The Personal MBA: A World-Class Business Education in a Single Volume

No matter how much people liked the commercial, at a certain point it would “wear out,” and the company would no longer produce $1 of revenue for every dollar the company spent showing that ad. That was the “Point of Diminishing Returns”—if we spent more dollars showing the same commercial, the company would start losing money. Far better to spend

eating one cookie is great. Eating two cookies is even better. Eating a hundred is actually worse. More is not always better. (The same relationship applies to drinking beer and taking vitamins.) All good things are subject to Diminishing Returns—after a certain point, having more of something can actually be detrimental.

For best results, focus on the critical inputs that produce most of the results you want. In The 4-Hour Workweek, Timothy Ferriss used the Critical Few to identify his best performing customers. Out of the 120 customers Ferriss was serving, 5 accounted for 95 percent of the revenue. By focusing on those top-performing wholesalers and putting the re

In any complex System, a minority of the inputs produce the majority of the output. This Pattern of persistent nonlinearity is now called the Pareto principle, or the 80-20 rule. Personally, I prefer to refer to it as the Critical Few.

Not all changes to a System are designed to affect the System’s output. Sometimes it’s more effective to reengineer a process without changing the end result at all. Refactoring is the process of changing a system to improve efficiency without changing the output of the system.

Elegance is necessarily unnatural, only achievable at great expense. If you just do something, it won’t be elegant, but if you do it and then see what might be more elegant, and do it again, you might, after an unknown number of iterations, get something that is very elegant. —ERIK NAGGUM, COMPUTER PROGRAMMER

In practical terms, trying to Optimize for many variables at once doesn’t work—you need to be able to concentrate on a single variable for a while, so you can understand how the Changes you make affect the system as a whole. You’re trying to find Causation (not Correlation) in your Changes, and hidden Interdependencies can make it difficult to unde

Optimization is the process of maximizing the output of a System or minimizing a specific input the system requires to operate. Optimization typically revolves around the systems and processes behind your Key Performance Indicators, which measure the critical elements of the system as a whole. Improve your KPIs, and your system will perform better.

Many corporate policies have their roots in Intervention Bias. When something bad happens, it’s tempting to “fix” the situation by installing additional layers of limitations, reporting, and auditing. The result isn’t an improvement in Throughput or efficiency: it’s an increase in Communication Overhead, waste, and unproductive bureaucracy. The bes