Key Terms

Question 1

Absence Blindness

Answer 1

p 244 a cognitive bias that prevents us from identifying what we can’t observe. it is far easier for us to detect what is present in the environment than to notice or identify what is missing.

Question 2

Accumulation

Answer 2

p 155 many small improvements, consistently implemented, inevitably produce huge/compounding results. japanese concept of kaizen, removal of muda (waste), via a lot of very small changes, results in the continual improvement of a system.

Question 3

Addressability

Answer 3

p 96 the measure of how easy it is to get in touch with people who might want what you’re offering.

Question 4

Agency

Answer 4

p 56 involves the marketing and sale of an asset you don’t own.

Question 5

Akrasia

Answer 5

p 252 the experience of knowing or feeling that we should do something or that an action would be in our best interest … but we don’t do it. The term comes from the Greek word ἀκρασία [Kress-ee-ah], which means “lacking command (over oneself).” Socrates and Plato believed akrasia was a moral defect, while Aristotle believed it stems from a mistaken opinion about what a person “should” do.

Question 6

Allowable Acquisition Cost

Answer 6

p 141

1. Start with your average customer’s Lifetime Value.
2. Subtract your Value Stream costs.
3. Finally, subtract your Overhead divided by your customer base (which represents your Fixed Costs).

The higher the Lifetime Value, the higher the AAC. The more each new customer is worth, the more you can spend to attract them and keep them happy.

Question 7

Alternatives

Answer 7

p 72 competing augmentations to your goods/services which should be tailored to your customer’s needs

Question 8

Amortization

Answer 8

p 188 process of spreading the cost of a resource investment over the estimated useful life of that investment (ex, buying leads one at a time instead of making a mandatory 500 dollar deposit to a potentially bad company).

Question 9

Amplification

Answer 9

p 156 making small changes to a scalable system, which produces huge results.

Question 10

Analytical Honesty

Answer 10

p 374 measuring and analyzing the data you have dispassionately. collect accurate data and conduct useful analysis.

Question 11

Association

Answer 11

p 242 the storage of information contextually, including cues like environment and correlation. the brain is a pattern making machine and forms these connections, even if they are not logical connections.

Question 12

Attachment

Answer 12

p 302 overcommitment to a particular idea or plan, which limits flexibility and your chances of finding a better solution. “Sunk cost” persuades us to continue on with ideas that are no longer feasible or useful.

Question 13

Attention

Answer 13

p 87

The most important rule of Marketing: Attention is limited. People are expert at filtering, because they can’t pay attention to everything.

Questions About ‘Attention’
Whose attention are you trying to get?
How? Why?
What’s in it for them? Why should they care?

To be noticed you need to find a way to be more interesting or useful than your competition.

You don’t want_ just_ Attention. You want the attention of prospects who will ultimately purchase from you.

Business is about making sales, not winning a popularity contest.

Question 14

Attribution Error

Answer 14

p 337 When others screw up, we blame their character; when we screw up we attribute the situation to circumstances. It’s beneficial to give people the benefit of doubt unless a particular behavior clearly becomes a pattern.

Question 15

Audience Aggregation

Answer 15

p 57 Collection the attention of a group of people with similar characteristics, then selling access to that audience to a third party.

Question 16

Authority

Answer 16

p 329 People have an inherent tendency to comply with Authority figures. We are socialized to respect and obey authority, and as a result when an authority figure asks us to do something, we’re very likely to comply.

Question 17

Autocatalysis

Answer 17

p 353 a concept that comes from chemisty: it’s a reaction whose output produces the raw materials necessary for an identical reaction. an autocatalyzing system produces the inputs necessary for the next cycle as a by-product of the previous cycle, thereby amplifying the cycle. autocatalysis is a compounding, positive, self-reinforcing feedback loop. The system will continue to grow until the system changes in a way that produces less output.

Question 18

Automation

Answer 18

p 397 a system or process that can operate without human intervention.

Question 19

Balance Sheet

Answer 19

p 174 snapshot of what a business owns and what it owes at a particular moment in time. Balance sheets always cite a specific day and use this calculation:
Assets - Liabilities = Owner’s Equity

Question 20

Barrier to Competition

Answer 20

p 157 don’t focus on competing - focus on delivering even more value. every improvement you make to your value stream/iteration cycles will create an additional barrier to competition.

Question 21

Barriers to Purchase

Answer 21

p 137 risks, unknowns, and concerns that prevent your prospect froom buying what you offer.

Question 22

Bootstrapping

Answer 22

p 202 the art of building and operating a business without outside funding. bootstrapping allows you to maintain 100 percent control over the business operations. limit yourself to personal cash, personal credit, the business’s revenue, and a little ingenuity.

Question 23

Breakeven

Answer 23

p 187 breakeven is the point where your business starts creating wealth instead of consuming it, when your total revenue to date is equal to total expenses to date.

Question 24

Buffer

Answer 24

p 130 a third party empowered to negotiate on your behalf. agents, attorneys, mediators, brokers, accountants, and other similar subject-matter experts are all examples of buffers. they can be extremely valuable in helping you get the best deal possible.

Question 25

Bundling and Unbundling

Answer 25

p 66 bundling = combination of multiple, smaller offers into a single large offer. unbundling = taking one offer and splitting it into multiple smaller offers.

Question 26

Bystander Apathy

Answer 26

p 319 inverse relationship between the number of people who could take action and the number of people who actually choose to act. More people available = less responsibility felt in each individual.

Question 27

Call-To-Action

Answer 27

p 106 attracting a prospect’s attention doesn’t help if they disappear. give them a Call-To-Action. A simple, obvious action. Click a button. Purchase a product. Tell a friend. The best calls to action either ask directly for the sale or for permission to follow up. Make it clear, simple, and obvious.

Question 28

Capital

Answer 28

p 62 the purchase of an ownership stake in a business. In order to provide value via capital you must:

1) Have a pool of resources available to invest.
2) Find a promising business in which you would be willing to invest.
3) Estimate how much that business is currently worth, how much it may be worth in the future, and the probability that the business will go under, which would result in the loss of your Capital.
4) Negotiate the amount of ownership you’d receive in exchange for the amount of Capital you’re investing.

Question 29

Cash Flow Cycle

Answer 29

p 191 describes how cash flows through a business. receivables, debt, assets, liabilities. it is best to avoid using debt or lines of credit if you don’t absolutely need to. They are for emergencies only. The more purchasing power you have the more resilient your business is and the better your ability to handle the unexpected.

Question 30

Cash Flow Statement

Answer 30

p 170 examination of a company’s bank account over a specific period of time. A day, a week, a month, a year. Cash tends to move in three primary areas: operations (selling offers and buying inputs), investing (collecting dividends and paying for capital expenses), and financing (borrowing money and paying it back).

Question 31

Caveman Syndrome

Answer 31

p 208 Basically it’s being too sedentary due to business ambitions. Human biology is optimized for the world that existed 100,000 years ago, not for the world today. Caveman Syndrome is a way of recognizing that your brain and body simply aren’t optimized for today’s world.

Part of the challenge is facing 16 hours work days, instead of the physical survival of the past.

Don’t be too hard on yourself. Nobody was built for the world as it is today.

Question 32

Cessation

Answer 32

p 403 Sometimes the best way to improve a system is to stop doing so much. Cessation is the choice to intentionally stop doing something that’s counterproductive. It “feels wrong” to do nothing, but that is exactly the best action.

Question 33

Change

Answer 33

p 358 All systems change, there is no such thing as a system in stasis. Plans that do not take change into account are of limited value. You will never develop your business to the point that everything is perfect and unchanging. All you can do is improve flexibility and resilience.

Question 34

Checklist

Answer 34

p 401 an externalized, predefined Standard Operating Procedure for completing a specific task. Creating a checklist is enormously valuable for two reasons.

1) Checklisting can help you define a system for a process that hasn’t been formalized yet. Once you define the system you can automate it.
2) Checklists are helpful to ensure you don’t forget important stuff when you get busy, reducing both friction and willpower depletion.

***Checklisting can help not only by improving the quality of your work, but also by making it easier to delegate more effectively.

***Creating a Checklist for the Five Parts of your Business can have great overall results.

Question 35

Clanning

Answer 35

p 323 natural human process of forming distinct groups. Distinct group identities form to help members identify as “insiders” and “outsiders.”

Question 36

Cognitive Scope Limitation

Answer 36

p 240 the way the human mind tends to simplify reality when it becomes too overwhelming for the mind. No matter how intelligent a person is, there’s an upper bound on the amount of information a single mind can process, store, and respond to. Above that limit, information may be stored in abstract terms, but it’s processed differently than information related to that individual’s personal experience or concerns.

“Dunbar’s Number” is a theoretical cognitive limit on the number of stable social relationships humans can maintain at one time. According to Robin Dunbar, a British anthropologist, humans have the cognitive capacity to keep track of somewhere around 150 close personal connections. There’s some controversy regarding the actual quantity of connections where Cognitive Scope Limitation kicks in (the “Bernard-Killworth Median,” a competing estimate, is 290), but there’s little doubt that such a limit exists.

Question 37

Cognitive Switching Penalty

Answer 37

p 257 Every time you switch your attention from one subject to another, you incur the Cognitive Switching Penalty. Your brain spends time and energy thrashing, loading and reloading contexts.

Neurologically, multitasking is impossible. You are not really doing two things, you’re switching your attention from one thing to the other. Productive multitasking is a myth.

To avoid unproductive switching, it’s best to group similar tasks together. That way your brain needs to load the context into working memory only once. You’ll get more done with less effort.

Question 38

Commander’s Intent

Answer 38

p 318 explaining why something must be done when assigning a task to someone. The more your agent understands the purpose behind what must be done, the better he/she will do it. By being clear about the purpose behind a plan, others can act toward that goal without the need of constant communication.

Question 39

Commitment and Consistency

Answer 39

p 331 Commitments are a way of binding people together.

Breaking a promise can have a negative impact on someone’s Reputation, so people usually try to maintain Consistency with their previous positions and promises.

Obtain a small commitment, and you’ll get more compliance from your customers.

Question 40

Common Ground

Answer 40

p 115 state of overlapping interests between two or more parties

Question 41

Communication Overhead

Answer 41

p 311 proportion of time you spend communicating with members of your team instead of getting productive work done. Communication overhead increases geometrically as the number of team members increases. If you are responsible for working with a group of five or more people, at least 80 percent of your job will inevitably be communicating effectively with the people you work with.

Question 42

Comparative Advantage

Answer 42

p 309 it’s better to capitalize on your strengths than shore up your weaknesses. Ricardo’s Law of Comparative Advantage showed that England and Portugal were better off specializing in cloth and wine respectively rather than trying to compete with one another in both fields. Another term for this is STRENGTHS-BASED MANAGEMENT.

Question 43

Comparison Fallacy

Answer 43

p 299 other people are not you, and you are not other people. you have unique skills, goals, and priorities. comparing yourself to others is silly and brings little gain.

Question 44

Compounding

Answer 44

p 195 the accumulation of gains over time, which becomes exponential due to reinvestment/positive feedback loop.

Question 45

Confirmation Bias

Answer 45

p 285 general tendency of people to pay attention to what supports their conclusions and ignore information that doesn’t.

Question 46

Conflict

Answer 46

p 224 when two control systems try to change the same perception. when you procrastinate, for example, one of your brain’s subsystems is trying to control “getting things done,” while another is trying to control “getting enough rest.”

Question 47

Conservation of Energy

Answer 47

p 219 people are generally lazy. the critical insight is that being lazy is a feature, not a bug. we have evolved to avoid expending energy unless absolutely necessary.

Question 48

Constraint

Answer 48

p 350 alleviate the constraint, and a system’s performance will improve. the constraint is anything that prevents a manageable system from achieving more of it’s target/goal. Identify and alleviate the constraint, and you will increase the “throughput” of the system.

Question 49

Context

Answer 49

p 375 the use of related measurements to provide additional information about the data you’re examining.

Question 50

Contrast

Answer 50

p 246 We believe something is cheap when we compare it to something more expensive, but not necessarily if it stands on its own.

Contrast is often used to influence buying decisions. In businesses, it’s often used as pricing camouflage.

Take advantage of Contrast when presenting your offer and you’ll improve the way your customers view your offer.

Question 51

Controversy

Answer 51

p 108 Controversy means publicly taking a position that not everyone will agree with, approve of, or support. Used constructively, it’s very effective to attract Attention.

If you agree with everyone, your position is boring and no one will care.

It’s okay to disagree, call out or position against something, because it provokes discussion, and discussion is Attention.

Controversy with an ethical purpose is valuable. Controversy for the sake of controversy is not. Always keep your goal in mind.

Question 52

Convergence and Divergence

Answer 52

p 325 the tendency of group members to become more alike over time. the norms of a group work like gravity, since violation of the norm is a social signal that you don’t belong in the group.

Question 53

Core Human Drives

Answer 53

p 41 There are five Core Human Drives that influence human behavior:

Drive to Acquire: the desire to collect material and immaterial things, like a car, or influence.
Drive to Bond: the desire to be loved and feel valued in our relationships with others.
Drive to Learn: the desire to satisfy our curiosity.
Drive to Defend: the desire to protect ourselves, our loved ones and our property.
Drive to Feel: the desire for emotional experiences like pleasure or excitement.
Whenever a group of people have an unmet drive, a market will form to satisfy it.

The more drives your offer connects with, and the better you communicate those connections, the more attractive your offer will become.

Question 54

Cost-Benefit Analysis

Answer 54

p 178 the process of examining potential changes to your business to see if the benefits outweigh the costs, including benefits and costs that are qualitative, not just financial.

Question 55

Costs: Fixed and Variable

Answer 55

p 185 fixed costs are incurred no matter how much value you create. no matter what you do in any given month, you will still have to pay your salaried employees and the lease on your office space. variable costs are directly related to how much value you create. the more tee shirts you produce the more cotton fabric you will need. Raw materials, usage-based utilities, and hourly workers are all variable costs.

• –reductions in fixed costs accumulate
• –reductions in variable costs are amplified by volume.

The better you understand your costs, the more likely you are to find ways of producing as much value as possible without spending everything you make.

Question 56

Counterfactual Simulation

Answer 56

p 278 assume X event is already true, then fill in the blanks between point A and point B.