How to Apply MBA Theory in Real Business Settings

The 3 Pillars of Running a Business

Insight from The Oxford Handbook of Expertise 

Have you ever wondered why fresh MBA grads struggle with using the theory they learned in the real world?

The answer is not so obvious.

They have yet to internalize the relationships between capital, operations, and their market.

Every great business person shares a standard mental model of business. The mental model captures a set of principles, is consistent across industries, and seems resistant to change.

The implication is that if you want to get really good at business, you should systematically acquire skills in the three categories specific to your business.

Then, understand the relationships between the three categories.

The three categories can be broken down into:

1. Operations - These represent operational concerns related to the business. This category can include organizational design, incentive structures, and the ability to get things done within the company.

2. Market - These represent the exec’s understanding of the market. This can include everything from market shape, competitive analysis, and positioning

3. Capital - This represents understanding basic financial concepts like cash flow lockup, return on invested capital, and margins. Depending on the business, the factors here may include expertise in raising capital (e.g., equity financing, debt) or the ability to understand potential changes in the capital environment.

With these three models interchangeably playing with each other, you can 10x your efforts of growing your startup.