This one’s pretty straight forward. Profit is the portion of revenue that’s left over after a business pays all of its expenses. For any business to continue to exist it has to make at least a small amount of profit.
Systemization is indispensable to entrepreneurship. Kaufman states in the first section of his book that a business is a repeatable process. In this section he defines, a system as, “a process made explicit and repeatable.” When you zoom your perspective out, you can see that any business is one big system of value creation and delivery.
What if you could get two or three times the work done with just half the effort? This is the idea behind a force multiplier. A tool that multiplies the effect of physical force, thought, or attention. Tools like these allow you to increase the efficiency and productivity of your time and energy.
Think of a blog post on a random website, like this one perhaps. When I publish this post, it’ll most likely only be seen by a handful of people. But what if it included some important breaking news or juicy celebrity gossip, and people started sharing it with their friends? It might make the content much more relevant to people. Search engines would rank it higher than other content, exposing it to even more people.
Every entrepreneur has the dream of building the small business they started in their garage into a multi-million dollar company. In order to make the dream a reality, an entrepreneur must overcome many obstacles and master several vital skills. One of these is the ability to scale your business. Scaling a business involves reliably duplicating or multiplying processes as volume increases. According to Kaufman, “the easier it is to duplicate or multiply the value provided the more scalable the business.” Human involvement is the primary limiting factor for scalability. Humans don’t scale. They have a finite amount of time and energy each day. As a result, service-based businesses are typically much harder to scale as the quality of the value provided depends heavily on the skill and demeanor of each service provider. Product based companies are easier to scale. Value streams can be optimized, and as technology advances, productivity increases help to reduce the human factor. Kaufman ends this section with, “As a general rule, the less human involvement required to create and deliver value, the more scalable the business.
People like to feel in control. It makes it easier to make decisions when you are confident of the outcome. People hesitate and deliberate more when the outcomes aren’t so reliable. This fact makes predictability extremely important for the entrepreneur. In this section, Kaufman opens up by telling a story of a painting business started by one of his childhood friends in Columbus, OH.
Everybody loves surprises. If I ordered a box of cigars from a company and received them within the standard five to six business days, I would be satisfied with my purchase. If I received them within two business days and the package included a 50% off coupon for my next order, I’d be ecstatic. My perception of the quality of this business would instantly go up.
How you choose to get your product or service into the hands of your customers is an important decision, and affects multiple aspects of your business. According to Kaufman, your distribution channel “describes how your form of value is actually delivered to the end user.”
Kaufman describes in this section the concept of a value stream. He defines it as, “the set of all steps and all processes from the start of your Value Creation process all the way through the delivery of the end result to your customer.”
The make or break point for any business, or any employee for that matter, is whether or not they can deliver value. Can you provide value to your customers or your boss? In the context of business, Kaufman describes this process as, “everything necessary to ensure that every paying customer is a happy customer: order processing, inventory management, delivery/fulfillment, troubleshooting, customer support, etc.”