Everything I Learned at Stanford Business School in 28 Minutes

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