The book titled The Underlying Logic tries to cover the logic behind everything from logic, personal, and business to society. Some of them are applicable to a specific society and culture. Like what the other said, a sentence might make complete sense but completely miss the reality. So in my opinion, the most valuable part of this book is how to extract the underlying logic of how things work. The following are some of the lessons that I found useful
1. How to solve a problem or achieve a goal?
Solving a problem involves understanding the problem and finding the solutions. The world best thinker observe, while others recognise. But the world changes every second. What works in the past, might not work this time. Therefore, the first step must be observing the problem.
- Observation: Events and the relationship
- Are they related or have casualty?
- If one event caused another, do they reinforce each other negatively or positively? Or are they balancing each other?
- From where should you start solving the problem? The regulation? The system? Or the procedure
Example: To solve the food distribution problem. The distributor always gives the most to themselves and those close to them.
Solve by changing the procedure: replace the distributor with good merit and reputation
Solve by changing the regulation: the distributor gets last
Solve by changing the system: use measurement
2. How does your stakeholder/ customer do the transaction?
It is important to know how your target user behaves. In the book, the author gives an example of an owner of a restaurant, that thought renting a place with good traffic and providing high-quality products meant success. But what if the customers prefer delivery? It means s/he can rent a place with lower rent and better matches the user habits
3. The formula of success = Skills x Efficiency x Leverage
Skill is the most important. It equals your capital. Out of so many skills, the most important one is the skill to acquire a skill quickly.
Efficiency can be split into two things — choice/ prioritise and tools to save time. Prioritising is more important because no matter how many times you save, putting the time on the right thing is always the most important.
There are 4 kinds of leverage — team/ labour, product, capital and influence.
4. Networking is not about the people who can help you, but about the people you can help
5. Service offers more room for survival cause the market is harder to dominate
Services are more labour-intensive than products and because of that much harder to scale. But it also provides more room for survival. If you want to be a billionaire, you need to look for a business with low replication costs, which essentially are products. Ideally, it should be media or code. But on the other hand, providing services might be better if you are new to business because it offers larger room for survival.
5. How to make a good metaphor
- Deep understanding of the situation/ Being able to look into the essence
- Match it to something everyone is familiar with
- Use the familiar to explain the new
6. 3 types of value customers can perceive
- Functional value
- Experience value
- Personalised value
The most valuable one is personalised value.
7. The true portion of net profit is something that others can take away from you
Being in trend may allow you to earn big money. But as soon as there are more competitors enter the market, the price will inevitably be driven down. Either you avoid price war by differentiating or you innovate so that only you can drive the price down (e.g. franchising so you can buy in mass)
8. Wealth = Effort x Production Rate x Efficiency
9. Ability to create wealth, scarcity distribute wealth
Suppose there are 10 people and the project makes 100 dollars in profit. Worker 4 said he contributes more, so he should get 20 instead of 10. But other disagree and find a replacement outside that cost only 8. Number 4 would now be worth only 8. Next, worker 8 said he should take 40. The others tried to find a replacement, but they couldn’t. Worker 8 now has a high bargaining power.
10. Fair = use the same ruler, Just = use which ruler, Open = knowing which ruler is used
11. Efficiency vs Fair
These two concepts are irreconcilable in the economy. If a company can do much better than others, it is reasonable that it should get more resources, so that the resources can be used in the best way. But it is unfair to the other coz they wouldn’t get any resources to develop themselves. Thus the disparity grows. In the different stage of society, government takes measures to balance the two.