Time Really is Money By Rob Slee

Chapter 1 – Introduction:

  • “…most business owners spend almost all of their time on less than $50 per hour activities.  These activities are tactical, often clerical, and can be readily bought in the marketplace.”

 

Information Age Conceptual Age Aggregation Age Transformation Age
1950s 9/11/01 2010 2015
Left Brain Left/Right brain Right Brain/Left brain Whole-brain
Tactical Domestic Strategic Globally strategic Niche Conglomeration
MBAs & wonks Design-Deliver Value architects Network orchestrator
Checkers Chess Risk World of Warcraft

 

“The intersection of technology, the Internet, and the need for mass customization is creating an almost zero marginal cost (the cost of producing additional units of a good or service, if fixed costs are not counted) society.”

 

“The idea of the sharing economy isn’t so much about sharing products or services as it is about new kinds of relationships breaking down the wall between buyer and seller; about allowing others into one’s life in ways previously not considered “normal” – at least not from a cultural perspective.”

 

“While economists have always welcomed a reduction in marginal cost, they never anticipated the possibility of a technological revolution that might bring marginal costs to near zero, making goods and services no longer subject to market forces.”

 

The rate of change is so fast today, that it now takes only 5% of the cause to generate 90% of the effect in many important areas, especially productivity and income generation:

  • About 5% of American business owners generate 90% of the incremental market value created by private firms
  • Just 5% of authors sell about 90% of all popular press books
  • About 5% of venture capital investments generate around 90% of total portfolio returns
  • Only 5% of farms in the U.S. produce 90% of the crops

 

“…in a 90/5 world, power curves, not the more intuitive, normal distributions (bell-shaped curves) explain the new reality: that unexpected events and unusually productive people shape the world.”

 

How do over-achievers do it?

  1. They tend to work only on tasks where they add substantial value
  2. They are very effective at leveraging their intellectual capital (know-how) – 50:1

 

“Most owners are lifestylers, meaning that they own time so they can live a good lifestyle.  These owners forego creating business value so they can live a good life – now. Unfortunately, for this group, The Transformation Age is a lifestyle business killer.  Most lifestyles will not be able to keep their current level of earnings, let alone create any value.”

 

Chapter 2 – The Urge to Own

 

Self-Employed Community Tribes:

 

Survivors Struggling to maintain 24%
Visionaries Driven by mission 22%
Independents Young and creative 19%
Locals Serve the local community 13%
Classicals Classic entrepreneurs 11%
Dabblers Part-timers 11%

 

“In fact, the self-employed are materially worse off than people in typical jobs.”

 

“Self-employed work much longer hours – twice as many owners spend 50 hours a week at work as an employee.”

 

“…only about 1% of the non-professional self-employed make enough to maintain a middle-class lifestyle.”

 

“…84% of the self-employed were more satisfied than when they worked on the corporate ladder…82% said their work was more meaningful than found in a typical job, and 87% said they had more freedom to do things they want.”

 

Self-employed paradoxes:

  • Self-employed earn less, work harder and are more isolated, yet they are still happier than when they were employed
  • Even though technology has greatly improved the way we leverage our know-how, communicate, and collaborate, why don’t the self-employed create more wealth

 

“The first rule of partnership is not to have any partners.”

 

“Only have legal partners if they are mission-critical to the objective of the project or business.”

 

“When forming partnerships, you need to match partnership interests to the contributions of value the partners are expected to create.”

 

“Don’t have a 50/50 partner.  Someone needs to drive the vision, and make the tough calls. If you must have a 50/50 partner, install a tie break director who can be bought in to decide on major issues.”

 

“Of course, as with all partnerships, get all of your divorce agreements (buy/sell, partnership agreement, etc.) in place at the beginning of the partnership.”

 

“Include in the partnership agreement how future capital calls will be made: who can start the capital call process, how the value of the partnership will be determined at that time, and how dilution will be handled.”

 

“Make sure the partnership agreements include compensation take-out provisions and a process for deciding how and when to exit a business.”

 

Chapter 3 – Time Really Is Money

 

“…a dollar in hand today is worth more than a dollar promised at some future time.”

 

“The cost of any decision includes the cost of the best-foregone opportunity.”

 

“Everyone chooses their level of wealth by how they spend their time.”

 

“Most Americans earn less than $30 per hour.”

 

Occupation $ per hour
CEO (Salary and bonus) $559
Top 1% $183
Psychiatrist $86
Dentist $73
Pharmacist $57
Lawyer $55
Architect $36
Small Business Owner $33
Sales Representative $28
Electrician $24

 

“In households with members aged 55 or older, nearly 29% have neither retirement savings nor a traditional pension plan.”

 

“Median savings is about $104,000 for households with members between 55-64 years old, and $148,000 for households with members 65 to 74 years old.”

 

How Owners Are Spending their Time:

 

Activity % of Time $ per hour
Administrative 35% $50
Human resources 20% $50
Existing customer relationships 15% $50
Potential customers 10% $100
Non-business activities 15% $0
Company value creation 5% $500
Average $70

 

“…the vast majority of private companies are not generating returns on equity greater than their costs of equity capital.  This means that most company owners are not increasing the market value of their businesses.”

 

“…most business owners don’t even have value creation as a goal; rather. These underperforming owners view the achievement of a good lifestyle as the primary goal of owning and managing a business.”

 

Returns on Equity for Private Companies:

 

Pepperdine Survey National Database
Revenue Size Cost of Equity Return on Equity
$0-$1M 43% 17%
$1-$5M 38% 15%
$5-$10M 32% 15%
$10-$25M 25% 15%
>$25M 20% 17%

 

“Private business owners must generate returns on equity of 20-43% each year (beyond reasonable shareholder compensation) just to cover the risk of ownership.”

 

“Companies define hurdle rates as the minimum rate of return on a project or investment required by a manager or investor.”

 

“…projects are evaluated by either discounting future cash flows to the present by the hurdle rate, so as to ascertain the net present value of the project, or by computing the internal rate of return (IRR) on the project and comparing this to the hurdle rate.  If the IRR exceeds the hurdle rate, the project would most likely be undertaken.”

 

“The marketplace prices all business activities, based on how much value the activity provides.”

 

Activities Hourly rate Range
Clerical, administrative, trades <$50
Creating sustainable systems, institutionalizing the company $100-$500
Creating culture, business model, and market niches or networks $500-$5,000
Creating or changing industries $5,000-$50,000
Changing the world of business $50,000-$5,000,000

 

“Most business owners are vision-rich, but strategy poor…Most private business owners are not strategic toward their business; rather they are tactical”

 

“Most business owners are playing the role of Master Sergeant when they should be General of the Army.”

 

“investing quality hours does not guarantee value creation, but not investing in highly value-adding activities guarantees no value creation.”

 

“…the more hours a person works throughout their career, the less likely they are to be wealthy.  Sure, everyone needs to work a lot of hours setting up the game.  But if an owner is still working 75-80 hours a week 10 years later, chances are they will have to work long hours forever.”

 

“The Transformation Age enables extreme value creation with the investment of relatively few hours.”

 

Chapter 4 – The Ladders of Success

 

Dark personality traits that people use to climb the corporate ladder:

  • Manipulativeness, a tendency to influence others for selfish gain;
  • Narcissism, a profound self-centeredness;
  • Antisocial personality, such as lacking empathy or concern for others.

 

“Why climb the corporate ladder when you can build an elevator in your own building.” – Joshua E. Leyenhorst

 

“The cLadder rewards those who successfully complete tasks that a certain job requires; failure to perform adequately will get one tossed off the Corporate Ladder in short order. Buts owners of their time climb the Value Ladder (vLadder).  Success on the vLadder requires iterative failure because no one is born knowing how to climb it, and no one teaches how.”

 

“The only way to ascend the vLadder is to create value at every rung (called a vRung).”

 

“…every vLadder is unique according to the worldview of the owner (their economic DNA).”

 

vLadder: Per Hour Rungs

  • $5M
  • $50,000
  • 5,000
  • $500
  • $50

 

“…the market accurately assigns a value for the hourly activities we successfully complete.  In other words, the more value we bring to an activity, the more market value we can create.”

 

“By definition, tactical means low intellectual capital leverage.”

 

“Designing and delivering compelling value propositions to all stakeholders, while still earning a fair profit, is an owner’s number one job.  This can’t be outsourced.”

 

“The typical start-up owner wears many $20 per hour hats because they can afford to pay 4-5 people to don those hats.  Eventually, the harried owner runs out of both money and energy.”

 

“Tradespeople who own their own time and spend at least 1/3 of it on $500 per hour activities become general contractors (GCs)…Most GC’s are predominantly left-brained, but also use their right brains to create and institutionalize multiple value propositions.”

 

“The bottom-line for $500 per hour owners: They are lifestyle owners who are not driven to create business value, but rather want to control their destiny in relative comfort.”

 

“Substantial value is being created at the $5,000 per hour vRung. To accomplish this Herculean task, an owner needs to become a Value Architect.”

 

How do you know if you’re a Value Architect?

  • You could be away from your business for months at a time without hurting the company
  • You rarely have your fingerprints on anything in the business
  • You could properly be called an Active Chairperson of your company
  • You are almost totally strategic toward your company
  • You are either financially independent or on the path to it

 

Value Architects create the structure that enables substantial value creation in the business:

  • Design and package compelling value propositions for all stakeholders (including themselves of course)
  • Create systems that handle much of the heavy lifting
  • Choose strategies that leverage their intellectual capital; and
  • Keep their fingers on the pulse of the business

 

“The vRung is counterintuitive to most owners because the fewer hours they work, the more value they create.”

 

“Some value architects spend considerable time on $50,000 per hour activities.  These people are whole-brained and create new business models that often lead to entirely new industries.”

 

Examples of people who successfully converted time to $50,000 activities:

  • Amazon
  • Google
  • Uber

 

“Perhaps 1 in 100,000 Value Architects work for more than $5M per hour.  These people change the world of business.  In fact, they change the world at large.  Think Steve Jobs or Elon Musk.”

 

Corporate Chieftain Steps to Failure

  • Step 1: I Have Arrived…Behold my Magnificence
  • Step 2: Feed Me and We All Shall Eat
  • Step 3: The Answers Are Simple and Obvious
  • Step 4: Somehow, I lost my @$$

 

“Ascending the vLadder takes aggressive planning and requires a lot of energy and passion to tackle each vRung.”

 

“You can’t climb the ladder of success with your hands in your pockets” – Arnold Schwarzenegger

 

Chapter 5 – Who Makes the Climb

 

The Daily Success Habits of Wealthy Individuals According to Tom Corley

  • They’re persistent
  • They set attainable goals
  • They find a career mentor
  • They are positive
  • They educate themselves
  • They track their progress
  • They surround themselves with success-oriented people

 

“Value Architects develop a positive relationship with failure.  The key: fail fast, fail cheap.”

 

“…the traditional; way relies on an incremental status quo approach; whereas the Transformation Age now relies on an exponential revolution.  The former penalizes failure; the latter depends on it…And here’s the important part of transformation: none of it will work right the first six to eight times you try it.  Early failure is a certainty.”

 

“…we are not psychologically prepared for failure.  The only way we will be able to adapt is to ignore the primal part of our brain that says change is bad and use our frontal lobes to rationally observe and choose the path forward.”

 

“How does one fail early and often yet recover?  The answer: test, test; fail, fail, fail.  Package your value proposition and put it out there on a limited basis.”

 

“Do not make the traditional mistake of building out the entire system …then launching it on an unsuspecting public.  That will break you.”

 

James Altucher’s Skills Necessary for Building Wealth

How to:

  • Sell (both in a presentation and via copywriting)
  • Negotiate (which means win-win, not war)
  • Be creative (try out ideas, see what happens)
  • Lead (give more to others than you expect back yourself)
  • Network (a corollary of leadership)
  • Live by themes instead of goals (goals will break your heart)
  • Reinvent (which will happen repeatedly through life)
  • Give constantly to the people in your network.  The value of your network increases linearly if you get to know more people, but exponentially if the people you know get to know and help each other.
  • Fail so that failure turns into a beginning
  • Master a field.  You can’t learn this in school…Find the topic that sets your heart on fire. Then combust.
  • Stop the noise (news, advice books, fees upon fees in almost every area of life). Create your own noise instead of falling in love with others.

 

“…a vLadder is the extension of the owner’s economic DNA and worldview.  If the owner is scared, or limited in their imagination, their vLadder will be stunted.  Thus, the more someone needs to be convinced to climb the vLadder, the less likely they are to do so successfully.”

 

Chapter 6 – The First ($50 per Hour) vRung

 

“These days, managers need to design and deliver WIFM (What’s In It for Me) solutions for employees, other shareholders, vendors, advisors, the local community, and yes, customers.  Ignore any one of these groups, and that’s where weaknesses will appear.”

 

“Don’t forget the most important stakeholder – you!…WIFYM (what’s in it for you and me).”

 

“At the $50 per hour vRung, the owner is the value proposition.  Customers hire the firm almost solely because of the owner’s skills.”

 

“A wise business owner once told me that successful service providers create a condition where the door to the office swings in, not the other way around.  In other words, clients come to them…”

 

“Black hole niches, super-powerful forces that have customers and stakeholders wishing you’ll never go out of business because it would hurt them.”

 

“Where do niche’s come from? They come from asking 100 people the following question: What have you tried to buy in the last year but couldn’t find?”

 

“Most value propositions are linear: I do something for you, you pay me…But…The Transformation Age requires much kore dramatic actions of participants in order to compete and create value.  Mashing-up the value proposition is the order of the age.”

 

“A mashup takes multiple objects and mixes them in multiple ways to create totally new objects or situations.”

 

Mash-Up Examples:

  • Zillow uses tax assessor data, public records, and data from real estate to estimate home values.
  • The iPhone and iPad mashes dozens of capabilities into single devices
  • ThisWeKnow.org is a mashup that highlights and organizes some of the critical portions of Data.gov by community
  • Combine authoritarian rule, capitalism, and more than a billion people in motion and you get China.

 

“In a connected economy, it’s not just what you sell, it’s who you sell it with.”

 

‘Marshall Thurber asserts that the mash-up process must be embraced knowing that many of the outcomes will be unpredictable.  But it is that unpredictability that generates synergistic reactions that create value.”

 

“Most $50 per hour people do not create mash-ups bust this vRung is a good place to start thinking about the process.”

 

“I’ve made a fortune as a result of not listening to the Words: “That will never work!… Conversely, if most people agreed with my vision on a particular opportunity, I knew I had to mediately change my approach.  If you run with the pack, you get pack returns.”

 

“The inability to see around corners explains why so few “A” students become successful business owners or visionaries.  By definition, an “A” student is a conformist.”

 

“When people say the Words, what they are really saying is THEY can’t do that thing.”

 

Chapter 7 – The Second ($500 per hour) vRung

 

“At the $500 per hour vRung, an owner must first establish compelling value [propositions for all stakeholders of the firm, and then manage them, the main image here is the owner as coach, working hard to get value added players to join the team.”

 

“Knowledge creation now transcends company boundaries.  Innovation and creativity are being distributed across firms with the idea that if two heads are better than one, then a million heads should be the goal.  But achieving this requires platforms that harness common interests.”

 

“With crowdsourcing, you take a task traditionally performed by an employee or contractor, and outsource it to an undefined, generally large group of people, in the form of an open call…”

 

“There are many ideas and movements that aim to get communities to act, and the context can be described in many ways: the sharing economy, collaborative consumption, open innovation amongst others.  These are all derivatives of crowdsourcing.”

 

“A paradox of pull marketing is that an initial push is required.  In order to get your value proposition out there, you need to make sure the right people know about it.  This can be done by identifying and incentivizing market makers.  Market makers are people or institutions who already have access to the starving crowd.”

 

“There are numerous other ways to attract customers.  For instance, “setting the hook” for prospective customers by involving them in the design of the product or service is a great way to get customers to basically take ownership of the designs.  The offer to participate is so irresistible that customers just have to bite.  This strategy is inherent to black hole niches.  It involves three simple steps: 1) create an irresistible offer, 2) attract a hungry crowd, and 3) set up the buffet.”

 

“For any transaction to take place, both the buyer and the seller must profit from the exchange and receive more value – in their subjective perception – than what they are giving up.”

 

“Today, thousands of firms price their services according to the external value created – as perceived and determined by the client – rather than internal costs incurred in generating those services.  And this can create an opportunity to add value.”

 

The best professionals I have attracted to my various companies have had several things in common:

  • They work in firms that are similarly sized to the firm I am hiring them to work for; similarity in cultural worldview
  • They are people I like and I find interesting.  I feed them enough information before I hire them so they can determine if they like me and where I am heading with the business.
  • I make them compete for my business. It’s their responsibility to prove they can add value to me.

 

“Unless a vendor is the only firm on earth that can supply a particular product or service, an owner should spend as many $500 hours as necessary to make sure the resource is value added, and that means pulling them to their firms.”

 

Sample $500 Hour Activities for a Week:

  1. Mash-up a new value proposition for the vRocket maintenance team – 4 hours
  2. Explore creating a new brand for vPower product – 8 hours
  3. Find three market makers for the vEnergy service – 8 hours
  4. Interview several crowdfunding forms to determine if they are good fits to help me raise $1M – 6 hours
  5. Mentor my management team on $100 per hour activities – 4 hours

 

“…notice the hours don’t add up to a normal 40-50-hour work week. This is intentional. The goal at this vRung is to work as many $500 hours as possible, knowing that some activities may require more hours than planned.  Leave yourself time to spend more time on an activity id needed…. there will be some time spent on lower-rung activities…hopefully, $50 per hour activities can be minimized, but they still do happen to some degree.”

 

“Owners are probably the only people in the organization dealing with $500 activities.  This is the starting point for value architecture…”

 

‘Just about everyone in the organization will view the world through a $15-$75 per hour lens.   It’s counterproductive to spout $500 per hour and above language and ideas at them.  One of the primary jobs of the leader is to translate strategy into tactics…”

 

Chapter 8 – The Third ($5,000 per hour) vRung

 

“At the $50 per hour vRung, the owner is the value proposition.  At the $500 per hour vRung, the firm delivers various value propositions, but the owner is central to the delivery of them.  At the $5,000 per hour vRung, the owner institutionalizes value propositions within the firm, thus no longer being important to delivering them to the firm’s shareholders.  The true value architecture takes place at the $5,000 per hour vRung.” 

 

“Architects understand that they lose leverage when they grab hold of the details…”

 

“Evan Williams (founder of Blogger and Twitter) accidentally stumbled upon three insights.  First, that genuinely new idea are, well, accidentally stumbled up rather than sought out’ second, the new ideas by definition are hard to explain to others, because words can express only what is already known; and third, that good ideas seem obvious in retrospect.”

 

“Neuroscience shows us that highly creative people have a more active associative cortex – the part of the brain that connects all the other areas…The third vRung of the vLadder relies on whole-brain thinking for creativity and innovation, while still having a handle on the lower rungs.”

 

Whole-brain thinking (according to Aviv Shahar):

  • Combines creativity and analysis
  • Looks at the whole and sees the parts within
  • Uses feeling logically and applies logic feelingly
  • Integrates quantitative and qualitative awareness with objective and subjective perspectives
  • Is methodical and intuitive
  • Identifies facts and is imaginative about their meanings
  • Is conceptual and practical
  • Synthesizes problem-solving
  • Organizes inside chaos
  • Assimilates learning from multiple sources

 

“What can we take away to create something new?”

 

The key is that an idea can be initiated in the right brain, but then it needs a whole team of both left and rights brains working together to bring about whole brain collaborative transformation to make the idea viable and attractive in its implementation.”

 

Three primary areas that comprise $5,000 per hour activities (The Value Triad): culture building and maintenance, niche conglomerate creation, and business model transformation.”

 

“Culture tells employees what to do when the owner isn’t in the room, which is, of course, most of the time.”

 

“Middle-market companies in the Transformation Age are mainly amalgamations of niches, called niche conglomerates.”

 

“For some reason, most owners let the market create their model.  This almost always leads to an underperforming value creation effort.”

 

Sample $5,000 Activities for the Week:

  1. Choose the next niche for vEarth management service – 8 hours
  2. Investigate new culture-building exercise – 4 hours
  3. Hire a consulting firm to perform value chain analysis for the vEnergy service – 8 hours
  4. Mentor my management team on $100-$500 per hour activities – 4 hours

 

Several issues are noteworthy here.  

  • First, it’s important to list time frames for each activity during the week.  Weekly time buckets seem to work best within a monthly planning period.
  • Second, notice the hours don’t add up to a normal 40-50-hour work week. This is intentional. The goal at this vRung is to work as many $5,000 hours as possible, knowing that some activities may require more hours than planned.
  • Third, as an owner climbs the vLadder, there will still be some time spent on lower-rung hours… hopefully, they can be minimized.

 

“It is three times more productive to work 30 hours at $5,000 per hour than 100 hours at $500 per hour.”

 

“In this vRung, the owner cannot be the only one in the organization who adds value…It’s a great use of time for all concerned if the owner institutionalizes the vLadder system in direct reports.”

 

“if the owner spends just 10 hours a week successfully working at this vRung, $2-$3M in value is added in market value each year.”

 

Chapter 9 – Incubating A Culture

 

“Company culture is the personality of the company, which defines what a company is like to work for or with.”

 

“…managing company culture is getting the right people on the bus and in the right seats…and everyone is happy to be there.”

 

“Your team should form its DNA early, the earlier the culture is set the better…with up to 100 employees, it becomes almost impossible to directly influence every person ion the organization.”

 

“Culture is an expression of the owner’s goals and views on how to achieve those goals…”

 

“It’s the owner’s choice about whether to be proactive about culture.  One thing is certain: every company has a culture.  The only question is whether or not the owner decides what it is.”

 

“…a major difference between Main Street and new ecosystems, cultures in the Transformation Age are often based on radical transparency.”

 

“Creativity is just connecting things.” – Steve Jobs

 

“If you want a creative environment, you need to make an environment where you can constantly make people make things, over and over again – it’s all about things.” -Ben Chestnut, CEO of MailChimp

 

“MailChimp’s culture fosters creativity by aggressively limiting the time people have to work on things…The one variable you can teak where it really doesn’t matter what industry you’re in is time.”

 

“…Or, you can follow Google’s lead and launch a “moonshot.” A moonshot refers to Google’s philosophy of creating high-risk, high reward projects that “make something 10 times better.”

 

“Other companies keep the ball rolling by getting employees to take ownership of their results.”

 

“Still other companies create a culture that enables employees to achieve something far bigger than they could achieve by themselves.”

 

“It seems clear that a company culture that facilitates employee happiness means lower turnover and better company performance.  When employees are loyal, companies perform better.  It’s a win-win.”

 

Chapter 10 – The Nature of Niches

 

“There are numerous ways to describe the word “niche.”  Some of these are: meeting an unmet customer need; filling a hole in the market; and performing a product or service that is defensible, sustainable, and delivers a return greater than the underlying risk.”

 

Today, if a mid-sized company gets much above $10M is sales from a real niche, the world shows up.  And they are not looking to buy…The lessening of niche sizes is why most successful middle-market companies are really amalgamations of niches, hanging from an intellectual capital tree…We might call these companies niche conglomerates…”

 

“The sharing economy concept is simple enough.  People market their under-used assets.”

 

“Most sharing economy platforms offer services that are extremely useful to smaller slices of the population.”

 

“there are two primary ways of building a nice oriented firm, either by building an online marketplace, or by building a niche conglomerate.”

 

“Niche markets almost always develop out of an unmet need.  The more narrowly you can define this target market, the better.  And if you fill this unmet need with an online solution, good things are about to happen.”

 

Steps to Build a Niche Market:

  1. Identify a niche market that is either too small for large competitors or too much of a hassle for a sane person to consider penetrating.
  2. Design a compelling market value proposition that adds value to the niche (and your company).
  3. Test…test…test…fail…fail…fail…someone is eating the dog chow.
  4. Stick with it until you determine how to package and deliver the value proposition.
  5. Set-up the buffet and invite your company to eat.
  6. Follow the Head-n-Shoulder strategy (rinse, lather, repeat)

 

“…assume it will take at least five iterations before a value proposition to the market is compelling enough.  If it takes fewer iterations, you probably haven’t built a sustainable niche.”

 

Ways for Niche Providers to Build Online Niche Marketplaces:

  • Partner with Incumbents (potential competitors or companies in similar industries)
  • Split the Value (for both buyers and sellers)
  • Simplify the Choices (specialize in one area)
  • Build Trust into Your Business Model (buyers and sellers need to feel comfortable)
  • Create Your Niche Conglomerate (collection of niches, each leveraging the same intellectual capital)

 

Chapter 11 – Designing A Transformational Business Model

 

Peter Drucker Questions:

  1. Who is your customer?
  2. What does the customer value?
  3. How do you deliver value at an appropriate cost?

 

Clayton Christensen’s 4 Business Model Elements:

  1. A customer value proposition
  2. A profit formula
  3. Key resources
  4. Key processes

 

“You never change something by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” – Buckminster Fuller

 

Business Model Options:

  • Asset Builders – – build, develop, and lease physical assets to make a market, distribute and sell physical things
  • Service Providers – provide services to customers or produce billable hours for which they charge
  • Technology Creators – develop and sell intellectual property such as software, analytics, pharmaceuticals and biotechnology
  • Network Orchestrators – create a network of peers in which the participants interact and share in value creation

 

“Harvard analysts found that network orchestrators (NO’s) created two to four times market value as the other business models. NO’s also outperformed companies with other business models on both compound annual growth rate and profit margin…this occurs because value creation performed by the network on behalf of the organization reduces the company’s marginal cost…”

 

‘Finding the right business model is usually a matter of trial and error.”

 

“In the Transformation Age, chances are good that your business model will change substantially every year or two.  As managers, you have to stay close enough to the stakeholders to know what and when to change.”

 

“It’s easier and exponentially more effective, to take a project and then grow it into a new division, as opposed to getting everyone in the core business to change old (non-value creating) habits…the key is to totally separate the niche division from the mothership.  This requires creating a new mission for the division, a new culture, and a new business model.”

 

“Most owners are so busy NOT creating value that they don’t have time to create any…so these projects go unattended (or undiscovered in the first place).”

 

Chapter 12 – The Fourth ($50,000 per hour) vRung

 

“Climbers to this vRung intend to disrupt, or possibly create, at least one industry.  They achieve this unlikely task by using transformational business models with unique value propositions.”

 

“The higher the vLadder one climbs, the more innovative thinking is rewarded.”

 

“…all disruption involves innovation, but not all innovation involves disruption…”

 

“Disruption changes how we think, how we live.”

 

Main Traits of Disruptors (according to Malcolm Gladwell):

  • Be disagreeable – stay the course even in the face of opposition; have the courage to be independent
  • Reframe the Problem – don’t use old frames
  • Have a Sense of Urgency – have a burning desire to get something done

 

“the biggest factor is that disruptors have identified economic inefficiencies in most markets, and they are bringing new efficiencies to underserved consumers.”

 

“A mashup takes multiple objects and mixes them in multiple ways to create totally new objects or situations…some $50,000 per hour players are going the opposite direction: they are decoupling activities.”

 

“$50,000 per hour people do not follow rules; rather, they make the rules for a new game.”

 

“The $50,000 per hour activities are discovered…”

 

“if you have this $50,000 per hour DNA, it is likely that you’ll know it by age 30…most people over 50 are more interested in maintaining what they have, rather than risking it all for what they could have.”

 

Chapter 13 – The Fifth ($5M per hour) vRung:

 

“Midas Managers are world orchestrators.  They intend to create value propositions that change the world.”

 

“People who change the world don’t accept givens…a burning desire to challenge the status quo is encoded in their DNA.   They will do whatever it takes to change the world to their worldview.”

 

Midas Manager Traits:

  • They intuitively sense opportunities to create value
  • They can see over the horizon
  • They understand that time really is money
  • They understand the motives of others
  • They tend to be contrarians
  • They are control freaks in pursuit of a goal

 

“Midas Managers have an innate ability to spot a value-creating opportunity, and they don’t fall victim to analysis paralysis.”

 

“Midas Managers have the ability to see how a game is going to end before the cards have been played.”

 

Midas Managers understand that there is an inverse relationship between hours worked and success.  In the early years, they might burn the midnight oil, but few Midas Managers routinely work long weeks.”

 

“Nobody does anything if he can get anybody else to do it…as soon as you can, get someone whom you can rely on, train him in the work, sit down, cock-up your heels, and think of some way for the Standard Oil Company to make some money.” – John D. Rockefeller

 

“Midas Managers understand that if you follow the pack you get pack returns…”

 

“…going against the crowd, and what psychologists call social proof, is contrary to our nature.” – Warren Buffett

 

“Midas Managers tend to employ only one or two value-creating strategies that work for them over and over again.”

 

‘Midas Managers tend to be control freaks.  Their single-minded obsession with achieving their goals is what drives them to excel.  While those around them would like to succeed, Midas Managers use of force of will to make certain it happens.”

 

“Midas Managers are not universally successful. Indeed, they have a special relationship with failure; they learn from their mistakes and win the big bets.”

 

‘Midas Managers are universally persistent toward achieving a single goal, but unlike entrepreneurs, who are risk-takers, Midas Managers are risk avoiders.”

 

“Most Midas Managers are “impatiently patient.” They expect that it will take as long as it takes to meet a goal, but they also believe progress requires constant goading.  They don’t call it quits, even when conventional wisdom might encourage them otherwise.”

 

“…keep in mind that apex value creators live on an intellectual island.  Few people understand them, and most of the time the Midas Manager will feel like they are quite alone in their worldview.”

 

“Make no mistake, money is the ultimate scorecard for Midas Managers.  They are highly motivated to earn it, and the desire to accumulate vast sums of it is a constant refrain

 

Chapter 14 – Other Things You Need to Know

 

Note: Strive to better understand Private Capital Markets:

  • Private Cost of Capital model (POCC)

 

“Public and Private Markets are Not Substitutes – risk and return are unique to each market; Liquidity in each market is different; motives of private owners are different from those of professional managers; underlying capital market theories that explain the behavior of players are different; private companies are priced at a point in time, while public companies are continuously priced; public markets allow ready access to capital, while private capital is difficult to arrange.”

 

“Capital Markets are Segmented – small, lower-middle market, middle-middle market, upper-middle market, and large companies have unique costs of capital.”

 

‘Middle Market Finance Theory – is a holistic theory that shows how business valuation, capital formation, and transfer are inter-related and interconnected.”

 

“Value Relativity – Private business valuation is relative to the reason one needs to know its value…” 

 

“Private Capital – private capital is allocated via the rules of a flea market, as opposed to the supermarket of securities enjoyed by large public companies.”

 

Private Business Transfer – transfer methods select value worlds!”

 

Pay attention to Generational Cycles (The Fourth Turning):

 

“Generations come in four different types, and have repeated in order in western civilization for more than 500 years: Prophets, Nomads, Heroes, and Artists.”

 

Prophets (Boomers) are values-driven, moralistic, focused on themselves and willing to fight to the death for what they believe in and they can convince others to join them in the fight – come of age as young crusaders of a movement, enter midlife as moralistic leaders and are wise elders of the next crisis.

 

Nomads (Generation X) are ratty, tough, unwanted, diverse, adventurous, and cynical about institutions – develop into pragmatic midlife leaders of a crisis and age into tough, post crisis elders

 

Heroes (Millennials) are conventional, powerful, and institutionally driven, with a profound trust in authority – come of age during a crisis and become powerful and hubristic midlifers, and evolve into powerful elders…

 

Artists (Generation Z) are subtle, indecisive, emotional, compromising, and often deal with feelings of repression and inner conflict – come of age as sensitive young adults and rebel as midlifers, and become empathic elders.

 

“Over the past 500 years of Anglo-American history, during periods of crisis, the children are always Artists, the young adults are Heroes, the mid-lifers are Nomads and the elders are Prophets.

 

“A comprehensive worldview is the belief system that shapes and guides or point of view.  It helps us decide and explain things, especially to ourselves.  And the more we read, the more explaining we can do.”

 

“We are what we read…Americans, especially business owners, do not read as much as they should.  Most owners don’t even fully read legal contracts before they sign them.”

 

Chapter 15 – What Is Your Hourly Rate

 

“Every owner only has so much time within which to operate, and time is measured equally for all.  Thus, the major determinant as to whether anyone creates value is how well they use this time.”

 

“…most owners of their time are just trying to earn a living.  They don’t have a conceptual framework for creating a valuable entity…”

 

“Chances are great that you will not create value; rather, you are cogs in a wheel that creates value for people who organize networks.”

 

“In the Transformation Age, value architects are called network orchestrators.”

 

Noteworthy Issues Regarding the vLadder:

  1. The vLadder shows only platform vRungs ($50, $500, etc.) …more studies on value creation will help us further delineate the vLadder (e.g., $250 per hour tasks).
  2. Every climber must move up the vLadder one vRung at a time.
  3. Hourly rates are like hurdle rates; owners create value when they generate returns greater than their hourly rate, and destroy value when returns are less than their hourly rate.

 

“…perhaps upwards of 90% of owners, work for less than $50 per hour.”

 

Lessons Learned Along the Way:

  • Just associating time with value will cause a behavioral change
  • You need to mentor your managers so they can start climbing their own vLadders
  • Form an outside team. Find a mentor.

 

“…understand the role that your traditional advisors – such as CPA, lawyer, or financial planner – play.  These are tactical advisors to an owner, and typically not strategic resources.”

 

“Someone needs to help owners decide which niche to select, which model to employ, and who should be on the bus.  In other words, owners need a strategic mentor.”

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