How to Worry less about Money by John Armstrong

There is a distinction between money worries and troubles. Worries are connected with imagination. Troubles are when you have difficulty paying your bill. Most advice for money problems is to find ways to increase one’s wealth. The more important to ask is ‘How much money do I need’. What will you be buying with that money? ‘What’s the link between money and the good life?’ Similarly, there is a difference between training and education. The way we have taught about money matters is more of a training than an education per se. Karl Marx didn’t believe money did any good on society. There are also schools of thought where money is viewed neutrally. Ask yourself, what is the role of money in your life? What is your equivalent theory of money?

Thinking about Money

What are money worries really about? My life will have a lot of pains and hassles? ‘Money will force me to spend a lot of time just making enough to get by’. ‘I’ll miss the good things that I long for.’ ‘Money is like a virus’. The important questions to ask are ‘What is the best way for me to get that money?’; ‘What are my economic responsibilities to other people?’ There are definitely underlying causes to one’s worries that must be addressed. Sometimes, people worry about things when they compare what they own with others around them. They don’t want to be judged by others. One should think hard before buying a new car. People worry once they compare themselves to admirable people. If your objectives and worries are vague, all the more you need to pay attention to them.

A Good Relationship with Money. Money brings a certain level of spending power. Instead of addressing the quantity of money, it is better to address your relationship with it and the feelings you have. Some form of angst is inevitable. The aim of adult life is to worry well.

You might grow up (as I did) in a grim environment and long to make enough money to escape it. But that can feel like losing your roots. Or, in order to make enough money to survive in a competitive world, you might feel you have to sell out and never devote yourself to the things that you wish you could focus on, like family, creativity, changing the world or simply cultivating your garden. – John Armstrong

Part III: The Secret Meaning of Money. Emotional baggage can cause problems. Some people feel that money means an enviable time together. A money solution is unlikely to solve a romantic problem. Money may not ease relationship tensions. Some people feel that they always want more and that what they have is never enough. Sometimes, it is important to confront your insecurities. Some people just want to earn and spend more than others so that they can feel better about themselves. Others may not want so much money as their money management skills are poor and the money often gets squandered away. People often view others’ self-worth based on their wealth. This is creepy indeed and should not be the case in society. Wealth can create social classes and strata. Sometimes, money can be seen as a form of goodness. Money should just be a neutral mechanism for exchange. Money can cause us to behave in strange ways. We need to improve our relationship with money as a whole.

How to Strip Off. Acknowledge that you treat money in strange ways. Associate some words with money. Do you associate hassles with a lack of money? Do you associate a lack of money with ‘I’ll never escape’? Your troubles will not simply go away with more money. Do not feel happy when others are unhappy. What’s your most embarrassing moment with money? What are your worst fears about money? Ask yourself these deep questions. Stripping away basically means clarifying one’s own relationship with money. How do we find people also interested in this conversation? You should try to look out for the following people. 1) People who encourage us to be realistic. Setting too high expectations might make you disappointed. 2) People who don’t use money as a way of humiliating others. Avoid these people at all costs. 3) People who don’t spread despair and resentment about money. 4) People who encourage good habits. 5) People who are open about their own economic experiences. 6) People who listen – and don’t project their situation onto yours. Do not use others’ lives as a model for your own. 7) People who open our minds to thinking more clearly about our situation, opportunities and difficulties.

What is Money? It is essentially a means of exchange. Barter trade happened because of this. Money can buy you possessions and experiences. How efficient do you use your money to turn it into possessions and experiences? How do you turn work into money? The problem is some people see education as earning potential or a painting as just a price tag. Do not view every possession just as money or the ability for it to make you more money. View your house as a home rather than an economic vehicle.

Another common fear is that even when there is enough money, one is not actually able to translate it into good enough possessions and experiences. Money on its own does not show you how to do that. – John Armstrong

The task of life is to translate efforts and activities that are inherently worthwhile into possessions and experiences that are themselves of lasting and true value. – John Armstrong

Money and the Good Life

Money as an Ingredient. Money is an instrument. It should be used efficiently and effectively. Understand the diminishing return in terms of happiness when you accumulate more money. Even you lead a glamorous lifestyle, it is possible to be depressed. Money cannot buy happiness. We should talk about flourishing and not happiness. Most people like to do things with others. Flourishing means doing things that are important to you, even if they might be unpleasant. It also means making the best use of our capacities and abilities. Be involved in things that are worthwhile. Money creates potential for flourishing. However, money is not the sole cause of flourishing. It is simply an ingredient. The important question is ‘How much do I need?’ What are your real objectives? What does money contribute?

Money can indeed buy things that make you feel serene: the plush hotel etc. But there are many possible sources of serenity, such as a good temperament, stable relationships, taking physical exercise, possessing a religious belief, listening to music etc. – John Armstrong

A good life is still a life. It must involve its full share of suffering, loneliness, disappointment and coming to terms with one’s own mortality and the deaths of those one loves. – John Armstrong

Jane Austen’s Theory of Marriage. Is money connected to love and sex? Love benefits from a healthy economic conditions. There are other foundations required for a good relationship. If you have a good salary, but have an extravagant lifestyle, you are unlikely to be rich. The important lesson to learn is that money is necessary, but not sufficient. It is important to marry someone of decent financial background. It is a crucial ingredient in marriage. Money worries can cause conflicts in a relationship.

Envy as Education. What if you have a dream but your current income level is far from achieving it? Take it seriously. Learn to be creative. Do not simply copy others. Think about the elements of your dream that can be incorporated in your life now even though you have less money. Try to reproduce the underlying virtues. Often, you don’t need radical changes in your life to feel happy.

When a person dies, we know we have to take the sorrow seriously. We don’t pretend that the person didn’t die or that it doesn’t matter. In a less intense but still important matter, we should mourn the loss of other things we love. – John Armstrong

Creating Order

Need vs Want. How important is that object in your life? What can it do for you? A violinist NEEDS a really expensive bow. This is because the bow has played a central role in that person’s life. Hence, meeting a need can be out of reach. However, it is a worthy pursuit as compared to a want. Some purchases will not help you to develop or flourish. How do you differentiate need from desire? How good will it be for this thing to enter my life? Do not simply tell yourself that if you can’t afford it, it doesn’t matter whether you have it or not. The trick is to work out your needs without taking into account the price of the items. There are higher needs that might enable you to flourish as an individual. Distinguish between middle and higher needs. Middle-order needs relate more to sociability and status. There is an indirect costs of higher needs. Do not do things just to gain status. Higher needs are not simply about craving for status. It is okay to envy someone, however, we must know exactly what aspects of the person we envy. We need to find the right type of company.

How Much Money Do I need? Instead of being realistic about what you can afford, be realistic about what you need. Write them down a table. This is a sober reality check. Then after it’s written down, ask yourself what can be done in order to get closer to meeting your true needs. You can live in a bigger house if you move to the suburbs. Is a holiday more important than presents? What things are good for my long-term well-being?

Price vs Value. Value is a personal judgement and it depends on your character, perspectives etc. Some people are resourceful, but that doesn’t make them stingy. Some of them have good taste and don’t follow fashion. Learn to be creative. Spending money is an art, not a science. Learn to pay attention to the hints around you to draw inspiration from. You can be creative.

Longing and Fear. Keep your house neat. Do not clutter. The fear has to be overcome. To me, the thought of organizing my money drawing makes me fearful. The solution is about money. I feel bad about my relationship with money. Labour can be dignifying if it leads to a grander aspect of existence. Spread the difficult task over a few days. Cultivate the art of tracking your domestic finance. There is indeed a beauty to neatness and clarity. When confronting a difficult task, it is best to do it in stages. There is beauty in going about our ordinary lives.

How to Make Money and be a good person at the same time

Having and Doing. Money is like a ‘virus’. For a child, he thinks that the more fun an activity is, the more good things flow from it. However, this doesn’t often happen in reality. Some children believe that money equals happiness. A lot of people want to make enough money and care about what they are doing too. We need to care about both having and doing simultaneously. If you want to maximize intrinsic good for society and through the course of it, you make a lot of money, that’s alright. It is very difficult to escape capitalism because it is so prevalent in society. However, we can be more hopeful over it. Is it so difficult to be a good person and to flourish financially?

What Rex Got Wrong and Other lessons. Is it possible to make money and meet the higher needs of humanity? Learn to pay attention to the cause of profits. Sometimes by commercializing something, you cheapen and degrade it. Commodification is a bad thing? Create an economic base. Standardization causes something to lack a soul. Industrialization has its benefits. We need to understand the ends, so that we will know what means to take. Constantly ask what is the good that is being served? Society needs to answer the question of what good does art serve. Money can be made in so many ways. It is important to ask how they made it.

My Place in the Big Picture

The Problems of the Rich. The desire for wealth is almost universal. However, the rich have their problems as well. Wealth from inheritance is pure lucky and it is through no effort on your own. If you receive it, you should not feel any superstitious sense of entitlement etc. Even wealthy people become envious over others. Having money might not free you completely. Rich people often feel like they can do whatever they want. Rich people have to fight off temptations as alcohol is detrimental to health etc. They feel they have the power to destroy others if they wanted to. Rich people don’t usually rise up to philanthropic examples of people in the past.

The Virtues of Poverty. Is there anything we can learn about it? This means indifference to possessions. Voluntary poverty might be good. Some people see possessions as corrupting. Being poor frees you from being preoccupied with getting and spending. Inner security is the key here.

The Intimate Relationship with Money. Money worries are vastly different from money troubles. We need to be more attentive to our experiences with money. Worrying less helps. Ask what does money mean to you.

How to Worry Less About Money_4





Psychology quotes 201 to 250

  1. ‘Their experiment, the authors write, suggests that when we do something with another person, we pay more attention to that experience than we would if we weren’t sharing it, even though we now have somebody else to think about.’ Anna North
  2. ‘You and your friend are listening to Stravinsky’s ‘Rite of Spring.’ Thoughts about this piece of music are now intertwined with thoughts about your friend. Even though you are both focused on the melody, you are also highly aware of one another. Thinking about your friend and his or her mind might therefore cause you to think more about the ‘Rite of Spring,’ because that is also what is on his or her mind.’ Anna North
  3. ‘The research distinguishes between sharing or ‘self-disclosure,’ which is associated with positive friendships and positive feelings, and dwelling on problems, concerns and frustrations. Dwelling and rehashing issues can keep girls, who are more prone to depression and anxiety than boys, stuck in negative thinking patterns, psychologists say.” Anna North
  4. ‘Our research suggests that doing an unpleasant task together can make it worse,” she explained, “but that we can get relief from the negativity if the person we’re with is instead focused on a different task. In other words, what really matters for experience amplification seems to be the locus of the other person’s attention. If someone else is attending to the same thing you are, your experience will be more intense than if that person is attending to something else.” Erica J. Boothby
  5. ‘We cannot cure existential anxiety, but we can show that there is no necessity to have big ideas worth dying for in order to find small pleasures worth living for.’ Adam Gopnik
  6. ‘When you are alone you have to face all your problems alone – there’s no one to discuss them with. But in all the time that I have spent alone, I have never felt lonely. I had so many things that I wanted to see. I loved it so much, doing things in my own rhythm, drifting along streets and looking at things just as I wanted to. It is a great luxury.’ Dorothea Bluemer
  7. ‘When we’re inactive or slow down the pace at which we live, we can’t help thinking of features of our lives we’d prefer to forget – above all, the fact that we’re going to die. By being always on the move and never leaving ourselves without distraction, we can avoid such disturbing thoughts.’ John Gray
  8. ‘Blaise Pascal (a Mathematician) suggested that humans are driven by a need for diversion. A life that’s always time-pressed might seem a recipe for unhappiness, but in fact the opposite is true. Human beings are much more miserable when they have nothing to do and plenty of time in which to do it.’ John Gray
  9. “It’s the principle of reciprocity. If someone does something for you and you feel obliged to do something back. It’s the same principle that marketing people use when they give you free samples.” Sandy Mann, on why giving free food to employees might increase their productivity
  10. ‘Maslow described a “hierarchy of needs” for human beings. The most basic are physiological – including food and shelter – and a feeling of safety. If these are taken care of, employees can move on to the next stages – feeling socially accepted and gaining a sense of self-esteem. Once freed of such ordinary human concerns, Maslow argued, they can progress to “self-actualisation” – a full-on commitment to their work which leaves them feeling fulfilled.’ Justin Parkinson
  11. ‘From then onwards (after detesting aristocracy), Dostoyvesky realised that human life was not a movement from a backward past to a better future, as he had believed or half-believed when he shared the ideas of the radical intelligentsia. Instead, every human being stood at each moment on the edge of eternity.’ John Gray
  12. ‘Dostoyevsky suggests that the result of abandoning morality for the sake of an idea of freedom will be a type of tyranny more extreme than any in the past.’ John Gray
  13. ‘So rather than trying to override your decision-making impulses on splurging on expensive items, a better strategy might be to try to change them. And recent research suggests that an effective way to do that is by cultivating the emotion of gratitude.’ David DeSteno
  14. ‘Findings show is that certain emotions can temporarily enhance self-control by decreasing desires for immediate gratification. While feeling happy doesn’t do much to increase patience, feeling grateful does.’ David DeSteno
  15. ‘Working longer, in other words, only guarantees achieving more if you’re confident that every minute is well spent.’ Gaby Hinsliff
  16. ‘Are you really, really happy or are you just comfortable?’ Unknown
  17. ‘A friend with a degree in positive psychology and who is a “psychotherapist and resilience coach” distinguishes between two ideas of happiness: hedonism and eudaimonia. The first is defined by pleasure and consumption, the second by virtue and excellence. Hedonism is a source of fleeting feelings of pleasure, but it ultimately fuels dissatisfaction. Eudaimonia, by contrast, is the idea of human flourishing, of how human beings thrive when they choose certain ways of living. A central concept in Aristotle’s Ethics, it is about the good life as an end to strive for, not as a thing to possess or consume.’ Lydia Lim, a ST editor
  18. ‘The more we learn, the more we are able, by linking our areas of knowledge together, to come up with creative ideas…Thus the more we know, the more we can create.’ Philippa Perry (How to Stay Sane)
  19. ‘It has been an important experience to see how people can take ordinary things and transform them into meaningful symbols. We can create aesthetic experiences — not only aesthetic, but ecstatic — by paying attention to what’s around us, finding the beauty in things that you normally pass over.’ Mihaly Csikszentmihalyi
  20. ‘Courage is more exhilarating than fear and in the long run it is easier. We do not have to be heroes overnight. Just a step at a time. Meeting each thing that comes up. Seeing it is not as dreadful as it appeared. Discovering we have the strength to stare it down.’ Eleanor Roosevelt
  21. ‘We can’t live outside time, we begin to age the moment we’re born. But the emerging age-acceptance movement neither decries nor denies the aging process. It recognizes that one can remain vital and present, engaged and curious, indeed continue to grow, until one’s dying breath.’ Anne Karpf
  22. ‘When alternatives are on a par, when the world doesn’t determine a single right thing to do, that doesn’t mean that value writ large has been exhausted. Instead of looking outward to find the value that determines what you should do, you can look inward to what you can stand behind, commit to, resolve to throw yourself behind. By committing to an option, you can confer value on it.’ Ruth Chang
  23. ‘When we choose between options that are on a par, we make ourselves the authors of our own lives. Instead of being led by the nose by what we imagine to be facts of the world, we should instead recognize that sometimes the world is silent about what we should do. In those cases, we can create value for ourselves by committing to an option.’ Ruth Chang
  24. ‘Writing about your feelings, a practice long embraced by teenagers and folk singers, is now attracting attention as a path to good health. And a recent study suggests that reflecting on your emotions could help you get over a breakup.’ Anna North
  25. ‘There’s a really delicate balance between avoiding and getting over-involved for every stressful event, and so you touch on it, you think about it, you put it out there, you reflect, and then you sort of create some distance.” Dr. Sbarra
  26. ‘Because being easy on the eye won’t give you an easy pass to online success (dating websites). Instead, having people think you are unattractive can actually work to your advantage.’ Hannah Fry
  27. ‘And the maths behind this algorithm comes with an important result: those who do the asking (take initiative) will always end up with much better partners than the group who sit back and accept a suitor’s advances.’ Hannah Fry
  28. ‘When choosing a profile picture (dating website), don’t be afraid to put some people off. You’re not trying to appeal to the masses, so don’t make yourself bland. Play up to whatever makes you different – that’s the best way to attract the people who matter.’ Hannah Fry
  29. ‘As almost a century of research on romantic relationships has taught us, predicting whether two people are romantically compatible requires the sort of information that comes to light only after they have actually met.’ Eli J. Finkel
  30. ‘Curated text and a handful of pictures will never be able to tell you whether the first-date conversation will crackle or whether you’ll feel a desire to discover what makes this person tick.’ Eli J. Finkel
  31. ‘But for open-minded singles — those who would like to marry someday and want to enjoy dating in the meantime — Tinder may be the best option available now. Indeed, it may be the best option that has ever existed.’ Eli J. Finkel
  32. ‘The more you express your happiness, the stronger it becomes inside you. If you hold your happiness in and never express it, it gradually dissipates. Express it clearly and visibly and it gets stronger and lasts longer.’ Alexander Kjerulf (Happy Hour is 9 to 5)
  33. “I mused for a few moments on the question of which was worse, to lead a life so boring that you are easily enchanted, or a life so full of stimulus that you are easily bored.” Bill Bryson
  34. ‘We are all human beings. We were born without any guarantee that we would not make mistakes.’ Arsenal manager, Arsene Wenger
  35. ‘We pick our friends not only because they are kind and enjoyable company, but also, perhaps more importantly, because they understand us for who we think we are.’ Alain De Botton (The Consolations of Philosophy)
  36. ‘The scientists suggested that a single alcoholic drink could make people seem more attractive because it caused facial muscles to relax, pupils to dilate and cheeks to flush. Rosiness is attractive because it characterizes good physical health characteristics.’ Professor Marcus Munafo
  37. ‘The emotions of hatred, envy and covetousness and lust for domination are life-conditioning emotions…which must fundamentally and essentially be present in the total economy of life.’ Friedrich Nietzsche
  38. ‘Male dogs responded better than female dogs and both groups spent less time standing and barking when the music was being played. Although by the end of the week their heart rates and behaviour associated with kennel stress had returned to normal, the initial findings are very encouraging and show that classical music does have a positive impact on the dogs’ welfare.’ Mendes Ferreira
  39. ‘People who are generally impatient, or who get bored or frustrated easily, are more likely to engage in repetitive body-focused behaviors such as skin-picking, nail-biting or eyelash-pulling.’ Dr Kieron O’Connor
  40. “We believe that individuals with these repetitive behaviors may be perfectionistic, meaning that they are unable to relax and to perform task at a ‘normal’ pace. They are therefore prone to frustration, impatience, and dissatisfaction when they do not reach their goals. They also experience greater levels of boredom.” Dr. Kieron O’Connor
  41. ‘If you ever aren’t sure if you attended the very best party or bought the very best computer, just settle for “good enough.” People who do this are called “satisficers,” and they’re consistently happier, he’s found, than are “maximizers,” people who feel that they must choose the very best possible option.’ Albert Schwartz
  42. ‘A person of kindness and virtue, in whom we find nothing to which to object, can leave us indifferent or cold from a romantic point of view, whereas someone else who is without these virtues may, for reasons that are almost completely unclear, appeal to us profoundly.’ Christopher Hamilton (How to Deal with Adversity)
  43. ”That is why those who are truly addicted to something feel, when indulging the addiction, that the world is theirs. But, of course, when the moment has passed, they feel even more acutely the indifference of the world – which feeds the addiction.’ Christopher Hamilton (How to Deal with Adversity)
  44. ‘Researchers used functional magnetic resonance imaging to look at the effect of donation on the brain. They found increased activity in the ventral striatum during acts of voluntary giving. This is a region associated with reward, one of the areas that bursts into life under the influence of addictive stimulants like cocaine. Charity can get you high.’ David Shariatmadari
  45. ‘I’m a human being, and the good feeling I get from being generous isn’t something I can rise above. Better to acknowledge that giving to charity is selfish, and keep on giving, all the same.’ David Shariatmadari
  46. ‘‘What’s more, our ability to read for pleasure is taxed by the amount of reading we do. There is such a glut of blogs, emails, texts and tweets that the distinction between literary works and nonliterary works has become badly blurred and people tend to read everything in the same way, pragmatically.’ Lily Tuck
  47. ‘In his book “The Act of Reading,” Wolfgang Iser, known for his reader-response theories, writes that ideally a book should transform a reader by “disconfirming” his habitual notions and perceptions and thus forcing him or her to a new understanding of them.’ Lily Tuck
  48. ”The idea that young people are indefatigable hedonists, forever in search of their next pleasure-fix, surgically attached to social media, utterly belies the fact that young people are more prone to wrestle with life’s meaning and purpose than older and often more cynical adults.’ Anne Karpf (How to Age)
  49. ‘We’re born alone, we live alone, we die alone. Only through our love and friendship can we create the illusion for the moment that we’re not alone.’ Orson Welles
  50. ‘If you were required to choose all your phone settings on your own, you would have to spend a great deal of time thinking about which settings were best, and you might end up frustrated and bored. You might also make a lot of mistakes.’ Cass R. Sunstein


The Business Book (DK) (Part 3)

Make it easier to do the right thing and much harder to do the wrong thing. Create an ethical culture. This could be done from top down. A code of conduct is important. The culture must foster people to do the right thing. Groupthink must be tackled. Customers gravitate towards companies with good business ethics.

Market Management (Successful Selling). Knowing your customer and their purchase history is the most important. The marketer must be aware of changing tastes, technology and politics. Product/service is the most important element of the marketing mix. The use of the Ansoff Matrix is possible. Make the brand synonymous with the set of unique product qualities. Branding allows the firm to charge a premium. Marketing enables your products to be pushed out. Social media can be the tool. Staying on message. It is vital to stick to a consistent message. Understand the role of ethics in the organization.

Marketing is far too important to leave to the marketing department. Some marketing programmes use statistics and mathematical models. Gathering data for modelling is important. Marketing must be communicated to the rest of the department. Learn to simulate product tests and input variations. Marketing is all about producing results. It must be rational.

Know the customer so well that the product fits them and sells itself – Understanding the market. Learn to understand the business environment. Understand and assess the broad market environment. Develop products and services to meet existing demand. Businesses must be centered on the customer in order to grow. Shareholders do better when the firm puts the customer first. The market is more fragmented in recent times. Price cutting can divide customers. Market research is important. Both qualitative and quantitative research can be conducted. Psychological profiling can be used. Amazon engages in customer relationship management (CRM). CRM relies on individual marketing based on customer’s preferences. Neuromarketing tests how individual’s brainwaves changes when exposed to a certain campaign. Even though you listen to customers, it is still important to make the leap to figure out what the customer needs.

Attention, Interest, Desire, Action. This is the AIDA model. This is the foundation of marketing and advertising. The fourth step is call to action. Provide a list of benefits to the consumer. Make it easy for customer to perform the action. Film-makers create desire for customers in their trailers. Marketers need new ways to perceive customer journey. Say AIDA to yourself.

Marketing Myopia. Focus on the future market. Focusing on the current market might lead to trouble in future. Customers taste and circumstances change over time. Grow or die after a while. Growth is never certain. Learn to treat marketing seriously. Far-sighted marketing is by far more favourable than near-sighted marketing.

The cash cow is the beating heart of the organization – Product Portfolio. This refers to a dependable source of revenue. It often doesn’t require much cash outlay to grow. Star and new products need to be introduced once in a while. BCG is important. The product portfolio is the total mix of products offered by an organization. One can use the BCG matrix to assess profitability of the product mix. There are dogs, question marks, cows and stars. Nestle has a great product mix and knows how to mix its products well.

Expanding away from your core has risks; diversification doubles them – Ansoff’s matrix. There are four possible strategies: 1) market penetration; 2) market development; 3) product development; 4) diversification. Developing new products and seeking new markets can increase your risk. Tesco showed that there is risk in diversification.

If you are different, you will stand out. Learn to create a brand. Idea and elements help to form the brand. Brands will be successful if they are different from their competitors. Dyson’s vacuum cleaners is an example of a good and strong brand. Brand loyalty is established when members like to be around others who have the same brand. A successful brand is timeless. IKEA wants to create a better life for all. Starbucks started the ‘third place’ concept. There are 5 key stages to building customer loyalty. The Body Shop is associated with social responsibility. Starbucks is instantly recognizable globally.

There is only one boss: The customer. Make the customers love you. Customers like good service and food quality. Walmart is associated with low prices always. If you can exceed customer’s expectations, they will always return. The iPhone can command a premium. Learn to cultivate customer loyalty through loyalty cards etc.

Whitewashing, but with a green brush. This movement started in the 1990s. Do companies need to take fundamental reforms? Some companies see a commercial advantage in going green.

People want to believe in something beyond maximizing profits – The appeal of ethics. Business ethics is important. People like services which go beyond profits. An example are NGOs.

Everybody likes something extra for nothing – Promotions and Incentives. This is known as sales promotion. However, the effects of promotion might only last a while.

In good times people want to advertise; in bad times, they have to. Advertising efforts must be on-going. Customers may forget about you if you stop advertising altogether. Effective advertising requires commitment and should not be neglected.

Make your thinking as funny as possible. Generate buzz. Word of mouth marketing is getting more important. It is the most effective form of marketing. Guerrilla marketing and viral marketing help to generate buzz.

E-Commerce is Becoming Mobile Commerce. Tap-to-pay is one of the newer technologies. Cell phones are the informal banking system.

Trying to predict the future is like driving with no lights looking out of the back window. Forecasting sales is crucial. Both qualitative and quantitative elements must be used. However, it is never 100% accurate as there are unforeseen elements that are present.

4Ps – Product, Place, Price, Promotion. This is a theoretical framework. The marketing mix must take into account external forces too. The 4Ps are internal factors only. Ultimately, customers must accept the price that is proposed. Sometimes, customers are driven by emotional needs. The 4Ps can be put into practice easily. Brands like Zara embrace the 4P concept.

Delivering the goods – Production and Post-production. Every part of the production must be examined carefully. One way to lower cost is to reduce waste. This is known as the ‘lean production’ method. Toyota uses a JIT production system. Many companies aim for cost reduction strategies. Innovation can come from any part of the business. Some companies employ the concept of ‘open innovation’ and get ideas from all sources. Big data is becoming more prominent. Such data can be analysed to yield insights. Word of mouth marketing is excellent. Companies need to make the best use of time and resources.

See how much, not how little, you can give for a dollar. Learn to maximize customer benefits. Offer more for less. Give customers a bang for their buck. Low prices can indeed attract a lot of customers. However, low prices must be associated with products of decent quality as well.

Costs do not exist to be calculated, costs exist to be reduced (Lean Production). Waste should be eliminated. There are 7 types of waste. They are 1) overproduction; 2) inventory waste; 3) movement; 4) waiting time; 5) transportation; 6) overprocessing; 7) production of defective items. Holding goods incurs storage costs and should be avoided. Toyota developed the TPS. Some companies only manufacturers when they receive a customer’s order. This is known as JIT system. Muri, Muda, Mura are all areas to avoid. To do JIT, the production cycle must be shortened. Work designs and processes must be designed. Bottlenecks should be eliminated.

If the pie’s not big enough, make a bigger pie (Fulfilling demand). Some companies anticipate stock during peak periods or they keep WIP at times. The aim is to keep enough stock to meet demand and also to minimize inventory holding costs. Some level of buffer stock might be necessary.

Eliminate unnecessary steps (simplify processes). One way to generate profits is to lower production costs and streamline processes. Ford produced a standardised car. They also produced standardised and identical models to increase speed of production. Employees were told to specialize in one aspect of production. Dell created custom-made customers and sold directly to the customer to cut out profit from the middle man.

Every gain through the elimination of waste is gold in the mine (Juran’s Production Ideal). Waste undermines profit and should be eliminated. One should strive for improved productivity. Lower costs can be translated to lower prices of products and cost savings to the customer. More money can be reinvested into R&D.

Machines, Facilities, and people should work together to add value – Kaizen. Kaizen is all about productivity. This is a continuous process. Toyota applied it in the 1950s. Every worker should do their job but also look for ways to improve the way things are being done. The greatest resource are the employees. Kaizen focuses on ‘quality circles’. Japanese companies do not give cash bonuses for giving suggestions. Workers must feel a sense of pride when giving suggestions. Innovation should be a part of life. Empowerment is very important as ideas from the ground can be implemented immediately. Mutual respect is important. Develop a healthy relationship with your employees. BPR requires high capital outlay but is often done infrequently. Increased productivity achieved by kaizen is often cheaper. In top down organizations, kaizen doesn’t work. Kaizen is mainly a bottoms up concept.

Learning and innovation go hand in hand. Learn to apply and test ideas. R&D should be done frequently and it should lead to a production of more products. Technical breakthroughs might be rare.

Your most unhappy customers are your greatest source of learning – Feedback and innovation. Should a company be in sole control of their innovation? Sometimes, shared innovation is possible. Your customers are the greatest source of learning. They might submit feedback to you. Companies can learn from crowdsourcing movements. Wikipedia started off as a crowd-funding project.

Technology is the great growling engine of change – the right technology. IT can boost productivity and reliability. However, not all IT projects may turn out to be successful. A new project must have a shared vision for it to work.

Without ‘big data’, you are blind and deaf and in the middle of a highway – benefitting from big data. Data must be analysed. Big data can be used for market research purposes. TiVo has used big data to create a revenue stream. Netflix has used big data to drive product development.

Put the product in the customer’s hands – it will speak for itself. Sometimes, promotion aren’t all that necessary. The product quality will attract customers already. Quality products help inspire and gain trust. Businesses have different features in their products. Estee Lauder is a brand associated with quality. Quality products attracts customer loyalty. Businesses can add value by creating quality products.

The desire to own something a little better, a little sooner than necessary. Nowadays, products are more durable. Newer versions of products have new features. This entices the old customers to want to purchase them again. Car manufacturers use different tactics to ensure customers to upgrade.

Time is money – time-based management. Time has a monetary value. Multidisciplinary teams can work on different aspects of design simultaneously. This reduces cost design. There is no need for a linear approach. Time-based management is increasingly important. A project without a critical path is like a ship without a rudder.

The Business Book

The Business Book (DK) (Part 2)

Culture is the way in which a group of people solves problems. Tradition, culture and structure are important for a company. Culture is a shared history of what the company has. It is a narrative. There are basically 5 dimensions of culture. They are 1) power distance; 2) individualism vs collectivism; 3) uncertainty avoidance; 4) masculinity vs femininity; 5) long vs short-term orientation. Power distance refers to distance in authority between managers and executives. Culture matters a lot. Organization culture is non-static and can change over time.

Emotional Intelligence is the intersection of heart and head. EQ is the ability to perceive, control and evaluate emotions. There are 5 domains to EQ. It is an essential trait in highly effective business leaders. They are 1) self-awareness; 2) self-regulation; 3) motivation; 4) empathy; 5) social skills. EQ can grow with age and experience. Emotional balance is a key factor in commercial success.

Management is a practice where art, science, and craft meet – Mintzberg’s management roles. Management roles fall into these 3 categories: 1) informational; 2) interpersonal; 3) decisional. Effective managers must use all three and know when to use them appropriately. Management is both an art and a science. Management is complex and multi-faceted.

A camel is a horse designed by a committee – Avoid Groupthink. We tend to nod in agreement even if we disagree. This is because we want to feel like we ‘belong’ to the others. Groupthink can be so strong that proper analysis might not be conducted at all. It encourages extreme risk taking. Managers must encourage all to talk and encourage dissent in order to avoid groupthink.

The art of thinking independently, together – the value of diversity. Males have the tendency to employ other males. Greater diversity means scope for creativity. Diversity can combat groupthink.

Making money work: Managing finances. Finance strategy has emerged in importance nowadays. Leverage is a double-edged sword. Is it the director who is responsible when things go wrong? Learn to ignore the herd instinct. There may be wisdom to listen to your customers. For instance, China has a huge potential. Management accountants work hard to derive accurate costing. ABC is a good way to do this. Financial accountants must play by the rules and abide by FRS and their principles. Often, companies are trying to make ‘money’ from ‘money’ rather than concentrate on their core operations.

Do not let yourself be involved in a fraudulent business. Learn to err on the side of caution. Consider rules plus morality as well. Do not inflate profit figures if you are an accountant. Prudent approaches must be made with regards to the provision of bad debt. Directors must be alert to any creative accounting being employed. IFRS relies more on principles as compared to rules-based US GAAP. Is mark-to-market accounting misleading in times of economic boom? No set of rules can govern ethical behaviour.

Executive Officers must be free from avarice. Managers can act in their own interests. They must not be opportunistic and simply interested in personal gain. Shareholders are now even more concerned about governance and gain.

If wealth is placed where it bears interest, it comes back to you redoubled – Investment and dividends. Dividends are more rare nowadays. Share buy backs are more common. In periods of high growth, companies should reinvest a great amount in order to grow the business. When growth is slow, companies should pay dividends. Apple only started paying dividends in 2013.

Borrow Short, Lend Long – Make Money from Money. However, this is a short term strategy. Invest in financial products. The treasury function emerged in the late 1970s. Speculation via derivatives can be risky indeed.

The Interests of the shareholders are our own – Accountability and Governance. Governance must be proactive and ethical in nature. Lines of responsibility are clear. Board members must be fully informed and work in the long term interests of business and shareholders. Board members must be alert. Many board members had no idea what risks the company faced. Good governance is necessary.

Make the Best quality of goods at the lowest cost paying the highest wages possible – your workers are your customers. Sale of stable groups are growing rapidly. Sometimes, your workers will also be your customers. This will be good. China is the biggest market for consumer spending. There is a lot of potential in this market. Bosses need to focus on workers’ delight and fulfilment more than ever. Encourage the workforce to manage themselves.

Utilize OPM other people’s money – Who bears the risk? In the event of liquidation, shareholders tend to lose out as they are the last to be paid. Staff might lose their job when the company fails. The pension funds might be wiped out and hence affecting employee welfare.

Swim upstream. Go the other way. Ignore the conventional wisdom. You need to have a contrarian view to make money. Public shareholders should not follow mass trends. Do not stampede to make takeover bids. This is because the company will tend to overpay. Do not buy other businesses for diversification sake when others are doing so. Avoid followership and imitate market innovators. Learn to swim upstream

Debt is the worst poverty – Leverage and excess risk. In the long run, taking leverage is not good. However, in the short term, it might help the company to grow. The optimal debt should be about 25 to 30%. Leveraged buy-outs exist in the market. For instance, LBOs rescued MGM Grand.

Cash is King. Profit vs Cash Flow. For fast growing companies, cash flow is more important than ever. Profit is an accounting concept. Those with weak cashflows can use overdrafts and supplier credit. However, in times of recession, cash is king. Companies must be able to tie over the period of negative cashflow in order to survive unscathed.

Only when the tide goes out do you discover who’s swimming naked. There is off-balance sheet risks. Not all liabilities may be reflected on the BS. Losses can be parked with subsidiaries or SPVs and not consolidated.

ROE is a financial goal that can become an own goal. ROE is vital. Share repurchases help to boost ROE. However, this results in a risky capital structure. Hence, ROE can be misleading at times.

As the role of private equity has grown, so have the risk it poses. PE involves loading debt onto the business, similar to LBO. Debt has inherent risk. Managers are pressured to perform to pay off the debt. Hence, there is more incentive for short term performance rather than long-term gain. Those who make PE purchases are usually institutional investors. The trick is to try to turn the company such that it becomes profitable.

Assign costs according to the resources consumed. Use ABC. Overhead costs can be vague in nature. ABC calculates the actual overhead costs. This allows the company to make better decisions. This is good for non-standard products. To do this, one needs to identify the cost drivers for each activity.

Working with a Vision – Strategy and Operations. Everyone should have a common objective. Strategy is vital. Companies must be nimble and change course if necessary. There is a need to balance long and short term objectives. Flexibility is important. Regulation is taking centre-stage now.

Turn every disaster into an opportunity. There are many success stories that emerged because of failure. There are opportunities in disasters. Analyze every failure and learn from them.

If I had asked people what they wanted, they would have said faster horses. The company that leads the way can dominate an industry even if they are copied. This is because people associate the concept with them first. This is known as first-mover advantage. Do things that no one else is willing to do. Being the first is everything. You need to get into the mind of your customer. Toyota created the Prius car.

The main thing to remember is, the main thing is the main thing. Protect the core business. Diversification usually does not bode well for companies. A business should focus only on what they are good at. Outsourcing some non-core functions is possible. The outsourced function must be managed well.

You don’t need a huge company – Just a computer and a part-time person (Small is beautiful). Internet had disruptive power. Google was phenomenal. eBay is a very successful auction house. Anyone can sell unique items on such platforms. Internet allows business to be run at a much cheaper cost. Cost and speed of delivery are important too. Customer service is increasingly important in this modern age. Feedback is always useful for business owners. Customization is possible for small businesses.

Don’t get caught in the middle – Porter’s Generic Strategies. Companies generally choose between cost leadership or differentiation. This is how companies develop a competitive advantage. For low cost strategy, companies might be worried that their idea will be copied. Bose is a company that pursues a differentiation strategy. A focus strategy is good to target a niche market. Ryanair is a typical low cost carrier. SIA pursues a differentiation strategy.

The essence of strategy is choosing what not to do – Good and bad strategy. Choosing what not to do is as important as choosing what to do. Good strategy should be developed from SWOT. Kodak is an example of a company which used bad strategy. They neglected the potential of the digital camera.

Synergy and Other Lies – Why takeovers disappoint. The purpose of merger and acquisition is to create synergy. The most reason why things don’t work is because the two companies cannot agree on a common strategy. There might be a mismatch in organizational culture.

The Chinese word ‘crisis’ is composed of two characters: ‘danger’ and ‘opportunity’. Crises can strike anywhere. Crisis management is important. Leadership must be swift and decisive. It is always crucial to care for the well-being of your customers. Sometimes, product recalls are necessary.

You can’t grow long term if you can’t eat short-term. There is a need to balance the two. It is a delicate balance. If you only think long term, you might not have the immediate capital to fund your business. It is important to preserve the core of the business and yet stimulate progress.

Market attractiveness, business attractiveness. MABA is a business framework. It is also known as the GE-McKinsey Matrix. This helps to plot the relative profitability of business units or products.

Only the paranoid survive. RIM did not innovate. It is normal to relax when things are well. Every business faces change. Intel had to reposition themselves when Japanese companies could produce memory chips at a lower cost than them. This is known as a strategic inflexion point. Leaders must make the right decisions during inflexion points or the business has a high chance of failure. Leaders need to look out for black swan events that might hurt the business. Keep asking ‘why’ till you get to the root of the problem. Managers must question processes. They need to constantly ask whether there is a better way of doing things. Victorinox started selling watches after its business for pocket knives were hit.

To Excel, tap into people’s capacity to learn (The Learning Organization). Companies need to be devoted in development and education. The community will benefit as a whole. Peter Senge made headway in his research. The two traits are discipline are personal mastery and mental models. The other three are team learning, systems thinking and building a shared vision. Turnover is a big problem in major organizations. This could be due to poor management practices. Honda is an example of a good learning organization. Those organizations which focus on learning have better hope for the future.

The future of business is selling less of more (The Long Tail). This means low volumes of an increasing large number of products. Customers are now buying niche items from online sellers. iTunes offers a wide range of music that no one else can compete with them. Physical stores can only offer a limited variety of items.

To be an optimist, have a contingency plan for when all hell breaks loose – Contingency planning. One must have an adequate plan to tackle a crisis. It is important to be able to manage disasters well.

Plans are useless but planning is indispensable. Ask what is likely to happen the next few years. Shell managed to diversify into other energy sources when there was an oil embargo.

The strongest competitive forces determine the profitability of an industry. They are the power of suppliers, buyers, rivalry among existing firms, threat of new entrants and threat of substitutes.

If you don’t have a competitive advantage, don’t compete. Companies can add value at any stage of the value chain. Companies must know how to analyse their value chain.

If you don’t know where you are, a map won’t help (The capability maturity model). Processes must be proactively applied and then managed and monitored. Continuous process improvement is crucial.

Chaos brings uneasiness, but it also allows for creativity and growth. Companies need a flatter structure with more flexibility. A company has to re-visit its strategy frequently. Workshops and team briefings are important.

Always do what is right. It will gratify half of mankind and astonish the other. There is morality in business. Companies may cheap because they want to boost performance. Some companies engage in price fixing etc.

There is no such thing as a minor lapse in integrity – Collusion. There is a fine line between collaboration and collusion. Accountability is important and must be emphasized.

The Business Book

Eight Lessons for a Happier Marriage by William Glasser/ Carleen Glasser

The only person you can change is yourself. The more you try to change others, the more unhappy they will be. Only a few adjustments are needed to make a failing marriage work. The eight lessons are useful indeed.

Divorcing is not the only option. Often, things might turn for the better after a while. No one is responsible for making you happy, even your spouse. The ideas contained are simple and easy to understand. The ideas can be applied to other relationships as well.

Infatuation is not love and it won’t last. Some just go separate ways after the infatuation stage. The problems start after infatuation dies. Couples need to rekindle their romance. Even if you find someone else, the infatuation ain’t going to last long as well. This is the reason why many turn to affairs. The book focuses on the impact of choice theory. Do not expect to master all the 8 lessons at once. Try your best to limit external control in a marriage. Change the way you relate to one another.

External Control can Kill a Marriage. Be patient with your partner’s flaws. For instance, your partner might be untidy and messy. Sometimes, couples stay married because it is convenient and it beats the unknown of separation. As a psychiatrist, he doesn’t prescribe psychiatric medication. In an unhappy marriage, one partner tends to blame the other for their unhappiness. The main source of unhappiness is when people try to control one another. It is like coercing the others to behave in the way I want. There is no upside to this. This is exclusively used by humans to control others. If you threaten your spouse to do something, the effects could be worse in the long term. Ask yourself this question ‘If your mate continually tries to control you, what could you do that would help your marriage?’ Do not constantly have the need to correct your spouse. Be wary of control freaks.

External control is a psychology in which people who practice it always know what is right for other people. – William and Carleen Glasser

We choose all our behavior. Learn to move towards choice theory. We all choose what we do. Replace external control with choice theory. Use this axiom ‘All we do from birth to death is behave, and every behavior is chosen.’ No one can make you do anything. No one can control you unless you let them. There are 5 basic needs. The five basic needs are 1) survival; 2) love and belonging; 3) freedom; 4) fun; 5) power. Humans need one another and strive to procreate. Control leads to the need for power. Some people value freedom and don’t like to be controlled. The evidence shows that more men tend to go astray as compared to married women. Fun can be divisive as well. Power is also largely only applicable to humans. External control is a chosen behavior and there is no need for that. Opposites attract isn’t true. Ask yourself this question ‘How compatible is the way you are attempting to satisfy your basic needs with the way your partner is choosing to get his or her needs met?’

The basic needs have a lot to do with marital compatibility. For example, couples who share a high need for love and a low need for power tend to be happier together. – William and Carleen Glasser

Never Use the Seven Deadly Habits. The first and the worst is criticism. The next is blaming your spouse for everything. The third is complaining. The fourth is nagging. The rest are threatening, punishing and bribing. If you can eliminate the above, your marriage will be much happier. Supporting is a good strategy. Encouraging each other is important. The third good habit is active listening. Accept what your partner sees in you. Accept each others’ imperfections. Trust your partner. Respect one another. Negotiate to win-win situations if possible. Which of the caring habits do you need to work on first?

Get Acquainted with each other’s quality world. Understand the quality world concept. People play a very important part in a ‘Quality World’. This is based from our most pleasurable experiences. Understand your spouse’s quality world. Care for one another and exhibit caring habits. If differences exist, negotiation and compromise must take place. Usually, the people we love are placed in our quality world. Our good friends might also be included as well. We also put people who are similar to us in our Quality World. To have a long lasting marriage, we need to satisfy each other. We can tolerate external control from our boss. Things can also be contained in someone’s Quality World. Addictions usually emerge because of unhappiness in a marriage. There might also be religious or political beliefs that might be different. In this case, there are things that need to ironed out. Work together to build a common Quality World. Ask yourself ‘What do you need to negotiate to make your Quality Worlds more compatible?’

Understand Total Behavior. Focuses on feelings alone can be bad. One should focus on acting and thinking as well. Think in ways that make you feel good. Total behavior consists of ‘thinking, acting, feeling, and physiology’. You only have voluntary control over your thinking and acting. You do not have direct control over your feelings. It is what you think that will influence how you feel. Thinking and acting influence feeling and physiology and control its direction. Steer the marriage towards a choice theory one. The idea to keep your marriage moving and do something fun together. Ask yourself, ‘which wheels are in control of your marriage, front or rear?’

A Little Creativity can save your marriage. We are all creative. We are often the most creative when we are asleep. Try to resolve differences and suggest improvements which both of you can do together. Having fun is a great way to spice up a marriage. Stop threading on old ground. A new marriage idea needs to be new and supported. Flush boredom out of your marriage. Show appreciation for one another. Refer to the marriage as ‘our marriage’. This is very important indeed. Keep the level of humor high and learn from them. Marriage is supposed to have its lighthearted moments. Ask yourself, ‘When is the last time we used our creativity to have a real good time together?’

Treat your partner as he or she would like to be treated, regardless of whether he or she treats you that way. – William and Carleen Glasser

At your discretion, share what you are doing for your marriage with your children. Your children might want to be involved too. Do not expect too much from a partner. Do not treat your pets better than you treat your own children. Before you engage in any of the 7 deadly habits, ask yourself ‘Is what I am about to do going to harm our marriage?’ Never put yourself what you want ahead of your marriage. Humans always like to feel right. However, there is no issue with admitting being wrong sometimes.

Try New Ways to Improve Your Sexual Intimacy. Some men can have orgasms in their mind. You can have an orgasm without an erection. Sexual performance should not be associated with pressure to perform. Orgasm is a gift for the relationship. Sex is one way for your relationship to feel intimate and connected.


The Business Book (DK) (Part 1)

The Business Book (DK)

People all along want to gain a business edge. Specialism resulted in economics of scale. It is important to value-add to products. Industrialization took off in the 1800s. One needs to manage production. The problem is conflict between the management and the staff. Management understood that worker welfare was important too. Human relations cannot simply be cast aside. Now, businesses use advertising heavily. The Japanese embraced methods like Total Quality Management and Zero Defects Management. The Kaizen level of skill was adopted. Management experts like Peter Drucker emerged in the mid to late 1990s. Now, there is much emphasis on business strategy. The dot-com boom happened in 2000. E-Commerce is now very crucial. Corporate M&A is now more prevalent than in the past. Social responsibility is also gaining prominence now. Business is all around us as we consume goods every day.

Start Small, Think Big – Starting and growing the business. An idea is the most important for a business. Risk must be pursued in a business in order for it to grow. A business needs to be funded. The idea must also be profitable. An idea must have a unique selling proposition (USP). A company needs to find a target customer group. Companies need to re-invent themselves. At a big stage, experienced people and rigorous systems are necessary for the system to grow. At this stage, professional management is necessary. Some founders do not make good corporate leaders.

If you can dream it, you can do it. The dream is risky and people are in it for various reasons. One needs to be willing to take risks and possess business acumen and most importantly, determination. Companies can get funds from VCs. For smaller entities, crowd-funding is possible. A lack of cash will kill a business. Tony Fernandes bought over AirAsia.

There’s a gap in the market, but is there a gap in the market? Markets are getting more niche as there is wide variety of products/services out there already. Twitter is an example who found a niche in short-form communication in social media. Does the gap contain enough monies for you to generate a profit Snapple won because it focused on natural ingredients? Many gaps are illusory but tempting.

You can learn all you need to know about the competition’s operation by looking at his trash can. Always study the competition and perform SWOT analysis on them. See what the customer didn’t manage to finish and end up throwing away. Perform SWOT. This is taught in many business courses. A company can make informed decisions by analyzing SWOT. Market mapping is important too. This could be done via a map. This method will help you identify gaps. Sometimes, different products might cannibalize one another. Market research is important. SWOT was invented by Albert Humphrey.

The secret to business is to know something that no one else knows – Stand out in the market. There are rarely monopolies nowadays. Products must have a high USP at every stage in order to thrive. Differences can be copied and will not generate profits for long. Branding and brand imagery come to the fore. Superdry is a British brand that has influence from Japanese graphics. IKEA differentiates itself via contemporary design and low prices. They also have the self-assembly option. McDonalds has unparalleled consistency across different regions and countries. Differences have to be believable if they are reliable. Sustaining differences is the key in the marketplace.

Be First or be better. Amazon was one of the first to enter the online retail market. Google was not the first search engine, but it was superior to others around. ‘The key is that in order to gain a competitive edge in the market, a business needs either to be first, or it needs to be better.’ Amazon has dominated the industry since 1995. First movers have a huge edge. Amazon also patented the use of their ‘OneClick’ system. Patents help to produce a short-term advantage. Market timing is crucial for success. Later entrants can learn from those who entered the market earlier. Google developed algorithms for their search engine. However, first-mover advantage will not work if the business model is flawed to begin with. Sometimes, luck and timing play a big factor as well. In markets with high technological change, first mover advantages do not last long. P&G values long term relationships with their customers and suppliers. There are no guarantees a first-mover can emerge victorious.

Put all your eggs in one basket, and then watch that basket. Risk must be managed carefully. Risk management must be initiated. Oversight and management of risk are crucial. This is a continuous strategic process that is constantly on-going. Diversification is an issue too. Risk must be quantified and managed well.

Luck is a dividend of sweat. The more you sweat, the luckier you get. The more you sweat, the luckier you get. Make your own luck by having a good business plan. A good plan reduces your reliance on luck.

Broaden your vision, and maintain stability whilst advancing forward – Take the second step. Aspiration is a key factor. Access to capital is difficult. Business owners must take risks.

Nothing great is created suddenly – How fast to grow. New businesses fail because they grow too fast. They often run out of cash. Measure the inventory turnover and the cash cycle of the company. This is known as the SFG – self-financeable growth rate. When market is growing faster than SFG, employ the following: cash flow, reduce costs or raise prices. Growth can destroy company values if not managed properly.

The role of the CEO is to enable people to excel – from entrepreneur to leader. Not all founders can enter management. This is because not all founders have that management discipline and possess leadership skills. Founders need to learn how to delegate work. Growth requires a different set of skills.

Chains of habit are too light to be felt until they are too heavy to be broken. Companies need both structure and flexibility. Too much process can stifle growth and innovation. Middle management is important in this process. It is the company’s infrastructure that makes growth possible. Middle management also helps drive functional efficiency in the workplace. Business practices must evolve over time. Enablers help to foster growth.

A corporation is a living organism and has to continue to shed its skin. Technology is changing really rapidly. Markets are never static in nature. Adaptation and re-invention are crucial. Apple iTunes revolutionized the music industry. Netflix allow users to buy entire tv series. Internal processes must be revamped when demand is static. In such cases, operational efficiencies are crucial. Samsung re-invented itself in the 1990s and entered the cell phone market big time. Reinvention is a continual process.

Without continual growth and progress, success has no meaning. Growth often brings about crises. These must be managed using the Greiner curve. There will be 5 major crises in a business cycle. 1) leadership; 2) autonomy; 3) control; 4) red tape; 5) growth. There are 6 stages of growth. They are 1) creativity; 2) direction; 3) delegation; 4) co-ordination; 5) collaboration; 6) alliances. Richard Branson likes to handover businesses once they are big to professional managers. Some businesses simply choose to remain small. It is possible to be large but agile at the same time. Spotify seems to have done well so far.

If you believe in something, work nights and weekends – it won’t feel like work. Personal passion is an important ingredient. Starting an internet business doesn’t require much start-up capital. The risk is time for a weightless start-up, not money. Now, there are more micropreneurs. These are people who run a small business on the side and hold full-time jobs. The path is never straight-forward.

You have to really believe in yourself and know that, in the worst-case scenario, if it doesn’t work out, you still built something really cool. – Kevin Rose

Lighting the Fire – Leadership and Human Resources. Managing people is never easy and it requires strong leadership. However, leaders need to rely on managers as well. Effective teams are productive and innovative in nature. The work environment and office arrangement in Google is conducive for work. Money may not be the best motivator. A strong organizational culture is more important. A good leader requires a high level of EQ.

Managers do things right, leaders do the right things. Managers need to implement the strategies that their leaders set. Leadership is about setting the right agenda. Leaders have to be brave in the face of uncertainty. Leadership renewal is important.

None of us is as smart as all of us – the value of teams. Working in groups gives people a greater sense of belonging. Teams must be chosen carefully and supervised.

We might complain about routine and familiarity, but research shows that human beings have an innate need for some degree of stability. Without rules, norms, values, and expectations, people begin to feel anxious, rootless and confused. – Unknown

Innovation must be invasive and perpetual; everyone, everywhere, all the time. Many adults lose their inner joy of creativity. Encouraging creativity in the workplace helps to improve company’s competitiveness. We have an innate desire for autonomy, purpose and mastery. It is important to think differently.

Dissent adds spice, spirit and an invigorating quality. Beware of the ‘yes’ man. ‘No’ is ultimately more useful than ‘Yes’. It is important to be right all the time. It is important to inculcate a culture of collective responsibility. Delivering bad news is a skill in itself. Dissent in the form of debate can be healthy at times.

No great manager or leader ever fell from heaven – Gods of management. There are 4 different types of culture. They are club, role, task and existential. Every company exhibits a variation of the different cultures.

A leader is one who knows the way, goes the way and shows the way – Effective leadership. It requires action. One can’t rely on charisma to lead. Leaders must have integrity, trust, empathy and empowerment too. He must be confident and secure. Leaders need to walk the ground and be there when it matters.

Teamwork is the fuel that allows common people to attain uncommon results. Effective teams help to produce synergy. Shortcomings are balanced. There are many benefits for great teamwork. Storming, norming, performing and adjourning are the 4 stages of teamwork. Small wins help to build motivation. Sir Alex Ferguson is very good on managing talent. Talent management is important and it cannot be underestimated. Teamwork encourages listening.

Leaders allow great people to do the work they were born to do. Make the most of your staff’s talent. Engaged employees are definitely more productive. People want to feel a sense of achievement as this will spur them to work harder in their jobs. Work better and not harder.

The man who does not work for the love of work, but only for money, is likely to neither make money nor find much fun in life. – Charles M Schwab

The way forward may not be to go forward. Businesses are always in flux. Hence, it is useful to think out of the box. Motivate staff to avoid fixed thinking. Linear thinking might lead to the downfall of businesses.

The More a person can do, the more you can motivate them. Higher pay might encourage you to work harder for a while. However, this effect doesn’t last long. There are also hygiene factors that must be in place. Recognition, responsibility, opportunities for advancement are all important. Hygiene factors must be present. When present, they do not motivate but helps to reduce job dissatisfaction. The top-paying companies are rarely those who are the best employers.

Be an enzyme – A catalyst for change. Disruptive thinking and radical business strategies are the way to go. Disruptive tech are the game changers. Apple is a company which employed disruptive technology and did well. An example includes iTunes + iPod. The leader must take responsibility and stand in the spotlight when things go wrong. Companies need to have the courage and conviction to stay the course.

The Worst disease that afflicts executives is egotism. Successful companies can fall from greatness. Success can lead to overconfidence. Hubris is a form of blind faith. They are blind to changes that happen in the company. Arrogance breeds indiscipline. Many companies are not even aware that they are in stage 3. Stage 5 results in a company’s death. It is still possible to recover in stage 4. However, the company must turn things around and beat the odds.

The Business Book

The Economics Book (DK) (Part 3)

People are Not 100% Rational (Behavioral Economics). People sometimes make irrational decisions. They are affected by ‘whether they stand to gain or lose, and how the question is framed.’ Many are generally risk averse. However, in reality people are risk averse when they are winning and risk seeking when they are losing. How the question is framed also matters. This is where mass media can come in. The stages and outcomes in each stage also matter. Prospect theory in action. People place a lot more on things they already own. This is the ‘endowment effect’.

One may discover that the relative attractiveness of options varies when the same decision problem is framed in different ways. – Amos Tversky, Daniel Kahneman

Tax Cuts Can Increase the Tax Take (Taxation and Economic Incentives). In some cases, cutting taxes can result in government collecting more and not less money. Supply side economists believe that to improve the economy it is necessary to regulate less and free suppliers from high tax. Therefore, if the number of worked hours reduced outweighs the tax rate, then overall revenue will drop. There will exist a point where government will maximize revenue.

If a government takes no tax, it will get no revenue. If it takes 100% of tax, it will get no revenue wither, since no one will work. – Arthur Laffer

Prices Tell You Everything (Efficient Markets). Eugene Fama predicted that since markets are efficient, it is not possible to beat the market consistently. This is known as the EMH. Everyone has the same information. However, investors suffer from overconfidence and the ‘Herd’ instinct.

In an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value. – Eugene Fama

Over Time, Even the Selfish Cooperate with Others (Competition and Cooperation). Cooperation is beneficial most of the time. Would it to better to cooperate or to stay selfish? ‘Tit-for –tat’ strategy can work. Axelrod was the leader in this field. In reality, it was shown that cooperation can produce mutually beneficial outcome.

Most Cars Traded Will be Lemons (Market Uncertainty). The buyer has limited information and therefore is uncertain. He is unwilling to pay a high price for a second-hand good. Sellers withdraw their products, leaving only lemons behind. This is a failure of the market. Adverse selection is at work in the insurance market.

The Government’s Promises are Incredible (Independent Central Banks). Governments should avoid using discretionary policy but clear and simple ones. Discretionary policy will cause individuals to adjust their behavior. Modern individuals look forward, not just backwards. Discretionary policies can work when individuals are surprised. This is covered in one of the earlier chapter, on people’s rational expectations. The solution is to introduce independent central banks.

The Economy is Chaotic Even When Individuals are Not (Complexity and Chaos). This is the Lorenz’ effect or butterfly effect. ‘Tiny changes in initial conditions can cause large changes in outcomes.’ ‘No system yet discovered guarantees a good return in the stock market.’ The economic model is no longer simply linear. Complexity theory has been developed. The way individuals interact with each other, sometimes not rationally, causes the economy to seem complex and difficult to predict.

Social Networks Are a Kind of Capital (Social Capital). The initial definition of capital is physical capital or human capital. In modern times, there is now social capital. Social capital facilitate skills development and knowledge sharing. ‘Social Capital is now generally accepted as a significant element of economic performance.’

Education is Only a Signal of Ability (Signalling and Screening). A better level of education has a signaling function. Screening is when the buyer wants to find out more information from the seller by asking questions. Both signaling and screening happen all the time. ‘If person 1 has more information than person 2 in a transaction, person 1 is likely to send a signal to allow person 2 to make a more informed decision.’

The East Asian State Governs the Market (Asian Tiger Economies). It was long understood that for poor countries to emerge, the state needed to invest in infrastructure and industries. The five tigers, South Korea, Hong Kong, Singapore, Taiwan and Malaysia grew dramatically after WWII. By the 20th century, their standard of living was comparable to those in Europe. ‘East Asia miracle’. The governments shaped development by steering investment towards strategic industries. Shift from agriculture to manufacturing sector. They supported markets. Defence and Schooling helped correct market failures. Performance criteria was set as well. A few nations chose to lead markets, even those there was no competitive advantage initially. Initially, there is a need to resist private interests. ‘An authoritarian government that was responsible for promoting the private sector and exports.’

Beliefs can Trigger Currency Crises (Speculation and Currency Devaluation). A currency crisis is when one currency loses a lot of its value suddenly. This is usually caused when there is a large sell off, when many people withdraw funds. They are hard to predict. High inflation can also cause currency to devalue. Another way is when commodities devalue. When government policies are inconsistent with the exchange rate, it happens. An example includes printing too much money in a fiscal deficit. Shadow rate is what the exchange rate will be without government intervention. It is possible to speculate by buying all the foreign reserves of the country. The exchange rate will move from the shadow one to the fixed exchange rate. Currencies can collapse if they are pegged to another. It is also possible for crises to emerge without a speculative attack. Crises could also emerge if ‘banks borrow in foreign currency and lend in local currency.’ In the event of currency devaluation, they would be unable to pay. This makes it vulnerable to a speculative attack. The 3 main factors for currency collapse are when ‘foreign capital inflow is low, when central bank’s foreign currency reserves are low, and domestic credit growth is high.’

Auction Winners Pay Over the Odds (The Winner’s Curse). Usually, auction winner is the one with the highest bid over the true value. Since the actual value is actually the middle of the bids, the winner ends up paying more. There are three types ‘English auction’, ‘Dutch auction’ and ‘First price auction’. All 3 kinds yield the same revenue for the seller, this is known as ‘revenue equivalence theory’. It is optimal for bidders to bid below their valuations. This is called ‘shading’. There is one kind of auction, similar to the ‘first price auction’, that involves the winner only paying as much as the second-highest bid.

Stable Economies Contain the Seeds of Instability (Financial Crises). Crises are usually caused by excessive debt and falling prices. Institutions have a big role to play in a crises. Bankers try to innovate too much. The invention of CDO and CDS. It was getting harder for governments to control money supply. During times of growth, people become overconfident and take on more risks. There are speculative borrowers, who keep buying property and think the prices will go up forever. Know the idea of Ponzi schemes. The moment of the crisis, when the bubble bursts, is known as ‘Minsky moment’. When institutions stop lending to each other, the economy is in deep trouble. The central bank could act as the lender in the last resort. Second method would be to increase debt to stimulate the economy. The last would be to subject the market to further regulation.

Money is a veil behind which the action of real, economic forces is concealed. – Arthur Pigou

The peculiar behavioral attributes of a capitalist economy centre around the impact of finance upon system behavior. – Hyman Minsky

Businesses Pay More than the Market Wage (Incentives and Wages). Firms pay more than the market wage to get more from their employees. Because of moral hazard, employers can’t monitor employees all the time. This is the concept of ‘efficient wages’. Higher wages are associated with less turnover and better morale

Real Wages Rise During a Recession (Sticky Wages). Wages in real terms are ‘sticky’ and will respond slowly (in the long run) to change in market conditions. ‘Wage stickiness could coexist with rational individuals’. ‘Menu costs’ cause prices to be more sticky.

If you were going to turn to only one economist to understand the problem facing the economy, there is little doubt that the economist would be John Maynard Keynes. – Greg Mankiw

Finding a Job is Like Finding a Partner or a House (Searching and Matching). Finding a used product, a house etc is not easy and involves cost. ‘Individuals cannot search indefinitely, so they will work most effectively if they search within a range.’ When buyers and sellers can’t find each other, this is known as the ‘search theory’. In reality, there is a cost to searching. People should set a reservation wage and not accept anything below this. Once the wage offered is above this, they should accept it. A tiny cost involved in a search will lead to an increase in prices.

The Biggest Challenge For Collective Action is Climate Change (Economics and the Environment). The Kyoto Protocol was ratified in 1997. Burning of fossil fuels release CO2. Some argue that the costs of combating climate change is more damaging to economic prosperity. However, there are economists which calculate that it is beneficial to care for the environment in a GDP sense. Since the cost of pollution is deferred, some countries don’t care. Climate change affects everyone, therefore there is a need for collective action. Atmosphere is a public good. To combat climate change, emission policy is possible. However, it is difficult to find one policy that will solve everything. Taxing polluters is one way, so it tradable permits. Many have ratified the Kyoto Protocol but they can’t meet the targets in the Protocol.

Price-type approaches like harmonized taxes on carbon are powerful tools for coordinating policies and slowing global warming. – William Nordhaus

GDP Ignores Women (Gender and Economics). GDP is subject to problems. GDP measures goods bought and sold, but does not take into account depletion of natural resources, deforestation etc. Women who do housework are not counted in the GDP calculation, as it is not paid. Cooking to sell food is an economic activity, whereas cooking at home is not.

We women are visible and valuable to each other, and we must, now in our billions, proclaim that visibility and that worth. – Marilyn Waring

Comparative Advantage is an Accident. Producers attract other producers. Production has economies of scale. Once someone starts it first, has the first mover advantage, it is hard for other countries to compete.

Regions that for historical reason have a head start as centres of production will attract even more producers. – Paul Krugman

Like Steam, Computers have Revolutionized Economies (Technological Leaps). There are two kinds of technology, the first is general purpose and the second is specific purpose. General purpose is like electricity, where all can enjoy. Specific purpose is just limited to a certain industry.

We can Kick-start Poor Economies by Writing Off Debt (International Debt Relief). Rich countries should not lend to corrupt countries and should just write off the debt. The poor countries can’t pay anyway. IMF is an example of one which lends money to poor nations. The nation is technically not responsible as it is just a few corrupt individuals which are responsible. Austerity measures are passed in Europe, with no writing off of debt.

Pessimism Can Destroy Healthy Banks (Bank Runs). Even healthy banks can suffer. If banks have long term investments, they will have a liquidity problem when depositors withdraw funds. They will have to sell investments at a loss, causing a bank run. It is logical that banks will want to offer deposits. People’s expectations can manifest themselves into a self fulfilling prophecy. There are ways to prevent this. One is deposit insurance. Restricting people on withdrawing is another, so is depending on the central bank for bailout. Regulation can prevent moral hazard. In a bank run, only the first few depositors can get their money back.

A bank run in our model is caused by a shift in expectations, which could depend on almost anything. – Douglas Diamond; Philip Dybvig

In the history of modern capitalism, crises are the norm, not the exception. – Nouriel Roubini, Stephen Mihm

Savings Gluts Abroad Fuel Speculation At Home (Global Savings Imbalances). Ben Bernanke believed that the imbalance in savings and spending can cause crises. Deficits can be funded with funds from foreign investments, or by running down bank reserves. He believed that the Chinese saved too much, while the US was running a huge deficit. Countries with surpluses usually lend to others with deficits. He claimed that an excess of funds in the US caused people to not save and to spend more. Many have challenged his theory. Derivatives were at fault for the crisis. China likes to devalue its currency so as to make exports attractive.

More Equal Societies Grow Faster (Inequality and Growth). The widening income disparity, the more the poor will want the government to tax the rich and redistribute the wealth to them. More equal societies faster. Is taxation set to maximize government revenue or for pleasing the median person in society.

The greater the inequality of wealth and income, the higher the rate of taxation, and the lower growth. – Alberto Alesina; Dani Rodrik

Even Beneficial Economic Reforms Can Fail (Resisting Economic Change). Reform is difficult and nobody likes it. It is even harder if the government is corrupt. Corrupted governments will come up with policies to redistribute the wealth among themselves. Reforms are effective in clean governments. However, the citizens might reject and vote the party in power out.

The Housing Market Mirrors Boom and Bust (Housing and the Economic Cycle). Boom and bust is usually over 3 to 7 years. Housing prices has a lag effect, they do not respond so quickly to a drop in demand. A decline in demand for housing is a sign of recession. When people believe that their housing price will rise, this signals recovery. Based on housing prices, it is possible to predict when a recession will strike. However, in 2008, it was clear that a housing bubble burst.