The 5 Foundations of Business

foundation of business

Inspired by Josh Kaufman, author of business classic: “The Personal MBA”, the 5 foundations of business are critical to any business success. Josh once got a student job as an assistant brand manager at P&G. All his colleagues had MBAs but it was too expensive and time-consuming for him to have one. So instead, he studied successful entrepreneurs who didn’t have an MBA.  Like Charlie Munger, who partnered with Warren Buffett to build the 400 billion dollar Hathaway Berkshire company. 

Josh discovered that there were certain parts of a business  that must have to function properly to result to its success. These are the 5 Foundations of Business:

  1. Value Creation
  2. Marketing
  3. Sales
  4. Value Delivery
  5. Finance

These are the parts that come together to make a successful business.

  • A business that fails to create value for people to buy is a hobby
  • A business that fails at marketing is a flop
  • A business that fails at selling the value it creates is a nonprofit
  • A business that fails to deliver value is a scam
  • And a business that fails at Finance will close

Josh Kaufman breaks down business into 5 pieces and makes it easier for people without MBAs to understand the foundations of Business and master them. We’ll discuss this in details in the following paragraphs.

1. Value Creation

Businesses must create what people will value and buy. In our article on Buyer Behaviour, we understood that the first stage is problem recognition. We can further add that when evaluating alternatives, customers look for convenience and emotional impact.

You can create more value by offering a convenient service: can you perform quicker, reliable easy, or more flexible than the competition.  Can you create products with emotional impact, that makes people feel special, with a perceived higher social status? These are questions that could unlock a gold mine

2. Marketing

This is how well you can capture and hold attention. We’ve talked a lot about marketing in recent weeks.  The Purple cow effect is really what marketing is about, says Josh.

When passing through a farm with white cows, sighting a Purple cow will definitely draw your attention.  A business that fails to do this is a flop.

3. Sales

Kaufman talks about believe and trust. For customers to exchange their hard-earned money with your product, they need to trust and believe you. In this situation, there’s only two ways out:

Social proof – people like to see others testify about your product before they buy. If their friends or family or their favourite celebrities talk about your product, they’re more willing to buy

Consistency is the other way out. You have to consistently produce great value for customers to trust your brand.  More trust, more sales

4.  Value Delivery

The question of value delivery is how well your brand is exceeding customer expectations. Customers generally have high expectations. Your ability to meet/exceed these expectations ultimately leads to satisfied customers, and awesome brand testimonials.

A business that fails to deliver the value it promises is a scam to the customer.  When people say it’s a scam, this is a clear picture of what they really mean. They’re not simply getting the value they’re expecting.

5. Finance

The importance of finance in business is critical.  A business that fails at Finance will close. This is a law.

Finance simply means: are you making more money than you’re spending? If otherwise, you need to cut down costs, and make additional efforts to increase productivity. Goal of business finance is to reduce costs and maximize profits

Summary

Kaufman’s insight into the foundations or parts of business success presents an interesting perspective on how to organise our ventures for success. Understanding these five essential parts of business and focusing on their efficiency can help us create better products.

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