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If “A = L + E” is the heart of accounting and “credibility” is the heart of leadership, then the heart of career growth is “networking.”

Networking means you try to get to know people who know people. It’s not the same as making friends; you are actively looking to find people who are in a position to get you what you want, in exchange for you helping them out. If it seems contrived, it is, but everybody else is playing the same game, so there’s no need to feel odd for passing out business cards to anybody who will take them. Tools like LinkedIn are useful for managing your network, as most people who network are already on that service, and it’s more career-oriented than Facebook.

There’s a constant tension between employers and employees: employers want you to stick around for a long time, but they’re decreasingly likely to offer you the incentives to do so, like pensions. On the flip side, employees are increasingly likely to be more entrepreneurial; average job tenure for a college grad today is around 18 months.

This is not so much a bad thing as it is a different thing, and a return to the normal state of things: the concept of the monolithic modern corporation is not more than a few hundred years old. Prior to that, everybody–the innkeeper, the farmer, the tailor, the blacksmith–was basically self-employed.

So you need a good network, and you need to come to terms with the fact that you’re probably not going to start working for IBM at 22 and continue on until you retire with a fat pension. Once you’re comfortable with that, you can start to shape your career into something satisfying on a personal and financial level.

And if you’re not comfortable with really taking the reins of your career…well, best of luck, because it’s going to be a tough road.

Financial statements are reports that publicly-traded companies are legally required to file by the Securities and Exchange Commission (SEC). In order to be traded on a stock exchange, companies need to reveal a surprising amount about their financial situation, to say nothing of their strategies, risks and concerns.

A 10-K is an annual report; a 10-Q is a quarterly report. The 10-K is usually a lot more detailed. In general, the report will tell you what the company does, how it is performing, and any risks or liabilities that management knows about.

Everybody’s financial report is different, but some parts are consistent and required. For example, there is a section containing Selected Financial Data, which usually contains the balance sheet (Assets, Liabilities and Equity), Income Statement (money the business made versus money the business spent) and the Statement of Cash Flows (the actual cash held by the company, as opposed to money it might have earned but not yet received).

There’s a lot of terminology that is very specific to financial statements, and sometimes things are called by more than one name–an Income Statement can also be called a Profit and Loss Statement, Operating Statement or Earnings Statement, for example.

The financial statement must present certain information, but there are ways to obfuscate things to present a rosier picture than might actually be the case. For example, a company might note on its statements that it expects a large number of people to retire in 3 years and start to exercise pension benefits, which will generate a very high cost in the future. It might also give enough information to indicate that it expects cash flows to continue to decline by a certain percentage over the next few years. If you put those two pieces of information together, you might determine that the company is likely to run itself out of cash in three years if it doesn’t do something drastic.

It follows that situations like Enron ought not really to have happened because of the amount of information that is publicly available–somewhere, somebody smart ought to have looked at the numbers and gotten to the truth. The fact that that did not happen is a testament both to how complex these statements can be, and to how complex human and political factors can be when you’re presenting controversial conclusions. Again, people are messy.

Keeping your business running from day-to-day is tactics, or execution. You’re making sure the donuts are made on time.
But all the big, long-term decisions–what kind of donuts to sell, what hours you’re open, the number and location of your stores, whether or not to sell your donuts at the grocery store or to sponsor a NASCAR driver or to branch out into bagels–are strategy.

You need both. Without execution, you won’t survive in the day-to-day operations of doing whatever it is that your business does. But without strategy, you’re just flailing, with no clear path for growth or success. It’s no different from regular life: someone merely tactical manages to pay the rent, but tends to live paycheck to paycheck. Strategy means having a retirement plan.

Michael Porter is like a god to MBAs, particularly in strategy. He came up with a lot of ideas about strategy.
One of his most well known is the “Five Forces” which you can use to analyze whether or not a particular industry is worth getting into–as it turns out, your profit margin over the long haul depends a lot more on your industry than on how good you are. So if you want to make huge profits, don’t open a restaurant. Try to make semiconductors instead.

The Five Forces are:

• Barriers to Entry: How hard is it for competitors to get into your business? If all they need to do is build a website instead of building an expensive factory, you don’t have much protection.
• Supplier Power: Do you need very specific raw materials that are only available from one source? If so, your profit can get squeezed by your suppliers.
• Buyer Power: Is your product sold only to a specific audience, or to a single buyer? If so, your profit can get squeezed by your buyers.
• Rivalry: Are lots of people competing in your space? If so, competition squeezes your margins.
• Substitutes: Is your product unique, or is it easy for somebody to replace it with something else?

Another tool is this general strategy quadrant:

In this sense, “differentiated” means “worth paying a premium for.”

“Broad cost-competitor” means that you try to be the cheapest product in a given industry; you make the cheapest generic golf equipment out there. To make money, you need to sell a lot of volume. There are a ton of companies who fit this description–this is the “Wal-Mart” or “McDonalds” strategy.

“Broad differentiated” means that you try to make a premium product for a given industry; you make a really expensive, high-end line of golf equipment. To make money, you need to make sure people think your product is worth paying extra for. There are also a ton of companies who fit this description–this is the “Rolex” or “Louis Vuitton” strategy.

“Narrow cost-competitor” means that you try to be cheap in a specific market; you make generic golf balls for driving ranges. You lower your costs by keeping your focus narrow, but you still need to move a lot of volume. This is a hard one to pull off, and no well-known companies come to mind.

“Narrow differentiated” means that you try to make a premium product for a specific market; you make a really high-end golf putter, but you only make putters. You mitigate some of the risk of trying to be premium in a broad market, but you still have to preserve your reputation of quality. This is a great place for entrepreneurs, and many companies start out addressing the needs of a niche market with a great product or service; a really good wedding planner or photographer is using this strategy.

MBAs love putting things in quadrants. Strategy is really, really fun.

The single most important part of a project is a shared, detailed, clearly-understood and agreed-upon description of what it is that you’re trying to end up with.

Most projects fail because of some minor detail, glossed over in the planning stages, which ends up being absolutely critical. In other words, most projects fail because of imperfect communication.

By definition, a project is anything you do once: it’s not an ongoing process, like cooking dinner every night, or doing the laundry. It has a beginning, a middle, and an end. It’s more-or-less one-time thing: building a deck, or planning a wedding, or buying a house (even if you do it more than once, it’s likely to be different each time).

A project plan does not have to be a complex and dependency-ridden mishmash of tasks and goals and deadlines. It’s just a way to think about what has to be done, how to organize it, and how to tell when you’re finished.

Other than consensus, you really need a project sponsor. This person wants the project to get done, and will provide the political impetus to keep it moving past obstacles. Just because you’re “in charge” doesn’t mean you have the power to do anything.

That’s another big reason projects fail.

There are many, many specialized tools for managing projects and so many different philosophies and styles that you can easily get caught up in the process of figuring out a process. Bottom line: figure out a way to outline what needs to be done, that allows you to see what’s been done so far and what hasn’t, and make it your own.

Final thought: scope creep keeps projects from ever being finished. If the scope starts to creep, try to nail it down by suggesting that any additional features can be added the next time through…which works a lot better for software than skyscrapers.

My favorite piece of technology: the wheel.

What I mean is, “technology” does not have to be a computer or made of carbon fiber or have blinking lights and a manual in Korean. “Technology” is the application of a tool to solve a problem. Nothing more.

And just because a business problem has a technology component does not mean that it is a technology problem.

For example, you might decide to sell T-shirts online. The fact that you’re selling them through a virtual storefront does not shelter you from the same challenges you would face were you selling them in a kiosk in the mall: you need to get goods in front of customers and convince them to pay you. And you can use Quickbooks, a spreadsheet or a “Cat of the Month” calendar, but you still need to keep track of paying your suppliers and getting money from your buyers.

Many information technology ventures use what’s called a “two-sided platform” as their business model. They are the middlemen: on one side, there are providers who want to give information or products to an audience. On the other are consumers who wish to get those products or information.

Depending on who has the money and who is willing to pay, one side of the platform usually subsidizes the other. For example, a website takes money from advertisers and allows consumers to see content for free; the advertisers essentially cover the cost of the bandwidth used by the consumers because they get access to those users in exchange. Or, a paid-access website charges users to access research articles, which covers the cost of the articles. Users want the content so much they they are willing to pay more than it costs to obtain the content in the first place.

If it sounds an awful lot like TV, or magazines, or going to a concert, that’s because it is. Information technology is just old technology with a shiny name and a new face.

What “Six Sigma” means is that a process should have output that is so exact, precise and consistent that it would have to be over three standard deviations out from what you’d expect before it was ever unacceptable to your customer. If your process is to make gun barrels, then applying Six Sigma to that process might mean that you are able to manufacture barrels which are so accurate that you’d have to do something really out of the ordinary–like pound your milling machine with a hammer during the fabrication process–before they were ever so much as a hair out of alignment.

The underlying logic is not necessarily to make the outcome better, but to control the process so that you get repeatable results. You don’t want to have to test every single gun barrel. You want such a perfect process that you almost never have to test.

Six Sigma revolves around the acronym DMAIC: Define, Measure, Analyze, Improve, Control.

Define: What are you trying to do? If you’re trying to improve survivability in car crashes, then stereo performance is irrelevant. You can’t fix everything at once, and there may be tradeoffs: more perfect products might increase cost, for example.

Measure: You can’t do anything without data, and the data has to be relevant to solving what you’ve defined in the first step.

Analyze: What does the data show? More importantly, is the data accurate? If somebody ever gives you a graph of data where the data points consistently go up, then down, then up, then down, they are lying to you. Real data is really hard to fake.

Improve: How do you make the process better? Maybe you move people’s workstations closer together. Maybe you get new tools. Maybe you do some training.

Control: Did your change work? And if it worked, how do you make sure it keeps working? You don’t test every circuit board you make. But you test enough to be sure that nothing else has changed with your process.

Is your process capable? That is, a very fine saw is capable of making very precise cuts, if calibrated properly. A chainsaw is not, and will never be capable of meeting a standard of high precision. Use the right tool for the job.

Is your process in control? Maybe when you grill a steak, you have no idea if it’s going to be overcooked or undercooked. From a Six Sigma perspective, it’s better to have a steak that’s always underdone: now you know for a fact that your grill just needs to be hotter, and that’s something you can improve and control.

A process is something ongoing, like an assembly line in a factory, or a kitchen in a restaurant. There is always a bottleneck, which is the slowest point on the line. Stuff collects behind it. There is no getting around this, other than to identify your bottleneck and try to diminish its impact.

Capacity is the maximum stuff you can produce in a given time. If you need more stuff than that, you have a problem.

Operations Management is looking at the customer’s definition of quality and managing a process to meet that need in the most efficient way possible. 100% efficiency is not always desirable; sometimes downtime has a purpose in a process. It all depends on what quality means to you, and your customer.

If you have a flawed process for making something, then fixing the flaws costs you more than it would have cost you to have a flaw-free process in the first place. Quality, then, is free.

Sometimes.

There’s also a point of diminishing returns, which is why you don’t spend $500 fixing a TV when you can buy a new one for $250. And the very definition of quality–meeting the expectations of your customers–doesn’t require perfection. So there is a point when you stop spending money to fix things, and just live with the flaws.

To figure out where that point is, you need to understand your customers’ definition of quality, which, again, means knowing your customers. That’s “Gap Analysis:” looking at the places where there are gaps in the flow of information from your customers to you, and back again. Users have complaints that never get back to the designers. The designers don’t clearly communicate the design to the builders. Marketers don’t emphasize the most desirable features.

There are features, and then there are requirements. If you need seating for 8, then the nicest convertible in the world isn’t going to meet your requirements, no matter how big the engine or plush the leather. If you confuse needs with wants, you’ll wonder why nobody’s buying your product. All other things being equal, however, features are important. So don’t forget the cupholders.

Data Analysis isn’t really about statistics. It’s about looking at data, reaching a conclusion based on what the data shows, and presenting it to an audience.

Most people have a negative opinion about statistics, but statistics are just a tool for presenting data. Used correctly, they paint an accurate picture of the way things are in a way that is far more clear and concise than showing every single measurement and data point. Used incorrectly–either purposefully, or through ignorance–they can distort and falsify reality.

Be conscious of what it is you’re trying to show. If the data doesn’t support your theory, it’s wrong to manipulate it so that it does. But even if the data does seem to match, you have to consider whether or not the way you present it is making the result clear to the audience.

Don’t show how you got to the numbers in your presentation. Someone will find fault with them and derail the discussion. That said, make the underlying data available–after the presentation.

In fact, avoid throwing lots of numbers at people. Graphical representations get your point across with greater clarity.

Phone numbers are 7 digits long because that’s the number of discrete things people can keep in their heads at one time: 7 plus or minus 2. Keep a single slide of your presentation to about 7 bullet points.

Remember that some people are colorblind when you choose colors for your graphs.

Offering an opinion without having data to back it up is just asking for someone to doubt you. If you want to win your argument, get to the numbers.