Everything I Learned at Stanford Business School in 28 Minutes

Summary

This video script offers an insightful overview of key business strategies and financial analysis techniques, drawing on the author's experiences from Stanford Business School. It covers essential concepts like Porter's Five Forces, competitive advantages, product development, marketing strategies, and financial statement analysis. The speaker also emphasizes the importance of emotional intelligence and building a strong network for business success. The script aims to distill the value of an MBA education into practical advice for viewers, equipping them with the knowledge to build successful businesses and make informed investment decisions.

Takeaways

• 🏫 Stanford Business School is renowned for its education that has produced many successful entrepreneurs, but its exclusivity limits access to many.
• 📚 The speaker aims to distill key lessons from their Stanford education, potentially saving viewers time and money.
• 🧐 The importance of 'Strategy' is emphasized, including the use of Porter's Five Forces to analyze competitive strength.
• 🔒 Apple's ecosystem is highlighted as a strategic move to lock in customers and fend off competition through integration of products and services.
• 💡 Branding and competitive advantages are crucial for business success, with examples like Apple, McDonald's, Nike, and Tesla illustrating different approaches.
• 💡 Economies of scale and cost leadership are identified as significant competitive advantages that can lead to business efficiency and market dominance.
• 💡 Network effects are presented as a powerful competitive advantage, where the value of a product or service increases with the number of users.
• 🛠️ The necessity of starting with a great product and iterating based on customer feedback is underscored for building a successful business.
• 🎯 The concept of an Ideal Customer Profile (ICP) is introduced as a key marketing strategy for targeting specific customer segments effectively.
• 💼 Financial analysis is simplified to understanding revenue, costs, and profits, with Starbucks used as an example to explain financial statements.
• 🔢 The discounted cash flow (DCF) analysis is introduced as a method to value a company by estimating the present value of its future cash flows.
• 🤝 Emotional intelligence and people skills are highlighted as critical for effective management and leadership, impacting the bottom line of a business.
• 🌐 The value of networking and building relationships in business school is emphasized, as these connections can lead to greater opportunities and success.

Q & A

What is the annual intake of students at Stanford Business School?

Stanford Business School admits only 400 students each year.

What does the speaker aim to achieve by teaching the content of the video?

The speaker aims to save viewers two years of their life and $250,000 in student loans by teaching everything they learned at Stanford Business School in 30 minutes.

What is the first business school concept introduced by the speaker?

The first concept introduced is 'Strategy', which includes understanding game plans for building successful companies like Apple or Facebook.

What are Porter's Five Forces and why are they important in business strategy?

Porter's Five Forces is a framework used to analyze the competitive environment of an industry. It includes the strength of competition, the presence of substitutes, the threat of new entrants, the bargaining power of customers, and the bargaining power of suppliers. It's important because it helps determine how strong a company is within its industry.

How does Apple use its ecosystem to defend against competitors and new entrants?

Apple uses ecosystem lock-in to defend against competitors and new entrants. Their products, such as the iPhone, Mac, AirPods, and iCloud, seamlessly integrate with each other, creating a strong customer base that is less likely to switch to other brands.

What is the significance of brand in building a competitive advantage for a company?

A strong brand can evoke emotions and create a sense of trust and loyalty among customers. It can resonate with customers on a values level, as seen with Patagonia's sustainability efforts, or represent the best in a category, like Goldman Sachs in investment banking.

What is the concept of economies of scale and how does it benefit a business like Apple?

Economies of scale refer to the cost advantages that a business obtains due to expansion and large-scale operations. For Apple, as they produce more iPhones, the cost per unit decreases, leading to increased efficiency and profitability.

What is a network effect and how does it create a competitive advantage?

A network effect occurs when the value of a product or service increases as more people use it. This creates a self-reinforcing cycle that can make it difficult for competitors to enter the market, as seen with social media platforms like Instagram and TikTok.

What is the importance of starting with a niche product and customer base when building a business?

Starting with a niche product and customer base allows a business to focus on solving specific problems for a targeted audience. This approach helps in refining the product and understanding customer needs before expanding to a broader market.

Why is it crucial for a business to have a clear ideal customer profile (ICP) when marketing their product?

Having a clear ICP is crucial because it allows a business to tailor their marketing message and channels to resonate specifically with their target audience. This increases the efficiency of marketing efforts and the likelihood of converting potential customers.

What are the three main components of financial analysis according to the script?

The three main components of financial analysis are revenue, costs, and profit. These components are used to evaluate the value of a business or asset.

What is the purpose of financial statements and how many types are there?

Financial statements provide a detailed record of a company's financial performance and position. There are three main types: the income statement, the balance sheet, and the cash flow statement.

What is the discounted cash flow (DCF) analysis and why is it important in finance?

Discounted cash flow (DCF) analysis is a method used to value a business or project by estimating the total of all future cash flows, discounted back to their present value. It's important because it helps investors determine the intrinsic value of an investment.

What is the role of emotional intelligence in business success according to the speaker?

Emotional intelligence plays a crucial role in business success as it helps managers and leaders to be self-aware, regulate their emotions, empathize with their team, and inspire and motivate others. This leads to a more engaged and productive workforce, which can drive business growth and profitability.

Why is building a network considered valuable in the context of business and personal growth?

Building a network is valuable because it provides access to resources, opportunities, and connections that can lead to success. A strong network can open doors to new business ventures, partnerships, and career advancement.

Outlines

00:00

🎓 Stanford Business School's Exclusive Education

The speaker begins by discussing the prestige of Stanford Business School, which only admits 400 students annually, creating a sense of exclusivity. They express a belief that the education, which has produced numerous billionaires, should not be limited to such a small group. The speaker promises to condense the knowledge gained from Stanford into a 30-minute video, aiming to save viewers two years and $250,000 in student loans. The first topic covered is strategy, defined as a game plan for creating a successful company. The speaker introduces Porter's Five Forces as a framework for analyzing a company's strength, which includes competition, substitutes, new entrants, buyer power, and supplier power. Using Apple as a case study, the speaker explains how the company leverages its ecosystem to maintain a competitive edge.

05:01

🚀 Building a Billion-Dollar Business: Strategy and Competitive Advantages

This paragraph delves deeper into the concept of strategy, emphasizing the importance of understanding a company's strengths, weaknesses, and competitive advantages. The speaker discusses various forms of competitive advantages, such as brand recognition, economies of scale, cost leadership, innovation, and network effects. They provide examples of companies like Apple, McDonald's, Nike, and Tesla to illustrate these points. The speaker also stresses the significance of having a strong product that people want to buy and the iterative process of product development, starting with a niche market and expanding over time.

10:01

🛍️ The Evolution of an Online Bookstore: A Niche Market Example

The speaker uses the example of an online bookstore to illustrate the process of starting small and expanding thoughtfully. They describe how an entrepreneur might begin with a simple concept, gather feedback on key attributes like selection, price, and convenience, and then iteratively improve upon these aspects. The example highlights the importance of starting with a niche market and using customer feedback to refine the product offering, eventually leading to broader market expansion.

15:02

📈 Financial Analysis 101: Understanding Business Value

The speaker transitions into financial analysis, explaining how it involves estimating the value of a business or asset based on its future cash flows. They break down the process into understanding revenue, costs, and profits, and how these elements can be found in a company's financial statements. Using Starbucks as a case study, the speaker outlines the components of an income statement, balance sheet, and cash flow statement, providing a basic understanding of how to analyze a company's financial health.

20:02

💼 The Art of Financial Modeling and Valuation

This section focuses on the practical aspects of financial modeling, where historical data and projections are used to estimate a company's future cash flows. The speaker introduces the concept of discounted cash flow (DCF) analysis, explaining how future cash flows are discounted back to their present value to determine a company's intrinsic value. They also touch on comparables analysis, where a company's valuation is assessed relative to similar businesses in the market, using price-to-earnings multiples as a benchmark.

25:03

🧡 The Human Element: Emotional Intelligence in Business Success

In the final paragraph, the speaker emphasizes the importance of emotional intelligence in business, arguing that it is a critical factor often overlooked in financial analysis. They discuss the impact of effective people management on revenue and costs, highlighting qualities such as self-awareness, empathy, and the ability to inspire and motivate. The speaker suggests that emotionally intelligent leaders can drive greater success and revenue for their businesses by fostering a positive and engaged workforce.

🤝 The Power of Networking: Beyond Business School

The speaker concludes by discussing the value of the relationships and network built during business school, which they consider an integral part of the education. They acknowledge that connections can significantly impact one's success and net worth. The speaker also hints at a future video on building a network from scratch, emphasizing the importance of persistence and iteration in business success.

Keywords

💡Stanford Business School

Stanford Business School is renowned as one of the top business schools globally, known for its rigorous curriculum and the production of successful alumni, including many billionaires. In the video, it is presented as a place where valuable business strategies and knowledge are taught, which the speaker aims to distill and share with the audience.

💡Strategy

Strategy, in a business context, refers to a company's game plan for achieving success in the market. It is a fundamental concept taught in business schools and is central to the video's theme. The speaker discusses the importance of strategy in building a successful company, using frameworks like Porter's Five Forces to analyze competitive dynamics.

💡Porter's Five Forces

Porter's Five Forces is a framework used to analyze the competitive intensity of an industry and the profitability of a business. It is a key concept in the video, where the speaker uses it to dissect Apple's competitive landscape, discussing factors like the strength of competition, threat of new entrants, and bargaining power of suppliers and customers.

💡Ecosystem Lock-in

Ecosystem lock-in is a strategic advantage where a company integrates its products and services to create a seamless user experience, making it difficult for customers to switch to competitors. The video uses Apple's ecosystem as an example, highlighting how the integration of iPhones, Macs, AirPods, and iCloud contributes to Apple's competitive edge.

💡Competitive Advantage

A competitive advantage is a characteristic or strategy that a company uses to distinguish itself from competitors and gain an edge in the market. The video explores various types of competitive advantages, such as brand strength, economies of scale, cost leadership, innovation, intellectual property rights, and network effects.

💡Network Effects

Network effects occur when the value of a product or service increases as more people use it. The concept is used in the video to explain how companies like social media platforms benefit from a growing user base, making it harder for new competitors to enter the market due to the established network of users.

💡Product

A product is the core offering of a business, which can be a physical good, a service, or even software. The video emphasizes the importance of having an incredible product that customers want to buy, discussing the need to start with solving a specific problem and then iterating on the product to improve it over time.

💡Ideal Customer Profile (ICP)

An Ideal Customer Profile is a detailed description of a company's target customer. In the video, the ICP is highlighted as a crucial aspect of marketing strategy. By focusing on a specific customer segment, businesses can tailor their marketing messages and channels to resonate more effectively with their target audience.

💡Financial Analysis

Financial analysis involves evaluating a business or asset's value based on projected future cash flows. The video provides an overview of how to perform financial analysis using financial statements, including income statements, balance sheets, and cash flow statements, to understand a company's revenue, costs, and profits.

💡Discounted Cash Flow (DCF)

Discounted Cash Flow is a valuation method that estimates the value of an investment based on its future cash flows, discounted back to their present value. The video explains the concept of DCF as a way to determine the intrinsic value of a company, factoring in the time value of money.

💡Emotional Intelligence

Emotional intelligence is the ability to recognize, understand, and manage our own emotions as well as the emotions of others. In the video, the speaker argues that emotional intelligence is a critical skill for business success, affecting how managers lead teams and how leaders inspire and motivate their employees.

Highlights

Stanford Business School's exclusive annual intake of 400 students and its reputation for producing numerous billionaires.

The speaker's goal to condense and share the knowledge equivalent to two years at Stanford Business School and save students $250,000 in student loans.

The foundational importance of 'strategy' in business, including the use of Porter's Five Forces framework to analyze corporate strength.

Apple's competitive strategy using ecosystem lock-in to defend against competitors and new entrants.

The concept of buyer power and supplier power in the context of Apple's market position.

Identifying a company's strengths, weaknesses, and competitive advantages as a key strategic exercise.

The role of branding as a competitive advantage, illustrated with examples such as McDonald's, Nike, Patagonia, and Red Bull.

Economies of scale as a competitive advantage, demonstrated through examples like Apple and Boeing.

Competing on cost as a strategy, with Walmart and Amazon as examples of businesses built on offering the lowest prices.

Innovation as a competitive advantage, using Tesla's disruption of the automotive market as an example.

Network effects as a self-reinforcing competitive advantage, particularly relevant in social media and communication platforms.

The necessity of having an excellent product that customers want to buy as a fundamental business requirement.

The iterative product development process starting with a niche market and gradually expanding, exemplified by Amazon's early online bookstore.

The importance of understanding the ideal customer profile (ICP) for effective marketing and business growth.

The significance of marketing channels in reaching the right audience with targeted messages.

Financial analysis simplified to estimating the value of a business based on future cash flows.

The use of financial statements—Income Statement, Balance Sheet, and Cash Flow Statement—to understand a company's financial health.

Discounted Cash Flow (DCF) analysis as a method for determining the intrinsic value of an investment.

Comparables analysis as a practical tool for valuation, using industry peers as a benchmark.

The 'touchy-feely' aspect of Stanford's education, focusing on emotional intelligence as a key to business success.

The impact of servant leadership and emotional intelligence on driving business revenue and success.

The invaluable nature of the relationships and network built during business school and their role in long-term success.

Transcripts

Stanford Business School is the top

business school in the entire world but

the problem is every year they let in

just 400 students which means that

unless you're one of those lucky 400

students you are gatekeep from the

education they teach that has minted

dozens of billionaires and I don't think

that's right so over the next 30 minutes

I'm going to teach you everything that I

learned at Stanford from how do you

build and start a billion dollar company

all the way to how do you analyze a

stock like a hedge fund investor and so

if you just power through this video

like I know it's going to be pretty long

I'm going to try my very very best to

save you two years of your life and

$250,000 in student loans so why don't

we dive in so the first thing I want to

teach you is going to build the

foundation for the rest of your career

and it's also the most important thing

you learn in business school which is

strategy AKA what is your game plan for

building the next apple or the next

Facebook or the next Nike and how you

learn this in business school is you

study the strategies and the tactics

that all these billion doll companies

use to absolutely crush the competition

the best way to start learning good

corporate strategy is to use a framework

we learn in business school called

Porters five forces and basically all

this is is just five different forces

that interact with a company and help

you decide how strong a company actually

is and those are number one how strong

your competition is number two how many

substitutes to your product are there in

the market and then number three is How

likely are you to be disrupted by new

entrance then number four is how much

buying power do your customers have over

you and then lastly how much power do

your supp suppers have over you and so I

figured one of the best ways for us to

understand this model is to use it to

analyze one of the companies that you

and I likely use every single day which

is Apple so first if we look at Apple's

competition it's actually pretty tough

you've got Samsung you've got Google

you've got Microsoft they're all serving

different products that Apple also

serves and these are some of the

strongest companies out there in the

world which means that there are a ton

of highquality substitutable products

out there whether that be the Samsung

Galaxy for phones whether it be

Microsoft Windows for computers or even

Facebook's meta Quest when it comes to

competing on VR and so immediately when

you look at these two aspects of Apple's

business you're like this is pretty

stiff competition and you start to

realize what Apple does to fend off the

competition which is with their

ecosystem AKA I could go get a Samsung

Galaxy phone but not only do I love the

Apple iPhone but it syns to my Mac I

have airpod Pros that seamlessly

integrate with my phone I use iCloud for

all of my photos and we all have that

one iPad we bought 5 years ago that we

don't use anymore point being Apple uses

ecosystem lockin to actually defend

against not only its existing

competitors but also new entrance and I

would actually say that Apple's threat

of new entrance is incredibly low

because not only do you have this

ecosystem lock in you also have to think

about how much scale Apple has in

delivering an incredible supply chain of

millions of high quality phones around

the world every single day like building

that manufacturing process and that

supply chain would be incredibly

difficult and so so so costly for any

new entrance and all this this then

leads us to think about the buyer power

of all of Apple's customers AKA you and

me where if you think about it yes we

could go buy an Android phone or we

could go buy a Windows computer but do

we actually want to be the person who

ruins the group chat and so all of that

being said if all of us want to buy an

iPhone then Apple suppliers aka the

people who make the parts and materials

of an Apple iPhone don't actually have

too much negotiating leverage because

Apple does so much volume they're

actually able to negotiate really razor

thin margins on all their costs so that

Apple can make more money and so now

that we've surveyed the scene around

apple as a company we can then dive into

the really fun part about strategy which

is figuring out for your company what

are your strengths weaknesses and

therefore competitive advantages that

you can use to win the market and so

when your company like apple generating

billions of dollars of profit and you

have all these competitors trying to

come eat your lunch you start to realize

some of Apple's competitive advantages

number one being it's phenomenal brand

like everyone out there knows the Apple

brand and in fact if you think about an

Apple ad like you actually feel

something when you watch that like when

you think phone you immediately think

Apple because it stands for something

and so if you think about it there are a

ton of other companies who use brand as

one of their competitive advantages

where if I just put up some blank logos

here I bet you immediately recognize

that this right here is going to be

McDonald's and this right here is going

to be Nike they live in your head

rentree but that's not the only approach

companies can take to actually have

great branding as a competitive

Advantage because because when you think

about Patagonia for example as a brand

they actually use brand to resonate with

you as a customer on a values level

where I'm actually much more likely to

buy a Patagonia jacket because I know

they stand for something that I

personally believe in because in

patagonia's approach to sustainability I

as a customer actually feel better when

I purchase it in kind of actually the

same way that whenever I watch Red Bull

content which is a branding play I

actually feel this aspiration to be as

cool as some of the Red Bull athletes

and all of that even within brand

competitive Advantage is different from

the reputation play where when you think

Goldman Sachs or you think McKenzie you

think the very best of the best which is

their brand when it comes to Investment

Banking or Consulting and so when you

start realizing that building brand is

one of the competitive advantages that

your company can have it creates a whole

list of other competitive advantages

that you need for your company and

continuing down that list is another

concept called economies of scale where

basically there are a lot of businesses

out there where as they actually get

larger or they have more scale they

actually get more efficient so when you

think about the Apple example with

producing iPhones or you think about

Boeing producing Mega planes you realize

that they actually become more efficient

once they start producing more right

because the cost of producing one plane

when it comes to building an entire

Factory to support that is the same

fixed cost as building that factory to

support building a thousand planes and

so over time ideally your business as it

becomes more and more successful

actually gets more and more efficient as

well and this competitive Advantage

around economies of scale actually goes

hand inand with another competitive

advantage that is called competing on

cost where when you think of the

Walmarts or the Amazon of the world

they've built multi multibillion dollar

businesses basically being the cheapest

cost alternative for anyone out there in

the market where Jeff Bezos actually has

this really smart quote that he says

which is back in the day when he started

Amazon he knew that he couldn't predict

the future but he knew the one thing to

be true is that people would always want

lower and lower prices and so if you're

thinking about using this competitive

Advantage for your company I want you to

think about this flywheel that jet

basers once Drew on a napkin which is he

realized there was actually a virtuous

cycle at play where if he could lower

prices he'd actually generate more

volume and more net revenue over time

which means he could keep pouring that

back into the business to keep lowering

prices over time and keep making more

and more sales and he paired it with

another competitive Advantage which is

just innovating in a market where when

you think about a hyper successful

company like Tesla for example it's very

clear that they innovated in an

otherwise incredibly old and incumbent

filled market and so if you're one of

those really talented entrepreneurs and

you can innovate in a market you'll

realize that you can actually create a

blue ocean of uncontested space where

when you think about Tesla because they

were the first people to bring electric

vehicles to the mass Market they

basically had years on end to completely

dominate that market before any of their

competitors caught up now there are a

ton of other competitive advantages that

I'll list over here whether it be

intellectual property rights or actually

using government and regulation as a

barrier to entry for your competitors

but the last competitive Advantage I'll

share with you is actually what I think

is the most clever one because it builds

a self-reinforcing mode around your

business and that my friends is

something called Network effects where

basically the concept of a network

effect is that whenever you add more and

more people to a network the network

itself actually inherently gets more and

more valuable where if you think about

actually the first telephone back in the

day if no one else had a telephone

having the first telephone actually

wasn't very useful but as soon as you

add another person with a telephone you

actually get to call that other person

and has some use but then think about it

as you add even just one more person

that's net more beneficial to both of

the people already in that Network and

so when you add a bunch more people to a

network it actually gets increasingly

more valuable for every single person

that joins into that Network which

ultimately ends up building this

incredible moat around your business

where if you think about it the reason

why it's so hard to build a new social

media app that actually breaks out is

cuz everyone's already on Instagram or

everyone's already on Tik Tok and

they're likely not going to leave for

your new platform because you don't have

the network built yet and so now that

you have a good sense of what strategy

you might be able to use in your

business now it's time to talk about the

number one thing that's actually most

important for your business itself which

is making sure that you have a

incredible product that people actually

want to buy now whenever I hear this

term product I'm kind of scratched my

head cuz it's such a nebulous abstract

term like what is a product but

basically a product is just the core of

your business AKA whatever you actually

sell so whether that's the cars or the

t-shirts you're producing the software

you're selling or even the service that

you're providing other people this is

the thing that people actually give you

money for and so what you learn in

business school is how to to avoid an

outcome like a Microsoft Zoom or even a

Google Glass versus having an incredibly

successful outcome like an Apple iPhone

and there are just two things here that

you guys need to take away in order to

build your million dooll or billion

dollar startup idea that is number one

to always start with solving someone

else's problem because if you start

problem first rather than idea first so

for example you really hone in on

helping someone figure out the best way

for them specifically to lose weight

versus just projecting your idea of what

you think is best for them then you

ultimately get to the maximal best

solution for that particular customer

and that's of course though if you do

number two which is to iterate now what

I mean by iterate is that if you think

about every incredible product out there

they didn't just come out of the womb

incredible you always have to work and

improve on something over time often

times years for something to be a

worldclass product and so the iteration

method you learn in business school is

actually to start with a super Niche

early product serving a super Niche

customer before very slowly over time

you actually expand and so for example

maybe you have this idea that eventually

all Commerce is going to move online and

so you ask yourself how can I actually

start really small before going really

big and you realize that hey it's really

hard to get the book that I wanted a

physical bookstore and so what if I

actually put a bookstore online for

really cheap prices and so you launch

this first version of your app or your

site and because you're a

business person you start asking all the

people who visit your initial version of

the site what they actually like about

your site and your service and you hear

from them a couple things which is

number one I love the unlimited

selection number two I love how cheap

things are and then number three I just

love the convenience of how this thing

shows up in my door without me having to

do anything and so you the smart bald

entrepreneur that you are start to

realize oh I should specifically improve

those specific attributes about my

online bookstore where I should actually

get shipping down to just two days I

should keep lowering my prices and I

should add more and more selection over

time where I'm just going to start with

perfecting an online bookstore but

slowly and methodically I'm going to add

tangential products that I know my

existing customer base will like like

maybe t-shirts one day and then maybe

skincare and then maybe dominating the

entire world of e-commerce one day and

so the main learning I want you to take

here in terms of how to build an

incredible product that people literally

rip off the shelves is by first starting

with as really small Nicha folks and

really delighting them and using them as

an entry wedge or a landing before you

EXP B really thoughtfully over time but

of course you learn that building a

great product is never enough and that

the most successful businesses avoid the

number one mistake most entrepreneurs

make pretty early on which is they don't

think about marketing so there's a bunch

of boring marketing concepts out there

that I'll throw on the screen around

here but there's actually just one thing

that I think you need to be really good

at marketing and that by focusing on

this term you learn through out your

time at business school which is an IP

and that just stands for ideal customer

profile file but let me break down for

you why this really boring buzz word is

actually crucial for your success if you

actually want to crush it so let's play

out another example where let's say you

want to start a weight loss business now

the typical first-time entrepreneur will

go out there be like I'm just going to

try to help everyone to lose weight

because that'd be cool and and I could

build a really big business it's a big

Market but I want you to think about all

of the competition out there and how if

you're a jack of all trades then you are

a master of none whereas instead if you

were to get hyper hyper intentional and

Hyper specific about the IDE ideal

customer you would like to serve so for

example you could say I want to

specifically help moms who have kids who

are also trying to balance a job lose

weight then I want you to think about

how much more successful you'll be

saying hey everyone I love to help you

lose weight versus hey if you are a mom

who's struggling balance being present

for your family taking care of the home

and also paying the bills and and then

actually taking care of your body and

losing weight I specifically have built

a program just for your lifestyle like

you can already feel which one you're

more likely to purchase if you're that

Mom and that's compounded even more cuz

you've also through this video learned

another concept about marketing that's

super important which is channel now

what I mean by that is you want to be

hyper efficient in your marketing like

you don't want to spend money on a big

TV ad if you're targeting Jen Z cuz they

don't watch TV Boomers do but because

you know Jane really well you know all

of her habits you know what she consumes

and cares about you know that she spends

a ton of time on Instagram she follows a

ton of mommy bloggers and influencers

and she spends a ton of time in her

local community volunteering at the PTA

events and so you can now take your

hyper optimized ad copy that really

helps her feel seen and also put it in

the specific distribution Channel where

she's actually hanging out and so I'll

throw up a bunch of different

distribution channels here that you can

use for your business but the main thing

to take away here is really understand

your customers marketing message that's

going to resonate with them and then

meet them where they're at all right how

are we feeling because we are now

halfway there and because we've learned

the fundament of building a great

business we now get to instead turn into

Wall Street investors also I'm really

excited to teach you guys this because

we all know that one douchebag who works

in finance and thinks they're hot

and I'm basically going to condense down

for you their entire job in just a few

minutes so that you know just as much as

them so basically financial analysis is

just this really fancy term for saying

deciding how much of certain business or

an asset is actually worth and you do

that by trying to guess how much money

or how much cash an asset or a business

will generate in the future and that's

how you get to statements like oh I

think this stock is overvalued or

undervalued and so if you think about it

and you really oversimplify the equation

that really just boils down to caring

about three main things which is number

one how much revenue you're making so

how much money is coming in the door

number two how many costs you have like

what are your expenses so how much money

is leaving the door and then number

three When You Subtract your cost from

your Revenue getting to your profit or

the cash that you actually get to keep

and then how much of that you think

you'll make over time and you can find

this information for any companies out

there by using something called the

three financial statements and I figured

because I had Starbucks this morning why

not actually pull out Starbucks's

financial statements and actually

analyze them as a business so for any

mature business out there you have three

different kinds of financial statements

number one is the income statement

number two is the balance sheet and then

number three is the cash flow statement

and just as a quick caveat there are a

ton of nuances I'm going to skip over

here because I'm really going to focus

on just giving you the foundation that

you can start learning from so your

income statement is just that really

simple equation I showed you before

which is basically all of your revenues

minus your expenses which then turns

into the profit you made during this

financial period so in Starbucks's case

you actually see that they have three

different kinds of Revenue that they

report number one in their biggest

bucket which generate $29 billion in

sales is the company-owned Starbucks

stores out there so just your regular

run-of-the-mill Starbucks stores that

you and I go to all the time then

they've also actually got a couple

franchise stores where other people

actually run those stores for them and

that's still Genera them for $5 billion

in Revenue now on top of that Starbucks

also has this line item called other

Revenue which is things like their

direct to Consumer and actual coffee

brands that that you can actually

purchase yourself and so that all sums

to a net revenue of almost $36 billion

in their fiscal year 2023 now you'll see

underneath Starbucks's Revenue they

start to plot out all their different

costs and expenses but there are a

couple main line items when it comes to

expenses that I want to teach you guys

about number one is just your cost of

good salt so like when Starbucks serves

you a cup of coffee what are theost cost

that they incur with that cup of coffee

like what was the cost of literally the

coffee beans of the person making that

coffee of the literal Coffee Cup itself

because that actually gets you to your

gross profit or gross margin of how much

money they actually make for every cup

of coffee they sell and that's a

different kind of cost than a sales and

marketing cost where let's say Starbuck

decides to run a huge ad campaign they

have to spend money on that and that is

a line item within sales and marketing

and that kind of expense is really

different from a whole another kind of

expense line an item called research and

development where Starbucks is pouring

in millions of dollars a year to figure

out what is their next pumpkin spice

latte and then lastly starx also just

incurs a ton of cost to run the company

itself right like to pay the corporate

employees to figure out how to run this

business also cost them salary dollars

and so that's all bucketed within

something called General and

administrative expenses that pretty much

every company out there has and so

that's pretty much the income statement

in a nutshell where that actually sets

you up pretty well for the cash flow

statement which is really just a picture

of where specifically a company spent

and actually made cash from and the

reason why this is actually different

from your income statement because you

think like oh like the money you made

and the money you spent is how much cash

you have is because in a given year for

Starbucks for example yes they might

make a certain amount of profit but

they're also spending cash elsewhere to

for example invest in the business where

for them they actually spent an

additional $2.3 billion in cash to

invest in new property plants and

equipment so actually in their

manufacturing process or to build new

stores and you'll also see companies

raise more Equity or raise debt or pay

down debt which leads to different cash

flows in their financing activities

which is another bucket of your cash

flow statements which ultimately leads

you to see that even though Starbucks

generated a profit on their income

statement of $4.1 billion at the end of

that Financial period because they had

invested in so many new things they only

had a net addition of $730 million in

cash for that period and now that all

leads us to the final statement here

which is our balance sheet which is

basically just a picture of what we own

and what we owe on a certain day and

time and so for Starbucks on its balance

sheet so what it currently owns it has

over $3.5 billion of cash it has a ton

of different stores and manufacturing

plants which are assets that it owns

while also having liabilities AK things

that they owe other people whether

that's paying down debt or paying down a

certain vendor for providing them some

sort of service and so you see all of

that on the balance sheet here to

understand okay what does this business

have and what does it owe and so

basically what an investor or financial

analyst does is they take these

statements and they use these to start

projecting out the business through a

financial model and for that we need to

break out our Excel keyboards and pop

off our F1 Keys also we need to

literally bring an entire computer here

that actually has XL on it so basically

what you guys will see here is I've laid

out a pretty simple financial model for

Starbucks where you'll see the same line

items that we had before but laid out in

a more organized way where you have your

Revenue you have your cost to get sold

your cogs you break out your gross

profit your gross margin and then also

all the the operating expenses I

mentioned before to eventually get you

to the net income or the cash flow of

this business but what's different about

this model here is you'll note that I've

put in their historic numbers but then

also added projections and so this is

where financial analyst will be like oh

it's as much an art as it is a science

to predict how a company does in the

future and so your job as an investor is

to really try to figure out and be the

best guesser at how much you think this

company is going to grow and at what

expense rate where for me just for

Illustrated purposes here I've just

assumed a really steady rate of growth

but if you think about how the income

statement all works together and how you

think about the drivers of a business so

what are the leverage you can pull to

grow a business you could say instead

that maybe in 2024 you actually believe

that Starbucks will actually grow even

higher in terms of its rate of growth

because you think they're going to run

some big sales and marketing campaign or

some Big Brand campaign and so you will

see that trickle down into the revenue

but also you'll need to update here your

sales and marketing expense to actually

be higher because they're running

another campaign all that to be said

there's a lot of Wizardry and a lot of

this to figure out how to actually

project out the cash flows of a business

CU if you'll remember in order to

ascertain the value of an asset or a

company in this case the present value

or the price you'd want to pay today for

this asset is really just an estimation

of all of its future cash flows

discounted back to today and so stay

with me here because I know I just use a

lot of random buzzwords and terms but

basically the reason why I said the term

discounted is because if you think about

it yes if you were to buy this company

today it would generate some amount of

cash in 2 or 3 years but that cash that

it generates in the future is actually

worth less than that same cash amount

today and what I mean by that is

something that we call the time value of

money basically cash today or cash now

is worth more than that same amount of

cash in the future because you could

actually just go invest that cash now

let's say at a 10% interest rate or a

10% return in the stock market and

therefore the billion dollars of cash

that I'm projecting out that's Starbucks

will generate me next year well that's

the same thing as having about $900

million today and so in order to

calculate the intrinsic value of an

asset you basically project out these

cash flows and then you discount them

back to today by some sort of discount

value which is generally the market rate

of return let's just assume 10% here and

that will give you the theoretical

intrinsic value of your asset and this

specific methodology of how you value a

company is what we call the discounted

cash flow analysis and so generally

actual practitioners in finance won't

really use DCFS as much in terms of

actual day-to-day work and instead

they'll use something called a

comparables analysis where here you'll

see I've laid out a bunch of other

comparable companies to Starbucks so

McDonald's Domino's Chipotle young

brands that owns KFC and Pizza Hut and

actually laid out their stock price

their earnings and then a bunch of

things called multiples where basically

the intention here is to see where a lot

of Comal companies to Starbucks are

trading and then using that as a frame

framework to decide on the valuation for

Starbucks where I can actually take a

look at McDonald's metrics and say well

McDonald's is trading at a 25 times

price to earnings multiple which

basically just means its earnings since

for net income the total price of

McDonald's if you're to theorically buy

the whole company is 25 times that of

how much net income it generated this

year whereas if I look at Chipotle which

is a much higher gross stock with some

more interesting fundamentals it

actually is trading at a much higher

price earnings ratio of 60 times because

the market seems to like the

fundamentals of this business more you

can actually use those kind of as guard

rails to decide where you should

actually put Starbucks within that mix

like what is their price earnings ratio

that makes sense and basically in order

to decide what multiple makes sense to

apply to any company or Starbucks in

this case an investor is going to look

at all these different qualitative or

quantitative measures for your business

so for example they'd look at Porter 5

forces and think about your competitive

Dynamics and also how much are you

innovating or maybe they'll give you a

premium in your multiple because they're

a huge fan of the man team or the

founder that's running the business so

say someone for example as inspirational

as Steve Jobs and then on the

quantitative side they're going to look

at things like what are your unit

economics as compared to everyone else

like are you running more efficiently

than your peer set and so basically an

investor is going to take all these

quantitative and qualitative inputs and

out decide some sort of multiple for

your business which in this case

Starbucks and McDonald's are actually

pretty similarly valued at 25 times

price of earnings which makes intuitive

sense to me because they're operating at

similar Market sizes similar scale and

also just similar margins and so to try

to summarize an incredibly complex and

nuanced an industry like finance and

just a couple sentences these are the

key things that matter for you when you

think about financial analysis number

one is that the present value or price

that you should theoretically pay today

for any asset out there is just the

discounted value of all their future

cash flows and you can find a company's

historic cash flows through its

financial statements which then you can

then combine with all of your different

qualitative pieces of research around

the company's market size their

company's margin structure company's

competitive differentiation or the

company's competitive landscape and any

new entrance coming in to decide how to

project out its future cash flows to

actually figure out that

valuation congratulations if you made it

this far you're now at the final and

actually most valuable part of the video

which is to cover the real Secret Sauce

of the Stanford Business school

education and one of the main reasons

why they're ranked over all the other

business schools and Stanford calls this

learning the touchy feely and here we'll

call it growing your emotional

intelligence and before you're like oh

John this sounds super woo woo like how

is this going to affect my business I

want you to think about if you don't

grow in these specific skilles I'm about

to list how much money you're going to

lose so the mistake that I used to make

back in the day when I was just working

in finance and just seeing the numbers

was that I didn't think through the fact

that all these numbers are on revenue or

cost or expenses what actually makes up

those numbers and if you think about it

the first principal's core driver of how

much revenue you make or how much money

you're spending is how effective your

people are in your business so I want

you to think about that one bad manager

you had and then I want you to think

about all the skills that build up into

someone who is emotionally intelligent

self-awareness around recognizing the

stresses and frustrations that happen to

all of us in our day-to-day jobs and

then self-regulating those emotions so

that you're not taking it out on your

people when you're having a bad day you

treat one of your employees poorly and

then beyond that harnessing empathy

where your manager should ideally

understand the emotions and struggles

you're going through so that they can

actually do their job properly which I

believe is to help you do your job as

successfully as possible and then the

last pie here that separates a decent

manager from an incredible leader is

their ability to inspire and motivate

you because we all have that one coach

or manager who pushed us inspired us to

do something that we didn't even think

we were capable of and so when you think

about that awful manager that you had

you start to realize wait a minute

that's why I stopped working as hard for

this company and that's why I actually

left this job and all of the value that

you brought to this company because

someone just decided not to care about

someone else in terms of their feelings

and how they felt that company literally

lost hundreds of thousands of dollars

that will trickle down right to its p&l

and so if there's just one mental model

I'll give you on how to be a good

manager and a good leader it is this

specific quote which is if they win you

win basically when you think about the

managers or leaders you've respected the

most there's this general feeling that

you realize that they just genuinely

care about you as a human being and your

success because a good manager will sit

down with their reports and literally

ask them hey what are you interested in

working on what are you interested in

growing and what gives you passion and

they'll lay out those goals with you and

align those with the organization's

goals and the coolest thing that we

actually learned in our studies was that

servant leaders and leaders that were

conscientious over other people's

emotions were significantly more likely

to drive more revenue for their

businesses because if you think about it

if you actually have a manager who puts

their team into positions of success

where that team actually loves coming

into work every day so they're probably

working more and they're much more

passionate about their job even if it's

just like a marginal difference that

means your team is more marginally

likely to come up with that next 10x or

100x creative idea that is your next

billion doll business and so the one

clear takeaway I've taken into running

my own business is that if you serve

others you serve yourself now I wish I

could say you just got the full value of

a Stanford Business School MBA but

there's actually one thing that I

believe is probably the most valuable

part of the Stanford Business school

education that no matter how hard I try

in a video I can't give to you which is

specifically the relationships you build

in your business school class because if

there's one thing I've learned having

grown up with absolutely no connections

it's that your network is your net worth

because when you think about the alumni

database that you get access to as a

business School alum and you realize

that unfortunately the way Society works

is that the more people you know who can

connect you with more resources and

opportunities the more likely you are to

be successful it actually gets pretty

frustrating for someone someone who grow

up with absolutely no connections and so

the next video I'll work on for you guys

is how I was able to build a network

having grown up with zero connections

and so if you don't want to miss that

make sure to subscribe but I will say in

the meantime that if you just follow all

the skills that you learned in this

video and you just iterate and you just

persist you will organically have so

much business success over the long term

that you will just organically build

this kind of network