needs of the project you are working on?
  • What is blocking you from achieving those goals

Measure what matters

  • Objective. This should be the goal that you want to achieve
  • Key Results. This is the specific measurable goals that you will use to setup success.

Okr should be at all levels that realign goals based on top level needs.

People need to set up half or more of their own objectives. This gives them autonomy and ability to measure up

It defines a what and is measurable.

Key results should measure effect and counter effect

All key results must be met to met objective can’t be half asses

Key results must be specific, succinct and measurable

Okr writing scheduled

What is your objective? How does your part fit with the larger objective for the quarter and larger vision of the company?

What are 4 key results with measurable outputs that you seek to fulfill. What is the time frame?

Go over okr with abhi

Abhi:

Does this align with the goals of the company?

How can key results be made much better?

Will this get fulfilled within the month?

OKR Review

Okr review

How is meeting your okr?

Are you blocked on anything?

Are your interests aligning with what you are working on?

Culture

Introduction

My goal here is to collect examples of amazing leadership cultures and present them. I want to dive into what makes good companies and what sort of kills them off.

Being CEO requires lots of unnatural motion. From an evolutionary standpoint, it is natural to do things that make people like you. It enhances your chances for survival. Yet to be a good CEO, in order to be liked in the long run, you must do many things that will upset people in the short run. Unnatural things. – Hard thing about hard things

The knowledge worker cannot be supervised closely or in detail. He can only be helped. But he must direct himself, and he must direct himself toward performance and contribution, that is, toward effectiveness.

Most discussions of the executive’s task start with the advice to plan one’s work. This sounds eminently plausible. The only thing wrong with it is that it rarely works. The plans always remain on paper, always remain good intentions. They seldom turn into achievement. Effective executives, in my observation, do not start with their tasks. They start with their time. – Effective Executive

  • Create a religious experience
  • Every member working effectively as a singular unit to achieve something greater than any single people can do.
  • Have a method of keeping track of mistakes that were made so you can improve upon them. Punish people for not telling you about mistakes not for making them.

Amazon

https://www.dropbox.com/s/bqkrxr903uliuio/All Amazon Shareholder Letters.pdf?dl=0

  • Principles: Long Term Thinking, Free Cash Flow, Customer Obsessiveness
    • “customer obsession rather than competitor focus, heartfelt passion for invention, commitment to operational excellence, and a willingness to think long-term.”
  • Long Term Thinking: Described it in the first letter
    • This was their core principle that they did not waver from ever.
    • “Long-term thinking is both a requirement and an outcome of true ownership.”
    • “Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate.”
    • “More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.”
  • Kill Projects that don’t bring long term benefits, but experiment widely
    • “a big part of the challenge for us will lie not in finding new ways to expand our business, but in prioritizing our investments.”
    • “We must be committed to constant improvement, experimentation, and innovation in every initiative.”
    • “Of course, we won’t undertake such experiments cavalierly. We will work hard to make them good bets, but not all good bets will ultimately pay out.”
  • Maximize Cashflow
    • “Why focus on cash flows? Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows more than any other single variable seem to do the best job of explaining a company’s stock price over the long term.”
    • Cost Conscious Culture / Work Lean
    • Scaling and reinvest profits on growth
  • Customer Obsessiveness
    • “Listen to customers, but don’t just listen to customers – also invent on their behalf.”
    • “Good inventors and designers deeply understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the averages you’ll find on surveys. They live with the design.”
    • “One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’. I see that cycle of improvement happening at a faster rate than ever before. It may be because customers have such easy access to more information than ever before – in only a few seconds and with a couple taps on their phones, customers can read reviews, compare prices from multiple retailers, see whether something’s in stock, find out how fast it will ship or be available for pick-up, and more. These examples are from retail, but I sense that the same customer empowerment phenomenon is happening broadly across everything we do at Amazon and most other industries as well. You cannot rest on your laurels in this world. Customers won’t have it.”
  • High Bar in Hiring
    • “Will you admire this person?”
    • “Will this person raise the average level of effectiveness of the group they’re entering?”
    • “Along what dimension might this person be a superstar?”
    • “I believe high standards are teachable. In fact, people are pretty good at learning high standards simply through exposure. High standards are contagious. Bring a new person onto a high standards team, and they’ll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread. And though exposure works well to teach high standards, I believe you can accelerate that rate of learning by articulating a few core principles of high standards, which I hope to share in this letter.”
    • “Another important question is whether high standards are universal or domain specific. In other words, if you have high standards in one area, do you automatically have high standards elsewhere? I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest. When I started Amazon, I had high standards on inventing, on customer care, and (thankfully) on hiring. But I didn’t have high standards on operational process: how to keep fixed problems fixed, how to eliminate defects at the root, how to inspect processes, and much more. I had to learn and develop high standards on all of that (my colleagues were my tutors).”
    • “What do you need to achieve high standards in a particular domain area? First, you have to be able to recognize what good looks like in that domain. Second, you must have realistic expectations for how hard it should be (how much work it will take) to achieve that result – the scope.”
      • “Unrealistic beliefs on scope – often hidden and undiscussed – kill high standards. To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be – something this coach understood well.”
      • “We don’t do PowerPoint (or any other slide-oriented) presentations at Amazon. Instead, we write narratively structured six-page memos. We silently read one at the beginning of each meeting in a kind of “study hall.” Not surprisingly, the quality of these memos varies widely. Some have the clarity of angels singing. They are brilliant and thoughtful and set up the meeting for high-quality discussion. Sometimes they come in at the other end of the spectrum.
        • “Here’s what we’ve figured out. Often, when a memo isn’t great, it’s not the writer’s inability to recognize the high standard, but instead a wrong expectation on scope: they mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more! They’re trying to perfect a handstand in just two weeks, and we’re not coaching them right. The great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two. The key point here is that you can improve results through the simple act of teaching scope – that a great memo probably should take a week or more.
    • “So, the four elements of high standards as we see it: they are teachable, they are domain specific, you must recognize them, and you must explicitly coach realistic scope. For us, these work at all levels of detail. Everything from writing memos to whole new, clean-sheet business initiatives. We hope they help you too.
  • Operation Excellence ⎯ “To us, operational excellence implies two things: delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all our businesses.”
  • Partnerships with the caveat that the partner has to have the same values as your company
  • Don’t add new goals into your culture until you have standardized on the existing goals
  • Data
    • “Many of the important decisions we make at Amazon.com can be made with data. There is a right answer or a wrong answer, a better answer or a worse answer, and math tells us which is which.”
    • “Our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.com.”
  • Focus on Differentiation that allows you to have a Blue Ocean to yourself
    • “In some large companies, it might be difficult to grow new businesses from tiny seeds because of the patience and nurturing required. In my view, Amazon’s culture is unusually supportive of small businesses with big potential, and I believe that’s a source of competitive advantage.”
  • Insights
    • “We humans co-evolve with our tools. We change our tools, and then our tools change us.”
    • “We hope Kindle and its successors may gradually and incrementally move us over years into a world with longer spans of attention, providing a counterbalance to the recent proliferation of info-snacking tools. I realize my tone here tends toward the missionary, and I can assure you it’s heartfelt. It’s also not unique to me but is shared by a large group of folks here. I’m glad about that because missionaries build better products.”
    • “Everywhere we look (and we all look), we find what experienced Japanese manufacturers would call “muda” or waste.2 I find this incredibly energizing. I see it as potential – years and years of variable and fixed productivity gains and more efficient, higher velocity, more flexible capital expenditures.”
      • “At a fulfillment center recently, one of our Kaizen experts asked me, “I’m in favor of a clean fulfillment center, but why are you cleaning? Why don’t you eliminate the source of dirt?” I felt like the Karate Kid.”
      • “Through our Kaizen program, named for the Japanese term “change for the better,” employees work in small teams to streamline processes and reduce defects and waste.”
    • “The most radical and transformative of inventions are often those that empower others to unleash their creativity – to pursue their dreams.”
    • “Nothing gives us more pleasure at Amazon than “reinventing normal” – creating inventions that customers love and resetting their expectations for what normal should be.”
    • “A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time – with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.”
  • Goal Setting
    • “Our annual goal setting process begins in the fall, and concludes early in the new year after we’ve completed our peak holiday quarter. Our goal setting sessions are lengthy, spirited, and detail- oriented. We have a high bar for the experience our customers deserve and a sense of urgency to improve that experience.”
    • “We’ve been using this same annual process for many years. For 2010, we have 452 detailed goals with owners, deliverables, and targeted completion dates. These are not the only goals our teams set for themselves, but they are the ones we feel are most important to monitor. None of these goals are easy and many will not be achieved without invention. We review the status of each of these goals several times per year among our senior leadership team and add, remove, and modify goals as we proceed.”
  • Culture
    • “A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it – not creating it. It is created slowly over time by the people and by events – by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one – just that it’s ours – and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.”
    • “One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
  • Decision Making
    • “Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.”
    • “As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.1 We’ll have to figure out how to fight that tendency.”
    • “The opposite situation is less interesting and there is undoubtedly some survivorship bias. Any companies that habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before they get large.”
    • “Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions. Easy for start-ups and very challenging for large organizations. The senior team at Amazon is determined to keep our decision-making velocity high. Speed matters in business – plus a high-velocity decision making environment is more fun too. We don’t know all the answers, but here are some thoughts.”
      1. “First, never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong? I wrote about this in more detail in last year’s letter.”
      2. “Second, most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
      3. “Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.”
      4. “Fourth, recognize true misalignment issues early and escalate them immediately. Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion, no number of meetings will resolve that deep misalignment. Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision.”
  • Process
    • A common example is process as proxy. Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations. The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right. Gulp. It’s not that rare to hear a junior leader defend a bad outcome with something like, “Well, we followed the process.” A more experienced leader will use it as an opportunity to investigate and improve the process. The process is not the thing. It’s always worth asking, do we own the process or does the process own us? In a Day 2 company, you might find it’s the second.”

Bridgewater Associates

Principles by Ray Dalio

  • Have a system for collecting mistakes. Review them. Punish for not filing not making the mistake
  • Replacing yourself. Find someone capable and have a system for replacing them if need be.
  • Have to have others do stuff that you aren’t good At to be successful.

Microsoft

“Employees. Customers. Products. Partners. Each element needs time, attention, and focus if I’m going to to create the value for which I am ultimately accountable. All four are important , and without discipline even the best managers can overlook one or more.”

Sales Growth Milestones

  • Sales Basics
    • Learn the basics of sales including sourcing, prospecting and closing.
    • Work with Abhi in partnering with sales tasks including outreach and messaging.
    • Understand and figure out our products and help define sales and marketing messaging.
    • Understand and define prospect’s painpoints.
    • Understand and define our painpoints.
  • Sales Intermediate
    • Work independently to reach out to prospects and handle responses, outreach and follow ups.
    • Create and draft messaging and run experiments independently.
    • Continue working with Abhi on Closing the sales including defining the Proposal, etc.
    • Help defining the Pricing structure to increase revenue.
    • Define processes for existing target segments and start helping others define the process.
  • Sales Advance
    • Define new customer segments that we should target for our products.
    • Figure out what problems people are facing and help define the product roadmap.
    • Work in the proposal independently with feedback after meeting call.
    • Hire and train others through their growth.

Investing

Think Like an Investor

If you invest $100 into something what is an acceptable rate of return? Do we want that $100 to return $100, $50, $15 over a period of time n? As a corollary what risk are we willing to handle? For that $100 are we willing to lose all $100, $50, $15? All investments have a potential for loss. It is the nature of the beast.

However, every task a human does must be thought of as an exercise in investing. We are making a decision based on current information with the hope of an expected future outcome. I do laundry today and I have clean clothes to last me till Tuesday. I wait till Friday and an unexpected out of town trip and now I have to scramble to do laundry.

Investing can and should be be methodical. What is the future outcome, what are the risks? What are the risks of doing nothing? What are you willing to invest to get to that future outcome? How can you derisk the outcome? 

Capabilities Based Investing

The Allied Forces put a stake in the ground during D-Day. A single point to control from which they were able to reach the rest of Europe from the Western Front. Similarly, a company should enter businesses from which it can expand its capabilities or improves its ability to deliver.

Most of the time there is interest in building conglomerates but a conglomerate has the problem of not shared capabilities. How does GE’s light business match the aircraft business. What are the capability that are shared?

As you can see we failed when we didn’t expand on our capabilities.

If on the other hand growth is based on expanding existing capabilities certain things can be attained.

  • The existing business can increase its flywheel based on this new capability.
  • A new capability based business can be independently run to self-optimize resulting in new business opportunities.
  • Expand into unrelated industries based on capabilities.

Capability based growth is different from industry based growth in that it at its core follows with comparative advantage. What are we the absolute best at and how can we use that to address multiple different industries versus an industry based company that limits itself to a single industry which may limit its growth.

Essentially the crux of this is that growth should happen from strength to strength.

Leave the Table

A business is an entity that exploits an opportunity. It has a natural lifecycle and with the application of creative destruction a company’s lifespan is getting shorter and shorter. Think years to months. While a company may lay the groundwork to exist a long while a new entity can arise and displace the old one rapidly.

So all companies must behave like temporary organizations that exist to exploit a market opportunity as fast as possible and once the value has been captured closed or sold. It is a natural cycle.

The way this functions in practice is:

  • Sell first then build what we are selling. Do this rapidly with no-code tools then move to code if needed.
  • Every entity should be as independent as possible from the other companies having their own team. Interaction should be minimal.
  • Selling a property should be as simple as transferring a GitHub repo, the domain and DNS.
  • Not everything we build will work out we need to accept it and move on. Fail cheap and fast.

The beauty of this approach is that as our vision is far reaching we can naturally attack a problem constantly as new solutions arrive and clear out the old to get to our goal faster.

Financial Statements

Financial literacy is one of the most important part of how we function. We cannot work unless we understand it well and have a common base line of knowledge.

  • Do you have a lot of debt?
  • Can you pay off your debt immediately if you need to?
  • Is your debt working for you?
  • How are your Financial Ratios?
  • Free Cash Flow? (Cash from Operating Activities – Cash Invested in Capital Equipment)
  • Days Sales Outstanding – How long does it take your customers to pay their bills?
  • Quick Ratio – Ensure that we are not running out of cash and are growing at a steady rate. (Current Assets /
  • Gross Profit Margin – How can we reduce the cost of delivering our services?
  • Net Profit Margin – How can we increase the revenue while reducing the cost of getting additional revenue?
  • Debt to Equity – We want to use financing to grow our business but we shouldn’t be over leveraged?
  • Cash Conversion Cycle. How long do we have to convert outflow to inflow to have working capital?

How do I read an Income Statement?

  • Income (is Revenue)
    • The amount coming from sales
    • Cost of Service / Cost of Goods
      • What it costs to deliver the Sale
  • Gross Profit
    • Income – Cost of Service
    • Should be positive otherwise business is not going to survive
    • This is the cost income coming from delivering the goods
  • Expenses
    • The overhead of running a company including salaries, etc. that are not tied to delivering the goods.
    • This is also where depreciation goes for stuff bought
    • Taxes as well are here.
  • Net Operating Income (Net Operating Profit)
    • Gross Profit – Expenses
    • This is what it costs to run the company
  • Net Other Income
    • This is money made from interest and other things unrelated to what the company produces
  • Net Income (Net Profit)
    • Total amount of profit / loss of running the company

How do I read the Balance Sheet?

The balance sheet is the cumulative growth of the company and so is an important document.

Assets = liabilities + owner’s equity

  • Assets
    • Cash
    • Inventory
      • Reduction in Inventory should increase Cash
    • Accounts Receivable
      • Think of this as a loan to the customer.
    • Long Term Assets
      • Buildings to have been bought a while ago and the value could have increased, but we can’t realize the change until we sell it.
  • Liabilities
    • Loans
    • Long Terms
    • Account Payable
      • To vendors, etc. Think of money you owe as a loan the vendors gave you.
  • Equity
    • Retained Earnings.
      • Money that isn’t withdrawn and reinvested into the company.

Question to ask:

  • Is your cash increasing or is it increasing because of an increase in liabilities?
  • Are your liabilities increasing to increase you cash?

How do I read the Cash Flow?

The cash coming in and going out. Divided into three sections

  • Operating Activities
    • Cash from delivering our products and services.
    • We want to increase the amount of cash coming here to be higher.
    • The more money we get from operating activities the better.
    • Increase cash flow by getting money faster from the customer, and delaying paying the supplier
  • Investing Activities
    • We need to invest money in the future so this is where we would do it.
      • i.e Computers, machines, etc.
    • There should be some investment here otherwise you are not investing in the growth of your company
  • Financing Activities
    • Money from loans, etc.
    • How we get money from loans, our payments for loans, etc.
    • Are you paying a lot of this? If this is how you are increasing your cashflow that isn’t necessarily good.

Free Cash Flow = Operating Activities – Investing Activities

Financial Ratios FAQ

What are the Profitability Ratios?

Gross Profit Margin (Income Statement)

Shows the basic profitiability of your product or service before overhead or expenes are added in.

gross_margin = gross_profit / revenue


  • Is there a negative trend in gross_margin?

Operating Profit Margin (Income Statement)

operating_profit[EBIT] = gross_profit - operating_expenses

operating_margin = operating_profit / revenue

  • Watch the operating_margin to see if costs are increasing faster than sales?

Net Profit Margin (Income Statement)

After all the other expenses have been paid for including taxes, interest, etc.

net_margin = net_profit / revenue

Return on Assets (Income Statement, Balance Sheet)

  • How effective are we using out assets to generate a profit.
  • Don’t want it to be too high because that means the company isn’t investing in new facilities and equipment.
return_on_assets = net_profit / total_assets


Return on Equity

  • What percent of profit you make for every dollar of equity invested in the company.
  • “From an outside investor’s perspective, ROE is a key ratio. Depending on interest rates, an investor can probably earn 3 percent or 4 percnt on a treasury bond, which is eessentially a risk-free investment. So if someone is going to put money into your company – or if you’re going to invest in sombody ele’s business – he or you willl want a substantially higer return on equity.”
return on equity = net profit / shareholder equity


What are the Leverage Ratios?

Debt-to-Equity

debt-to-equity ratio = total liabilities / shareholder equity

If > 1 then there is more debt used to finance the growth. If less then there is less debt.

Bankers love this number because it shows how much debt the company has taken on versus the equity.

Interest Coverage

interest_coverage = operating profit / annual interest charges

How much interest is paid every year compared to how much profit is being made.

  • If it gets too close to 1 it is a bad sign.
  • If it is a high ratio then the company can take on additional debt.

What are the Liquidity Ratios?

Current Ratio

current_ratio = current_assets / current_liabilities


  • Don’t want to be anywhere near 1 since that means you will barely be able to cover the liabilities that will come due with the cash yo’ll hae coming in.
  • Don’t want it to be < 1 since you will run out of cash in the future.
  • A number too high means that the company is sitting on its cash.

Quick Ratio

quick_ratio = (current_assets - inventory) / current_liabilities


The quick ratio shows how easy it would be for a company to pay off its short-term debt without waiting to sell off inventory or conver it into product.

What are the Efficiency Ratios?

  • Lets you know how well your balance sheet is doing.

Inventory Days and Inventory Turnover

  • How fast can you move investory and convert it to cash.

Inventory Days

days_in_inventory = average_inventory / COGS / day


  • Give the number of days inventory stayed in the system
  • day is usually 360

Inventory Turn

How many times inventory turns over every year.

inventory_turns = 360 / days_in_inventory


  • How frequently you sell out your stock and had to replenish it.
  • The higher the number of turns the tigher your management of inventory and the better your cash position.
  • This is useful for retail

Days Sales Outstanding

Average Collection Period. How long it takes for customers to pay their bills.

days sales outstanding = ending accounts receivable / annual revenue * day


  • day is 360
  • ending accouts receivable = from balance sheet
  • great number for entrepreneurs
  • bring this down as it gives how long it takes for customers to pay their bills.

a high DSO is bad as it may mean the customers are in trouble.

Days Payable Outstanding

The inverse of Days Sales Outstanding. How long it takes for us to pay our bills.

days_payable_outstanding = ending Account payable / COGS / day


  • higher the DSO the less happy vendors are.

Total Asset Turnover

total_asset_turnover = reveneue / total assets


  • A company with lower turnover isn’t using as effectively as a higher one
  • How efficient you are at generating profit from the income.

What is Return on Investment?

Return of Inveatment is based on current value of money

  • The hurdle rate is what the opportunity cost of of getting a return else where at the present value.
  • What is the free cash flow generated by the equipment. This is the estimate per year.
  • What is the duration of the life of the equipment.

Net Present Value (NPV)

  • Over a period of time
  • Cash Flow Rate
    • How much it will cost and how to estimate

Example:

A project starts

Year 0: It costs -10,0000 Year 1: It brings in cash of 2500 Year 2: It brings in cash of 4000 Year 3: It brings in cash of 5000 Year 4: It brings in cash of 3000 Year 5: It brings in cash of 1000

Discount Rate = What you could have earned elsewhere. Ex 6%

So you would do:

NPV = -10,000 + 2500/1.06 + 4000/1.06^2 + 5000/1.06^3 + 3000/1.06^4 + 1000/1.06&5 = -10,000 + 13,239 = $3,239

  • If NPV > 0 then accept
    • The 6% (discount rate is an opportunity cost)
    • The money is not free and could have been deployed elsewhere
    • If NPV is greater 0 than it is larger return than 6% we would have gotten elsewhere
    • If comparing different projects the project with the highest NPV has the highest return

Cash Conversion Cycle

How long it takes to replenish cash.

day inventory oustanding + day sale outstanding - day payable outstandi

Todo

  • What are the most important forecasts?
  • What can I look at for cash flow
  • How much assets do I have?
  • What entries in opszero can be adjusted?
  • What is adjusting books?
  • Par value is only used for issuing stock
  • Learn Accounting
  • Personal accounting
    • Cash accounts
    • Investing accounts
    • Financial decision wizard
      • It should learn over time
      • Causes and effects
      • Accountng
  • Making better financial decisions about a company based on the P&LHow to travel and run a company?How do I effectively create a company that allows me to raise money and grow?How do I make friends quickly?