Today is the time to start learning everything about business. Whether you're a CTO, a Marketer, etc. to this post is a good place to start learning about that.

If you're already business leaders, it's the time to review basic business principles, then send this to your team members, your CTO, your Marketing Team, and so forth.

This post is hardly original - it's a synthesis of the book "What CEOs want you to know" and from a couple other reference resources that I will ​​mention throughout the post.

Premise

I've been reporting directly to CEOs in my last two startups, and still I am now. I've been enjoying working with C-suite because it always feel like an adventure.

But there's something about CEOs that I quite don't understand:

• What do they actually think?
• What do they care about?
• How do they make decisions?
• How do they know that they're ... right?

Ram Charan, the author of the book "What CEOs want you to know", argue that everyone should spend a week to learn about business. This post is my attempt for that.

I highly recommended this book, it was an interesting and straight-to-the-point writing craft. if you find my synthesis interesting, buy and read the book from the author. If not, read it anyway.

In this post, I will go through 2 parts:

• (1) The four cores of the business with concrete examples of failed and successful businesses
• (2) Synthesize some key learnings and actionable steps to take

4 cores of the business

At the core, all businesses are the same. To big enterprises to small businesses, all shared the same business fundamentals

• (1) Market & Customers
• (2) Cash Generation
• (3) Return on Invested Capital (ROIC)
• (4) Growth

I will go through this one by one, and give definition and examples.

(1) Customers

The goal of a business is to "generate" customers by serving products and services that are better than what competitors are doing.

But where do we find customers?

This is the job for the CEOs to find out. Best CEOs spend time staying close to the market and observe the customers to understand:

• What are customers buying?
• Why do they buy it?
• Are there any macro changes that affect their buying behaviors?
• Where's the market is heading?

These are a combination of understanding the unmet Jobs to be done of the customers, and anticipating future demands based on government policies, or on an on-going trends.

The mental models of CEO about is not so far apart from a street vendor who sells lemon juice.

A street vendor would:

• Observe their customers of why they buy juice and at what time
• Anticipate demand for future juice, like "should we focus on inventory orange or apple juice?"
• There's a trend of healthy eating lifestyle, perhaps people would want juice by diet sugar?

Most people think that CEOs must do data analysis rigorously to make a decision. But best CEOs don't just rely on just clinical data, they also use intuitions and common sense to make decisions on product and services.

Airbnb case

From early days Airbnb understood that travelers were seeking alternatives to traditional hotels, preferring local, home-like stays. Meanwhile, hosts wanted to make extra income by renting out unused spaces.

Travelers prefer the authentic local experience, often at lower prices than hotels, while hosts benefit from monetizing their underutilized assets (spare rooms or entire properties).

Airbnb recognized macro trends early on, such as the increasing preference for the “sharing economy” and “remote work,” which influenced its expansion into offering Airbnb Experiences (personalized travel activities) and remote work-friendly long-term stays.

Similar to the lemon juice vendor analogy, Airbnb’s CEO and leadership continuously observe these customer trends and tweak the product offerings, focusing on understanding what drives both guests and hosts to use the platform.

Steve Jobs case: "building without users"

Some people might say that CEOs must be visionary and dreamy with the implication that CEOs should overwrite the market's current need and build something of tomorrow - someone like Steve Jobs, who presumably known to have built iPhone "in a comma" without listening to customers.

This is sometimes served as an excuse for building superficial and cool-looking products without thinking about customers.

But nobody knew that Apple has conducted extensive usability testing, and observing users interact with the early prototypes. They paid close attention to users' body language - like squinting eyes or hunched shoulders - to detect frustration or confusion that users might not explicitly mention. This is not something that built "in a comma", known as talking-to-nobody type of building products.

It would be more assured if you looked statistically at cases of failed startups, a majority of the reasons was that they were building something that nobody wants.

(2) Cash generation

A good company must has the ability to maintain positive net cashflow.

Generate the cash of TODAY

Cashflow, as simply defined, is the disparity of money that flows in the company and those that go out:

Good cashflow reflects the company ability to generate cash and sustain itself effectively.

It's not the cash of the promised tomorrow, not the next week, not another next year. It's the cash that a company has today, to maintain its operation and immediate need.

Now let's look at the example of Amazon's Balance Sheet. You might see that throughout 4 years from 2013 - 2017. Let's just look these line:

Looking at Amazon’s balance sheet from 2013 to 2017, we can observe a significant increase in cash and cash equivalents (from $12.4 billion in 2013 to $34.9 billion in 2017). This growth indicates Amazon’s strong cash generation capabilities, which allowed the company to expand its operations, make strategic investments, and maintain its liquidity.

The accounts payable also grew, but this shows Amazon’s effective management of supplier payments and other short-term liabilities. Balancing liabilities with growing cash reserves reflects a business with the ability to sustain itself in the short term, fund its growth, and weather any financial storms.

At first glance, Amazon’s long-term debt may seem significant. From 2013 to 2017, it grew from $7.4 billion to $24.3 billion. For someone unfamiliar with business financials, this number may seem alarming, as rising debt often gets a bad reputation.

However, it’s important to note that not all debt is a red flag, especially when it’s long-term debt. Long-term debt allows companies like Amazon to borrow money to invest in strategic growth, innovation, and expansion without needing immediate repayment.

These good cashflow provides Amazon a leeway to invest the money into technology, which could then enhance the moneymaking capability of Amazon itself.

Cashflow > profit

Cashflow is even more important than profits, if you've been insisting on profits for a long time. If a business doesn’t have enough cash on hand to cover its immediate obligations, it could face operational problems, regardless of how profitable it looks on paper.

Sad cases happened to the automobile industry in 1980s. The automobile was infamously known for running out of cash. Volkswagen case in the early 1980s suffers cash shortage that brings the company to the verge of bankruptcy.

Volkswagen faced financial trouble due to overinvesting in global production expansions, including new plants in the U.S. and South America, and pouring funds into costly projects like modernizing models and developing the luxury Volkswagen Phaeton.

At the same time, sales were declining in key markets, with Japanese competitors - like Toyota and Honda, offering more affordable, fuel-efficient cars. With cash flowing out faster than it was coming in, Volkswagen was on the brink of collapse.

When a manufacturer like an automaker produces a vehicle, the capital used to buy parts and build the car is tied up until the consumer pays for it. The longer it takes for the car to reach the buyer, the longer that money remains inaccessible for other purposes.

Understanding and debunking margin

A key part of grasping cash generation is understanding gross margin. Gross margin is essentially the money you make from selling a product minus the direct costs of producing or purchasing it—this includes things like materials and direct labor (known as COGS, or Cost of Goods Sold). It excludes other indirect expenses like marketing, distribution, or administrative costs.

Unlike net profit margin, which factors in all operating costs, gross margin focuses solely on the costs directly tied to the product.

To figure out gross margin: Take your total revenue, subtract COGS, and then divide by revenue.

For example: Let’s take an example from an e-commerce business that sells gadgets. You sell 500 smartwatches at $100 each, so your total revenue is $50,000. The cost to manufacture each smartwatch, including materials and labor, is $60.

That means your COGS (Cost of Goods Sold) is 500 x $60 = $30,000.

To calculate the gross margin, you subtract COGS from revenue:

$50,000 - $30,000 = $20,000.

Next, to get the gross margin percentage, divide by the revenue:

$20,000 ÷ $50,000 = 0.4, or 40%

This 40% gross margin shows how much money is left over after covering direct production costs, giving you insight into how much cash your core operations are bringing in before considering other expenses like shipping, advertising, or rent.

Reading Data and Asking why.

"The margin drop from 52% to 48% this month". Why? To truly understand why a company’s cash flow or profit margins are fluctuating, the best CEOs constantly ask “Why?”

By breaking down the cost structure and money inflows, you can pinpoint inefficiencies and areas for improvement:

• Why did the margin decrease?
  • Did production costs increase?
  • Are we paying more for raw materials or parts?
  • Are labor costs rising?
• Why are our sales not covering these additional costs?
  • Are we struggling to sell at the same price or volume?
  • Has customer demand shifted due to competition, macroeconomic factors, or market trends?
• Why are our fixed costs impacting our cash flow?
  • Are we tied up in long-term contracts that aren’t yielding results?
  • Are overhead or operational expenses (like rent, utilities, logistics) eating into our margins?

By consistently digging deeper and understanding the “why” behind both cost structures and revenue drivers, you gain insights into the business’s health and its ability to generate cash. The ability to ask these questions and act on the answers is what makes the best CEOs.

What Does Cash Generation Have to Do With You?

Many people assume cash flow is strictly a finance issue, but in reality, every role—including sales, product managers, and engineers—has a direct impact on a company’s cash generation or consumption. Understanding this connection helps you make better decisions that can significantly improve your company’s financial health.

Many assume only the finance team handles cash flow, but every department contributes to it, either directly or indirectly:

• Sales negotiations that extend payment terms from 30 days to 90 days tie up money, delaying the company’s ability to reinvest.
• Product decisions that delay launches consume cash by extending development costs without generating revenue.
• Engineering inefficiencies burn cash through longer development cycles or higher post-launch maintenance.

(3) Return on invested capital (ROIC)

In business, one of the most crucial financial metrics to understand is Return on Invested Capital (ROIC).

ROIC measures how efficiently a company uses its capital to generate profits, making it a key indicator of a business's ability to create long-term value.

When starting a business, you need initial capital, which can come from various sources:

• For a micro-business, you might simply pour in your own savings.
• For a larger venture, you could borrow from relatives and friends or bring them in as co-investors.
• For a major undertaking, you may need to seek funding from institutional investors.

Regardless of the scale of your business, understanding ROIC helps you gauge how effectively your capital is being put to use, generating value for businesses, and the stakeholders.

ROIC is measured by taking net income and divided by total invested capital:

ROIC (Return on Invested Capital) is expressed as a percentage, typically on an annualized or trailing 12-month basis. To assess whether a company is generating value, it should be compared against the company's cost of capital.

This is a simple calculation that effectively describe the money-making of a business, and doesn't need formal calculation.

Example: Target Corp (​Reference)

Target Corp. (TGT) outlines its ROIC calculation in its 2024 10-K, detailing the components involved. The calculation starts with operating income, to which net other income is added, arriving at EBIT. Operating lease interest is then added back, and income taxes are subtracted to determine net operating profit after tax (NOPAT).

For invested capital, Target includes shareholder equity, long-term debt, and operating lease liabilities. It then subtracts cash and cash equivalents from this total to arrive at its invested capital. The result is an after-tax return on invested capital of 16.1%, an improvement from the prior year’s 12.6%.

Margin vs ROIC

Margin is at sales level. Margins shows how much profit a company makes from each sale after covering costs. It’s a measure of sales efficiency—higher margins mean more profit per sale.

ROIC is total return over a period. ROIC looks at how well a company uses its total capital to generate profit over a period, typically annually.

A company with lower margins but high ROIC can still be a strong performer because it’s using its capital efficiently to create value.

This brings us to the third metrics in this row: Velocity.

Velocity

Sarah, an ambitious entrepreneur, decides to open a store selling iPhone cases. With limited funds, she borrows $1,000 from her friends at a steep 36% annual interest rate. This means by the end of the year, she’ll owe her friends $1,360, which includes $360 in interest.

She uses the $1,000 to buy 100 iPhone cases, each costing $10. After selling them for $15 each, she makes a gross profit of $5 per case. But after covering all her operational costs like rent, marketing, and shipping, her net profit margin is only 10%. This leaves her with just $1.50 in profit for each case sold.

Sarah must be in trouble. A 10% profit margin and a high-interest loan? It sounds like she’s setting herself up to fail. But here’s the thing: the success of this venture doesn’t rely just on the margin—it also depends on how fast Sarah can flip her inventory. This is known as velocity.

If Sarah sells all 100 cases in one month, she’ll have $1,150 in hand, including her $150 profit. She immediately reinvests it to buy 115 more cases, sells them the next month, and earns $172.50 in profit.

By repeating this process every month, Sarah flips her money multiple times. By the end of the year, she could turn her original $1,000 into a total profit of about $1,960. After paying $360 in interest, she’s left with $1,600—thanks to the speed at which she moved her inventory.

👉 The faster the velocity, the higher the return.

(4) Growth

Growth is crucial for the wealth of the business. At simplest terms, growth is the expansion of the business in terms of size. By "increasing size", company could be introducing a new product line, expanding to a new area, or entering to entire new market.

Real examples of growth can be seen when companies introduce new products, expand to new regions, or enter entirely new markets:

1. Apple's Product Line Expansion: Apple is a prime example of growth through product diversification. Starting with personal computers, Apple has successfully expanded into music players (iPod), smartphones (iPhone), wearables (Apple Watch), and services (Apple Music, iCloud). Each new product category built on its brand strength and loyal customer base, ensuring the growth was sustainable.
2. Amazon’s Global Expansion: Amazon began as an online bookstore, but its strategic growth came from expanding into new product categories and entering new geographic markets. From selling books to becoming a global e-commerce giant, Amazon also invested in cloud computing (AWS), video streaming, and logistics. Each new venture was backed by a strong cash flow from the core business.
3. Tesla’s Entry into New Markets: Tesla started with electric vehicles but expanded into energy storage solutions, solar panels, and even insurance. The company entered new markets by leveraging its innovation in energy efficiency, while carefully managing costs and capital to maintain sustainable growth.

Growth the correct way

The sad end of growth is bankruptcy. Ram Charan emphasizes that growth is only valuable when it builds on solid foundations.

A company can expand rapidly, but if it grows without the ability to sustain cash flow, control costs, and use its capital efficiently, that growth could spell disaster.

Good growth must be have these 4 characteristics:

• (1) Profitable
• (2) Organic
• (3) Sustainable
• (4) Differentiated

Size is not a true measure of success. Chasing higher sales doesn't guarantee a successful business.

Webvan case

Webvan’s collapse was a classic case of overexpansion without a sustainable business model. The company raised around $800 million in funding and quickly invested in an elaborate infrastructure, building a network of high-tech warehouses across the U.S., with plans to operate in 26 cities. However, despite this massive investment, Webvan only achieved $178 million in revenue in 2000, while burning through $525 million that same year.

At its peak, the company was losing around $130 million per quarter. With these losses and the lack of sufficient customer demand, Webvan’s cash reserves were depleted. In 2001, just three years after its launch, Webvan filed for bankruptcy, marking one of the largest failures of the dot-com bubble. Its downfall highlights how scaling too fast without strong financial footing can lead to catastrophe, no matter how much money is raised.

👉 Growing without following the basic principles of money-making could become a disaster like Webvan.

Walmart case

In 1975, while Sears' CEO declared retail a "no-growth business," Sam Walton had a different vision. Walmart was expanding rapidly, focusing on underserved rural markets.

Walton maintained a disciplined approach to capital, ensuring high returns on invested capital (ROIC) by keeping costs low and maximizing inventory turnover. While Sears struggled with inefficiency, Walton’s lean, cost-focused model allowed Walmart to open new stores profitably.

By 1975, Walmart had 125 stores, proving that retail could thrive with the right strategy, eventually surpassing Sears to become the world’s largest retailer.

Growth box: Think about growth

Charan also takes time to introduce the growth box, a simple way to think about growth using four quadrants.

It’s a simple way to think about how to expand, using a mix of your current customers, new customers, and their needs.

• Box A: Existing customers, existing needs.
  This is your bread and butter. It’s all about doing what you already do but better.
  • Think about how Target added groceries to their stores to better serve their regular customers or how Home Depot connected customers to installers for added convenience.
• Box B: Existing customers, new needs.
  Here, you’re still serving your loyal customers, but now you're watching them closely to catch on to their evolving needs.
  • Like when Toyota noticed their customers were moving upscale and created Lexus to meet that demand.
• Box C: New customers, new needs.
  This is where things get risky, but the potential payoff is huge. You’re developing something new for a brand-new audience.
  • Nokia is a great example—they once dominated mobile phones, but after being acquired by Microsoft, they shifted focus to high-end networking equipment, entering a new space entirely.
• Box D: New customers, existing needs.
  In this case, you're finding new customers who need what you already offer.
  • Think about Avon—traditionally focused on women—expanding into the teenage market. It was the same product, but they targeted a whole new demographic with shared needs.

This framework helps you think strategically about where growth makes sense. It’s not just about expanding for the sake of it; it’s about finding the right opportunities that build on your strengths and set you up for sustainable success.

​To sum things up

At the heart of every thriving business are four key principles: customers, cash, ROIC, and growth. If you’re serious about making better decisions and aligning with how CEOs think, these are non-negotiable. Here’s what you need to remember:

• Customers come first. Great CEOs stay close to the market. It’s not just about data—it's about understanding what your customers want today and where the market’s heading.
• Cash flow is everything. Profit doesn’t matter if there’s no cash to keep the lights on. Like oxygen for a business, healthy cash flow ensures survival and growth. Amazon is a master of this.
• ROIC (Return on Invested Capital) measures how efficiently a business turns investments into profits. If you’re not generating value from your capital, you’re not building for the future.
• Sustainable growth is the goal, but it needs to be profitable and strategic. Expanding too fast, like Webvan, without a solid foundation can lead to disaster. Look at Walmart for an example of disciplined, smart growth.

Whether you’re a technical lead or a product manager, understanding these fundamentals gives you the edge. It’s how you build lasting value and get in sync with your leadership team. So, take these principles to heart—they’re what separate good decisions from great ones.

Have a great day! 👋