Five Parts of Every Business
Diagnose any business through five essential functions
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 5
- Confidence
- 99%
Josh Kaufman defines a business as a flow through five functions: value creation, marketing, sales, value delivery, and finance. The first function makes something people value; marketing earns attention; sales converts interested people into paying customers; value delivery fulfils the promise; and finance assesses the resulting cash flows. Finance contains two tests: whether more money enters than leaves and whether the surplus is sufficient to justify the time, effort, stress, and frustration involved. The model works as both an organizing map and a diagnostic. An operator can locate a practical problem within one function, retrieve the relevant concepts, and decide what to start or stop doing. Kaufman argues that industry and scale change the details, not these fundamentals.
Origin
Kaufman developed the framework while looking for a clear, integrated definition of business that he could not find in conventional business literature.
Core principles
- 01Every business performs the same five fundamental functions
- 02A missing function means the operation is not a viable business
- 03Finance must test both profitability and whether the return is worthwhile
- 04Simple mental models improve practical decisions
How to run it
- 1
Create value
Define the thing the business creates and why somebody would value it.
Pro tip Describe the value in the customer's terms rather than the company's activities.
Watch out Without something valuable, the remaining functions have nothing to support.
- 2
Attract attention
Use marketing to reach people who may be interested in the value created.
Pro tip Study attention and demonstration rather than treating marketing as decoration.
- 3
Convert interest into sales
Present an offer and enable interested prospects to buy it.
Watch out Attention without a purchase process does not create a business.
- 4
Deliver the promise
Give paying customers the value the business promised to provide.
Pro tip Judge delivery against the customer's promised outcome.
- 5
Test the finances
Compare inflows with outflows, then decide whether the resulting return makes the whole effort worthwhile.
Pro tip Ask both whether the business is profitable and whether the profit is enough.
Watch out Positive cash flow can still be inadequate compensation for the work and stress involved.
In the wild
Kaufman says even a small venture beginning in a garage follows the same flow as a Fortune 500 company: it must create value, attract attention, sell, deliver, and make the finances work.
→ The operator can diagnose the venture with the same complete model used for a much larger company.
Common mistakes
Omitting a function
Treating marketing, sales, delivery, or finance as optional leaves something other than a functioning business.
Measuring profit but not sufficiency
A business can bring in more than it spends while still failing to justify the operator's time and stress.
Is it for you?
Best for
It is best for founders and operators diagnosing a new or underperforming business.
Not ideal for
It is not a substitute for specialist analysis inside one function once the broad problem is known.
From the transcript
“Every business has five parts, and only five parts.”
“Every business creates something of value. They attract the attention of people who might be interested in that thing, which is marketing. They sell that…”
“If one of them is missing, it's not a business.”
From the episode
The Key Principles Of Running Any Business - Josh Kaufman - #215
Josh Kaufman