The Essential Drucker: Essential Writings on Management by Peter Drucker

Today we’re going to talk about The Essential Drucker, by whom other than Peter F. Drucker. In case you haven’t heard of Mr. Drucker, he’s considered one of the greatest business gurus of all time. Now, usually, I don’t really feel like I learn much from super academic people, but this guy knows his stuff. As you can imagine, he wrote a lot of books in his time (sadly, he died in 2005), but this is sort of a compilation work, so it has tons of golden nuggets. Today, we’ll just be looking at a few.

So, first, let’s look at a quote from Mr. Drucker: “Management is doing things right; leadership is doing the right things.” I think this is extremely important as it applies to business. As an entrepreneur, there are ups and downs, and the downs will possibly define you even more than the ups.

One time, I was having an ethical dilemma, and I was afraid to talk to my boss about it, because it involved a mistake I made. First, he asked me “well, Steve, what do you think we should do?” I told him what I thought was right, but in a very timid way, because I thought he’d be pissed off. He just said “I agree, I think that’s the right thing to do.”

But I’ll never forget what he said. He said “do the right thing when no one’s watching; it’s a lot easier to sleep at night.” This is one of the reasons that this ex-boss is my closest mentor, and I trust and value what he says.

So, I encourage you all to take this to heart, because tough times and difficult decisions will come your way in this lifetime, and I hope you all will lead by example. Remember that quote “with great power comes great responsibility?” Well, the whole point of this knowledge business is to reach an audience and have serious impact on them, right? Then let’s make sure that impact is a good one.

I think of leadership as the strategy that we use to guide our actions, and management is the tactics that we implement on a daily basis to get things done.

Alright, that is the first “golden nugget” for today. When I say leadership versus management, it doesn’t mean they’re at odds with each other, but I think we need to start by being leaders, and then we can be managers. The other golden nuggets we’ll cover today are the ONE purpose of business, the TWO functions of business, and last we’ll talk about what Mr. Drucker calls the “Knowledge Society.”

Ready for the ONE purpose of business? He says it’s to create a customer. This is why I’m so obsessed with business: At its heart, business is the concept of bringing two people together in an exchange that leaves both of them better off. I love this! Why else are we on the planet? If we accept this, then how do we create a customer?

The first, and generally considered the easier, way is to fill an existing demand. For example, food always has been and always will be in demand (unless of course we’re all digitized in the future…). Before grocery stores, and before people were even interacting in any kind of market, people wanted food. So, if you could find a way to supply it to them, they would pay you in some way.

The second, and generally much more difficult, way is to create demand. A great example of this is the Apple iPhone. I would call this “the product that everyone never knew they needed.” Because, until Steve Jobs and Apple created the iPhone, no one knew what it was or what it would do. They convinced us that this was something we needed in our life, and they changed the world because of it.

The book says you can create demand through “innovation, credit, advertising, or salesmanship.” Apple probably did all of these things. An argument could be made that this is a greater accomplishment, because you really are shaping the world in your own image (this is my favorite definition of an “entrepreneur” by the way). And I might agree with that, but I recommend we take baby steps. Start by finding out what people want, and give it to them. Down the road, who knows what you may create.

What about making a profit? Yes you need to find a way to make money for the business to survive. What about shareholders? Yes, you need to do right by them if you want to stay in the big seat. What about advancement of our society? Yes, that’s a great goal. But the key point is that all of these are secondary to creating a customer.

What are the TWO functions of business? He says they are marketing and innovation. And let’s be sure that these functions only exist to drive the purpose that we just went over. So keep the customer in mind the whole time.

First, let’s look at marketing. Quoting the book, he says that “true marketing starts with the customers’ needs, not forcing your products on people.” Drucker says the focus should be not on “what do we want to sell?” but on “what does the consumer want to buy?” And that the aim of marketing is to “make selling superfluous.” This almost makes me think that he’s saying trying to create demand is WRONG, but I don’t think it can be that black and white. If you create demand by making customers aware of your product, and then they want it, the same goal is achieved.

Ok what about Innovation? First off, he says above all, innovation is not “invention.” In other words, it doesn’t have to do with technology, it has to do with economics. This is highlighted in the 3rd and 4th of these 4 ways that I interpreted to innovate. 1) You can make the product cheaper, 2) you can make a better product, 3) you can make a different product that creates a new outcome for the customer, and 4) you can find a new use for an existing product. Interestingly, he does say that the most productive of these ways is #3, and giving the customer something new. In a way, this disagrees with the focus on the customer, but, again, it’s never that black and white!

And lastly today, we’ll go over what Drucker called the “Knowledge Society.” The context of this is that it’s a paradigm shift from the “industrial society,” where the value that people had was their physical labor. As machines do more and more physical work for us, we are shifting more to using our brains instead of our brawn. In the future, machines will be doing more mental work for us too, so who knows what society we’ll end up in… maybe a “spiritual society?”

One of my big takeaways from this concept is that opportunity is greatly increased for everyone, because knowledge is so readily available. With Google alone, what can’t you learn about these days? One thing Drucker says is that, in this society, the employers will need “knowledge workers” more than the workers need them. That’s what WE’RE doing, and why I call these “knowledge businesses.” We are leveraging the value of our knowledge, and we can become financially independent this way.

The other big takeaway is that, because of the increased opportunity, there will be increased competition. Because knowledge is so available, there is no excuse for what he calls “nonperformance.” This is why I’m so excited for you all who aren’t twiddling your thumbs, and instead you’re taking action to build your future!

Alright, I know this stuff is really dense, but remember you can watch this video as much as you want, and I encourage you to read the book. You don’t have to do it all at once; just read a chapter here and there, and let these fundamental concepts sink in. Today’s summary is that we need to embrace the continued rise of this “Knowledge Society,” and we need to find a way to create value with our brains if we want to live the life that we want.

And onto the exercise, the most important. Comment below to solidify this stuff in your brain, and share with as many people as you want. Comment on other peoples’ stuff too, so we can get some constructive dialogue going! 1) How are you going to create a customer? Are you going to create supply or fill demand? 2) Are you stronger in marketing or innovation, and how are you going to make sure that the other one is strong enough? Are you going to learn, delegate, or both? And 3) Do you think the shift to a knowledge society is a good or bad thing, and why?

Think of how you can use these concepts to improve your business and your life, and I’ll see you all in the next one!