Tag Archives: Business Strategy

Cognification

Term
Adding intelligence to an unintelligent object through the application of artificial intelligence. This can include either narrow artificial intelligence or
Explanation
“It is hard to imagine anything that would ‘change everything’ as much as cheap, powerful, ubiquitous artificial intelligence. To begin with, there’s nothing as consequential as a dumb thing made smarter. Even a very tiny amount of artificial intelligence embedded into an existing process boosts its effectiveness to a whole other level. The advantages gained from cognifying inert things would be hundreds of times more disruptive to our lives than the transformations gained by industrialization.” (29, The Inevitable)
Source
The Inevitable by Kevin Kelly

“Should This Be Built”

Principle
An ethos around product development that insists on only building products that contribute real value to the world.
Explanation
“The question is not ‘Can this product be built? In the modern economy, almost any product that can be imagined can be but. The more pertinent questions are ‘Should this product be built?’ and ‘Can we build a sustainable business around this set of products and services?’ To answer those questions, we need a method for systematically breaking down a business plan into its component parts and testing each part empirically” (55, The Lean Startup)
Source
The Lean Startup by Eric Ries

Validated Learning

Principle

Approach to product design that is iterative, depends on short development cycles, and views product / feature creation as a bottom-up response to obstacles that arise when customers use the product rather than a top-down implementation of a long-term plan.

Explanation

” In the Lean Startup model, we are rehabilitating learning with a concept I call validated learning. Validated learning is not after-the-fact rationalization or a good story designed to hide failure. It is a rigorous method for demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow. Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup’s present and future business prospects. It is more concrete, more accurate, and faster than market forecasting or classical business planning. It is the principal antidote to the lethal problem of achieving failure: successfully executing a plan that leads nowhere.” (38, Lean Startup)

Source

Lean Startup by Eric Ries

 

Operating Leverage

Term

A measurement of how a company incurs costs as its sales grow. If a company’s costs are fixed, its profitability will increase with each additional sale.

3rd Party Definition

“Operating leverage is a measurement of the degree to which a firm or project incurs a combination of fixed and variable costs. A business that makes sales providing a very high gross margin and fewer fixed costs and variable costs has much leverage. The higher the degree of operating leverage, the greater the potential danger from forecasting risk, where a relatively small error in forecasting sales can be magnified into large errors in cash flow projections.” (Investopedia)

Explanation

“Specifically, I’m talking about what’s known as “operating leverage”: the greater your percentage of costs that are fixed, the more operating leverage you have, which means the greater return you earn on every additional sale. To take an extreme example, consider Stratechery: I have extreme operating leverage, because the vast majority of my costs (time spent writing, reading, and researching primarily) are fixed; were I to accurately measure the profitability of an individual subscriber I would need to account for the value of that time and spread it evenly across my subscriber base and subtract each subscriber’s share of that cost — along with (marginal) credit card fees — from the $10/month (or $8.33/month for annual subscribers) fee. My leverage comes from the fact that adding an additional subscriber doesn’t increase that fixed cost at all: instead, one more subscriber makes every other subscriber more profitable, because the fixed cost is spread more broadly.” (Stratechery)

Source

Stratechery by Ben Thompson