The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

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What Is 'Sufficiency'?

Financial Sufficiency is the point where a business is bringing enough profit that people find it worthwhile to keep going for the foreseeable future. If you reach the point of financial sufficiency, you are successful, regardless of how much money you make.

Josh Kaufman Explains 'Sufficiency'

Once, a powerful executive went on vacation — his first in fifteen years. As he was exploring a pier in a small coastal fishing village, a tuna fisherman docked his boat. As the Fisherman lashed his boat to the pier, the Executive complimented him on the size and quality of his fish.

“How long did it take you to catch these fish?” the Executive asked.

“Only a little while,” the Fisherman replied.

“Why don't you stay out longer and catch more?” the Executive asked.

“I have enough to support my family's needs,” said the Fisherman.

“But,” asked the Executive, “what do you do with the rest of your time?”

The Fisherman replied, “I sleep late, fish a little, play with my children, take a siesta with my wife, and stroll into the village each evening where I sip wine and play guitar with my friends. I have a full and busy life.”

The Executive was flabbergasted. “I’m a Harvard MBA, and I can help you. You should spend more time fishing. With the proceeds, you could buy a bigger boat. A bigger boat would help you catch more fish, which you could sell to buy several boats. Eventually, you’d own an entire fleet.”

“Instead of selling your catch to a middleman you could sell directly to the consumers, which would improve your margins. Eventually, you could opening your own factory, so you’d control the product, the processing and the distribution. Of course, you’d have to leave this village and move to the city so you could run your expanding enterprise.”

The Fisherman was quiet for a moment, then asked, “How long would this take?”

“Fifteen, twenty years. Twenty-five, tops.”

“Then what?”

The Executive laughed. “That's the best part. When the time is right, you’d take your company public and sell all of your stock. You’d make millions.”

“Millions? What would I do then?”

The Executive paused for a moment. “You could retire, sleep late, fish a little, play with your children, take a siesta with your wife, and stroll into the village each evening to sip wine and play the guitar with your friends.”

Shaking his head, the Executive bid the Fisherman farewell. Immediately after returning from vacation, the Executive resigned from his position.

I’m not sure where this parable originated, but the message is very useful: business is not necessarily about maximizing profits. Profits are important, but they’re a means to an end: creating value, paying expenses, compensating the people who run the business, and buying what you need or want. Dollars aren’t an end in themselves: money is a tool, and the usefulness of that tool depends on what you intend to do with it.

Your business does not have to bring in millions or billions of dollars to be successful. If you have enough profit to do the things you need to do to keep the business running and make it worth your time, you’re successful, no matter how much revenue your business brings in.

Sufficiency is the point where a business is bringing in enough profit that the people who are running the business find it worthwhile to keep going. Paul Graham, venture capitalist and founder of Y-Combinator (an early stage venture capital firm), calls the point of sufficiency “ramen profitable” – being profitable enough to pay your rent, keep the utilities running, and buy inexpensive food like ramen noodles. You may not be raking in millions of dollars, but you have enough to keep building your venture into something better without going under.

You can't create value if you can't pay the bills. If you're not bringing in sufficient revenue to cover the operating expenses, that’s a major issue. In order to keep going you must be able to pay the employees and the owners for the time, effort, and attention they're giving to the venture. If these people don't find their investment sufficiently worthwhile, they'll stop doing what they're doing and start doing something else.

You can track financial sufficiency using a number called Target Monthly Revenue (TMR). Since employees, contractors, and vendors are typically paid on a monthly basis, it’s relatively simple to calculate how much money you’ll need to pay out each month. Your Target Monthly Revenue helps you determine whether or not you’ve reached the point of sufficiency: as long as you bring in more than your TMR, you’re sufficient. If not, you have work to do.

Sufficiency is subjective—how much is enough to continue what you're doing is a personal decision. If your financial needs are meager, you don’t need that much revenue to keep going. If you’re spending millions of dollars on payroll, office space, and expensive systems, you’ll need much more revenue to maintain sufficiency. The more quickly you can reach the point of sufficiency, the better the chance your business will survive and thrive. The more revenue you generate and the less money that you spend, the quicker you will reach the point of sufficiency.

Once you reach the point of sufficiency, you’re successful—no matter how much (or how little) money you make.

Questions About 'Sufficiency'


"Know contentment and you will suffer no disgrace; know when to stop and you will meet with no danger. You can then endure."

Lao Tzu, ancient Chinese philosopher

From Chapter 5:

Finance


http://personalmba.com/sufficiency/



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The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

Buy the book:


About Josh Kaufman

Josh Kaufman is an acclaimed business, learning, and skill acquisition expert. He is the author of two international bestsellers: The Personal MBA and The First 20 Hours. Josh's research and writing have helped millions of people worldwide learn the fundamentals of modern business.

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