Studying business. Rational organizations.
I am learning as much as possible about effective organizations, specifically large corporations and their respective businesses.
My goals are to start a successful business and to really develop the skills needed to be a great executive.
If any of you on LessWrong have studied this area I would greatly appreciate your input.
My current approach has been to read some highly recommended books and also to read as much as I can about how modern day CEOs and founders start and run their companies. I worry that some of this information is more for entertainment than for obtaining knowledge. I am also starting a company with a friend to try and put a lot of this information into practice.
I’ve also been using the “execute by default” idea, which, has helped immenseley in actually making progress and I have already felt that practicing this changes the way I approach problems, mostly for the better.
Some books I’m reading:
* Management by Peter Drucker
* The Effective Executive by Peter Drucker
* The Personal MBA by Josh Kaufman
* The Lean Startup by Eric Ries
* Founders at Work by Jessica Livingston
* How to Win Friends and Influence People by Dale Carnegie
Some articles I’ve read:
* Marc Andreesen’s articles on starting a company
* Paul Graham’s essays on startups
* Most things that are highly voted on on Hacker News
I have found that a lot of the information in these books is very practical, and have really raised my understanding of how large organizations work (at least intellectually). What other approaches should I be taking?
If you have any suggestions on my plan, what I’m reading, or doing, or whatever, please let me know.
Do you know the difference (in purpose) between managerial accounting and financial accounting? What about the difference between return on equity and rate of increase in stock price (assuming that the company is publicly traded)? Is the U.S. budget deficit more like an expense or a liability? How about the U.S. debt? In other words, learn basic accounting. (On Hacker News most participants have not.) Whole Foods and Apple are both very successful business. One has very high “variable cost” (or as the economists say, “marginal cost” or “cost at the margin”) and consequently their marginal income or “profit margin” is much lower. Which one is it? If you own stock in some company, do you care more about its marginal income’s being high or its return on equity’s being high?
Each of these questions has an unambiguous answer that all accountants and informed businessmen will agree on.
How might one go about learning basic accounting? Any good textbooks you recommend?
(The reason for the lateness of my reply is that I haven’t checked LW in couple of months.)
I took a sequence of two introductory classes (titled “financial accounting” and “managerial accounting”) at a third-rate college. That was very valuable. (They were very easy classes.) Just reading a textbook or two would probably suffice for you. I do not have any textbook titles to recommend, but it seems hard to screw up a textbook on introductory accounting, so I’d just pick the texts that are easiest for you to get your hands on. A 50-year-old textbook is probably OK, BTW; the material has not changed much.
After digesting a textbook or two, if you still want to learn more, or if you want to complement your general knowledge with much more specific knowledge from an expert practitioner of a field in which knowledge of accounting practices is required, I recommend Ian Grigg’s blog.
That was great. This is definitely stuff I’m learning more about.
Any other area you see the HN crowd lacking in?
That’s the only one that comes to mind and is worth pointing out. If I had more experience teaching people, it might be worthwhile for me to say more, but I do not.
They are also lacking in the art of having correct beliefs as taught and practiced here on LW, but you probably already knew that.
Would you mind providing the answers? I took an intro accounting course, and I think I know them, but it was a long time ago and I would like to check myself.
PM sent.
Sorry about the double post, my internet gave out.
Would you mind providing the answers? I’m just curious, I think I remember them all (I took an intro accounting course) but I want to see if I’m right.
Studying business success is good, but also be sure to study business failure.
Study cautionary tales about how smart and hardworking entrepreneurs succumb to bias and errors of reasoning. Look for how companies are destroyed by personality conflicts, hubris, internal politics, or even sheer shortsighted criminality. Also, study how to survive and bounce back from failure, and how to correct yourself once you’ve taken a wrong turn.
Rolf Nelson’s blog, The Rational Entrepreneur has more rigorous content than Paul Graham in the sense that Rolf pays more attention to studies and evidence and so on and has less of Graham’s exploratory musings based on personal insight and nostalgia, with the occasional reader ego-stroke. Rolf’s content lacks the “ecological credibility” of having personally made a bunch of money off of two successful companies the way Graham has (once is a accident, twice suggests a pattern, the third time confirms the pattern), because Rolf wrote the blog as a way of doing basically what you are doing right now: reading a ton about businesses and startups before jumping in for his first iteration. If you like the blog, you might try contacting Rolf directly as he’s an old time OB/LW reader :-)
These are my own, rather nonstandard thoughts, so I invite feedback and/or correction.
According to my own observations, both via the media and through people I have known personally, it appears that it is rare that an entrepreneur’s very first attempt at business becomes a colossal success. It is much more typical that the entrepreneur will take at least one and sometimes several tries to really break out. Some of these tries may end in abject failure.
As we all know, people are generally risk-averse to an irrational degree, and self-identify with failure to an even more irrational degree. So the personalities who “stupidly” keep trying to be entrepreneurs even after all evidence indicates that they are bad at being entrepreneurs are perversely the people who end up being astonishing successes. They are gaining experience, they are making connections, they are learning how to psychologically deal with the stresses of entrepreneurship, so over time they become gradually better. Then, boom, “miraculous” success.
We also know that endless planning in the face of uncertainty is a common human failure mode. I am not saying that reading these books is a waste of time, but I am saying that there will never be a point at which you have read enough books. Or taken enough courses. I think you just have to go out and start failing.
Try to get something done involving real people. Company stuff, volunteer work, leading a project somewhere. It is more difficult than it looks.
Also: work on getting well organized your self. Successful organization are such because they hire successful people (or actually manage to train them.) Much business literature has a focus on motivation, and not that much on how to actually do the work.
Report back in a while, with what you learned.
I strongly recommend Putt’s Law and the Successful Technocrat.
“How to Win Friends and Influence People by Dale Carnegie”
I would not recommend this book. I started reading it once many years ago and gave up because I felt it was so obvious as to be useless. Everything mentioned essentially boiled down to “People don’t care about you, they care about themselves. Center everything about them and they will like you.”
In fairness, I was young when I read it, so perhaps there are subtleties I missed, but I don’t have a high opinion of the book. In addition, while I didn’t notice it when I read it (I was young, maybe early high school) I’ve been told it’s also quite misogynistic, which would bother me now if I read it.
There’s nothing revolutionary in this book, but if you can internalize and enact its recommendations consistently you’ll very likely be more effective in dealing with other people. Most people don’t do the things recommended by Carnegie, at least in the professional settings I’ve encountered.
As with many potentially useful tools, the effectiveness of the Carnegie approach rests entirely on actually applying it consistently. From this perspective I thought it was a well-designed book, and found it quite useful.
Isn’t it worth getting some experience actually seeing what different organizations work like? (or maybe you’ve already done this, though that is not the impression I get from the post )
Top management consulting firms are a very efficient way to cover the experience/ credibility/ basic_knowledge/ contacts fields, but require a high tolerance for bullshit (and long hours/ travel)
From here:
This is basically my job so here goes:
Get certified for the best management practices, these have been established by years of trial and error using a simplified version of the scientific method called Plan-Do-Check-Act.
The HPO Center Has done a lot of research on why companies stay in business for a long time, and how they remain market leader. The result is 35 rules that when followed give you a higher chance of being a long lasting market leader.
Another methodology you can get certified for is Six Sigma which revolves around reducing the number of errors in your processes, this is often combined with Lean which focuses on removing those things from your process that do not add any value to the end product. These two combined ensure the customer gets a good product or service at minimal costs to you.
Finally, most of your value will be in the form of knowledge, documents, processes, etc… Companies like Knowledge Values specialize in tools and teaching surrounding the management of this knowledge.
All the idea’s here combine to form a strategy and mindset for creating a company (process) that can have a high chance of success an profit with a lower investment and risk of bankruptcy. Note that the whole thing stands or falls with how willing your customers are to get your product, and how good you are at making them want it. In the topics i mentioned this issue does not get a lot of attention.
The concepts i mentioned are often used by companies to become or stay in list like the forbs500.
One final note, whenever you optimize for some metric, that metric becomes less and less reliable, this is called Goodhart’s Law. The topic’s above do go into this a little bit, but my main advice would be to always find 3 interconnected and if possible contradictory metrics so you see what happens to the other 2 when you optimize for one. An example:
Customers complain >> give them more money they stop complaining.
You can manage the complaint solving a little bit better by adding a cost metric in addition to the customer happiness metric. (in my case i also added a time spent by the employee metric)
It seems to me that what you say could be reformulated, with minimal change in what’s learned, as “Get thee an MBA from a good school.”
The overlap between the skills necessary to run an existing business with a known business model and to found one, even where the business model is known is not high. It might be as high as 50% for those cases where the model is known, but really, that’s not high.
I assume the MBA’s weak relation to functioning without supervision, i.e. being an executive, is obvious.
Did I miss or misintrepret what you said?
There may be schools in the world somewhere where the MBA study actually teaches you something useful, in my country there are none.
To run a business you don’t need any of the above things, a training in middle management is enough.
The things i mentioned are specifically for organizing a company for the first time, or reorganizing an existing one. That’s what i use these skills for (and with high success)
78
Paul Graham’s essays are awesome.
I didnt quite like Kaufman’s personal MBA as much as everyone on LW seems to. But I am currently aiming to get admitted into college and was trying to use it to figure out which branch to specialise in, and found that it wasnt as useful (due to lack of detail perhaps?). The book does seem to be generally written honestly though, except that he brags about its simplicity.