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mental framework

How To Make Better Business Decisions

charlie munger thinking automated mental models entrepreneurs

Source:Azquotes

I could have titled this “How to make sure your market does not determine your profits” or “Automated systems thinking for entrepreneurs.”

It would surprise you to know how uncommon it is for most entrepreneurs to prioritize thinking. This is why an automated mental framework is necessary.

I agree with Buffett when he says “I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.”   

Here is what I mean.

When I was starting out, no one told me to focus on results. In fact I did not even know what conversion rates were. I was just in it for the activity. I measured my success by how much money had come in not by how much closer I was to my goal.

How would you know if you are winning if you don’t know where you are going?

The problem is that many of us measure our satisfaction by our needs and not on our potential.

Speaking in purely monetary terms I could be making $100 million a year but if my potential is $1 billion then I have failed.

Many times we judge ourselves based on what our industry average is or what success others in our field have had.

This is erroneous thinking and a symptom of the herd mentality.

I like something David Oyedepo said. ‘The only place you are permitted to have mates is in school.”

What he meant by this is that the people you call contemporaries will define your limit.  You won’t rise higher than the “market” you think you are in.

 

What’s the solution?

Having an independent mental framework that is focused on your potential.

Be careful that you do not focus on the demand or size of the market either.

I know people who make less than they should because they believe that’s a good amount considering their market size. That again is small thinking.

I heard of a businessman who has less than 18,000 people in his town and yet rakes in millions of dollars a year. He refused to let his market determine his potential.

One of my favorite examples of a potential focused mindset is John D. Rockefeller. While his competitors thought they could trump him by competing in the oil industry, John D. had other plans.

John D. knew his potential was bigger than the oil industry. He said his goal was to “light the world”. This helped him innovate magnitudes above those who thought they were his competition. They thought they were running the same race. They did not know he was flying above their heads.

Over the years I have learnt that it is important to build your own mental framework for decision making in business.

This framework has to be results based and void of emotion. It must be rooted in first principles and factor in human nature.

You have to know where you are going and what needs to happen in order to get there.

Every serious business person I have read about or met is interested in results.

tom watson results

They know these 3 metrics at the back of their minds.

  1. How much revenue is expected this month
  2. How much revenue do we have now
  3. What is the difference and what needs to happen in order for us to be achieve the results we want.

 

Notice I didn’t say “what you need to do to achieve the results you want.”

Entrepreneurs love “doing” stuff because they think of activity first before results.

 

In step 3 maybe someone else needs to do something and not you. Maybe a certain mindset change must happen and not necessarily a physical action.

For example my business changed overnight when I found out that my mental image of myself was not as highly defined as it should have been.

After I defined who I wanted to be internally, all my actions fell into place.

The secret was not in me doing anything new. It was me “being” internally who I am supposed to be.

The minute you see yourself today as you desire to be, you will know what to do, where to go, what kind of business fits your unique skills and even what books you should not read.

 

I got this Business strategy from the Bible.

When God wanted to give Abraham children He didn’t ask him to do anything. He told him to change his inner image of himself by changing his name. Abram now had to call himself Abraham, which means father of many nations. He started to see himself with many children and started asking people to address him that way.

Very soon Abraham’s body obeyed the words he had been speaking.

Two Fundamental Pillars Of Your Mental Framework

I believe you need two fundamental pillars to build this mental framework. First you need to understand human behavior.

Secondly, you need to understand which metrics are important. That you got 1000 sales last week does not mean that was a success. Maybe with better innovation and marketing you should have made 10,000 sales instead.

I like something Warren Buffett said.

 “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information,” Buffett said. “What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must provide the emotional discipline.”

Warren echoes what I believe so many people miss because they are listening to the wrong information. I pity entrepreneurs who base most of their decisions on what they read in the media. They assume the reporters are business people like them. Sadly many people who write on business don’t know what it takes to start or grow a business. Their job is to report and not to advice. The problem is many reporters will add their opinion to a piece when all they should have done is report the facts.

The market then takes the opinions and acts based on that.

Warren Buffett and Charlie Munger’s success from what I can infer has little to do with their knowledge on finance. They like many other successful people before them have learnt that human behavior many times is predictable.

If you know what patterns to look out for, you can engineer your own results.

warren buffett circle of competence automated mental frameworks

Source:humorpedia

How does this apply to your business?

  1. Define internally what a life full of victory and success would look like.

Does that mental image of yourself have a trillion dollar business? Does she have 4 clients or 4,000? Does he drive an Audi R8 or a Mercedes truck? Does she work on the weekends or not? Is he speaking before crowds of 10,000 or 6,000? What does her average working day look like? Who does she eat breakfast with and where does she have lunch? What kind of house does she live in?

 

What you do next is write down what keywords describe your perfect image of yourself. If you are in the internet marketing/media space like I am, you can use these keywords but don’t limit them to your industry.

 

Keywords/Keyphrases: 90% conversion rate of highly targeted traffic, billions in yearly profits, information marketing, content strategy, business growth, faith in business, rest, Jesus Christ, Frank Kern, Neil Patel, Mark Zuckerberg, Buffett, Gates, Bloomberg, Oyedepo, SEO, Guest Posts, Give too much value, Innovate with value not with low prices, Automate marketing and sales funnel, Give give give and then ask for a sale etc. etc.

 

Knowing what keywords matter to your journey will help you weed out information that is unnecessary.

 

  1. Decide which metrics matter to you

It is said that when most people were focusing on how many signups they had, Mark Zuckerberg told his team they would focus on active users. This is a focus on results. If you visit the gym twice a day and yet have the results of someone who goes in only once a month, your activity doesn’t mean much.

As an entrepreneur customer satisfaction and conversion rates are excellent metrics to focus on.

  1. Automate the framework and focus on it

“I’m no genius. I’m smart in spots—but I stay around those spots.” — Tom Watson Sr., Founder of IBM

 

Whenever you have a decision to make, look through your mind to see if you understand it.  Knowledge is not enough. Only act on what you understand or have a witness in your spirit about.

If you do not know enough to be useful in a certain area, delegate the decision to someone who has an understanding and results in that field.

One trap many people fall prey to is the need to diversify when they do not have a deep understanding. After the money starts coming in they immediately start buying stocks or real estate without assessing the opportunity cost. This is why marrying the right person and having the right mentors and business partners is important. Having the right advisors will anchor you and keep you in your circle of competence.

I get offers to do all kinds of projects and investments but I have learnt to stay in the place where I can be the biggest blessing.

Book Recommendation:

Success Systems by David Oyedepo

Snowball by Alice Shroeder

What mental frameworks do you use in your business? Which keywords or phrases do you use?

Please share in the comments below.
P.S Here are some Advanced strategies for growing a business.