# Business

Decision making framework businesses and startups

Contents

# General

  • When you compete to be the best, you imitate
  • When you compete to be unique, you innovate

# Seed

There is one guiding principle for operating at Early stage: find profitable product-market-fit, while keeping your costs as small as possible.

# The game

  • Product market fit

# The process

  • Adaptability
  • Ignore the minutae - everything is 80/20

# How to spend money

Spend as if you will never be able to raise again.

# Mental models

Be patient for growth, but impatient for profitability

When the winning strategy is not yet clear in, entreprenuers should be patient for growth, but impatient for profitability. Entreprenuers should not spend a lot of money in the pursuit of the wrong strategy. Once a business figures out a unit-profitable strategy, entreprenuers should be patient for profitability and impatient for growth.

Many startups try to start directly at growth stage and skip finding product market fit. This is often not their fault. VC's typically demand it of them. VC has a short fund life and therefore needs their portfolio companies to give them an exit event before the fund closes. Forget the VC.

Your first idea will be wrong

93% of all companies that ultimately become successful have to abandon their original strategy2. Successful companies don't succeed because they have the right strategy and the begining but because they have money left over after the original strategy fails, so that they can try another strategy.

This is critical. Don't assume your idea might fail. Expect it to fail.

MVP vs MLP

  • Low competition markets: Solving a problem/need. Minimum Viable Product.
  • High competition markets: Building a better product. Minimum Loveable Product.

# Growth

As soon as a company has found product market fit, it can move into a growth stage. Many startups try to start directly at growth stage and skip the stage of finding product market fit. This is not their fault.

# The game

The game is now: how to grow without breaking. Be the best (find the 5% missing).

  • How to scale while keepin product solid
  • Focus on sales
  • Economies of scale: gaining more customers, retain existing good customers, trade up bad customers
  • Economies of scope: upselling & increasing offerings without increasing costs

# The process

  • Building systems
  • Be detail oriented - everything 20/80

# How to spend money

Focus on sales. Spend enough to remove competition.

# Mental models

Be impatient for growth, but patient for profitability

Good money vs Bad money: When the winning startegy is not yet clear in the initial stages of a new business, good money from investors needs to be patient for growth, but impatient for profitability. It demands that a new company figures out a viable strategy as fast as possible and entreprenuers don't spend a lot of money in the pursuit of the wrong strategy. Once a profitable and viable way forward has been discovered, entreprenuers should be patient for profitability and impatient for growth.

# Mature

# The game

Capital allocation. Contrary to most ideas of growth, the game has changed to return per share.

# The process

CEOs have 5 essential choices for deploying capital:

  • investing in existing operations
  • acquiring other businesses
  • issuing dividends
  • paying down debt
  • repurchasing stock

Options for raising:

  • tapping internal cash flow
  • issuing debt
  • raising equity

# How to spend money

  • Divest unprofitable initiatives
  • Buy back shares when you are undervalued
  • Don't pay dividends if you can earn a better return for your shareholders

# Mental models

TBD

# Resources

  1. Version One startup handbook
  2. Origin and Evolution of Business by Professor Amar Bhide
  3. Berkshire Hathaway: An Owner's Manual