Mental Model Posts ‘Opportunity Cost’

How to Build an Empire: The Story of Harvey Firestone and His Tires

Firestone Tire

Photo by Desert Bug

In 1926, Harvey Firestone sat down to write Men and Rubber: The Story of Business.  It outlines his philosophy on how to succeed in business, and to this day it’s still the best and most comprehensive story on how to build a business from nothing.

Firestone’s philosophy is quite simple.  It says that honesty is the fundamental principle of any business.  It says that a business must exist for a reason, and the single reason for the existence of any business must be that it supplies a human need or want.  “To make money” is not a good enough reason to be in business.  If fact, if all you want is money, Firestone advises you to get out of business as quickly as you can, and go work for someone else.  You are destined to fail otherwise.

Firestone was clear that a business must exist to supply a human need or want, and this philosophy can be further explained through Maslow’s Hierarchy of Needs.  The primary need for all humans is physiological, followed by safety, love/belonging, esteem, and self-actualization.  Humans seek to satisfy needs in this order.  Firestone was supplying tires, or facilitating transportation.  Transportation, depending on its intended use, could fall under physiological needs (driving to the grocery store for food), safety needs (driving to the office for work), or love/belonging needs (driving to family).  Either way, Firestone was clearly satisfying human needs with his tires.

This logic applies today as well.  For example, Mark Zuckerberg’s reason for starting Facebook (“to meet girls”), while it hurts my heart, does provide for the love/belonging needs that all humans naturally have.

That’s the end of my Zuckerberg digression – now back to Firestone…   Read More »

An Accelerated Master’s Degree: Supply Chain Management in One Book

BP 8

Photo by Stuck in Customs

There have been plenty of books recently published on the concept of Deliberate Practice, which essentially says that it takes 10,000 hours of a certain kind of practice (called ‘deliberate’) to gain expertise in something.   It makes sense that the majority of what you want to learn in any discipline is going to be experiential (or gained through practice).  But in order to better understand your experiences, you want to have some kind of framework of what to expect.  You want to develop a theory structure.

Books are what give you this theory structure, and certainly the quality of the theory structure you begin with impacts the amount of deliberate practice you need to become an ‘expert.’  So it’s important to choose the right books, as they will provide the base infrastructure upon which you will layer your experiences.  You’re looking for books that concisely capture the overriding concepts of a particular discipline.

And in any discipline, at least one fairly well defined, there doesn’t need to be that many books to accomplish this.  I would generally say that 3 books or fewer, for each discipline, will give you a proper theory structure.

With that in mind, let’s look at Supply Chain Management…  Read More »

Mingle with Powerful Models: Using Mental Models to Make Better Decisions

French Clock

Photo by slack12

Charlie Munger likes to say that 80-90 mental models will give you the bulk of the material you need to be a “worldly-wise” person.  Part of being worldly-wise is making good decisions, and although Charlie mentions 95 models in his book (by my count), they can each be used and combined for different purposes.

So, how do we combine them to create the ideal decision-making process?  Since I’m in love with the number 7 (figuratively), I’ve put together what I consider the seven most useful mental models in decision-making.  Good decision-making will involve an understanding of Statistics, Economics, and Psychology.  And the decision-making process becomes much easier if you take mental models from these disciplines and put them into a checklist.  To me, the following seven mental models are the best checklist available.  Read More »

The $240 MBA: How to Be Better at What Matters

@ Sprengben

Photo by sprengben

The most important skills (or really, the most valuable) are the ones that are the hardest to codify.  I think this is probably true throughout life, but it’s especially true in business.  And in business, the single most important skill is decision-making.  It won’t guarantee success, but it will certainly increase the odds.  And since we’re all constantly having to make decisions without complete information, it’s understandable to think of decision-making as an art.  But, decision-making is likely as much science as it is art.  And in fact, understanding the science of decision-making is more valuable in the business landscape than all the knowledge you would gain from an MBA combined.  And you can become a pretty good decision-maker in way less than the 18-22 months that an MBA typically takes to complete.  You can also do it for WAY less money: $240 according to my latest review of Amazon. Read More »