Economics For Business

Austrian economics recognizes change as a constant and provides guidance for adapting to it and managing it. Change is changing for business — it's faster and more fundamental in the digital age. Austrian economics can help even more as a result of its practical and realist approach to adaptation and continuous adjustment. Knowledge Capsule Change is changing. Change is a constant. You can think of the market in constant flux, as Mises did, You can think in terms of VUCA — volatility, uncertainty, complexity, and ambiguity. You can think of it in terms of complexity or of absolute uncertainty. However you tune your mind and your business processes, there are always going to be more things that can happen than you can predict or prepare for. There are some ways to think better about ceaseless change, however. One is to bucket the major themes or corridors of change, to organize your thinking and make some judgments about where and how to act and adapt. By recognizing these multiple types of change, businesses will be better prepared for adaptive action. Our E4B guest Phil Simon has studied change in the workplace and recently published a new book titled The Nine — about nine tectonic forces that are reshaping business and the workplace where we conduct business. He advises businesses to be alert to the changing nature of change in the digital age. People are changing. The people you hire today and the people already working at your firm are not the same people as they were just a couple of years ago. They've been through a new, different and challenging experience of working through the Covid-19 pandemic, and they've been working with new technologies, in new places (i.e., working remotely) and they've been questioning how they relate to work, to their colleagues, and to the firm. Don't expect them to be unchanged in their mindsets, attitudes, and work practices. The nature of the employment relationship is different today — less formal, less rigid, less standardized. Phil Simon uses the term “empowered employees” — employers must be empathic in understanding their new mental model as it relates to work. The workplace is changing. The workplace is no longer a physical space where people congregate to collaborate on work tasks, but a digital space of networked people, machines and software. New software and new machines are evolving all the time in this space, changing our relationship to it and to work. People are not going to go back to the office as the standard method of getting business done. If you want to have a physical space for people to meet in person, it must be reconfigured to support those business activities that can only be done in person, and not just as a standard structure of cubicles, offices and wiring. People must feel that there is more or better productivity to be enjoyed in the physical shared space than can be realized elsewhere. The structure of work is changing. Phil's book includes a section on fractions: the idea that firms no longer need full-time access to a necessary business skill — like finance and accounting — via contracting with individuals for 100% of their worktime. New organizational models are emerging that utilize fractional access to these skills as needed. There are fractional CFOs and CMOs and CTOs. There are highly qualified experts available via sharing platforms; they can be both the best at what they do and the best fit for your firm's need, available for a percentage of their time, not all of it. This thinking about fractional talent and skill utilization is becoming a more integral part of organizational thinking. Automation is universally available. Some level of automation is coming to every workplace. It's approaching with greater speed and intensity today. It's best to think of automation in terms of outcomes: what needs to get done and can it be done in a more automated fashion? What needs to be produced (Phil cites automated pizza making machines)? What processes are taking up people's time (Phil cites automation in payment systems)? What jobs can be totally automated (e.g., driving trucks)? What departmental functions can be fully automated (like content moderation at Twitter)? All businesses should be reviewing all their activities at all these levels and asking where automation can eliminate waste, save time and release resources for greater productivity. Whether it's as simple as calendaring software or as complex as robotic process automation, it's right to examine every opportunity and find an automated solution. A.I. Is going to help. The rapid adoption of ChatGPT has opened many eyes to the possibilities of getting smart assistance to change and improve the way work is done. ChatGPT can help develop content, make plans, find data, write code, make summaries of libraries of documents, and assist in many many more tasks — as exhibited by the many ChatGPT threads on twitter that are full of new ideas. The great breakthrough of ChatGPT lies in making available the vast majority of available knowledge on virtually all topics in a convenient, conversational way. Businesses are the results of their accumulated, shared and applied knowledge. ChatGPT and similar AI's amplify knowledge and accelerate learning. Businesses that don't utilize this availability will fall behind their competitors. There will be new software environments. Software and platforms are two parts of the work environment that are changing fast. Whether we work on Zoom or Slack or Teams or Github or Salesforce, we continuously encounter new upgrades and functions as well as new alternatives. There is no alternative to earning the skills to utilize these tools to their greatest productive effect, and to keep our learning updated. One economic function that is not improving amidst content change is trust. We can't be sure, sometimes, about the other party we're talking to or collaborating with, we can't be sure of trusting data, we can't be sure that our privacy and property rights are protected. Phil made the prediction that blockchain, as a secure record of all transactions and un-hackable repository of data and information, will play a bigger role in our business future as an arbiter of trust. For example, this may be where our individual health records might reside, which individuals would own, and which they could share and use for their own benefit in navigating the regulated opacity of the healthcare system. Subjectivism and empathy will always play important roles. Phil made a reference to “unhealthy analytics”. His point was that we are now in a position to measure more and more human action and human behavior, but that measurement does not necessarily provide insight, and may even give rise to perverse incentives. For example, it's possible to measure when employees checked in to the office and when they left, but it's not equally possible to monitor their productivity or motivation. It's possible to measure the number of hours they spend on Zoom, but a different problem to measure their remote contributions. Analytics have their place, but understanding and empathizing with employees, and carefully constructing their mental models in order to be able to appeal to them and stimulate them, remain subjective, emotionally-based skills which are still a critical component of management. Steer into the skid. How do founders, owners, and managers deal with these changes? Phil's expression is to steer into the skid. Reimagine work, embrace the powerful new technologies that are available, and be willing to experiment — perhaps in ways that others aren't — to generate the active learning that moves organizations forward. It might be messy, and even feel chaotic, but it's the right response to tectonic change. Expect some turbulence, while being open to infinite new possibilities. Additional Resources The Nine: The Tectonic Forces Reshaping the Workplace by Phil Simon: Mises.org/E4B_215_Book PhilSimon.com — Expertise on workplace collaboration and technology Phil Simon on LinkedIn: Mises.org/E4B_215_LinkedIn

Entrepreneurship is well-defined in economics, and well-recognized as the engine that drives economic growth. That means people enjoying greater well-being, including but not limited to material prosperity. But economic growth can be uneven. Some countries, some regions, and even some firms do not generate the same levels of economic growth as others. How do we understand this variability? We look for what holds entrepreneurship back. Knowledge Capsule Economic development can be a self-reinforcing cycle of continuous improvement in people's circumstances. Greater material prosperity is a valid and worthwhile goal for economic development. But, says Shawn Ritenour, economic development goes beyond that goal: it delivers a greater variety of goods and services that individuals and businesses can use as means to achieve their own diverse ends. The production of this greater variety requires entrepreneurship in the creation of new ideas and the pursuit of new value, and it generates new entrepreneurship by supplying a greater variety of resources to work with in those pursuits. To generate this cycle, an enabling environment is required — one that acts as a catalyst for entrepreneurship. Economic development is a multifaceted process in which several forms of human action combine in a system for economic prosperity. It's not instructive to try to isolate financial capital or capital goods or technology or even human capital, and culture and social institutions can't be ignored. These sources of prosperity must work together in an orderly fashion to generate the necessary synthesis. The vital role is that of the entrepreneur. The entrepreneur is the one who undertakes production, the one who combines resources to produce a product that meets customers' needs and enables those customers in their own economic pursuits. Entrepreneurs kick off the cycle. Firms and organizations can act entrepreneurially, but it's fundamental to understand that individuals — sometimes working in teams or committees — are the ones behind entrepreneurial decision-making. The entrepreneur is not necessarily a single person, but entrepreneurship is always a human action. How do we get entrepreneurship started? Entrepreneurship requires customer knowledge, technical knowledge and financial capital. Customer knowledge includes the empathic understanding of what's needed for customers to be able to better meet their own needs. In the context of economic development, this knowledge is probably widely available to private entrepreneurs, but it may not be available to governments, whose understanding is distorted by predispositions to develop specific industries or subsidize specific economic sectors, or towards a particular technology. For these reasons, there can be no “entrepreneurial state”. Individuals with their own ideas and their own private property will provide the energy o break economic inertia. Technical knowledge defines a sufficient understanding of the technology and technological resources to deliver the desired new value to the customer. In under-developed economies, this technical knowledge may be thin, so reinforcing the technical knowledge of entrepreneurs is appropriate, through education, injections of new technology, training, mentoring, or other forms of knowledge transfer. With the right understanding of customer needs and the command of the right technology, the entrepreneurs involved in the development state will always need financial capital, because production takes time to organize before cash flows in to the firm from customers. In development contexts, entrepreneurs often will not have savings of their own, and there may not be an appropriate institutional infrastructure of local banks and lenders and investors. Therefore, customer knowledge, technical knowledge and financial capital combine to provide the foundation for entrepreneurial leadership and growth. They're integrated: it's important for the sources of financial capital to understand and appreciate the nature of the customer and technical knowledge that is being deployed. Typically, this takes the form of venture capital or private equity. Education is another important element in the institutional environment for entrepreneurship. Entrepreneurship as a skill or capability can not be taught — it requires a special orientation that's more developed in some individuals and firms than others. But principles, process and tools can be taught, and experienced entrepreneurs and businesspeople who have developed market savvy can share knowledge that they have acquired. Communicating the entrepreneurial mindset and methods in all stages of education will help to create and promote an entrepreneurial community that's supportive of economic development. One aspect of learning is to understand the entrepreneurial ethic of sacrifice, that it takes a lot of time and effort and expenditures and extended commitment before business success can be achieved. There's more hard work than there is magic. Institutional elements such as property rights and sound money are important components of entrepreneurial development. Property rights and sound money may sound like abstract concepts, but they are extremely influential in economic development processes. Property rights mean that entrepreneurs can assemble and go to market with their own resources in whatever way they prefer. Sound money means that entrepreneurs can anticipate a return from their productive activities that's not eroded away by inflation, and they're not led into miscalculation by monetary manipulation (e.g., unanticipated escalation of future borrowing costs). Removing obstacles to entrepreneurship is the best economic development policy. Traditional approaches to economic development favor centrally planned initiatives, government spending, and policies in the form of subsidies or special incentives. They're not typically market-based approaches. But the right approach is the opposite of policy-making. Instead of trying to design and add new structures, development should be focused on the removal of barriers — on identifying what's getting in the way of nurturing a rich and robust entrepreneurial culture, and focusing on the removal of those obstacles. Leave the entrepreneurs to identify the specific products and services and businesses that can flourish, and to attract the investment capital that will support those businesses, without the need for “policy”. Additional Resources The Economics of Prosperity: Rethinking Economic Growth And Development by Shawn Ritenour: Mises.org/E4B_214_Book1 The Economics Of Prosperity (Edward Elgar): Mises.org/E4B_214_Book2 Shawn Ritenour at Mises.org/Ritenour Shawn Ritenour at Grove City College: Mises.org/E4B_214_Profile

Market research is a tool for gathering data about customers and consumers that businesses hope will lead to insights about their behaviors and preferences that can be translated into innovation, better service and better business performance. As with any dynamic system, it has changed over time, and the effects of entropy have begun to show themselves in invalid techniques, invalid data, and invalid conclusions. And as with virtually all business systems, the coming of the digital age provides businesses with the opportunity to review, revise and improve exiting practice and existing thinking. Knowledge Capsule Traditional models of market research are losing validity. The Economics For Business approach to market research leans to the qualitative, such as one-on-one conversations with customers and detailed ethnography whereby businesses can observe customer behavior directly. The market research industry grew up favoring quantitative research at scale for its own reasons: that's where the money is. Sharekh Shaikh points out that a $USD 70 billion industry was built largely on large scale panels — recruited audiences adding up to hundreds or thousands of individuals, to whom the market research industry could launch survey questions (“data gathering instruments”), generating large amounts of response data for quantitative analysis and numerical reporting. Customers of these research reports use the output for decision support. Consideration of launching, or of purchasing and installing, a software suite or platform costing millions of dollars can be justified with the results of a survey costs tens of thousands of dollars or low six-figures. One of the planks supporting the value proposition of market research panels is the difficulty of recruiting qualified respondents, such as CIO's or CTO's for an enterprise software survey. Panel operators' revenues reflect their claims to solve this problem, but Sharekh Shaikh tells us that the reliability of their claim has eroded. Panels now may include inaccurately identified respondents (wrong title or role, for example, because the respondent has changed jobs or roles), or even fraud (responses provided by others than the supposed respondent, including bots). The data from the panels is no longer as valid as it once was, and its decision-support quality no longer as high. This general decline in the quality and reliability of traditional research is taking place in many categories, not just tech — consumer package goods, entertainment, fashion, and any industry that uses these methods. The digital revolution brings new opportunities for change, including in traditional market research. It's unusual to think of digitization as increasing human contact, but in research it's the case. Sharekh's research platform, CleverX, has effectively removed the intermediary, the market research panel operator and market research respondent recruitment agency, from the equation, so that the firm requiring research can be connected directly with the respondent with the desired experience and user perspective. Respondents sign up to a place on the platform by supplying their personal data, career profiles, qualifications, credentials and experience. Their incentives include their desire to participate in and contribute to industry developments, as well as the compensation offered. By learning the questions that are being asked, the professionals who sign up to be respondents can gain insight into the developments that are being pursued in their industry. Being a panel member is career and professional advancement. The firm seeking to gather data can identify their respondents and assemble their own panel, using their own criteria and specified profiles, and building a direct relationship with their respondents and customers. Moreover, they can use any data collection tool they prefer, whether that is a technical tool such as Survey Monkey, or direct one-one-one conversations on Zoom or Microsoft Teams, digital focus groups, or any other format. By integrating with calendar software, research interviews with CXO's can be organized and calendarized. These powerful toolsets result in higher quality research being completed up to 10X faster. Digital technology also facilitates video interviewing, so that researchers can talk directly with respondents, and develop a relationship with them. The video interviewing can be asynchronous: given a query, respondents can video-record their responses whenever convenient, TikTok-style. AI can add enhancements such as sentiment analysis, body language and facial expression interpretation. The distinction between quantitative and qualitative research disappears and we realize qualitative data at scale. Market research can become continuous monitoring in the adaptive entrepreneurial system. The reality of markets today is high-speed continuous change. Market research as a tool has always been at a disadvantage in delivering snapshot that take time to process, by which time the market has moved on. Now, with digital techniques, continuous monitoring is possible. Sharekh mentioned several applications: Customer understanding of digital developments: as platforms and systems evolve, customers may not be able to keep up with the technology, or may not be taking advantage of new feature. Digital research techniques can monitor and measure customer understanding dynamically, and point to gaps in their comprehension.Dynamic product development: as developers move a product towards market, digital research techniques can expose potential customers to the development path, and help developers to integrate real-time findings.Monitoring changing lifestyles and mental models: since digital research technologies can provide a continuing connection with customers, it can measure not only their responses to queries, but also their behaviors, attitudes and thinking in general. It's possible to develop profiles and personas and segmentations into which innovative ideas can be inserted to simulate reactions and acceptance. CleverX represents exactly the kind of knowledge recombination that can result in revolutionary change across an entire industry. A core concept in entrepreneurship is the combining of existing knowledge in new ways for new solutions. Sharekh Shaikh combines his software engineering knowledge with knowledge of the market research space and knowledge of the dissatisfaction of end users with the available research tools. His newly-launched company, CleverX, is a fast-growing new entrant in the research space as a result of providing a totally new service: the facilitation of a direct connection between researcher and respondent with digital intermediation in place of previous-generation tools. The experience for the customer is better data, at faster speeds, gathered more conveniently and faster, and, consequently, of greater use in development and innovation processes. Additional Resources CleverX.com Sharekh Shaikh on LinkedIn: Mises.org/E4B_213_LinkedIn

Peter Drucker famously identified the only two value-generating functions of the firm as innovation and marketing. We propose to differentiate brand building (or branding) from marketing, especially in this digital age. Brands are the vehicle for framing, establishing, nurturing and enhancing relationships with customers. In the digital age, marketing has become mechanized and mathematicised; it's about numbers more than about human values and emotional bonding. Graceann Bennett is a branding expert who has devoted her career and her research agenda to furthering the science of brand building. Knowledge Capsule Brands are assets that drive customer value and business revenue, and they're more valuable than ever in the digital age. Our Economics For Business entrepreneurial method emphasizes the facilitation of value for customers — it is customers who create value through their experiences, and the role of entrepreneurship is to facilitate those valuable experiences. Brands are platforms for value facilitation and conduits for value delivery. In the economic system where assets are value drivers, brands are high-capacity intangible assets. They can be developed and nurtured through various types of economic investment, with a high return on that investment because of the closeness to the customer that they can embody. The investment can be creative and intellectual and is not necessarily limited by budgets and financial resources. Brands hold emotional and relational value, often communicated through symbols and codes. Brands have meaning for customers, and the meaning is differentiated — customers prefer one brand over another. Brands fit into their lives and connect to them emotionally - they can trust brands, rely on brands, and even love brands. Brands express the essential humanism of economics - the entrepreneurial ethic of improving others' lives. They represent an understanding of human yearnings. They help people who are striving to be the best version of themselves. They're a great tool for entrepreneurs. Brands often communicate via symbols and codes: advertising, logos, package design, social media, and sales presentations. These are important, but they're not the essence of branding. That role is reserved for the emotional connections that brands make with customers, engendering trusted relationships. In the digital age, marketing has lost the art of branding. Brand building is an art, an engagement with customers on a psychological and philosophical plane, enhanced by creativity, design, expressive language and visualization. In the digital age, marketing is headed in a different direction. Marketing has become mathematicised. Digital marketing is all about the numbers: audience reach and likes and engagement metrics defined as clicks and views. It's the mechanics of the engagement funnel, of clicks leading to conversions. Graceann Bennett called this approach “the attention economy rather than the emotional economy”. Even worse, marketers are antagonizing customers with an interrupt-and-annoy approach of increasingly invasive pop-ups and intrusions and uninvited invitations in e-mail and text. Annoyingly intrusive marketing can further decay into creepiness as consumers receive offers for goods and services algorithmically triggered by their search history and e-mail conversations or voice requests to Siri or Alexa that they might not have realized were quite as available to marketers as they are. Branding creates customer relationships through emotion and psychology. The mathematical, mechanical approach is exactly the opposite of the human approach of brand building. Branding aspires to a relationship with customers, a creative relationship of innovation and renewal that continuously improve customers' expectations of what's possible and their anticipation of satisfactions to come from brand usage and branded services. Entrepreneurial brand owners seek to understand the needs and wants of customers, and what they find disappointing in current experiences, with a view to making their experiences and their lives better. A lot of this initiative takes place in the realm of psychology, getting inside customers' minds to understand their preferences and why they hold them, and their choices and why they make them. Brandowning firms examine themselves critically to ensure that they are authentic in serving customers' emotional and psychic needs. Graceann Bennett employs Jungian archetype analysis to clarify and channel brand approaches to customer relationships, emphasizing what's authentic in the brand's character and orientation that aligns best with customer psychology. While the first stage of the entrepreneurial method is a deep understanding of the customer and their needs so as to define and scale a potential market, it's also appropriate in the solutions design stage for the brand owner to look inward to define the persona for the brand. To establish trust and build a relationship, a brand must inspire confidence on the customer's part, and to do so must establish authenticity: when claiming to deliver a benefit and facilitate a valuable experience, the brand claims must be consistent with the brand character, the brand heritage and the brand history. A brand can't claim to be something it's never been before, or claim a meaning and a purpose that it has never before exhibited. It can add features and polish and update its attributes, but it can't depart entirely from its historical, observed orientation. Brand relaunches and repositionings risk losing connection with the customer if they are not credible. Brands should search not for novelty in presenting themselves, but depth, clarity and simplicity in establishing brand character. Ethnography is the best research technique to develop empathic engagement between brands and customers. Ethnography is mingling with customers, talking to them, listening intently, and observing their actions and behaviors. This kind of interactive contact with customers should be primary - the analysis of digital clicks and views and followers and even purchase behavior can't deliver the same rich emotional and psychic consumer understanding and insight. In the digital age, we've abandoned the art of mingling, and that's a difference between branding and marketing. Additional Resources GraceannBennett.com Playbook Studio: Playbook.Studio Graceann Bennett on LinkedIn: Mises.org/E4B_212_LinkedIn

It's time to re-imagine how entrepreneurs bring their innovative value propositions to market at the appropriate scale to meet the important needs of millions of people. The new way of thinking is for entrepreneurs to focus all their energy on designing, refining and strengthening the value proposition, and then plugging in to a network of resources assembled by others so that customers enjoy the full realization of the value experience the entrepreneurial has designed. Jeff Grogg of JPG Resources joined Economics For Business to describe how this works in the CPG food and beverage industry. Knowledge Capsule Starting From A New Value Proposition. The entrepreneurial journey — whether starting a new company or launching or improving a brand or launching and managing a new corporate innovation initiative or even a new division or internal venture — starts with a value innovation goal. An entrepreneurial team or an entrepreneurial organization conceives of a new experience for customers that they'll value highly enough to warrant the firm's investment in new capabilities. The team tests the market appeal and commercial power of the value proposition to greatest extent they can. They get ready to go to market at scale — to produce, package, ship, distribute, sell and take payments, and then to respond to marketplace results with more volume, or broader distribution, or maybe some tweaks to some aspects of the execution of the value proposition. Traditionally, once the launch decision is made, the firm maps out the value chain and assembles the enabling resources — manufacturing capacity for products, service backrooms and infrastructure for services, supply chain components, business partnerships and their associated contracts, marketing and sales capabilities, distribution, warehousing and retail access. What if this part — the resource assembly part — were already done? The risks and constraints of making a new business out of a new value proposition would be greatly reduced. Jeff Grogg and his platform firm have built new business infrastructure so that entrepreneurs don't need to. Jeff describes his company, JPG Resources, as a business builder. His focus is on food and beverage businesses in the CPG category. The company build businesses so that entrepreneurs don't have to. To be clear, the entrepreneurial teams focus on the customer and customer empathy and understanding, identifying a unique value that meets meaningful needs for a large number of people. That's the critical step in the generation of new economic value. The next step is typically building the supply chain from formulation and recipe development for scale, to manufacturing and packaging, shipping and distribution, and designing the management processes and hiring the people and drawing up the contracts for smooth continuous scale operations. That's extremely hard work, and fraught with risk. The phrase “starting a business” can sound intimidating for that reason. JPG Resources can absorb and take on and solve all those challenges and potential problems, and free the entrepreneurs to concentrate on customer value design and the last mile of marketing and sales. The new entrepreneurial production structure can apply at all scales. JPG Resources has helped pre-market start-ups with initial product development and culinary research, has provided infrastructure for growth for maturing companies, has helped mid-size companies expand beyond their current scope, and has helped big companies enter new areas beyond their existing comfort zones. The new “plug-in” production structure operates at all stages and all scales and all along the value chain. JPG Resources can provide manufacturing or train manufacturers from start up through expansion. The can help with food science, create new processes, manage contracting, identify and mitigate risk factors and arrange insurance. They can organize supply chain redundancy (efficient redundancy through back-ups, not wasteful redundancy through duplicates) and build resilience for clients. A virtual supply chain is superior to — and more flexible than - the self-assembled version. The new entrepreneurial production structure is a network without boundaries. The very term “supply chain” reflects linear thinking — links joined together in sequence. Systems thinking is non-linear. The JPG Resources infrastructure is an ecosystem using connective logic, connecting the necessary components, people, knowledge and flows for the desired outcome, and reconnecting as needed when the environment or the market changes. The network is not bounded — there are always external or partner services that are currently outside the network that can be brought in through new connections. All are conceptually aligned, and all the relationships and contracts are win-win. The experience of JPG Resources in designing, assembling and integrating supply chains and production networks means that they've seen both sides of contractual relationships and service partnerships under all conceivable circumstances and can make sure all the agreements work - and expand the value space - for all parties. The new entrepreneurial production structure is an acceleration and strengthening of knowledge-building proficiency. In episode #199, we identified knowledge-building proficiency as the key to value creation capacity. By partnering with infrastructure building firms like JPG Resources (and Gembah from episode #210), entrepreneurs can benefit from sharing the knowledge that these forms have already accumulated over multiple projects and product and business launches and growth initiatives. Jeff's company is only too happy to share this knowledge, and doing so can help entrepreneurs avoid what he calls “self-harm” — making mistakes that could be avoided with the relevant prior knowledge. Experience is harder to share. Jeff's staff have hundreds of thousands of hours of experience, and, while entrepreneurs can't live what they've lived, they can certainly benefit from experiential learning. The error avoidance inherent in knowledge and experience sharing can be invaluable to entrepreneurs. Individual freedom and choice still apply, in a more flexible capital structure. Entrepreneurs can choose as much or as little of the available pre-built infrastructure as they choose. They can focus on their own strengths and supplement where they know they need to. They can make their own connections in the ecosystem and their own adjustments as circumstances dictate. The new entrepreneurial infrastructure does not imply a reduction in entrepreneurial initiative, but a boost, an acceleration, an expansion of value creation potential. It enables the entrepreneur to concentrate on value facilitation rather than on building a supply chain. The capital structure for value creation in the economy as a whole becomes more flexible, flows more freely and can throw off the shackles of bureaucracy and regulatory compliance. The entrepreneur can pass on the burdens of HR and finance and legal and many more functions that are peripheral to — and sometimes impediments to - value creation and concentrate on the value task alone. This suite of organizational and capital innovation points to a structure of more firms, better firms, and faster and more significant value creation, with fewer economic resources devoted to value-extracting bureaucracy. Additional Resources JPGResources.com Jeff Grogg on LinkedIn: Mises.org/E4B_211_LinkedIn

A lot economic thinking about the structure of production and entrepreneurs' challenges in the assembly of resources can be revised in the 21st Century. There are networks of value-driving resources already assembled, connected and operating, into which entrepreneurs can plug their business ideas. We talked to the CEO of one of the leading networks for insights into how it works. Knowledge Capsule Entrepreneurs are rethinking and redesigning the production structure of the economy. Value generation includes the identification of unmet customer needs, the design of a new solution for those needs, and the assembly of a production structure to deliver the solution in the form the customer prefers to experience it. Historically, entrepreneurs have been required to master all three components. Now they can focus on customer understanding and solution design, and plug in to a pre-assembled production structure. Lack of supply chain and production knowledge and experience are no longer barriers to fast and effective business progress. Let's say an entrepreneurial firm or team has a new product – perhaps an idea, perhaps a prototype, perhaps even tested for customer response. How is to be turned into a manufactured and delivered reality? What are the product specs, what are the right fabrics and the right colors and the right feature sets, what is the compatibility with current manufacturing machinery or is customization required, what are the right production steps for packaging and surface design, what about shipping and warehousing, and marketing and sales? What financing arrangements are needed? We can call all of these assembly steps a “supply chain”. If the team does not have supply chain knowledge or the experience of creating products quickly, then great challenges, consuming lots of time and effort, lie ahead. What if all this knowledge and experience were available for any entrepreneurial project or team to plug into, seamlessly, with the freedom to pick and choose customer elements, selecting the very best resources, but only those that are needed? This is a reality today. An entrepreneur who created product success on his own has assembled the network infrastructure for future entrepreneurs to plug into. Steven Blustein created and operated a successful company in the pet toy industry. He conceived of a product design and then went through all the hard and time-consuming work of turning a design into product specs, including materials selection, testing and sourcing, as well as finding a factory to manufacture, packaging, branding and surface design, shipping and warehousing, sales and distribution, legal, finance and accounting. Such a resource assembly and integration task is not only challenging and difficult, but wastefully time consuming. It might require contacting 50 manufacturers before finding the right one to work with, for example. What if someone else could take on this burden, solve all the manufacturing and supply chain problems, and reduce the time and expense required? That's exactly what Steve Blustein did. The Gembah value proposition is to help entrepreneurial businesses grow by focusing them on customer value generation, while others provide all the supporting infrastructure. Steve Blustein's company is called Gembah. In his previous company, Steve had personal experience of the time, effort, challenges and trial-and-error frustrations of identifying and contracting with and fine-tuning manufacturing resources, and building the supply chain from factory to market. He describes traveling to China 60+ times for his own business and the time he committed to learning the language. He experienced the diversion of time and effort away from his focus on serving customers, no matter how committed he was in principle. Entrepreneurs inevitably become consumed by operational detail. His current company, Gembah, aims to solve that problem for entrepreneurs. It offers a client-customizable network of supply chain components, all selected and vetted to be best-in-class, and provides the management and co-ordination as a service, so that the entrepreneur no longer needs to devote time and effort to doing so. Gembah maps the value production and supply network for the entrepreneur, and the journey processes and stages, and provides hands-on assistance at every point. Journeys are classified by general type (e.g., for hard goods, soft goods and mechanical / electrical), and then transparently customized and priced for each individual entrepreneurial project. The entrepreneur can have direct connection to the producing factory (no intermediate trading company or agent) or can choose hands off management through a Gembah account director. Control always rests with the entrepreneur. The starting point for the journey is flexible. The supply chain journey can begin even before there's a product design or even a fully fleshed out idea. Or the journey may start for a company with an existing supply chain seeking a new product to add to their portfolio. Or it could be an existing supply chain that a company seeks to relocate or strengthen or change in some way. Gembah offers complete infrastructure assembly and re-assembly to meet client needs. There are different kinds of journeys entrepreneurs can choose. For example, a “direct to manufacturing journey” is one appropriate for existing goods that a seller on Amazon or other platforms might want to add to their range with only slight customization and some branding and surface design embellishments. Another might be a time-compressed product development journey. Steve gave the example of a company that sourced a new Bluetooth speaker to their own specs which they were able to manufacture from existing tooling, customize the feature set to make it unique, add branding, and launch in 5 months versus the more usual 52 weeks. Gembah clients tap in to a large and growing knowledge base, and no part of the supply chain and manufacturing back-end for products is uncovered or unavailable. Gembah aims at a complete service, with no gaps in the capacity to meet client requests, apart from the upstream components of doing the selling and generating revenue. There are experts available to help with design, marketing and branding, as well as financing, and also in opportunity identification via market scans. Most services are provided directly, some via partnerships. There is even the potential for a reverse flow in which the manufacturers bring the product ideas and finished products to a seller who is a client of Gembah. The development costs are already spent and the seller benefits. The prospect is for a new production structure in the economy integrating better companies with better value creation performance. In today's production structure, we observe problems of concentration, with large corporations dominating industries and markets, and the so-called small and medium sized businesses constrained, no matter how creative they are, by limited access to capital and infrastructure. The prospect now is for this to change. Those who succeed at identifying important unmet customer needs can plug in to the manufacturing, supply chain and infrastructure network that companies like Gembah assemble, customize and manage. We'll replace industry concentration with a new set of empathic, value generating entrepreneurial companies. They'll be better companies (e.g., less bureaucracy because it's not needed, less financialization that distorts their results focus)) with better performance (greater concentration on customers and customer value creation, and more flexibility in adaptively reconfiguring operations when market changes call for it). Entrepreneurial companies will be newly empowered to rise and to thrive, wherever they are in the world. Additional Resources Gembah.com Steven Blustein on LinkedIn: Mises.org/E4B_210_LinkedIn

Entrepreneurship and innovation are the keys to economic growth and higher standards of living. The USA has long enjoyed leadership status on these dimensions — people see the USA as the land of entrepreneurs and the source of new ideas and advances in business. Is the reputation still deserved? Or is it being eclipsed as part of the general decline in standards and capabilities that we observe? Lipton Matthews is a global economic and geo-political analyst who brings deep knowledge and expertise to address our concerns. Knowledge Capsule Borrowing a framework from the Global Innovation Index published by the World Intellectual Property Organization, we can examine the state of entrepreneurship and innovation in the US relative to both other countries and its own history, under the headings of institutions, human capital and research, infrastructure, market sophistication and business sophistication. Institutions: The private sector institutions of the USA continue to excel for entrepreneurship and innovation. When we think of American institutions for the encouragement of entrepreneurship and innovation, we must examine private sector institutions, not those of government. Ordinary people in civil society build the institutions that promote innovation. Private scientific research is robust in responding to market signals of consumer and business needs. Financial institutions such as venture capital and angel investors support innovative development. Policymakers mistakenly believe they can conjure up a creative economy by fiat, but they're wrong. It's private institutions that support and cultivate innovation. Even if the public sector tries to encroach, the private sector maintains its innovative edge. Professor Sam Gregg warned us recently that the United States of today more closely resembles a European social democracy than many Americans are willing to admit, but Lipton Matthews is confident that America is still winning the entrepreneurship contests because the forces of democratic socialism can't overpower the higher-energy force of the private sector drive for creative innovation in return for market reward. Human capital and research: The ability to execute overcomes any shortcomings in education. If we look through the declinist lens, it's easy to become gravely concerned about the state of education at all levels in the US, which directly impacts the development and deployment of what economists refer to as human capital. Do we under-allocate resources to teaching schoolkids business and entrepreneurship skills and tools, and at the college level, do we turn out too many English and philosophy grads compared to market needs, and not enough engineers and STEM grads? Lipton Matthews cautions us against worrying about the wrong things. The educational qualifications of the products of American schools and universities matters less than their executional and implementational capabilities. America is a nation of do-ers, and that type of expertise is embedded and innate, from the time of the founding fathers and early immigrants who built the America economy. We prize innovators more than inventors — the ones who successfully turn ideas into marketable products and services. Entrepreneurship is action, and American business capitalizes the talent for execution, combining scientific learning with creative action to generate innovation. Executional capacity comes more from a market orientation than from formal learning. A concern about the research component of the Global Innovation Index's “human capital and research” classification is, perhaps, more justified. Government-directed research dominates formal research budgets — directed to fields such as climate change — for universities in the US, and the historical evidence is clear that this pool of research is inappropriate for the support of entrepreneurship, despite European aspirations to an entrepreneurial state. Brilliant scholars and researchers who could be entrepreneurs and innovators are diverted into unproductive activities. It's difficult to quantify private sector R&D; we must hope that it is sufficient to counter-balance the state's diversion of research funds. In fact, Lipton Matthews points out, we must expect the state and innovators to be in competition. The former prefers control and stability versus the latter's pursuit of disruption and change. Infrastructure: Think local and regional, not national. We are frequently presented with stories about the crumbling of US infrastructure. That's the wrong level of focus, according to Lipton Matthews. First we should compare US infrastructure to other countries, where the quality of engineers and engineering may be lower, and so roads, bridges and communications networks are inherently superior in the US. Second, we should focus on infrastructure in our localities and regions. Local communities can manage infrastructure well in support of local businesses. Some towns and cities will have better-managed and better-maintained infrastructure than other parts of their state, and businesses will be attracted there. Market sophistication: capital flowing to best entrepreneurial uses. Lipton Matthews interprets the Global Innovation Index's category of market sophistication to refer to the financing of startups, scale-ups and innovative entrepreneurial businesses. American deployment of venture capital and the widespread networked access to investment funds are examples of market sophistication in practice. Ordinary people can invest in startups and innovation, and entrepreneurs at every stage of their journey can arrange access to investors. While these investment funding networks may not be perfect, and while we may encounter some challenges in moving capital to the bottom of the pyramid, nevertheless, the private financial sector in the US is effective in directing funds towards innovation. While there may be some erosion of purpose, from long term funding of innovation to making money via short term trading in-and-out of markets, this does not detract from America's lead in market sophistication. Business sophistication: The ability of business to absorb new knowledge and use it to innovate. Bart Madden called knowledge-building proficiency the central differentiating function of the successful firm. Our businesses are learning machines, continuously generating new knowledge via R&D, marketplace experiments, interactions with customers and feedback from all business activities. While it's possible that Americans might be eclipsed by some other countries in the race to produce patents, this is not a relevant measure. Marketplace innovation is the test of business sophistication, not patent registration. Knowledge accumulation must be accompanied by knowledge application. America's entrepreneurial nation of doers not only engages in eternal learning but in the adaptive entrepreneurial method of act-learn-improve. The rest of the world has not fully caught up. Summary In Lipton's eyes, America was oriented for entrepreneurial success by the founding fathers and early immigrants, and will continue to innovate and grow as a result of entrepreneurship. Only if we get in our own way through excessive statism, regulation and government intervention that misdirects our energy and resources will we break the well-established historical track record. Additional Resources Global Innovation Index: Mises.org/E4B_209_Index "For Now, Entrepreneurship And Innovation Still Hold A High Place In The USA" by Lipton Matthews: Mises.org/E4B_209_Article

What can economics tell us about designing fulfilling jobs and productive workplaces? Quite a lot if we apply the economics of subjective value and empathy. Melissa Swift is the author of Work Here Now: Think Like A Human And Build A Powerhouse Workplace. She discusses her research on the Economics For Business podcast. Knowledge Capsule Poorly designed jobs and workplaces are dangerous, dull, annoying, frustrating and/or confusing. The results of academic research have confirmed how alienated many workers are from their jobs, and the trends in these findings are worsening, not improving. During the pandemic, many of us had the opportunity to stand back and survey this situation, and realize that it's a problem that we need to address. We can do better by applying Austrian economics principles of subjective value and empathy. The economics of subjective value should point employers in the direction of asking how employees feel about their jobs and the sense of purpose and meaning they derive from them. Why do these considerations not arise, or why are they insufficiently acknowledged? Melissa Swift sees what she calls a wall between how human beings operate and how the world of work operates. We think in discrete terms about “work” on one hand, and “people” on another, and don't integrate them well. Managers have demonstrated a penchant for intensifying work (doing more in less time and with fewer resources) and for pressing for over-collaboration (too many reports, checkpoints, meetings and interactions and exchanges, and belonging to too many teams) with the ultimate result of detracting from an individual's capacity to get things done. Managers don't necessarily tie the design of work to impact delivered or value created. In fact, much work is performative, putting on a display of work that is not necessarily productive (writing impeccable but essentially useless reports, for example). Managers should be actively looking for and rooting out problems of bad jobs and poor work environments. Melissa Swift's formula is to be humble and curious in asking how work feels to those who are doing it. Employees know their work better than managers do (an observation which, of course, turns management science on its head). There are a couple of “monsters” that can be identified and tamed. One is the anxiety monster - we all feel anxiety about whether we are productive enough, or doing good enough work, or being viewed in a favorable light. Anxious managers stand over people, telling them to work harder and faster. We must shut down all the anxious stories that are in our heads. Employees can be over-anxious about customers, too. We may tend to over-deliver on customer care and customer expectations, to the point where we train them to be so demanding that they go beyond the point where the corporation is capable of fulfilling its own promises. Once “monster” jobs — those that generate excess anxiety — are established, there's a tendency for the HR “copy machine” to copy-paste them throughout the company, so that more employees become stressed. Listening for job stress and devising better ways of working is an entrepreneurial task. The entrepreneurial mindset is to listen to customers (in this case, job incumbents), to identify unmet needs, which are aways based on emotion and can never be articulated perfectly clearly, to creatively design new solutions to the customer's felt problem, and to institute positive change using the new solution. This implies continuous adaptive change in job descriptions, performance expectations, structures, team and tasks. The entrepreneurial approach is often hard to apply in the corporation. One reason is that incentives are lined up to favor what Melissa Swift calls “smooth”. Management incentive schemes are often designed to encourage “smooth” — no drastic changes or turns, steady progress. Yet the adaptive entrepreneurial system does not promise smooth, and can't delver it. Innovation in response to changes in customer preferences or competition can be bumpy. And many organizations suffer from autoimmune disease — the defenses go up as soon as something unknown or unprecedented is encountered. Good leadership can counter the auto-immune response — but it's leadership that does less rather than more, relaxing constraints and letting those closest to customers and markets to make any needed adjustments and to respond at the rate of change that the market demands. Business school concepts of leadership have goaded executives into over-managing and over-controlling, and reversing the over-active concept of leadership is one of Melissa Swifts core prescriptions. The HR Department is a big part of the problem. The deep history of HR is dark. The function was founded to quell violence between labor and management. HR was to stand in the middle and to keep a lid on a boiling pot, as Melissa picturesquely expressed it. Performance management — mechanically measuring humans' output in these toxic adversarial environments — was never a warm or supportive concept. As big business became more centralized, HR simply became more empowered and widened its scope. There was never much humanism in HR. HR departments are not typically thinking about work and how work is changing and how to make it a better experience for people. If they were, they'd be thinking differently about matching talent to jobs, thinking more deeply about how alienating and constraining automation technology can be to those who have to use it. They know they are being monitored and measured and assessed. Melissa recommends couples therapy for technology and those who work with it — to stop each party from driving the other crazy. Asynchronous work, deconstructed work, transparent work. Melissa's book has 90 strategies for organizational level and team level problem solving actions and adjustments. We discussed three directions for better work. Asynchronous work: fewer meetings, which provides greater flexibility for workers, it naturally de-intensifies (you don't have to have the report ready for the regularly scheduled Thursday meeting), and it makes for more relaxed collaboration across time zones. Asynchronous work tends to be better documented and more permanent. Deconstructed work: start with tasks to be done rather than job descriptions; assemble the optimum combination of humans and technology to get the tasks done; let talent flow to the work, i.e., it doesn't matter if it is full time employees, part-timers, project specialists or gig workers or agencies or consultants doing the work, so long as the tasks get done by the best-qualified talent. Transparent work: make all information available to all employees at all times, nothing hidden or out-of-bounds. As a result, employees and teams have all the information they need to do their jobs, with no need for hierarchical or administrative intervention. Accountability and empowerment are enhanced, and new talent may emerge when you don't hire for information but for skill in using it. Additional Resources Work Here Now: Think Like A Human And Build A Powerhouse Workplace by Melissa Swift: Mises.org/E4B_208_Book1 Bullshit Jobs: A Theory by David Graeber: Mises.org/E4B_208_Book2

What is strategy, and is it useful for business? Business schools want you think it is the critical factor in competitive success or failure. They teach structured markets, divided up by market share, with boundaries and external and internal forces to be assessed and countered. “Where to play and how to win.” They see strategy through their lens of financialization and utilize fictitious economic calculations like discounted future cash flows and market capitalization. There's very little Austrian flavor in their view — no acknowledgement of subjective value and the qualitative drivers of value, customer sovereignty, empathy, constantly changing customer preferences, no role for the entrepreneur in helping customers learn what they can want in an evolving world. Our guest Erik Schön provides us with an entirely different view of strategy, which he arrives at via a synthesis of three great strategists: Sun Tzu, John Boyd, and Simon Wardley. Knowledge Capsule Strategy is how to survive and thrive and, for a business, the key tool is harmonization. Sun Tzu identified Purpose as the fundamental factor that keeps people united: customers, producers, suppliers, partners, owners, executives, employees, supporting each other without fear through success and failure. In Sun Tzu, there are four more fundamental factors: Landscape — your business environment.Climate: the forces acting on the environment.Doctrine: ways of operating.Leadership: actions, decisions, choices, and gameplays. Master all five to succeed, or else fail. John Boyd added the dynamics of continuously changing intentions within the pursuit of the realization of purpose. (We find reflections here of Mises' concept of constant flux — everything changing all the time.) Boyd's definition of strategy Is a mental tapestry of changing intentions for harmonizing our efforts to realize purpose in a world that can be bewildering. The purpose of strategy is to improve our ability to adapt: a vision that magnifies the strength and commitment of its adherents, and a grand ideal or noble philosophy providing a binding paradigm for all. Boyd's famous framing of the learning process to develop the ability to adapt is the OODA Loop. 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Wardley's major contribution is to visualize strategy in the form of a map where the X-axis is movement in the environment in predictable steps: Genesis: a new technology or solution or brand is introduced; it's unique.Custom built: a company identifies ways to serve customers with constructed products and services from the new origin.Product: move from custom built to standardization, including sourcing standard parts from suppliersCommodity: there's nothing left that's unique, many companies can be producers.Evolution: a new genesis emerges. The automobile industry provides an example. Genesis: the first internal combustion engine.Custom built: the first car brands, often from craftsmen and small workshops.Product: Many suppliers, competitive differentiation (Ford versus GM).Commodity: ICE automobiles produced in many countries (Japan, South Korea, China, Italy, etc.) with limited customer differentiation.Evolution: the beginning of the EV era. Wardley's approach is that all markets exhibit this evolution. It's important to know the current landscape and predict the future landscape, moving through it with “the why of purpose” (to survive and thrive) and “the why of movement” (taking a particular action that moves you through the landscape). Everything evolves through supply and demand competition. 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[[{"fid":"138780","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"the Strategy Cycle","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"3":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"the Strategy Cycle","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"the Strategy Cycle","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"3"}}]] The reference to these strategy masters enables businesses to move beyond business school strategy. Move beyond strategy as wars, battles and combat for market share, towards strategy as individuals, teams and organizations fulfilling their shared purpose. Move beyond strategy for survival in competitive environments to sustainably thriving in a world with a high rate of change. Move beyond strategy development as planning, metrics and data towards strategy development for a harmonized direction based on regular assessment of needs (especially customers' needs) and the organization's purpose. Move beyond strategy development as execution and chasing targets to decisions and actions in a harmonized direction by everyone everywhere in the organization based on high situational awareness. Move beyond business as maximizing shareholder value to business as succeeding together with customers and other stakeholders. Move beyond leadership for managers and people in hierarchical leader roles to leadership as a service provided by all people in the organization. Move beyond practices and principles for optimizing parts to harmonizing the whole. The art of strategy is to succeed by securing harmony among stakeholders, and keeping competition off-balance through evolving better capabilities to influence, adapt and map. The three strategists offer complementary views of strategic success. Sun Tzu: Unite society rather than divide.Unite the organization rather than divide.Unite the team rather than divide.Make the organization resilient by cultivating purpose and doctrine. Boyd: A grand ideal, overarching theme, or noble philosophy that individuals can shape and adapt to unfolding circumstances. Wardley: Know your user — know your customers and know how to create value through meeting their needs.Set exceptional standards.Be resilient to cope with a wide variety of extremes and changes by rapidly adapting. The great obstacle to adaptiveness in strategy is inertia in its various forms. Success breeds inertia, and inertia kills. It's rarely a lack of innovation that kills companies, but rather inertia caused by pre-existing business models. Any past success with any component or element will tend to create a resistance to change. Inertia is a loss of capital — whether physical, human, social, or financial. Strategists look to identify different categories of inertia and devise ways to counter them. Category of inertiaCounterpointPeople resist disruption of past normsPast has evolved / lead the charge Write down cost of legacy, run more efficiently Building future agility Already happening in the market, falling behind Fear of transition to the newLet's build new skills internally Develop capabilities in-house Develop relationships with new suppliers Work on adapting practices, not scrapping them Are we sure we can make the new work? Don't seek certainty, seek learning Develop new standards, use open source Use multiple vendors, use brokers Improve supplier relationships Changing business models is hard Avoid death spiral; new approaches e.g., ecosystem Risk mitigation; spin off the old Use rewards, education, training Perfect telling the new story Leading without pressure and control. Erik uses the gardening analogy to illustrate the Sun Tzu style of leading without pressure and control. The gardener tends the garden gently, tilling and planting and watering ahead of time, and the flowers grow. Today we might call this style “self-organization”. The three strategists are very consistent with the action-focused approach to entrepreneurship from Austrian economics. Action is learning. The path is made by walking. Try things out. Draw some Wardley maps as a trial. They'll take you a long way. Additional Resources The Art of Strategy: Steps Towards Business Agility by Erik Schön: Mises.org/E4B_207_Book1 The Art Of Leadership: Purpose and Integrity for Sustainable Success by Erik Schön: Mises.org/E4B_207_Book2 Erik Schön on LinkedIn: Mises.org/E4B_207_LinkedIn A Collection of Wardley Maps: Mises.org/E4B_207_Maps1 A Wardley Map of the Automobile Industry: Mises.org/E4B_207_Maps2

Entrepreneurship is by no means exclusively American. But this country has led the way in unleashing, encouraging and elevating entrepreneurship as the creative and virtuous pathway to the creation of new value for all. As a republic, we've established the institutional framework in which entrepreneurship can flourish, and entrepreneurs who are successful in creating value reap — and keep — the rewards. Dr. Samuel Gregg, in his book The Next American Economy, examines how this framework was designed at the founding, and discusses what we must all do to preserve it and re-animate it despite the attacks on it from the left. Knowledge Capsule Entrepreneurship and the founding of America are intertwined. America remains the most entrepreneurial country in the world, even if the degree is declining. Our nation has many people willing to pursue the uncertain path of creating new economic value for customers through new products, services and businesses; and, equally importantly, people who will try and buy the new offerings. Alexis de Tocqueville captured the entrepreneurial character in Democracy In America. He thought everyone in America was entrepreneurial. He noted that those immigrants who arrived would quickly start a business, then move on to another one. He observed the tremendous creative energy of the United States. Immigrants have already embraced change in the act of leaving one country to establish themselves in another, and business entrepreneurship is a direct expression of this same love of change. In fact, says Dr. Gregg, America was designed by its Founding Fathers — as they plainly expressed in the Constitution, Declaration Of Independence, the Federalist papers and documents like Washington's Farewell Address - as a commercial republic based on entrepreneurship, and not a political or military or top-down republic or mass democracy. Commerce — or what we would call business — was not viewed with disdain, as it was in aristocratic Britain, but as republican virtue. Washington's Farewell Address refers to the importance of expanding, of national and international navigation and trading, and about the development of strong markets to give Americans an outlet for their production. Business was viewed as the height of civilizational activity. There was a commercial ethic in the vision of a commercial republic which would grow wealth for all. Economic expectations were high and political institutions were designed to be compatible with these economic expectations. There is an increasing trend towards government and the administrative state strangling the creative energy of American entrepreneurship. The erosion of institutional integrity shift and suppresses the creative energy of entrepreneurs. A strong tradition of property rights, in which entrepreneurs can feel confident that they will not only be able to earn but also keep the reward that come from satisfying customers and meeting demand, is an important element of the incentive structure for entrepreneurship. Similarly, entrepreneurs need to feel confidence that commercial disputes will be fairly adjudicated in courts. And they also need to feel confidence that government regulation will not act as an unreversible ratchet of restrictions on their value-creation activities. The trends in the business environment in the US are currently running in the opposite direction: the property rights of successful entrepreneurs are being increasingly questioned and squeezed, commercial interests are viewed unfavorably in courts, and the regulation ratchet is running in the direction of more, not less, restriction on commerce. Dr. Gregg sees the anti-entrepreneurship trend beginning in the Progressive Era and gathering pace since the days of Woodrow Wilson. Progressives seek forms of control that will suppress economic uncertainty and social turbulence. The entrepreneurial embrace of change and pursuit of new value must be suppressed. If society and the economy is to conform to their design, unpredictable creativity must be excluded. The progressive control urge took expanded form in the New Deal and the Great Society and all the successive opportunistically explosive expansions of government power. The anti-entrepreneurial tool is regulation and the administrative state. Dr. Gregg employs the term corporatism to mean legislators and elected politicians, government departments and their administrative bureaucracies working together with big corporations and NGO's to impose control through regulation — “attempting to manage everything for everyone else”. Corporatism is very uncomfortable with freedom, and is more than willing to trade off liberty, and the capacity of markets for entrepreneurial competition, in favor of stagnation and the vision of engineering a specific economic outcome. Their preference is for a form of regulatory state capitalism that exerts control over free enterprise. Recently developed constraints such as ESG and DEI are a manifestation of state capitalism with a particular ideological edge that emanates from left-leaning politics. Companies can no longer have a free choice in the assembly and orchestration of their human capital, which will seriously impair the capacity of the economy to deliver what consumers expect of it. Most of the government's regulation is not aimed at any “public good” (e.g., overall workplace safety) but at special protections for specific interest groups. Often, the businesses who are protecting their interests are the ones who, first, initiate the regulation, and second, write it, through their lobbying firms. If citizens were more habituated to asking who is the group behind any specific regulation, there'd be a greater understanding of this problem and a developing distaste for regulation. Dr. Gregg sees the expansion of state capitalism and the regulatory state as cyclical and capable of reversal. The trends are in the wrong direction, but are not irreversible. Dr. Gregg expressed great confidence in the ability of Americans to work their way around the regulatory barriers to creative entrepreneurship. He highlighted two of the optimistic themes in his book: Capital, capital, capital: Regulation has made it increasingly difficult to match up small entrepreneurial businesses with the capital they need. It takes lots of expensive lawyers to navigate the regulatory jungle that exists for capital acquisition in the us. Yet, American entrepreneurs are proving to be just as creative in capital acquisition as in other fields. They can find their way around the regulatory system. Inventions such as crowdsourcing are a good example of new ways to access capital. The fintech industry is entirely dedicated to freer access to capital. Angel funds, regional and local venture capital funds, new entrepreneurial communities (such as Brandjectory) and new two-sided investment platforms provide more impetus. Deregulate, deregulate, deregulate: If we want to retain the American edge in entrepreneurship, we should focus on reducing the size and scope of the regulation at the local, state and federal level. One of Dr. Gregg's fears is that individuals become political entrepreneurs, and their efforts are directed towards finding ways to thrive in an expanding administrative state and insufficiently on creating new and improved products. Let's find creative ways to reduce regulations, rather than creative ways to survive. Additional Resources The Next American Economy: Nation, State And Markets In An Uncertain World by Samuel Gregg: Mises.org/E4B_206_Book

One of the most helpful insights of Austrian economics for business is the understanding of uncertainty. To complete a sale to a customer is to take that customer on a journey from high uncertainty to lower uncertainty — sufficiently low that they'll make a purchase and enter into the experience of ownership or receiving service. We illustrate this principle via the market for small business insurance — a service that our guest Ryan Hanley describes as confusing, time-consuming and costly, i.e., fraught with uncertainty for customers. He addresses the problem by freely dispensing usable knowledge, and explained to Economics For Business how that revolutionizes the industry. Knowledge Capsule In a market where knowledge is hard to acquire, a knowledge provider creates new economic value. The subject of small business insurance is quite opaque for customers. The language is often arcane and the terminology is hard to understand. The type size on contracts is small. It's often unclear to customers what coverage they need, or what coverage they have, and what coverage they need. Ryan Hanley listened to customers' questions and requests from his time as a retail sales agent and quickly understood that the provision of easy-to-consume and easy-to-understand insurance knowledge would be immensely valuable to customers. He started writing blogposts and FAQ's for this purpose. Expanded experience provides the foundation to be a credible and useful knowledge provider. Ryan Hanley has held positions in the insurance field from sales agent to VP Marketing to Chief Marketing Officer to CEO. He's also tried entrepreneurship in other industries. He's talked to a lot of customers to understand their issues and problems and to try to solve them. This accumulated experience gives him the foundation to be a knowledge provider. He knows what knowledge is missing, what knowledge is most useful, and what form it should take for best delivery. Knowledge becomes even more valuable to customers when it's delivered with high empathy. Ryan stresses that insurance is a superb service. If a customer business experiences a shock — its premises burn down, or it suffers a criminal theft — insurance is there to make things right again. It provides sustainability for a business and reassurance for the business owner and employees. Insurance is a high-empathy service. However, the customer interface with insurance can be low-empathy — confusing and time consuming, and highly inconvenient to navigate by reading through contracts and filling out forms. Ryan's solution is “human optimization”: making insurance easier to understand and easier to navigate and providing human contact and the human touch to add value. He points out that the insurtech innovations from Silicon Valley, which aimed to make insurance more efficient via an all-technology / no humans approach, has resulted only in unprofitable and failed startups. Customers need humans to give them trust in a complicated field they don't understand. Digital automation is not the entire answer. Freely available knowledge and the human touch combined with better technology elevates the service recipe to a higher level. Ryan recognized that the native tech for the insurance industry, that had been built up over the years but become frozen and resistant to innovation, was a contributor to customer frustration. His answer was not new digital technology to replace the old, but a clearer identification of the customer problem: the multiple insurance tech systems were not well-connected with each other and not well integrated. The solution lay in better API's and better software integration, which is what Ryan concentrated on. So now he could bring the human touch, plus new knowledge to fight confusion and opacity, and better technology exhibited as faster flow between content modules. The business benefit lies in customer relationships and customer retention. The business model for insurance depends on customer retention. Selling a policy is not profitable on day 1, but becomes profitable over time as cash flows from periodic premium payments. Customer retention is the key to profit and retention reflects satisfaction. Ryan is demonstrating that setting a high standard at the front end of the contract, with a more human interface, freely dispensed knowledge, and convenient navigation of the insurance process, results in profitable revenue streams and a high cash flow ROI over time. Listening to customers, understanding their needs, and discovering the best way to serve results in retention. Customers are looking for a special form of reducing uncertainty. Insurance sells protection from risk. This is math to them, a calculable probability that governs what they charge for premiums and how much capital they need on hand for payouts. For customers, insurance is relief from uncertainty, a subject value that's not math. They worry about sustainability: will they survive the shock when there is a fire or a crime. Ryan's approach is to help them advance from high uncertainty (I'm not sure of all the risks, I am not sure what is the right coverage for my business) to lower uncertainty (I've been given new knowledge, so I am more informed, I know enough to make a choice of policies and providers). Ryan's company can customize service (including, for example, matching payments schedules to the seasonality of a customer's business) so that the customer feels certainty that the service is matched to their need. Knowledge is education plus creativity. The result is trust. The kind of knowledge that Ryan dispenses about insurance is education. Recipients are learners, filling in knowledge gaps. It can come in the form of YouTube videos or blogposts or any other form. Ryan's Rogue Risk site offers hundreds of videos and articles. He is educating the customer base. Creativity in communication is a vital part of the recipe. Education delivered with creativity stimulates curiosity and productive conversations. Even for a potentially dull subject matter like insurance, creativity add spice and extra interest. Creativity is human, and the human component can deliver trust. Giving knowledge away rather than hoarding it is a great start towards a trusting relationship.

In economics, production and marketing are not separate concepts. Production responds to customers' needs and marketing is the expression of those needs inside the firm. The entire customer-facing activity of the firm is marketing. Like any other business activity, there is constant flux brought to bear by changing customer preferences, competitive innovation and market evolution. Marketing must be adaptive to change, and a major shift is occurring right now. Mark Schaefer writes about it in Belonging To The Brand: Why Community Is The Last Great Marketing Strategy. Knowledge Capsule Established strategies and tactics of marketing are no longer effective. Marketing thought-leader Mark Schaefer puts it this way: marketing doesn't work like it used to. The established techniques were biased towards outbound communication, such as advertising, PR and events. Mark classifies these techniques as “interrupt and annoy” to try to get customers to give their attention to feature and benefit of the company's offerings. The communications environment shifted from analog to digital and from outbound to interactive, but interrupt and annoy remained the primary technique. Finally, there's an alternative marketing strategy. The new strategy goes by the term “community” or “community building”. As economics advises, it's a product of customer sovereignty. People want to belong to communities that share values and interests. And in the digital age, where work-from-home and glued-to-a-screen are life conditions that can lead to profound loneliness, the need for belonging is amplified. The covid lockdown experience exacerbated the problem. Community is an experience that is highly valued by customer, distinguished via three features: Connection with each other. There's a group feeling of difference that's not shared with others who don't belong to the community.Purpose: community members gather because they have a shared reason to do so, whether it is software development or wine appreciation or the development of technical skills. There are shared rituals and traditions and common behaviors that generate a sense of group identity and bonding through common values.Relevance: A thriving community adapt and adjusts as times and members' needs change. Adaptability strengthens group cohesion and assures continuity and resilience. There's a business case for community building. Community-building may replace brand-building as a primary pathway to facilitating value for customers and thereby generating strong cash flows. The technique has a viable business model. Differentiation: when customers bond in community, they're differentiating themselves and the brand(s) they prefer and support. It's a lasting advantage.Market monitoring: a community is a continuing conversation, a source of insight and signals of change.High speed information: the flow of information from customers and markets to firms is another source of advantage. The behaviors and preferences of community members can be continuously polled, with the opportunity for fast response.Trust. Businesses are recognizing the importance of trust in relationships with ever-greater clarity. Brand communities are trusted by their members; trust is inherent.Advocacy. Community members become the marketer. They communicate benefits and positive experiences. User-generated content both reduces marketing costs and adds authenticity and belief.Loyalty: The most profitable customers are the most loyal customers. Community members are loyal, and, in fact, go beyond loyalty to “attachment”.Co-creation. Value is created by customers in their own experience, or it can be viewed as co-created through interactions with the firm and its products and services. In brand communities, there is community co-creation, such as in LEGO Ideas groups and the IKEA user community.Membership as a product: Some communities become the business modem as members pay both to join and maintain membership and purchase the products and services of the community.Cultural alignment: community is a trend, especially for younger people experiencing social and digital isolation.Customer data: when members freely express their values and preferences, they create a rich new first-hand data source. Purpose is the critical driver. There's a case to be made that a brand is its purpose. A clear and compelling purpose provides inner direction for the entrepreneur and the management team throughout the entrepreneurial journey. Shared purpose can bind customers to the brand. The same is true for a brand community; Mark Schaefer talks of bold, piercing purpose that aligns every resource of the company towards the community goal. Harley-Davidson is one (well-used) example: fulfilling dreams through the experience of motorcycling. The purpose is a customer experience, aligned with their values and open to their expansive and creative interpretation. Corporate purpose, when genuinely felt and well-expressed, Mark writes, can be existential (this is why we exist?), differentiating (how do we make a difference?), values-based (how are our founding values relevant to the world?), distinctive (what headlines will be written about us), adaptive (how is the world changing in a way that unites us with our community?) and fulfilling (how can we fulfill customers' dreams?) Additional Resources Mark's Books: Belonging To The Brand: Why Community Is The Last Great Marketing Strategy: Mises.org/E4B_204_Book1 Marketing Rebellion: The Most Human Company Wins: Mises.org/E4B_204_Book2 The Marketing Companion podcast: Mises.org/E4B_204_Pod Mark Schaefer website: BusinessesGrow.com

The concept of risk provides us with an excellent opportunity to bridge between formal economic theory and personal business experience. Economics provides us with rigorous understanding of risk and uncertainty and the distinctions between them and their various types. But risk — the word that we use in everyday conversation — bring with it subjective feelings that affect how we approach it. Knowledge Capsule It's appropriate for entrepreneurs to reframe the concept of risk so that they can embrace it wholeheartedly. Risk has traditionally been framed as the downside of a choice. It's the potential negative outcome for anything we try. But we just have to look at our own lives to see that a lot of risks we've taken have generated upside, whether that's choosing a college, getting married, or taking a particular job. If we feel good about the outcome, then risk is a path to reward. Part of the reframing of risk is to see it as a process rather than a single choice. Risk can sound like it comes at us as a single choice, or an event, or a once-and-for-all decision. It's much better to think of risk as a process — a behavioral process rather than a decision-making threshold. The risk process is one of experimentation —taking small steps, trying different things, getting feedback from the market, making adjustments, then trying some more things. Instead of “starting a business”, we can think of setting out on the pathway to entrepreneurship. Instead of “committing to a future new product launch”, we can think initiating an exploration with low resource commitment until we have better feedback knowledge in order to take the next step and commit more resources. We can think of a new initiative as an experience gap that we look to fill with knowledge from experts and experience from mentors or advisors who've done something similar. The key to this reframed risk process is a courageous commitment to perpetual learning. Through learning, we can all redefine our understanding of risk and re-establish our relationship with it. A part of risk is the ego-bruising realization that we don't know everything and can therefore make mistakes, or take actions that have unintended consequences. By embracing learning, we establish a social reward for not knowing — learning is viewed positively, as a reward. Developing new knowledge is one of the primary roles of the entrepreneur. While it may take intellectual courage to own up to not knowing, the courage is rewarded with new understanding and new advantages. There's always opportunity to learn more. Imagination is an antidote to risk. Imagination can overcome risk. We all have the capability of imagining future achievements — “future wins”, as Angie Morgan Witkowski put it. Imagination can be an exercise in creativity, and it's OK to let it run wild, releasing our minds from the restraints that risk can impose. Taking the time for free-thinking can be very beneficial. The pathway to the imagined future is to marry possibility with probability. In our exercise in imagination, it's easy to eliminate the impossible. But we shouldn't limit the possible. We can start from the imagined possible future and then work back through probabilities about whether we can accomplish it. Angie stimulated her business imagination vi a sidewalk margarita bar in Florida and ultimately opened a successful coffee shop in Traverse City, Michigan. It was a process of working backwards from what was possible to what was more probably, given her circumstances. Similarly, her consulting business started by imagining writing a book about a better style of leadership than is taught in business school. She contacted literary agents, who encouraged her not only to write the book but to also start a speaking business. The audience for her speaking engagements sought consulting help, and she developed a series of workshops as part of the delivery system. Her consulting business is now cross-industry, from startups to the oil-and-gas majors, and worldwide. It started with imagination. Imagination is complemented by hard work and realistic capacity assessment. It would be wrong to think that the reframing of risk to action and perpetual learning comes additional without costs. Angie mentioned two. One is hard work. All learning pathways must be undertaken with the commitment to working as hard as it takes to advance. It requires time, effort, and continuous review. The intellectual courage that Angie highlighted is hard work in itself — the cognitive work of thinking about how to think, exercising cognitive discipline, exploring flexible options such as design thinking, that require the effort of looking at problems from many different perspectives. The second cost Angie mentioned is the honest assessment of our capacity. We can imagine future wins and assess the probability of achieving them, but we must be honest about our capacity. Do we have the resources, do we have the skills, can we assemble the right team, are we willing to undertake the hard work? Putting hard work and capacity together means we don't risk an inadequate attempt to solve the target problem. As Angie put it, using Marines language, don't be “half-assed”. Action is more important than planning. Angie's prescription in her book, Bet On You, is for one-third of time to be allocated to planning and two-thirds making things happen. The make-things-happen part is what generates the feedback loop and learning that is so important. Here are Economics For Business, we'd probably relegate planning to 10% or less of resource allocation, but the point is the same. Action is the more important. There is one aspect of planning that can deliver extra value, and that's planning for failure, or contingency planning. Our imagination should be partially applied to imagining what could go wrong. How would the contingency transpire? What would we do next if it did? We should prepare for resilience in the aftermath of a setback. A plan, in Angie's words (which, in turn, come from the Marines), is a reference point for change. Ultimately, risk must feel good. If the antidote to the downside of risk is imagining future wins, then we can also benefit from a focus on the wins we experience every day. Choose the path that feels good both tomorrow and today, and that makes all efforts worthwhile. Additional Resources Bet On You: How To Win With Risk by Angie Morgan and Courtney Lynch: Mises.org/E4B_203_Book Bet On You Podcast: Mises.org/E4B_203_Podcast Angie Morgan Witkowski on LinkedIn: Mises.org/E4B_203_LinkedIn

Entrepreneurial business solutions can lead to better outcomes in every economic endeavor. In the field of medical care, entrepreneurship has been hampered by non-market arrangements. There's some sense of an emerging trend towards better choices for users, a trend that we discuss with economist Dr. Murray Sabrin. Knowledge Capsule All systems evolve. The current system of medical care uncoupled from private markets evolved in ways that result in higher costs and poorer outcomes. Our economy — and the economic experience of all of us as individuals — would be improved (i.e., greater customer value would be experienced) if we could lighten the burdensome weight of government regulation and its consequent effects on the system of medical care and medical insurance. Our homeowners insurance, our automobile insurance and our life insurance are market products that give us the experience of seeking information and making informed choices based on pricing and perceived benefits. Medical insurance has evolved differently — it's tied to work and puts us in a medical system where prices and choices are opaque and highly constrained. The associated costs are a great burden on the economy, and they result in diversions of productive investment from better uses. The evolution of employment-linked healthcare began in dangerous industries like forestry logging, when employers introduced on—site medical care to treat on-the-job accidents — employers understood the mutual benefit of a healthy workforce. During and after World War II, the incentives for employers shifted: wage controls prevented them from attracting workers with higher pay, and so they introduced the benefit of tax-free healthcare benefits. An industry linking employment and medical care grew by leaps and bounds. Today, both employers and employees are beginning to understand the drawbacks of the evolved system. In the evolved medical care system today, employees feel constrained because they can't freely choose their doctors and service providers, and healthcare treatments they might want are often made unavailable to them. They're not made aware of pricing, and therefore unable to make informed choices. Employers are beginning to understand the high costs for traditional indemnity insurance, and many of them are seeking alternatives. Dr. Sabrin listed a number of these emerging innovations. 1. Employer self-insurance. Instead of incurring the heavy cost of insuring via the conglomerates like Blue Cross Blue Shield, Humana, Aetna, United Healthcare and others, many employers are shifting to self-insurance, hiring an independent third-party administrator to set premiums for normal expenses, and utilizing re-insurance against the cost of catastrophic medical events. 2. Medical savings accounts. Financial innovation has opened the possibility of utilizing current savings for future medical expenses, ideally deposited tax free, appreciating tax free and withdrawn tax free (although, inevitably, there are government restrictions). It's another component in the free-market medicine revolution. 3. Medical cost sharing. Some affinity groups take the route of medical cost sharing — groups pooling funds to pay individual medical costs. Some of these groups may create membership lifestyle qualifications — non-drinkers, non-smokers, etc. — to link healthy behaviors to lower medical care costs. 5. Wellness rather than healthcare. The realization is dawning that medical care costs are inflated by unhealthy lifestyles. Employers and employees share a mutual interest in a healthier workplace and healthier workforce. Better alignment of incentives could encourage healthier eating and drinking habits, greater levels of exercise, and generally more health-conscious behavior. The feeling of entitlement to healthcare that can result in a lowered drive to stay healthy is a moral hazard that has been induced by the current medical care system. Reducing medical care costs via a healthier workforce is a win-win for employee and employer alike. Restoring the doctor-patient relationship via Direct Primary Care. The primary care doctor who has a knowing and caring relationship with individual patients, and who knows their ailments and their lifestyle, and their family and economic circumstances, is a historical tradition in American life, a part of the American dream. The corporate medical care system took this relationship away in many ways, replacing it with an impersonal system of “in-network” availability of physicians with no personal relationship component. Direct Primary Care is restoring the doctor-patient relationship following principles of entrepreneurial business design. A doctor contracts with a small number of patients — few enough to ensure availability and access — who pay a subscription fee, sufficient to provide cash flow for the doctor's office and immediate support functions. The doctor constructs a personally curated set of network connections to specialists, such as cardiologists or urologists, and to services such as imaging and lab analysis, so that patients can be directly connected with pre-selected and approved providers for specialist needs. Direct Primary Care can eliminate or circumnavigate much of the bureaucracy, paperwork, and creativity-stifling sclerosis of current day corporate medical care systems. 6. Pricing transparency. A parallel innovation to DPC is demonstrated in transparent pricing clinics and surgeries, the clearest example being provided by Surgery Center Of Oklahoma (SCOO) which famously provides an open price list for commonplace surgeries, with no surprise surcharges or hidden fees. These prices are often much, much lower than would be charged for the same service by corporate hospitals; the quality is often higher; the speed of getting an appointment is faster; and the most important trait is that the pricing is transparent to the end-user. Patients become consumers in the traditional sense of the word — able to make a free choice based on open pricing information. 7. Better self-monitoring. How's your health? You may not have sufficient information for a good answer – the medical care system often makes information hard to access. One improvement is the self-monitoring that is technologically enabled today. Your Apple watch, for example, can tell you a lot about your vital signs, as can apps+devices like Kardia or a simple scale. Consumers may also be able to find a local DPC doctor or naturopath with whom to share the data for recommendations on natural solutions for any signals they might detect. This is a decentralized approach to healthcare that's consistent with the general trend away from restrictive top-down centralized structures and processes. Additional Resources The Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance by Murray Sabrin: Mises.org/E4B_202_Book1 From Immigrant to Public Intellectual: An American Story by Murray Sabrin: Mises.org/E4B_202_Book2 MurraySabrin.com MurraySabrin.Substack.com

It's the ambition of every entrepreneurial business to advance from a standing start to customer—recognized leadership in its chosen field. It's achievable, even without breakthrough technology and venture capital financing. Trini Amador's Gracianna Winery is one of our Economics For Business entrepreneurial businesses of the year for 2022 for precisely such a journey story. Trini joins us to review the principles, processes and programs that are driving success. Knowledge Capsule Gracianna is the most awarded winery. Metrics of success can vary across categories and industries. In the wine industry, awards presented in tastings conducted by prestigious panels and arbiters are important signals to customers. In a recent period, Gracianna winery, a small craft producer in the highly competitive Russian River wine area of Sonoma County, California, has become the most awarded in its class. And since that class is, by the owner's choice, world-class — the best-of-the-best — the achievement is elevated to the highest possible level. Examples of the awards won include gold medals at the Sommeliers Choice Awards and the Sunset International Wine Competition, and double gold at the Los Angeles International Wine Competition. More awards are listed at Gracianna.com/Awards Gracianna winery has also won hospitality awards for its tours and wine tastings, including a #1 position on TripAdvisor for Things To Do In Healdsburg, CA (out of 117 competing alternatives). Everything begins with a commitment to understanding customer needs. Trini and his family set themselves a goal of making a mark as a world class winery. They've certainly done that. How? Trini Amador is an entrepreneur in the Austrian tradition: the entire journey starts with deep understanding of customers and their needs. Who are the people who enjoy world class wines and associated experiences, and why do they choose to participate in this industry as consumers? What kind of experiences do they seek? How do they want to feel about those experiences? Why do they undertake travel to visit different wineries? Why do they choose California, and Sonoma County and the Westside Highway in the Russian River Valley? How do they like to buy online? Why do they join wine clubs? All of these choices are emotionally driven — the answers lie in the heart and not the data. Becoming a world class winery is a direction of travel, and the destination becomes clear with more and more learning about customers and their needs, wants and preferences. Brand vision is integrated with customer understanding and empathy. Focus and feedback can take a brand to the top. Trini describes his company and his team as obsessively focused on customers. As they collect more and more customer knowledge via more and more interactions, the better they get at serving customer needs. There are really only two I techniques: listen and observe. Since the Gracianna experience includes onsite tastings and tours, the Gracianna team can meet customers face to face and listen for their responses, preferences and hopes. And since all Gracianna wine is sold direct via the internet, butting activity can be observed directly. The requisite business skill is always to pay attention for signals, and always attend to the feedback that results from interaction. All guests are self—selecting themselves to be part of the Gracianna story. They've chosen the relationship. Gleaning the motivation behind their doing so is the goal of the marketing team. Consistent, precise execution is more important than strategy. Once the brand's direction is set, and an initial understand of customers is established, then execution takes over. Execution is a daily discipline, and the power tool is consistency: establishing a high standard and maintaining it in every action. It's perfectly possible to build a brand this way. Trini likened his approach to building a bird's next — one twig at a time. Every act of execution, every customer service interaction, every e—mail and every tasting service is another twig added to a perfectly shaped, ultra—strong construction. Small brands can claim ownership of an equity this way (such as “best tasting room experience” on TripAdvisor) without expensive investment in communications; just execute, execute, execute. Let employees on the team exercise both their responsibility and their creativity in precision execution. Always aim for effectiveness (the best possible execution) rather than efficiency (the lowest cost or least—resource execution). The best kind of planning is contingency planning to establish a prepared adaptiveness. Wine is, at its fundamental level, an agricultural business. Trini calls it rhythmic — grow, harvest, make wine, store wine, release a vintage. No two growing seasons are ever alike. In addition, there can be crises — excess rain, floods, unusual growing temperatures, fires, pests. The best way to deal with these variations is contingency planning, i.e., imagining all the things that could go wrong and having a set of actions in mind if they do. Adaptiveness is a core attribute for all entrepreneurs, and is especially applicable in wine. Explore and expand is an orientation that fully applies — once the curves that nature throws have been negotiated. The greatest entrepreneurial attribute is courage. In face of all the challenges and amidst all the uncertainty of an entrepreneurial business, Trini maintains that the key to a successful outcome is not so much strategy as courage. Make the best decisions you possibly can based on understanding customer needs, and then have the courage to act on the decision. The action generates interaction, which results in feedback, which provides the knowledge and energy for the next decision and next action. Courage is the entrepreneur's best business tool. Additional Resources "Gracianna: Award Winning Winemaking and Entrepreneurship" (video): Mises.org/E4B_201_Video Gracianna.com Lisa Amador's Cookbook, Comfort! A Gracianna Member-Inspired Cookbook: Mises.org/E4B_201_Cookbook Trini Amador's "Brand Uniqueness Blueprint" (PDF): Mises.org/E4B_201_PDF

We've conducted 99 conversations with value-creating entrepreneurs, and we've conducted about 100 Q&As with business school professors who research and teach value creation. Here's a headline summary of what we've learned. Knowledge Capsule 1) A firm is defined by its purpose. Firms with a clear purpose that aligns everyone who works there, along with all suppliers and partners and customers, perform at a high level over the long term. Lack of clarity of purpose is associated with fluctuating performance and often with “fade” — permitting competitors and market changes to erode away a firm's advantage. Knowledge Capsule #199: Mises.org/E4B_200_A 2) A successful firm's purpose is always based on value for customers. Purposeful firms identify a vision of value received by the customer, and commit themselves to it. They craft a business model to deliver the vision, including continuous increases in efficiency and continuous innovation, thus expanding the value space in which they operate. They build and maintain strong relationships in all directions. They look to the long term, including future generations. Per Bylund and Mark Packard on Subjective Value, The New Economics Of Value and Value Creation: Mises.org/E4B_200_B Econ4Business.com/value 3) Firms need a deep understanding of value. We say in Austrian economics that value is subjective. It's formed entirely in the mind of the customer, as result of a customer's learning process: becoming aware of a firm's offering, evaluating its attractiveness, comparing it with alternatives, putting it to use and assessing whether the usage experience met expectations. They learn from their own perspective, in their own context, and in the process of running their own system (their household, their office, their factory) and living through dynamic changes that alter their perspective. Value is a 2-way flow: the value proposition flows to the customer, and the value experience flows back to the firm as cash flow and feedback. The value cycle is complex and understanding it is very demanding, as is understanding the customer and their system. Winning firms work hard to build a deep value knowledge. The Value Learning Process: Mises.org/E4B_200_C 4) Purpose + Value Creation + Entrepreneurship. In Austrian economics, entrepreneurship is the driver of the business system. The term is often misinterpreted as pertaining to start-ups and small business innovation. It actually pertains to value creation. Entrepreneurship is an approach to business that starts with the customer and their needs — a definition of what new value opportunities are currently unmet — and develops the knowledge and assembles the capability to craft a product or service to meet those needs. There is time uncertainty and resource risk in committing to this development. Any firm and any project that pursues this new knowledge with the intent of creating new customer value is entrepreneurial, irrespective of scale. Entrepreneurship also weeds out elements that are not value drivers — bureaucracy, obsolete assets and unproductive infrastructure such as luxury office suites. Entrepreneurial firms are focused and efficient. This is Value Entrepreneurship: Mises.org/E4B_200_D 5) Entrepreneurial firms operate unique value-centric business models. Entrepreneurship is action, and the set of actions the firm takes to make money consistently over the long term is called the business model. Business models vary by industry — some industries are more profitable than others — and by firm — in every industry, there is something about some firms that makes them more profitable than others. That something is their business model. The business model that emerges from 199 Economics For Business episodes is the 4V's model: Value understanding: building an advantaged and exclusive knowledge base on understanding your chosen customers and their value needs and value preferences. Value facilitation: designing and assembling a system to meet those needs and preferences and taking it to market for feedback on customer acceptance and approval. Value exchange: market implementation at scale to generate reliable recurring cash flows from customer purchases and relationships. Value agility: systems to receive and respond to feedback in a dynamic, responsive flow. Per Bylund introduces the Austrian Business Model: Mises.org/E4B_200_E The Austrian Business Model Video: Mises.org/E4B_200_F Hermann Morris's Business Model: Educate The Industry: Mises.org/E4B_200_G 6. The entrepreneurial mindset is different. Over 199 episodes, we observed the following characteristics of the entrepreneurial mindset: Greater capacity for imagination: imagining great futures for customers; Better judgment: judgment is intent (the strong emotional relationship with a desired successful outcome), plus intuitive decision-making when data are incomplete, plus confidence in action-as-experimentation, whatever the degree of uncertainty; Learning: entrepreneurial firms are learning machines, and especially good at challenging their own assumptions. Empathy: the skill to understand how customers feel subjective value, and to process data through the customer's mental model; Orchestration: entrepreneurial firms seldom have direct control over all the resources required to deliver value, and they are expert at orchestrating others' resources, including their time and skills and knowledge. Embrace of change: entrepreneurs don't fear change, they welcome it as an opportunity. Peter Klein: Opportunities Don't “Exist”. Entrepreneurs Create Them: Mises.org/E4B_200_H Victor Chor's Entrepreneurial Orientation: Mises.org/E4B_200_I 7. Explore and expand. Entrepreneurial firms not only embrace change, they make it, through a process we call explore and expand. It means always running lots of experiments to see what works unexpectedly. Experiments should be designed to refute existing assumptions. There should be a wide variation of experiments, not just a series of nuanced changes. Entrepreneurs look for a big variation in outcome and so they make big variations in inputs. The Age Of Strategy Is Over: The Replacement Is Explore And Expand: Mises.org/E4B_200_J 8. Harnessing the highest values. What guides customers' behaviors are not features and attributes, like pricing and performance metrics and guarantees, but values. The firmest guidance comes from the highest values. If a customer's highest value is family security, they'll never buy any offering that doesn't align with their value system. Successful entrepreneurial firms know how to climb the values ladder from features to highest value, providing strong rungs at every level, and always going all the way to the top. Internally for business, the highest values are service to others, delivered in the form of value creation, and ethical behavior. Value As A Basis For Business Building: Mises.org/E4B_200_K 9. Managing the loop Business is a flow. In business-as-a-flow, there's no start and no finish. It's non-linear. The environment is entirely uncertain and unpredictable. A business forms its intent, and then chooses and implements actions it judges will advance that intent. There's no way to know what the result will be, and so the business commits to receiving and reading the feedback, making appropriate adjustments, and then implementing new, adjusted actions, to gain the next round of feedback. This is the flow of knowledge-building, and it flows as a repeated loop, with the same process but different actions, new learning and continuous adjustment. With sound and active monitoring and management, the loop will generate some durable learning that merit repeated action. Cash flow will flow back to the company, and profitable returns will grow. The loop can be self-reinforcing. Mark McGrath: OODA Loop: Mises.org/E4B_200_L Bart Madden: Proficiency With The Knowledge-Building Loop Is The Key To Value Creation: Mises.org/E4B_200_M

Value for customers is the purpose of all entrepreneurial business. Firms big and small must know, follow, and adhere to the principles of value creation. This is pragmatic not theoretical — the consequence of a failure to do so is that the firm cannot survive. Bartley J. Madden studied value creating firms as a co-founder of a successful investment research firm and then managing director of Credit Suisse HOLT. He is now an independent researcher and founder of the Madden Center For Value Creation in the College of Business at Florida Atlantic University. He joins the Economics For Business podcast and shared a summary of a lifetime of research. Knowledge Capsule A systems thinking approach provides the best route to understanding value creation. The business firm is a sub-system within a bigger system, that of society. The effectiveness of the firm is tied to organizational learning and the evolution of dynamic capabilities. Bart Madden's pragmatic theory of the firm treats it as a holistic system with a well-defined purpose. If it is successful in achieving its purpose, it will benefit the larger societal system. The purpose of the firm is a four-fold composition of mutually reinforcing goals. Sometimes, the business literature is guilty of treating purpose as a PR statement, a catchphrase that can be communicated without it necessarily governing the firm's behavior. Bart Madden's view of purpose demonstrates much greater depth, appropriate for complex systems management. Purpose is 4-fold: A vision of the value that can be realized by customers, and that can inspire and motivate employees to work for a firm committed to ethical behavior and making the world a better place through customer value. 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These are long term performance variables that depend directly on a firm's knowledge-building proficiency. A firm must generate a return that is greater than the cost of capital, and as it matures, this return can be eroded away by competitors who offer lower prices or different features to customers. Building knowledge and translating it into new business capabilities is critical for long-term survival. [[{"fid":"137419","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 2","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"2":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 2","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Example 2","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"2"}}]]Work continuously to sustain win-win relationships in every direction. Relationships with customers are primary for value creation, and relationships with employees and managers must generate the understanding, motivation and commitment to delivering customer value, while relationships with suppliers, collaborating firms and other partners must result in their best support for value creation. It's a way of living and doing business that engenders trust all around. Shareholders are also rewarded as a consequence of these relationships.Take care of future generations. The long-term view of the pragmatic theory of the firm as a system within the bigger system of society emphasizes thoughtful concern for the future, so that return on capital can be sustained. Paying attention to minimizing waste in the earliest product and service design stages can serve the future, and this includes minimizing pollution (a form of waste) and reducing harm to the environment.[[{"fid":"137421","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 3","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"4":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 3","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Example 3","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"4"}}]] A firm that is successful in achieving its four-part purpose benefits customers, employees, partners, suppliers and shareholders, as well as society at large. Nurturing and sustaining a knowledge-building culture is the most critical driver of long-term performance. Knowledge-building is a continuous loop: Knowledge base, purposes and worldview: Every firm has a knowledge base that determines current perceptions or current worldview, which includes ideas and beliefs and assumptions about interacting with the world. Perceptions: We see the world through our perceptions and construct our reality that way. We may be self-assured about some favorite ideas about the obvious way to proceed, but we may be proven wrong via future learning. Purposeful actions and consequences: With its purpose in mind, the firm takes actions, and each action has consequences, which may or may not have been anticipated. Feedback: Learning from actions and their consequences is consumed as feedback, a critical component of the knowledge-building loop. The knowledge base changes as a result of this learning. An existing assumption may be replaced. Humility is important when traversing the knowledge-building loop. New understanding and new perceptions: As a result of feedback and learning we may be able to evaluate our assumptions differently and perceive the world in a new and more accurate way. It's hard to be skeptical about our own strongly held beliefs, and therefore a cultural commitment to experimentation — the kind that's capable of revealing obsolete assumptions — is necessary. Knowledge-building stems from firm culture. Knowledge-building proficiency is a culture which views everyone in the firm as a value creator and a knowledge worker who can continuously improve their own problem-solving skills. This, in turn, motivates all employees since they can take great satisfaction from their jobs. One of the errors of the traditional command-and-control management structure is that it assumes the smartest people are “higher up”, and it takes decision-making away from those closest to the customer and to the most relevant knowledge. The higher-ups set short-term targets for the employees, which is inconsistent with treating individuals as learners and value creators. Knowledge-building occurs, and must be nurtured, at every layer of the firm. The correct view — and the correct measurement — of firm performance is the life cycle. All firms traverse an inevitable life cycle. Bartley J. Madden's books and research picture it this way. [[{"fid":"137423","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"The Competitive Life Cycle View of the Firm","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"6":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"The Competitive Life Cycle View of the Firm","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"The Competitive Life Cycle View of the Firm","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"6"}}]] During a period of high innovation, economic returns are high, and firms can reinvest at a high rate. This inevitably fades as competitors erode the advantage. In maturity the returns approach the cost of capital, and the business model may fade to the point where it fails to make the long-term cost of capital. That's why firms must always be investing in long term new innovation projects for continuous refreshment and to repeat the high return stage. They must demonstrate to investors a skill in making these high return long term investments. The stock price is an appraisal of this skill. [[{"fid":"137422","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 4","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"5":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 4","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Example 4","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"5"}}]] The life cycle components are the long-term cost of capital, the return on capital that results from knowledge-building proficiency, the fade rate and the reinvestment rate. The metrics of firm performance are those related to the life cycle. Additional Resources The Pragmatic Theory of The Firm and The Knowledge-Building Loop (PDF): Mises.org/E4B_199_PDF Books by Bartley J. Madden: Value Creation Principles: The Pragmatic Theory of the Firm Begins with Purpose and Ends with Sustainable Capitalism: Mises.org/E4B_199_Book1Value Creation Thinking: Mises.org/E4B_199_Book2CFROI Valuation: Mises.org/E4B_199_Book3Reconstructing Your Worldview: The Four Core Beliefs You Need to Solve Complex Business Problems: Mises.org/E4B_199_Book4 Paper: "Bet on innovation, not Environmental, Social and Governance metrics, to lead the Net Zero transition" by Bartley J. Madden (PDF): Mises.org/E4B_199_Paper Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt: Mises.org/E4B_199_Book5 Plain Talk: Lessons From A Business Maverick by Ken Iverson: Mises.org/E4B_199_Book6

Brands are prized by corporations as significant value-driving economic assets. Brands help customers enjoy more valuable experiences, raising willingness-to-pay levels and thus improving cash flows — higher cash flows as a result of higher prices, faster cash flows because branded products tend to turn faster than their non-branded counterparts, longer lasting cash flows because brands have longevity in customers' perceptions, and less volatile cash flows because brand loyalty can smooth out the effects of economic booms and busts. For these reasons, corporations invest in brands and brand building. Catherine Kaputa makes the case that individuals should invest in themselves as brands, and makes the tools of brand-building available to individuals for personal brand-building: the brand of you. Knowledge Capsule You are a brand, assessed subjectively by your customers. Think of yourself as a brand. Think of your customers - your boss, other leaders and decision-makers in your firm, your colleagues, your clients, your suppliers. They all have a subjective perception of you and the value to which you can contribute in any business situation. Is it the perception you want? Do people see you as the problem solver and solution designer for their problems? Like any brand owner, you can work to actively shape that perception. As Catherine Kaputa puts it: If you don't brand yourself, others will, and they may not brand you the way you want to be branded. The first tool in the branding toolbox is positioning. The branding community has developed the idea of brand positioning. In the perception space in which your brand operates, you seek to identify a unique, highly differentiated position. You want to be perceived as different and better. Positioning is the identification and selection of that unique space in the minds of customers and the basis of the of credibility, reputation and trust to be able to make the claim. Importantly, positioning requires outside-in thinking. Think of your customers first, their needs, their mindset, and their perception of the other brands in the space. Your positioning must be in their minds, not yours. Differentiation is a most important element of positioning. Typically, perception spaces are competitive. Customers looking for solutions to problems and better experiences scan the space for alternatives and make comparisons between them. Know your competitors, assess them through the eyes of your customers, and find a positioning that is both different from and better than alternatives for your customer, using their mental model and assessment criteria. Aim to “own” that unique space - meaning that the customer identifies you as the only one or the best one of their alternatives to meet a particular need. Attach an idea to yourself. A way to pin down a perception in a customer's mind is to attach an idea to a brand, in this case yourself as a brand, in a way that the connection is immediate and becomes automatic. The idea should be singular and highly focused. Catherine Kaputa recommends a process of subtraction to reach a singular idea — you'll start with a multi-layered and possibly complicated idea, but if you keep subtracting the least relevant, least important and least differentiated elements, you'll arrive at the pared-down singularity. You should be able to express it in a phrase or a sentence, one that you can keep repeating to embed it. Her own example in her marketing career was to brand herself as “good with difficult clients”. Every marketing services company has clients or accounts or marketing challenges that are deemed to be difficult and not everyone wants to be exposed to that risk. Someone who steps up and enjoys performing well on such a stage is both differentiated and highly sought after. Personal brand positioning strategy templates provide another tool for self-branding. In her book The New Brand You, Catherine Kaputa provides 10 brand positioning templates as examples of how an individual might approach the process of self-branding and build their own brand. Download "Ten Personal Brand Positioning Strategies" in PDF: Mises.org/E4B_198_PDF These are complete templates for rigorous use and application, appropriate for individual interpretation, embellishment and nuance. One example is the Innovator strategy. Let's use this template as an example of the self-brand positioning process. 1. What's the customer need that the Innovator addresses? Identify your target audience and the problem they want solved. Innovators are needed to create something new, when existing strategies are failing or sales are declining or new market entrants are redefining the terms of competition. New solutions are sought, and Innovators are the ones people turn to. Innovators are recognized as the creative resource that's required. 2. What are the attributes to point to in order to claim the Innovator positioning? Catherine Kaputa lists 5: Visionary with clear objectives: not just creative, but capable of identifying business objectives for creativity and of seizing opportunities. Brilliant at problem-solving: full of ideas, but always directed towards solving important problems. Bold risk-taking: when others hold back, Innovators are eager to design and run experiments from which to learn, knowing there's no such thing as failure, just new knowledge. Fresh thinking: not following the crowd but diverging from the norm. Inventive: Innovators demonstrate the capacity to be first in new designs, new thinking and new ideas. The point is to evaluate yourself against the attributes of the positioning type: is this you? 3. The next step is a positioning statement. Catherine provides examples: Sample Positioning Statement: An innovative professional in an industry beset by mergers and dynamic change positioned herself in the following way. Draft Sentence: For senior managers, boss, clients, industry who need new products and services I stand for innovative problem solver in industries undergoing massive change. The format to use is: For (target audience) who needs (problem you solve) I stand for (value proposition). 4. Add reasons to believe. Pick three reasons and 3 keywords or phrases as to why customers should invest in your positioning statement by hiring you or giving you the project. Innovator is just one of multiple possible strategies. Yours may be one of these or a combination of several. There's a personal test you can take at Mises.org/E4B_198_Test for initial input to start your positioning process. Positioning is a means not an end: there is more work to do. Catherine Kaputa follows the logic of brand positioning all the way to implementation. It's not a theory, it's a practice. There are actions that brand marketers take to communicate and embed their positioning. She cites three major ones: visual identity, verbal identity and brand marketing. Commercial brands spend a lot of time, effort and resources on a brand's look: logo design, package design, website colors and typefaces, video style, and so on. The goal is to communicate a style and an engaging and brand-appropriate visual personality. The same principles apply to personal branding - choose your look, your dress-style and fashion carefully and thoughtfully. Verbal identity comes from the words you use, the story you tell, and how you communicate in presentations, e-mails, tweets, speeches and conversations, whether in the conference room, the auditorium or on zoom. Work on it. Marketing your brand should be guided by your goals for your personal brand. Once you have them defined, choose your media, your message, your content, your campaign tactics and your metrics. Additional Resources The New Brand You: How to Wow in the New World of Work by Catherine Kaputa: Mises.org/E4B_198_Book Find your own brand positioning (Mises.org/E4B_198_Test) on SelfBrand.com "Ten Personal Brand Positioning Strategies" (PDF): Mises.org/E4B_198_PDF

Business success goes beyond numbers and planning and finance acumen. There's an emotional component to it, ranging from the courage to make decisions without knowing the outcomes in an uncertain future, to the resilience of weathering storms and coping with unanticipated crises. There is also, of course, the joy of achievement and goal-attainment. There's a concept identified as emotional intelligence that individuals and teams can cultivate as an element of a mental model that's well-aligned with business performance and positive business outcomes. Knowledge Capsule The entrepreneurial method is to pursue change, but people's natural attitude is to resist change. We have an inbuilt, biological resistance to change. It triggers fear and anxiety that get in the way of moving towards the change that we seek. In addition to this emotional resistance, we develop habits that keep us in the status quo, and present another barrier to behavioral change. We all must fight an internal battle between our old habits and desired new habits. Entrepreneurs develop a special emotional intelligence that motivates action. Entrepreneurs are in the business of making change. They can overcome the natural emotional and behavioral barriers because they have a highly developed emotional intelligence. They have such an emotional relationship with their vision of a successful outcome for their efforts that they can overcome fearful restraints and resistance to change. They are especially highly motivated to take action. It's their emotion that drives action, not intellect. Emotional intelligence is much more influential in business success than IQ. A 40-year study at UC Berkeley found that EQ (emotional intelligence) is 400% more powerful than IQ in predicting which individuals would have success in their field. Private companies like PepsiCo and Apple have uncovered similar findings in their internal studies. High emotional intelligence not only releases personal energy and creativity, but it also results in higher levels of interpersonal trust and shared engagement with others. With high emotional intelligence, we are driven to help others to enjoy better experiences as well as to advance out of our own comfort zones to access new areas of achievement. The consequence of achieving high levels of emotional intelligence is higher levels of trust and engagement in business, and, thereby, better business results. Everyone can improve their emotional intelligence and benefit from its compounding effect. We are pretty much born with our IQ — we can't increase it. But everyone can raise their level of emotional intelligence. Not only that, but emotional intelligence is a compounding asset — we can raise it and raise it again and keep on raising, so long as we work at it. Part of the equation is personal energy management. Phil Johnson identifies personal energy as the core element at the heart of the power of emotional intelligence. We “give our energy away” when we permit others to disrupt our emotional flow — make us annoyed or angry or resentful or frustrated. As a consequence, we feel the need to “steal energy from others” by getting the better of them or by exercising a command-and-control management style. The net result is strife, dissension, and misalignment — where team or corporate energy is wasted. We can avoid this waste by cultivating emotional intelligence. There are high-ROI habits, practices and skills that help to build emotional intelligence. Happily, we can practice some of the habits and skills that develop and demonstrate emotional intelligence. One such habit is authentic listening: when we take criticism personally, we give away energy. So, if we eliminate all personal inner-directed emotion from our reception of comments and suggestions from others, we can utilize all the experience and knowledge that's shared with us for betterment and improvement. Don't resist, don't judge. Don't let attachment to our own preferences get in the way of receiving input. Don't raise walls. We have no personal interest in what others think of us, only in the information they can impart, which might be useful The other side of the coin is authentic communication: be sure that all the content of our communication is factual and positively motivating and designed to be helpful to others, strengthening trust and engagement. If we develop a consistent reputation for authentic communication, we'll raise engagement (and Gallup reports that employee engagement is at a very low level today, which is a great cost to economic productivity). In addition to habits and practices, Phil Johnson urges us to commit to the emotional labor of recognizing our own fears, biases, and status quo preferences, and to establish an emotional distance between our motivations to action and our ego-based fear. It's emotional labor that pays interest — it has a high ROI. Emotional intelligence releases the power of intuition, and creates a state of flow. When we fear making decisions, we try to rationalize those decisions, to seek objectivity and lower uncertainty. When we distance ourselves from fear, we can unleash intuition — that decision-making capability that is beyond our understanding and comes from our unconscious brain. Intuition takes over more and more as we master emotional intelligence. We make choices that are not intellectual — we go beyond our intellectual ability. Emotional intelligence takes us to a flow state. We get away from thinking and move towards intuitive doing, beyond our comfort zone beyond our fear and anxiety. Additional Resources Phil Johnson on LinkedIn: Mises.org/E4B_197_LinkedIn Phil Johnson's Zoom Calendar: Mises.org/E4B_197_Zoom Videos from alumni of Phil Johnson's MBL (Master Of Business Leadership) Program: Mises.org/E4B_197_MBL UC Berkeley Study, EQ>IQ: Mises.org/E4B_197_Paper

Success in business — serving customers well, and achieving growth in revenues and assets with a return on capital greater than its cost over the long term — is tied to knowledge-building, whereby everyone in the company learns more and more about specialized and advantaged methods of generating value for customers. Customer value fueled by knowledge-building flows back to the company as cash flow as a result of customers' willingness to pay (which, itself, is a piece of knowledge to be discovered through testing and experimentation). The uncertainty of the future means that a lot of knowledge-building must be achieved through experimentation — testing ideas to find out if they work or not. The earliest stage of this testing is bound up in the concept of criticism. Bart Vanderhaegen, a philosopher, epistemologist, and business consultant, explains the role of criticism to Economics For Business. Knowledge Capsule There is broad agreement on the need for adaptiveness in business. It is becoming more and more accepted to view firms as operating within a complex adaptive system in which the interactions of millions of agents, and the resultant emergence of new outcomes and new system properties, require an acute sensibility regarding change — and speed of change — in the business environment and an ability to make adjustments in response or, if possible, in anticipation. This adjustment process often goes by the name of adaptiveness. What, exactly, is being adapted? Bart Vanderhaegen's analysis is that it is ideas that are being adapted and adjusted. He defines idea in this business context as a goal and a plan to achieve that goal — a desired end and the associated means. It is ideas that ultimately result in changing people's behavior, changing product and service offerings, and changing markets. If the idea is wrong, it will fail in achieving any desired change. To establish why or how an idea is wrong requires criticism. Criticism is an artifact of the science of knowledge. Critical rationalism views knowledge as useful information we use to solve problems we face. It can never be viewed as final — it's conjecture about possible solutions that we are continuously challenging and criticizing to expose any error that we can subsequently correct to improve upon the solution, and to get closer to economic reality. That's adaptation. Firms actively seek the criticism of the market. Once ideas have been activated as products and services, firms are comfortable with the criticism of the market. As Mises observed, the customer, by buying or not buying, returns a verdict on every business's offering. And business welcomes the criticism, in the form of sales report, or market share analysis, or market research. The market is full of feedback, and in the case of non-buying, the feedback is criticism and triggers improvements or an adaptation of the plan. In business, there tends to be less comfort with criticism in the pre-market stage, but it's a necessary tool for refining options and making decisions. In Bart's way of saying it, the word criticism, when used in business, has “kind of a weird smell around it”. There's a culture of what he calls justificationism. We are taught to project confidence bout business plans. Executives claim expertise in the domains for which they were hired. The boss is correct. This is all misplaced. What we should be confident about is capacity to solve problems, and not be scared of making mistakes, but rather to be eager to adapt our knowledge to observed reality when it changes. By utilizing criticism methodically, businesses can unleash its power. The proper use of criticism is to criticize ideas and not persons. We always want to celebrate the owner of an idea, and grant them autonomy to accept or reject criticism. Bart's three step method for business criticism is: Start with the presentation of the idea by the idea owner. There should be the opportunity for a full and reasoned presentation. Questions of clarification can be asked, but no criticism at this step.Then follows the offering of criticism. It should be high quality, constructive and specific as to what elements are in doubt and why, and what can be improved. General opposition such as “That will never be accepted here” (which could be said of any idea) is not acceptable.The criticism session is completed with a consent stage, in which the idea owner indicates which criticisms he or she finds relevant and will act on to improve the idea, whether in ends or means or both. Consent is in the discretion of the idea owner and should not be the result of any pressure by critics, whatever their rank or status. There is no “softness” in this: there is a shared and passionate commitment to improve. Successful adaptive businesses develop a positive culture of criticism. It's important to analyze and classify the prevailing firm culture. Some cultures will discourage or reject criticism as a method for improvement, especially those that are hierarchically organized and have a tradition of authoritarianism. The appropriate culture values truth and values adaptiveness, and celebrates the identification of error as a successful step towards improvement. Bart called this culture a “tradition of criticism”, which sounds contradictory since the word tradition is usually associated with preserving the status quo; but a tradition of criticism implies a kind of stability around the practice of criticizing. People become comfortable with it, and try to become better at it, and are proud to be part of the path to betterment through criticism. The Amazon 6-page memo system is a good example of the tradition of criticism. Idea owners are required to prepare a detailed memo describing the idea and the business case and this is submitted to a committee of reviewers in a dedicated meeting, escalating in rank towards the most senior management as the idea is vetted, improved, and increasingly strengthened. It's a tradition and a part of the Amazon culture. Such a culture is not initiated with an announcement or a campaign, but emerges organically as a universal tool for everyone in the firm to utilize. Additional Resources Pactify Management: PactifyManagement.com Bart on Twitter: @B_Vanderhaegen Bart's podcast: Fallible Management (Anchor.fm/FallibleManagement) Bart's email: bart.vanderhaegen@pactifysoftware.com

A great benefit of the internet age is the capacity to accumulate, accelerate, and intensify connections between entrepreneurs, knowledge sources, investors, mentors, collaborators, and service providers. Businesses with a valid value proposition who are in the launch and early expansion phases can interconnect a network of powerful and qualified resources to support their growth. A good way to do so is to utilize a platform (another product of the internet age) designed for the purpose. Tom Malengo established a platform called Brandjectory to serve just this purpose for consumer packaged goods (CPG) startups. Key Takeaways and Actionable Insights. Brandjectory's value proposition is to solve the problem of how to build an investor-ready business. The purpose of a B2B business is to help customers achieve their own purpose. Brandjectory helps with the purpose of becoming investor-ready, the condition of qualifying for funding in the eyes of investors. The problem is multi-faceted, from having an investable value proposition, to having the systems and structure in place to qualify for investment, to overcoming the functional obstacles of expansion, to having access to investors, to having the capability to pitch effectively and persuasively. Brandjectory helps with all phases, for all stages of investable business from pre-market seed stage to post-market Series A where a proven business model and revenue stream represents the bar. All knowledge is specialized: select and know your sector. Brandjectory focuses on consumer packaged goods businesses, often identified by the acronym CPG. It's a sector with open-ended innovation opportunities — e.g., how to make foods and beverages and cleaning products and pet products healthier — along with an identifiable set of obstacles to overcome, such as the cost and difficulty of securing and maintaining distribution in supermarkets and other retail channels. An investable business knows the available innovation gaps and has a practical knowledge of barriers and how to overcome them. Define value in your sector with reachable target customers. The Brandjectory system stresses the understanding of subjective value — that it's an experience of the customer, and is defined by what they feel is important to them and how they feel a new brand will satisfy their need in that area of their life. Value demands an emotional connection, sustained over time. Too many founders, says Tom Malengo, CEO of Brandjectory, do not exhibit a full understanding of value. They are more focused on what's new or different about their product, or on their recipe or ingredients. This is a functional perspective, and misses the emotional component. Tom's technique in assessing a founder's understanding of subjective value is a careful but intense questioning, driving towards a true focus on what's important to consumers. Value understanding must be translated into a value proposition. A value proposition is a structured template for the communication of proposed value to the consumer, enabling them to recognize it. The value proposition must capture the emotional element of value — how consumers will feel better. It's not just about good taste, for example, but the joy of consumption, the family sharing, the feeling of contributing to health rather than undermining health. On econ4business.com, you can read about value propositions (Mises.org/E4B_195_Value), and watch the E4B value proposition design video (Mises.org/E4B_195_Video). Potential investors will probe for the founder's true understanding of value propositions — it's a qualitative rather than quantitative assessment. A founder must be skilled and effective at communicating this understanding. Investor-readiness also implies an identification of all the challenges to growth and how to overcome them. Investor-readiness will vary by business stage. The state of readiness might encompass the capacity of the sales network, or of production processes, or the scalability, sustainability and security of the supply chain, or the strength of processes and systems, or the innovation pipeline, or the quality of the advisor group. Tom's guidance to founders ensure that they know all the questions investors will ask, and leave nothing to chance in framing their answers. The required knowledge-building is achieved through networking and connecting. A major benefit of the Brandjectory platform is its network of advisors, industry experts, mentors, and investors. Founders can connect to them and meet them, and not just listen but also gather knowledge through questioning and discussion. Plugging in to a powerful knowledge network is less stressful than pitching and more conducive to learning. The members of the network have a wide range of incentives. Investors can pick up information about trends and new ideas even if they don't invest directly. Industry experts can sense the response to their information and knowledge sharing and get market feedback. Many mentors enjoy the sense of giving back to their industry and community after years of working. All entrepreneurs can, and should, assemble a network like this. Brandjectory is a convenient way to do it for CPG entrepreneurs. It's important to understand the role of knowledge in firm performance. Tom Malengo says knowledge is power for entrepreneurs — the power to solve problems, address challenges and overcome obstacles. It can be a competitive advantage to gather more specialized knowledge than competitors and incumbents. Professor Per Bylund sees specialized knowledge as solving the production problem (see Mises.org/E4B_195_Book) — the difficulty of initiating new economic production that no-one else has ever attempted, i.e., innovation. Brandjectory takes the problem-solution approach to knowledge building. Entrepreneurs who confront a problem or issue or knowledge gap can ask the appropriate question of the appropriate expert or tap the experience of a more seasoned businessperson and benefit from the exchange, a kind of accelerated learning. Brandjectory is a celebration of the all-American practice of entrepreneurship. Tom Malengo views entrepreneurship as the fabric of civilized society, a tradition that is especially strong in America. Our first settlers and many of our founders were entrepreneurs, and the encouragement of new ideas from any and all sources, giving everyone the chance to pursue their commercial development and experience economic success is woven into our way of life. An entrepreneur, as Tom sees it, is someone who refuse to tolerate the existing status quo and demands better and is willing to exert their own effort and expend their own resources to bring it about — a very Misesian view. Through Brandjectory, he intends to help and support all those in pursuit of betterment in CPG. His platform concept — where the business model is to invite entrepreneurs to join for a fee, with unlimited free access to the knowledge platform and expert network, no commissions, middleman dealmaker cuts, brokerage charges, retail markups, affiliate costs or any other “bite” — is pure support for aspirational growth companies. Additional Resources Brandjectory website: brandjectorynow.com Tom Malengo on LinkedIn: Mises.org/E4B_195_LinkedIn

Breakthrough theory becomes effective practice when it is successful applied by real-life entrepreneurs. The E4B entrepreneurial method is actualized by Hermann and Elizabeth Morris in the very distinctive business model for their brand, The Nail Hub. Knowledge Capsule The true purpose of a B2B business is to help your customers succeed. While outside observers focus on transactions — how much does this business sell, what are its revenues? — entrepreneurial business owners and operators focus on customers and customer relationships. Revenues follow from relationships. This insight is critical, since it guides business model development. Business-to-business models are especially responsive to relationship strategies. When a customer feels that the relationship with a supplier makes their business performance better, they can become a customer for life. That's a recipe for strong and sustainable growth. First, observe the ecosystem in which you operate, and identify gap opportunities. Systems thinking is an important component of the entrepreneurial method. A firm is a component or a node in a network of interconnected services we can call an ecosystem. Hermann's and Elizabeth's ecosystem is the Nail Fashion industry. Nodes include salons and salon owners, the nail technicians (sometimes employees, sometimes independent contractors) who provide service to consumers in the salons, equipment manufacturers and suppliers, product manufacturers and suppliers (for nail gel, etc.), and product distributors. 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Many salon owners were enthusiastic about their industry but not well-trained or experienced in the basic economics of business. Many of the technicians were passionate about their trade, but not highly trained in the latest techniques and technologies and in product selection. There were aspects of marketing that were underdeveloped, such as audience segmentation. And there were inconsistencies between products in both quality and safety. In the mind of the entrepreneur, these gaps are opportunities. The entrepreneurial question is: how best to fit in and contribute to the ecosystem. The business model response is determined by individual entrepreneurial orientation. The beginning orientation was that of an operator. Given their knowledge of both the high potential of the industry and the gaps to be addressed / problems to solve, the Morrises' entry point was as an operator. They embarked upon the journey to design a differentiated salon experience with superior nail technique, better products, better trained technicians. They ran the salon with better business acumen (they both came from high-level corporate positions and were able to bring sophisticated operating and financial experience). They segmented with an unusual and especially comfortable in-salon appeal, and via location. They were successful. There was a lot of learning, which Hermann identifies as overcoming pain points. The next growth step comes from re-orientation to larger scale. How could the Morrises scale their salon business? They thought through multiple openings (e.g., open and operate 20 salons), acquisition (acquire 20 salons), and franchising (sell franchises to multiple independent owners). All of these alternatives would require new capability development: establishing standards and a repeatable business model, including a reliable financial model, designing a multi-unit system of supply chains, capital deployment, décor, training and location scouting, and a new kind of marketing to salon managers or franchisees. The Morrises were reorienting to thinking as proprietors of a new kind of multi-division business. It's a different orientation, seeing the same ecosystem from a different perspective. Meanwhile, Elizabeth had the idea for a podcast to share her expertise and knowledge and passion for the industry. It was free business advice, free guidance, free technical training, teaching different aspects of running a salon and technical aspects for nail technicians. Its purpose was a service to consumers (better salon experiences), to technicians (better craftsmanship) and owners (better business operations). The podcast was called The Nail Hub. It generated a great positive reputation in the ecosystem and a lot of positive feedback. The knowledge that The Nail Hub podcast shared was enthusiastically welcomed. The Nail Hub podcast feedback resulted in a further re-orientation. The Nail Hub podcast was helping salon owners and those technicians who were independent contractors renting positions in salons to improve the way they ran their businesses: better management, better understanding of customer needs and segmentation, better approaches to pricing, revenue and profits, better techniques, and better products. What if a podcast can become a business model? Hermann and Elizabeth developed an entirely new B2B services business model which could be summarized as “educate the industry on how to operate a business, and supply them with the highest quality products to fit their business”. Importantly, the education is free to consume. The Nail Hub YouTube channel is free to access, and offers over 140 videos on every aspect of business operations, finances, equipment, products, and techniques. The videos are expensive to produce. The model is that the investment in education will be repaid through loyal customers buying the products that The Nail Hub offers for purchase. The curation of products itself is a service. The Nail Hub has identified a distinctive set of criteria for product selection (health, safety, non-toxic ingredients, cruelty-free) and does the research and validation so that purchasers can be confident in their choices and tin he integrity of their promises to the end-consumer. The products are not the lowest price, they are the highest quality. Salon owners who have not fully absorbed The Nail Hub's education on consumer segmentation, pricing, and customer experience will not be a good fit within The Nail Hub's customer set. The Nail Hub business model has a high internal consistency and integrity. The Nail Hub has re-oriented to B2B service provider educating an entire industry to provide superior consumer experiences, better product quality and profitable operations — i.e., re-orienting from facing those challenges to helping others to face and overcome them. One of the cornerstones of the B2B services model is authentic subject matter expertise. The Nail Hub can help salon owners and nail technicians thrive through their independent action because Hermann and Elizabeth developed a deep subject matter expertise. They've been salon owners and faced all the developmental issues that owners face. They've trained nail technicians. They've evaluated salon equipment and they've committed their resources and time to researching high quality, innovative products that meet their highest standards. Hermann stresses that the arduous development of subject matter expertise is the necessary foundation for a trusted service business. Another is to choose customers carefully. The Nail Hub is making a substantial investment in their customers via their free training and education. The business model that they enable is specific: the highest standards, with the best trained operators, providing a reliably superior consumer experience. The pricing model is premium, which supports the use of the highest quality products and the provision of the highest quality salon environment. Race-to-the-bottom operators who pursue the lowest prices as a competitive edge are not a good fit in The Nail Hub ecosystem, and Hermann makes this a clear element of The Nail Hub's B2B communications. Choose your customers to match your positioning. The evaluation of the business model does not lie in conventional metrics. When the business model is to invest in the success of customers, the conventional metrics of revenue, margins and annual profits are not the primary measures of success (although, of course, they must be acknowledged). The evaluation of the model comes via the feedback loops. Is the educational service welcomed? Does it result in better operations on the part of salon owners? Do salon owners and independent technicians become customers for life? Do product manufacturers clamor for entry into The Nail Hub's curated product set? Are product trends — safe, non-toxic, healthy, etc. — moving in the desired direction? This is the entrepreneurial ethic: make customers more successful, make the world a better place. Additional Resources "Evolving The Nail Hub Business Model" E4B Graphic (PDF): Mises.org/E4B_194_PDF The Nail Hub YouTube Channel: YouTube.com/TheNailHub The Nail Hub Website: TheNailHub.com

There is a threshold of diversity below which no organization can operate with complete effectiveness. Diversity in this sense does not only include the “Big 3” DEI elements of race gender and sexual orientation, but also education, experiential background, business partner diversity, learning capabilities — all of the organizational resources that Austrian economists refer to when they talk about the creative combination and recombination of heterogeneous assets. Dr. Ella F. Washington, author of the book The Necessary Journey, joins Economics For Business to make the business case for diversity. Knowledge Capsule The business case for diversity is built on the sustainable competitive advantage in productivity that it can bring. Dr. Washington's book is a global, multi-variable survey of the effect of diversity orchestration on business results. She describes a wide variety of business cases, in large, medium-sized and small firms, in businesses ranging from global hospitality services to IT to alcoholic beverages production and marketing, and many more. She looks at diversity not just through the “big 3” lenses of race, gender, and sexual orientation, but also educational achievement, cultural background, learning capability and interpersonal communications variables. In all cases, well-orchestrated diversity made a demonstrable and positive difference in business outcomes. Diversity is a tool for competitive advantage. The business case is globally applicable. Dr. Washington has studied and provided consulting services to global firms and to local and regional firms in many countries. She sees diversity not as a provincial political issue but as a business tool for elevating human performance. There is a lot of hard work involved in identifying and understanding local differences, and some challenging decision-making and communications issues. Getting diversity right is not always comfortable, and many perspectives must be balanced. But it pays off in results. Value and empathy are at the core of diversity management. Subjective value lies at the core of Austrian entrepreneurship. Subjective value is in the mind of the customer, it's a feeling that's experienced. When businesses deliver a valuable experience, customers engage enthusiastically. The same is true for a group of employees. An organization that can empathically feel the experiences of all its employees, and can orchestrate the environment and the culture that recognizes, caters to and enhances their felt experiences, can achieve the exciting collaborative energy of alignment and harmony. Austrian principles of subjectivism and empathy apply in all areas of business thinking. People want to feel valued, and the feeling is personal and individual. No matter the size of the corporation, each individual counts in their own way. Diversity policies always benefit from the free incorporation of multiple perspectives as compared to centralized mandates. Dr. Washington's case studies consistently demonstrate that decentralization and localized management is a better tool for productive diversity that central mandates. One of her case studies concerns Sodexo, a French company specializing in food services and facilities management, employing over 420,000 people in 80 countries all over the globe. Through the processes described by Dr. Washington, Sodexo came to realize that thinking and acting locally was the key to achieving the diversity target of collaborative productivity AND elevated human performance through valued experiences. Diversity solutions could not be formulated in the central HQ, or even country-level HQ's, and even regional and local offices. It was the individual sites where people work together in small teams that should be the focus. A general goal was established — it was termed “Spirit Of Inclusion” — and then specific programs were resourced and implemented at the local level in ways that comported with local needs. To quote from one of the Sodexo executives, “engagement across the organization very soon became an enabler of business growth and business success”. Diversity has a future orientation — influencing future performance. In the US, diversity policies are often pitched as addressing past wrongs. In another case study, the President of Infosys, an India-based technology company, stressed his focus on building the services of the future. A diverse work force is, in his words, the most viable business model. Since the company would be engaged in building new services for a new future and a more diverse audience (i.e., in new countries, new situations, new circumstances), then it's smart to try to imagine the needs of that future workforce, and how to maximize its capability for future success. A diverse workforce is better able to develop superior understanding of a diverse customer base. One of Infosys's diversity tactics was to extend hiring in the US to community colleges. Many tech firms focus on 4-year university graduates exclusively. Infosys felt that (a) they might not be competitive in hiring those candidates, and (b) such a focus excluded a lot of bright, trainable people from two-year community college programs. They also found out that the two-year students often exhibited greater “learnability” — they could be trained and coached in the Infosys way with outstanding results in achievement and productivity. Another source of diverse talent is the individual making a mid-career switch. Infosys opened up its thinking and its recruitment to include this type of diversity too. Career-switchers tend to excel at learnability. As is always the case in entrepreneurial economics, imagining a better future opens the pathway to better implementation. At the close of her case studies, Dr. Washington tells us her respondents' answer to a question about the workplace utopia of the future. All the answers are different, but the principle is the same: conceptualizing the most productive workplace in terms of how employees feel and how the feeling can be translated into effective and consistent contribution, collaboration, and business results. How do firms awaken and stimulate the best capabilities of all their employees? That's the business case for diversity. Additional Resources The Necessary Journey: Making Real Progress on Equity and Inclusion by Ella F. Washington: Mises.org/E4B_193_Book TheNecessaryJourney.com Dr. Ella F. Washington on LinkedIn: Mises.org/E4B_193_LinkedIn

When firms apply the principles of Austrian economics to business management, we call the result the Adaptive Entrepreneurial Method. It's adaptive in that it is a continuous learning process, and it's entrepreneurial in elevating customer value realization as the most important business purpose. Key Takeaways and Actionable Insights. 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Value in Austrian economics is customer value: contributing to customers' feelings of being better off as a result of the interaction with an entrepreneurial business or service provider. A useful way to think about value is in terms of alignment and order. A value exchange is a harmonious alignment between customer and entrepreneur, in which both parties benefit and both parties' interests are served. Order is represented by the customer's decision, a point of clarity in a world of multiple choices, overlapping preferences and broad-based uncertainty. Entrepreneurial businesses make value their purpose and identify it in alignment and harmony with customers. Everything else — cash flow, profits, growth — follows. Entrepreneurial orientation enables the right interpretation of data and information for customer value realization. Mark McGrath emphasizes the powerful role of entrepreneurial orientation in business success. Orientation is a mindset — a kind of internal operating system — that guides firms to translate information from customers, partners, competitors and the market into an effective, winning vision and mission. The essence of orientation is learning. Uncertainty is assumed, and orientation is the unique set of filters through which entrepreneurs and management teams process the quantitative and qualitative data that customers and markets present. Mises called it economic calculation: the entrepreneurial capacity for combining a constantly changing stream of information into a business decision. The decisions are always reviewable and revisable; a learning mindset makes entrepreneurs comfortable with frequent decision changes in response to changing information and feedback. Principles — such as the primacy of customer value — remain the same; it's actions that are adjusted. Businesses that don't learn can get locked into models that no longer reflect the realities of the marketplace, and lose their effectiveness. People, ideas, and things. Learning, adapting, and changing are difficult capabilities to master. Continuous change can feel disorienting absent the right mindset. How do companies achieve this mastery? Mark McGrath quotes Joh Boyd on the eternal verity of people, ideas, and things — always in that order. The first critical component are the people engaged in and operating the business. They must be good at change, comfortable with constant flux. They must accept VUCA — volatility, uncertainty, complexity, and ambiguity — as the normal condition. At the same time, management must be conscious of how each new change or wave of change impacts people, and anticipates the effect it will have on them. In this change-accepting environment, unlimited new ideas can emerge via the creative process. They can be tested, and marketplace results become the yardstick. When new ideas look promising in terms of the results they potentially enable, then things can be changed: capital can be redeployed in new combinations, marketing campaigns can be revised. When people are pre-prepared, smooth transitions are achievable. Continuous Reorientation And Entrepreneurial Intent. While entrepreneurial orientation is the firm's operating system for processing information, it is not fixed. Adaptive firms are continuously reorienting, Active reorientation supports learning, recognizing that all perceptual models are only as good as the moment they were developed. They must be renewed to stay relevant. Challenging assumptions and reframing problems must be continuous in order for firms to thrive and use change to advantage. Effective orientation looks to the future rather than the present, emphasizing agility and avoiding clinging to outdated models. Reorientation precedes intent and reshapes it. Entrepreneurial intent can be equated to what systems thinkers call vision. A vision is shared and provides a North Star for everyone in the firm, but that doesn't preclude adjustment in continuous alignment with customers. The vision is to serve customers, and customers are also changing and adjusting. Thinking in terms of intent (rather than, say, implementing a rigid plan) permits greater flexibility in pursuit of the vision. Entrepreneurial judgment is decision and action. The theory of entrepreneurship emphasizes judgment — that mysterious-sounding capability of entrepreneurs to make economic calculations from a mix of data and intuition. That can sound like a kind of mulling over of options. But it's much more active than that. The entrepreneurial method emphasizes deciding and acting. Decisions are recognized as hypotheses; it's impossible to know exactly what to do, so action-oriented develop hypotheses about what actions could have the effect they desire. The hypotheses are carefully aligned with their intent in order to double-check the logic as far as possible. But the purpose is not to be “right” but to generate feedback information so that alignment can be better informed by reality. Action — the implementation of decisions — is an experiment, a test of the hypothesis. Action produces interaction (with customers, with retailers, with competitors, with the changing market environment) and thereby provides new information in the form of feedback, which might indicate the need to change actions next time. The number of hypotheses and tests can be narrowed; what's important is that they reflect as wide a range of perspectives as possible — from those at the front line interacting with customers, whether in person or at the call center or online, from engineers and operatives, from finance and HR, and from all relevant points of view. The more diverse the range of perspectives, the more likely it is that different angles of view will provide new insights and illuminate blind spots. Make sure that internal communications are organized so as to make it possible for all perspectives — including dissenting Cassandras - to be recognized and acknowledged. Candid self-assessment of people in business leadership roles is a good place to start the adaptive entrepreneurial journey. Some elements of the adaptive entrepreneurial model require the discarding of standard ways of managing. For example, many businesses spend considerable time and effort developing plans that lock in budgets and resource allocations, and don't make allowance for constant adjustment and change. It's useful to take inventory of these practices and question whether they can be abandoned or reformed in pursuit of agility. Additional Resources The "Adaptive Entrepreneurial Method" Graphic (PDF): Mises.org/E4B_192_PDF1 "Destruction and Creation" by John Boyd (PDF): Mises.org/E4B_192_PDF2 Mark J. McGrath on LinkedIn: Mises.org/E4B_192_LinkedIn "Orientation: Bridging The Gap In The Austrian Theory of Entrepreneurship" (AERC 2022) by Mark J. McGrath and Hunter Hastings (PDF): Mises.org/E4B_192_PDF3

We are living through a particularly bad moment in history for free markets and capitalism. Government, not business, is promoted as the solution to all problems. Young people have never known any other environment, and one of the consequences is the skepticism about capitalism that they learn in school, college, and university. One solution to this problem lies in better business education — shaping how young minds think about business by shedding light on the social and individual benefits of capitalism that might otherwise be deliberately shadowed by misinformation and misdirection. Allen Mendenhall is leading the way with a new business curriculum at Troy University. Key Takeaways and Actionable Insights There are unmerited concerns among young people today about the ethics of capitalism and business. Business is too often cast as the “bad guy” in the movie of life. Business is portrayed as exploitative and greedy, and businesspeople as self-serving. Historical scandals like Enron and WorldCom are cited as case studies. But this presentation is a caricature; there's no evidence to support it. Business is the essential component of the capitalist system that has raised standards of living and quality of life all over the globe and especially in the West, where markets are somewhat freer. Business didn't have the same bad rap in the past. In the nineteenth century, there was a great celebration of the civilization-advancing commercial republic powered by the protestant work ethic. The image of the businessperson was a positive trope — it was a good role to be a businessperson creating value for others. Businesspeople were the good guys. They innovated, collaborated and served. We've lost that imagery. A lot of the unmerited concern emanates from educational institutions, especially universities. Who is teaching young Americans to be skeptical about capitalism and business? A large portion of the blame goes to educational institutions, and especially universities. There's an anti-business and anti-capitalism bias among the teaching profession in higher education that is communicated to students. In this academic anti-business campaign, there's a special role for economists, who have dehumanized economics by trying to make it a mathematical science. All their equations and computer models have the effect of taking humanness — the role of subjectivism, individual preference, and individualized emotion — out of economics. They try to reduce human behavior to a predictive data-driven algorithm. The heritage of economics is humanizing. The mathematical approach to economics is not the tradition of the Austrian school approach, which embraces a humanizing perspective. Commerce cultivates virtue; the pursuit of honorable profit leads businesses to act with good faith and integrity in joining with partners to produce products and services that are valued and welcomed by customers because they serve their ends in their search for betterment in their lives. The concept of honorable profit is often alien to students, and requires new learning: that profit is an emergent result of all the detailed interactions of individuals in a market, sending price signals to producers to indicate what society wants them to produce. Profit is a result of these signals indicating that society wants the producers to continue offering their goods and services. Understanding value is central to understanding the ethics of capitalism. The emergence of profit is an outcome of the generation of value for customers. Value is central to the ethics of business, and Professor Mendenhall's new course at Troy University places it squarely in the center. Value is subjectively determined by the customer, and the purpose of business is to help them realize the value they seek with the right products and services responsive to their wants, preferences and goals. But here's where the plot twists. The big corporate business community — representing less than 1% of businesses by count but the biggest proportion of GDP by dollar revenues - has been incentivized by Wall Street to pursue shareholder value (goosing stock prices) and stakeholder value (the diversion of value away from customers in favor of non-customer interest groups). Value for customers and even profit now takes a back seat to supposedly serving constituencies such as climate activists, victim groups, and, of course, government. Stakeholder value can act as cover for the CEO who fails to generate profit: they can claim to be focused on socially more important things. The generation of value for customers, guided by the confirmation signal of profit, is no longer primary — except in Professor Mendenhall's Troy University curriculum. The perspective of entrepreneurship can help students appreciate ethical business. While young people express disdain and distrust for capitalism, they often have a more positive attitude about the concept of entrepreneurship. They realize that entrepreneurs are problem solvers, and that they add value to people's lives. People benefit from the risks entrepreneurs take and the personal sacrifice they make. Entrepreneurial innovation makes lives better. Students appreciate this, and can even identify some corporate CEO's to whom they are willing to grant ethical approval — individuals such as John Mackey or Richard Branson. And many young people see entrepreneurship as aspirational — they want to start their own businesses and make a lot of money (i.e., profit!). Looking at business from an entrepreneurial perspective generates more positive attitudes, and we can show that all businesses started entrepreneurially, and are sustained by their continuing entrepreneurial performance, i.e., profitably delivering value for customers. If there are questions about corporate ethics, they relate to their non-entrepreneurial functions — such as HR (whence a lot of corporate wokeness emanates), legal (the people who write the opaque and deceptive terms and conditions that justify surveillance), finance (directing activities like stock buybacks that divert value from customers), and compliance (keeping corporations closer to government and more distant from markets). Part of Allen's approach to his students is to teach the entrepreneurial mindset — not just for business, but for life in general. He calls it “unleashing the inner entrepreneur” and includes what he calls “the economics of your dreams”, the secret of win-win, the creativity of the market, the entrepreneurial principles of career building, starting a profitable business, and character and leadership. He also covers personal finance skills — developing knowledge of stocks and bonds and mutual funds and other financial instruments, insurance, retirement planning (even at age 18!), investing, spending, and, of course, personal management of student loans. It's the entrepreneurial approach to life. We should develop a new value proposition for business schools as humanness schools. Business schools today are part of the problem. They don't focus enough on how business can be the catalyst for positive change. They should be committed to solving problems affecting not just business, but humanity as a whole. But reading business school leaders' and graduates' speeches and their books demonstrates that they're not trying to help humanity as a whole but a few selected businesses and a few particular industries. They're not dedicated to helping ordinary people, as they should be. Allen's new curriculum aims to redress that imbalance. Additional Resources AllenMendenhall.com "Corporate Wokeness Hurts The Groups It Purports To Help" (AEIR) by Allen Mendhall: Mises.org/E4B_191_Article1 "Troy professor: Students ‘very enthusiastic' over anti-woke business scholars program" (Yellowhammer News) by Dylan Smith: Mises.org/E4B_191_Article2 Allen Mendenhall on Fox Business—"Ending Wokeism in the Corporate World": Mises.org/E4B_191_TV

Entrepreneurial businesses embrace adaptiveness and change, and continuous innovation enabled by flexible and responsive organizations, empowered at every level. That doesn't mean there's no role for managers. Inside the corporation, entrepreneurial management co-ordinates the business flow of responding to changing customer wants and preferences, so that resources are allocated and reallocated to the production activities that customers value the most. In fact, management is becoming more important, not less. Professors Peter Klein and Nicolai Foss explain entrepreneurial management in their latest book, Why Managers Matter: The Perils of the Bossless Company (Mises.org/E4B_190_Book), and Peter Klein visits Economics For Business to highlight the key points. Key Takeaways and Actionable Insights Management co-ordinates the constant flux of entrepreneurial business. The essence of the adaptive entrepreneurial organization model is responsive change. Entrepreneurial businesses don't lock themselves in to 5-year strategies and annual plans. They recognize that markets are in constant flux as a result of changing customer preferences, changing competitive activity, changing technologies, and changing conditions in business channels and in the economy. Change is the normal condition. It's what Ludwig von Mises termed constant flux. Management is required inside the firm to adapt and respond to change outside the firm. It's not possible to manage the change in markets, but it is a necessity to manage resource allocation and productive activities inside the firm. Management is co-ordination and orchestration, not authority and hierarchy. We might think of the concept of management in its industrial age guise of authority and hierarchy: some people “higher up” in the organization telling others “lower down” what to do. This kind of hierarchical authority can't work in the digital network age; it's too slow to process incoming data from the marketplace and too rigid to quickly or effectively implement newly imagined responses to those incoming data. But in Professor Klein and Professor Foss's analysis, management no longer equates to old-fashioned authority and hierarchy. Management is co-ordination: assembling the right resources — both human capital and complementary capital assets such as supportive technologies — in the right combinations (often referred to as “teams” in today's management language) for the right shared task with the right shared goals. Professor Klein likened this to orchestration — there's a conductor who guides the orchestra in playing the same symphony together, without telling the individual players how to play their instrument, and leaving the details of implementation to the individuals and their specialized skills. Some orchestras may have better results than others because their teams have been well-recruited and well assembled and they respond better to management co-ordination. All firms and teams are complex adaptive systems, with emergent outcomes influenced by internal forces, one of which is management. Management is culture more than authority. How do managers achieve a better outcome as a result of managing their teams? Professor Klein believes that they institute a successful culture, as opposed to designing an organizational structure. He defines culture in terms of norms, customs and practices — the accepted way (or simple rules) of “how we do things around here”. More specifically, in the customer-centric entrepreneurial firm, “here's how we plan to facilitate value for our customers around here”. Skilled managers paint the pictures — the “vision”, if you will — in the minds of employees of the customer value standards the firm will achieve, and the customer experiences that the firm will facilitate. Modern managers are comfortable with and quite expert at adaptation. The modern managerial culture is a far cry from traditional hierarchical managerial authority. It has the built-in flexibility for adaptiveness to the rapid rate of change in today's digital business world. A well-functioning management process in a loosely structured organization can change internal production processes, teams and resource allocations in response to external changes in customer demand and marketplace conditions. In fact, Professor Klein points out, through relevant case studies, such a management structure can be better at adaptation than, for example, a network of independent contractors and suppliers that would be challenged to orchestrate responsive changes to an external change, since each would have a different experience and process it through a different cultural orientation. They wouldn't co-ordinate as well or as quickly as internally managed teams. In certain cases, management authority can sometimes be a relevant organizational tool, so long as it is applied in a contingent fashion. The relevance and usefulness of authority varies by circumstance and business situations. Its usefulness is contingent, and managers must be sensitive as to when to apply authority and in what style. Why Managers Matter identifies two distinct styles of managerial authority, Mark 1 authority and Mark 2 authority. Mark 1 authority is traditional command-and-control, exerted top down — superiors telling subordinates what to do. Mark 2 authority is exercised through design rather than command: finding the right person for the task, combining the best-qualified people in teams, and giving them a goal with a wide latitude in their process and implementation in achieving the goal. An important element of the contingent approach is to empathically identify the subjective preferences of employees. Some will respond well to flexible, open-ended direction that enables them to exercise their own initiative. Others might prefer the certainty of clear direction. One type of salesperson might be highly motivated by a 100% commission remuneration plan, another might feel more secure with a base salary with the potential for an achievement bonus upon exceeding quota. Professor Klein identifies two broad sets of conditions for the exercise of Mark 1 and Mark 2 authority. When there is a high degree of interdependence between people, teams and tasks, such that it is critical that tasks are highly coordinated, completed at the same time and combined in a highly specific fashion, then management intervention is required and it will include Mark 1 elements. When production is more modular, when tasks and projects can be completed interdependently, then Mark 2 management can be exercised through a decentralized, flat and culturally aligned organization. (Professor Klein cited the example of the type of higher education institution where he works; all the professors can design and teach their classes, do their research, and publish their papers and books with a high degree of autonomy.) Management is becoming more important, not less. In a rapidly changing world, where employee attitudes and experiences are very different than in the pre-digital world, and where global markets and their interconnected structures are more uncertain and cyclically unreliable, and where the pace of disruptive technological innovation is accelerating, good management is more important than ever for the success of our economy and our society. Smart managers are needed to find the right balance between operational excellence through established processes and adaptive change through adjustment and experimentation, a balance that business scholars call the ambidextrous organization. It can't happen without management, and without managers. Additional Resources Peter Klein's book page: Mises.org/E4B_190_Klein Why Managers Matter: The Perils of the Bossless Company by Peter Klein and Nicolai Foss: Mises.org/E4B_190_Book Public Affairs book page: Mises.org/E4B_190_PA

Entrepreneurs always generate new value for customers; that's what they get paid for. It's not always necessary to create a new market; there are many creative ways to expand the value potential of established markets and carve out a territory in the new expanded space. James Kent, founder of the innovative apparel brand Rogue, White and Blue, talks to E4B about the entrepreneurial value creation method he pursues in growing a distinctive and differentiated brand in what might look to outsiders like a crowded market, but which to him looks like unbounded opportunity. Key Takeaways and Actionable Insights Entrepreneurs start with what they love — it's the first source of differentiation. James is a lover of open-air experiences — of walking and hiking and exploring trails and off-road lands, of snowboarding in the mountains, and enjoying all the freedoms of exploration and everything to do with the great American outdoors. “What do I love?” is one of the first questions an entrepreneur asks of themselves, and James is certain of his answer. Adding knowledge and experience fortifies the entrepreneurial recipe. All experience and most knowledge are individual. What we pay attention to, and how we learn is always unique to us personally. James picked up some valuable experience by working in sporting goods retail stores, both interacting with customers in stores and working his way up the corporate ladder into management positions. This commercial experience in sporting goods was highly complementary to his love of the outdoors, and the two became a productive combination in James' entrepreneurial approach. James was able to gain some even more fine-tuned experience by working as the first employee of a start-up, running an office in a location removed from the head office. This provided exposure to the entrepreneurial experiences of risk-taking, autonomy, maximizing the use of limited resources and using business development tools like Google AdWords — all directly useful for a future business journey. A third layer of relevant experience came from joining the National Guard in a patriotic spirit of service. The service ethic is fundamental to all entrepreneurial endeavors. The stage is set: what kind of business to launch? James asked the entrepreneurial questions. What do I love? The outdoors and outdoor recreation. What do I know? Apparel and apparel retail. What are my resources? Passion, the genuineness and clarity of commitment, design ideas, and a small amount of savings. Who are my customers? People who share the same passions. Where will differentiation come from? It came from a reservoir of genuine feeling and the combination of two streams of thought: recreational love of the outdoors and patriotic love of country. The combination became the brand Rogue, White and Blue, described by customers as “the patriotic version of Patagonia”. It's wild and unexpected like the American landscape, and it embodies patriotic design ideas, both in visual look-and-feel and in functional attributes such as Made In America. The commitment to a differentiated brand platform creates a differentiated supply chain, differentiated production, and differentiated presentation. Entrepreneurs design their production infrastructure and supply network backwards, starting with the brand and then identifying the system components that will bring it to life. James had design ideas in his mind. He self-taught himself Adobe Illustrator to get them from his mind into digital documentation, occasionally hiring outside designers on Fiverr at low variable cost for some specific refinement tasks. Modern technologies ranging from design software (and the training videos and additional user content available online for new adopters) to digital printing to internet-enabled collaboration sites like Fiverr can be combined to create a complete value network with limited fixed cost investment. The next step down the supply chain was to find screen printers and James tested alternatives until he identified the best craftspeople in that specialized profession. He made them his business partners, which enabled him to benefit from their expertise in identifying the right Made-In-America apparel manufacturers and the right high-quality fabrics. By ordering garments through the printers, he was able to give the printers a more profitable business model while offloading some risk (e.g., of misprinting) onto them. The shared value space was big enough for everyone in the network. The integrated platform of a differentiated brand and a differentiated supply chain is the result of entrepreneurial commitment: to brand integrity, quality, style, and consistency. Finding customers through entrepreneurial action. At the outset, there wasn't any marketing budget for Rogue, White and Blue. How does a brand get customers in those circumstances? Not by advertising but by entrepreneurial action: by meeting customers personally. James had a good instinct for who his customers would be based on input from like-minded friends and family. So, he went out to meet similar people by setting up a sales table at selected events where they might congregate. The first one was a gun show, and then more broadly outdoors-themed events. James vividly remembers the excitement of show attendees stopping by his booth, immediately bonding with the “patriotic version of Patagonia” brand feel — they didn't need to be told, they understood it without prompting — and paying cash for the products. Rogue, White and Blue started with a batch of 96 T-shirts which quickly sold out. Growth is funded by cash flow and there is no shortage of growth drivers and growth ideas. Cash flow is the most important financial indicator of business performance and it's the most important source of growth capital. Profit is an accounting notion, and debt-financed development has its own set of risks. Cash flow is a pure indication of customer approval and customer value. Therefore, it provides the best funding source for both working capital and investment capital — turning the value experienced by consumers into the funds that enable expanded and enhanced value experiences in the future. Rogue, White and Blue has expanded into more designs, new apparel items, a strong website to drive sales, and a reinforced brand presence. Customer feedback loops ensure continuous improvement and progress. Meeting customers face-to-face or getting their feedback via the internet — these are feedback loops that help entrepreneurs refine their offering. The feedback may concern product quality, design, or brand imagery; it's all positive input for an entrepreneurial business that is open and not defensive whenever there is criticism. The entrepreneurial life is exciting. How are we all going to share in the productivity of the economy? The old way was to take a job and participate as an employee, hopefully ascending the hierarchical ladder of a firm or translating increased experience and skill in a profession for higher wages. As the digital economy unfolds, and more of the work is being performed through algorithms and A.I. and machine learning that's translated into process automation, the traditional ways of sharing in economic production will be blocked. The better alternative is economic participation and reward through entrepreneurship. James Kent describes the entrepreneurial life as exciting and fulfilling. It requires a thorough commitment and it's hard work — he described the long nights he's devoted to the Rogue, White and Blue brand — which he finds energizing and motivating. There's a commitment and a service ethic, and a consequent freedom. Additional Resource Use the promo code E4B for a site-wide discount at roguewhiteblue.com

We define entrepreneurship in terms of people working creatively to make others' lives better. That's a very broad statement, of course, so it's instructive to observe how individual entrepreneurs choose to make some customers' lives better in some specific ways by applying special skills and knowledge. Let's call it finding an entrepreneurial focus. Economics For Business talks to Jordan Lams, founder and CEO of Moxie, an industry pioneer in manufacturing, branding, and distributing cannabis products. Key Takeaways and Actionable Insights. Entrepreneurs find their focus — or, sometimes, it finds them. Bruce Lee is reported to have said that the successful warrior is the average man, with laser-like focus. Entrepreneurs develop focus on particular customers, in order to understand them better, empathize with their wants, and deliver them the experiences that they value. Developing this focus may take time, or it may come early in the journey, but empathy always provides the pathway. Jordan Lams observed the pain of a family member during a time of illness, and how cannabis products could bring some relief and comfort. From that time, he became focused on the health and medical benefits of cannabis in a broad range of personal circumstances. From a position of focus, entrepreneurs develop the deep knowledge that becomes their marketplace advantage. Entrepreneurial focus directs research and knowledge gathering. In Jordan's case, he gathered academic research, medical literature, and clinical studies, and he talked with medical practitioners about cannabinoid therapies. Networking brought him into contact with researchers and doctors and clinicians and product developers. He established a uniquely robust knowledge platform. Focus plus knowledge leads to opportunity tension. Some entrepreneurial theorists have coined the term opportunity tension — that period when an entrepreneur's focus and knowledge point to a market opportunity, but there remains unresolved risk in the process of seizing it. The entrepreneurial solution, of course, is to take the risk. Jordan executed his commitment by taking a job in the retail sector of his chosen industry — a place to meet customers one-on-one, and look backwards at the supply chain. Customer orientation is refined by direct contact, conversation, and experience. Working in retail enabled direct customer contact and unfiltered conversations about customers' preferences and wants, the benefits they sought compared to the benefits they experienced, and a general deepening of customer knowledge. In addition, Jordan was able to observe the supply chain, including the interruptions and inconsistencies that detracted from customers' experiences. Product quality was inconsistent and supply was unreliable. To an entrepreneur, this looks like opportunity. Knowledge, experience, and customer contact provided the ingredient for a new firm and a new value proposition. Jordan sums up the firm he founded, Moxie, as knowledge + infrastructure. A status quo of incomplete knowledge, inferior and inconsistent products in unreliable supply chains can be replaced by a new market of shared and distilled knowledge delivered via consistent and trustworthy quality. Customers are able to develop trust and confidence in a brand based on knowledge (“we know what we are doing”) that brings new maturity in the form of scale and process control and quality assurance to an emerging market category. The company's knowledge base enables vertical integration because the knowledge is broad and not narrow, the recruitment of strong partners because shared knowledge makes for robust collaboration, and new standards of quality, adherence to which strengthens customer expectations. The firm's foundation supports both R&D and open innovation. All markets are changing at high rates of speed at all times. That's why innovation is the essence of entrepreneurship. Standing still is a losing option. Jordan invests I R&D in the form of lab research (in pharmaceutical quality labs) exploring new product forms and new combinations, while also participating in the open innovation of knowledge sharing that goes on throughout the industry. R&D supports both specialization (making current offerings even better) and market expansion (new products, new forms). Brand building will be the patient route to long term growth. While business environments change fast, one way to invest with patience in a consistent direction is to build a brand. A brand can reflect customer values — the things that matter to them — in a way that creates lasting bonds. On its website, Moxie positions its brand as a force of character: courage, grit, determination, nerve. It provides an emotional connection to customers who value self-realization and self-actualization. Patient entrepreneurs can see the regulatory maze as a locus of opportunity, too. Moxie was the first licensed cannabis brand in California, and sees itself as a pioneer in leading institutional and regulatory progress. Instead of viewing regulators as business obstacles, Jordan employs his empathy skills to understand their position, their role, and their needs. He provides them with resources of information, industry knowledge and collaboration, and contributes where he can and where it's appropriate to help them arrive at decisions and translate them into subsequent implementations. As in building a company and building a brand, patience can pay off in future strength. Additional Resources EnjoyMoxie.com Jordan Lams on LinkedIn: Mises.org/E4B_188_LinkedIn

Business is a form of applied economics. Its purpose is to make people's lives better. Profit is the signal from society that business is doing a good job in the customer's estimation. This is a completely human system, a form of human action and interaction. Business schools take the approach of mainstream economics, that mathematics is the tool of choice, expressed in data analytics, accounting, financialization, and numbers-based plans and strategies. The Austrian school approach offers a very different path. Professor Per Bylund joins the Economics For Business podcast to highlight some important differences. Key Takeaways and Actionable Insights Business logic based on understanding subjective value. The purpose of business to facilitate customer value. The pursuit of new economic value brings new firms into existence, the continuing realization of new value experiences for customers results in business growth, and recurrent refreshment of value propositions keeps businesses thriving and healthy. Consequently, value is fundamental to business. Yet it is widely misunderstood. Sometimes it's misconstrued as shareholder value, a function of stock price performance. Usually, it's financialized as a set of numbers and indexes. True value is in the mind of the customer. It's the experience of feeling better off as result of interacting with a business — making a purchase, taking a subscription, or using a service that makes life feel better, and that feels like a superior choice compared to alternatives. Customers decide what to value, and therefore what to purchase, and thereby decide the success of a business. All businesses must learn this value logic, and Austrian economics for business provides the understanding that points to the implications for business action. Thinking in subjective terms. An understanding of subjective value reverses the flow of business thinking. It's easy and conventional to think in objective terms about products and prices — what a firm produces and offers and the price the firm charges. It's harder and somewhat counter-intuitive for businesses to think about how each individual customer feels — what's important to them, individually and personally, about the unique ecosystem in which they make their choices (e.g., their family profile, what kind of a house they live in, or the subjective resource allocation priorities of each of the individual firm they work for). The customer decides what is valuable to them, and that's the basis from which business action must proceed. Value-guided creativity. Business is a creative discipline. Because customer preferences and priorities are continuously changing, because competition is continuously aiming at making a superior customer proposition, because technology is continuously making new benefits and new customer experiences possible, and because we can't possibly know how all this will work out in the future, businesses must always be changing, improving, adding, renewing, becoming somehow better in the future than they are today. The only way to invent the future in this way is through creativity — new ideas, new combinations, new routes to convenience, new removal of barriers. Creativity can be random and unpredictable — we don't know what is going to be successful out of all our creative ideas. Therefore, we apply constraints so that creativity operates within productive boundaries, and the generative constraint is customer value. If all our creative ideas are guided by the constraint of “will the customer find this more valuable”, then the opportunity for productive innovation is greater. If we place ourselves in the shoes of customers, and try to simulate what they will feel when they experience a new value proposition, we're on the track to business success. This is value-guided creativity. Business as a flow. Business schools emphasize planning and strategy (and strategies are often just long-term, bigger plans). These are tools of prediction and control — predict the future (we will achieve $10 million in annual revenue this year) and control how we get there (100 salespeople must sell $100,000 each). The numbers can fill a spreadsheet. Similarly with organization design: the spreadsheet in this case is an org chart, with layers and reporting pathways and divisions and units, another exercise in statics. The Austrian recognition of constant change results in re-thinking business as a flow. Thinking in statics is potentially disastrous because the world can change while your firm does not. Thinking dynamically opens the firm to feedback loops from the marketplace, listening to customers and monitoring when their preferences change or competition shifts, and being open to adapting and adjusting. Organization design gives way to orchestration, the constantly changing arrangements dedicated to the improvement of the customer's value experience. Every business can and must act entrepreneurially. Our term for the orientation towards and capacity for constant change — constant pursuit of new customer value — is entrepreneurship. In the popular vernacular, the word entrepreneurship has come to be associated with charismatic individuals, like Elon Musk or Jeff Bezos or Reed Hastings. They are identified as the instigators of and catalysts for new value generation. That's fine — such individuals are important in challenging the status quo. But for effective and commercial and sustainable new value generation, the entire firm must be entrepreneurial — highly sensitive to how a particular configuration of resources and a particular business model and value proposition serves customers, and to changes in the business environment that require adjustment on the firm's part. The firm must be flexible enough to make these adjustments. Often, the market data comes to the firm from the edge, where front line employees working directly with customers gather the inbound information about change. The entrepreneurial firm ensures that the new information flows freely and is acted upon, and gives those closest to the customer the authority to make responsive changes. Business schools often teach static and defensive concepts such as economies of scale and competitively insulated market structures. Business for them is production management. Business from the Austrian school perspective is value discovery, value facilitation and responsive change in the form of new products, new services, and new value. Entrepreneurial empathy as a tool. When we think of business tools highlighted in business schools, we might think of strategic planning, data analytics, accounting, process management, incentive compensation, and financialization. The tool of choice for the entrepreneurial firm is empathy. Empathy is customer-first thinking. It focuses on identifying and understanding what customers feel is missing in their life, what they long for and wish for. There's a gap between customers' actual experiences and their desired experiences. They can't articulate solutions, but they're brilliant at identifying the potential for improvement. If the customer feels that some experiences could be better, or that they're struggling in some capacity with an experience, that's a signal for the creative entrepreneurial firm to experiment with new ways to deliver that betterment. Entrepreneurial firms create better futures for their customers via empathy. They bring customers new things that they can want, that weren't available to them in the past or of which they were not aware. It's not all numbers. Just as mainstream economics has been rendered irrelevant and meaningless to real people because of its insistence on the use of algebra and mathematical models instead of real world observations, so mainstream business schools have made business into a world of spreadsheets, accounting, data analysis, bar charts and graphs, and structures and formulas. Austrian school business thinkers understand the role of qualitative assessment — understanding people as humans as opposed to statistics, understanding emergent processes, understanding feelings and subjective value, and that the things that matter to people, both employees and customers, are values not numbers. That's why narrative and sense-making stories are taking the place of plans and strategies. Software development provides a good example: user experience design is a narrative about how customers prefer to interact with the software they are using, rather than a focus on lines of code. Action and feedback loops. The ultimate replacement for business school concepts of planning and strategy is action. Entrepreneurship is action. Action generates an effect — a feedback loop from the marketplace that signals the result of the action. The customer purchased or did not purchase. The rating improved or worsened. Revenue grew or declined. In the A/B test, B was preferred. The feedback loop is processed as learning, and new decisions can be made and new actions taken based on that learning, eliminating some possibilities, and opening up others. Innovation is introduced to the market and new learning follows new innovation in a continuous loop. In the thinking of entrepreneurial action, acting faster and sooner is better, because the effect is generated faster, the feedback loop accelerates, and the resulting new action is fresher and and more responsive to the customer's needs. When action is bolder and more daring, the feedback loop is more informative and clearer in its signals. The future unfolds as a result of entrepreneurial action. Entrepreneurs don't act alone or in isolation. The unfolding of the future is the consequence of many actions on the part of many people and firms. The market, therefore, is a process. Action and reaction keep it moving in unpredictable ways — resulting in what complexity theorists call emergence. The Austrian School is a complete system for business. We didn't have sufficient time with Professor Bylund in the podcast format to cover the complete range of business functions, including marketing and accounting and business model design, but these are all improved and enhanced by what we can call the Austrian approach. The goal of Economics For Business is to deliver this complete system in the form of tools, posts, articles, papers, books, videos, and podcasts like this one. Additional Resources Austrian School Versus Business School: A side-by-side comparison (PDF): Mises.org/E4B_187_PDF How To Think About The Economy: A Primer by Per Bylund: Mises.org/Primer

How do new markets form? When consumers change their tastes and preferences and behaviors, how are the markets to serve them activated? The markets don't yet exist — entrepreneurial action is required to create them. The answer to the question, of course, is that entrepreneurs — real people taking the real business risk to initiate new business experiments — provide the new energy and new initiative to create markets where previously they didn't exist. Jared Wall is one of these creative entrepreneurs, and thchempspot.com is his creation. Key Takeaways and Actionable Insights. Courageous entrepreneurs lead the way into new markets as they are still forming. Entrepreneurs bring the energy that opens new markets and new pathways to economic value. New markets can emerge as the result of changing consumer tastes and preferences, new channels or platforms, new forms of delivery, new technologies or a combination of several catalysts — but the energy, initiative and drive of the entrepreneur is always the necessary ingredient for the ultimate emergence of new value and new market arrangements. New discoveries and new innovations often provide the entrepreneur with market-opening mechanisms. Serving customers in new and different ways doesn't always require new products and services, but it is often the case that the discovery or invention of novel combinations can lead to innovation — that is, new and better experiences for customers that were previously unknown or unavailable or narrowly distributed. In the market for consumable cannabis products, there emerged a new THC variant called Delta 8 THC, a cannabinoid that offered both different product performance and different accessibility. The emergent new ingredient provided the pathway to a whole new market opportunity. Legislation and regulation are complications and barriers in formative markets, but often their ambiguity provides an opening for innovative entry. The courageous entrepreneurs who lead the way into formative markets often encounter legislative and regulatory barriers, since these are static drags on progress and innovation and never keep up with the changes in markets. At the same time, the regulatory thicket can sometimes be useful to the entrepreneur who can cut a new opening others can't imagine. In the market for consumable cannabis products, Delta 8 THC became such a new opening, which was cut when some content in a comprehensive congressional Farm Bill encouraged the commercialization of certain kinds of hemp, of which Delta 8 THC was one of the by-products. Legislators and policy authors can't think about the future the way entrepreneurs can, and they did not envision the future world of innovation they were unlocking. The regulatory maze is an aspect of legislation and regulation — but every maze has an exit path. Innovation in formative markets combines and compounds. Jared Wall launched thchempspot.com to offer Delta 8 THC experiences to consumers. Those who shop at the site find a lot more innovation than just this ingredient. There are multiple new consumable forms for varied experience delivery — gummies, chocolate bars, chewing gum, soft gels, and peanut brittle, among others. Where do these innovations come from? Not from the R&D labs of major corporations, that's for certain. They originate in the creative minds of imaginative entrepreneurs, and they take shape in their experiments and prototypes and willingness to try new things. Will they all be big successes? Of course not. But they will all generate feedback loops of acceptance or non-acceptance, reviews and ratings and experience sharing; they'll contribute to innovation as an ongoing cycle of learning. Society enjoys better choices because entrepreneurs unleash their creativity and don't hold back from experimental designs. Market infrastructure and market institutions can't always keep up with entrepreneurial change, but new supportive services quickly appear to lubricate frictions and provide institutional arbitrage. All commerce needs infrastructure such as payment systems and institutions such as banks, and market formation can sometimes move faster than infrastructure and institutions can adapt. Jared Wall had this experience — PayPal and major banks cut off services because thchempsot.com, while serving legitimate customers with legal products, was deemed a “high risk” business, outside their terms and conditions. Yet, in a quite inspirational way, business services emerge in these situations to navigate around the barriers of poorly adapted institutions. Jared found consultants who offer the service of connecting so-called “high risk” businesses with value-network partners willing to collaborate with them. Jared was quickly able to replace his payment system and banking infrastructure. There was a service interruption, but it was temporary. A new network of mediating services quickly formed to bypass institutional barriers. The creation and sharing of new information is a big part of the innovation equation. Jesus Huerta De SotoJesus Huerta De Soto; Socialism, Economic Calculation, and Entrepreneurship; 2010; Chapter 2, "Entrepreneurship". identifies the creation and sharing of new information as the central activity of entrepreneurs - informing customers of new products and services and new offerings and prices. Entrepreneurs are constantly creating, updating, and improving the information resources they make available to customers. High quality information enhances value. On thchempspot.com, Jared provides information in Q&A form, pull-down menus, and product descriptions. He's self-published an informative e-book that's free on the site, and he publishes an informative newsletter. We can sometimes feel unclear about the value of information, but in formative markets its importance is primary not secondary.

Every business should have an exit plan in mind from Day 1. Why? Because it's impossible to control the timing of an exit or the changes in circumstances that might precipitate it. Venture capitalists know this, and build in their exit formulas at the time of their initial funding. Entrepreneurs should think the same way. And, like any business process, selling a business is a knowledge-based process that repays an investment in learning its techniques and critical success factors. Economics For Business talked to Jessica Fialkovich, a successful business builder in her own right, who founded Exit Factor, an advisory firm that helps entrepreneurs get the most from selling their businesses. Key Takeaways and Actionable Insights Entrepreneurship provides better career control and security than corporate life. Jessica climbed the corporate ladder, investing effort and skill into being a great employee. But she was just a name on a list when the GFC came along - a list of those to be let go when Lehman Brothers (her employer's funder) collapsed. She realized that entrepreneurship provided her with great security. There's uncertainty, but the entrepreneur decides what their future is, takes responsibility for those decisions, and accepts the accountability. She built a successful business through hard work and the discovery process of identifying target customers and finding new and better ways to bring them value. Her chosen business was in wine sales to wine-loving customers, many of whom were connoisseurs. She developed many specialized services including finding rare wines for collectors, and her clientele spanned the globe. She incorporated the latest technologies and innovated in marketing techniques. She worked long hours, talking to customers across 16 time zones from Japan to California. Then she decided to sell. Entrepreneurs experience a lot less support when selling a business than when building it. When you're successfully growing a business, everyone wants to help, providing you with business services and supplies, and advice and ideas. What Jessica found when she came to sell was that she was on her own. It was hard to find expert help, or the requisite resources, or pretty much any kind of support infrastructure for a transaction of the size she was planning. For big business, there's investment banking. For the 99.9% of businesses outside the Fortune 500, there was nothing similar. There were some so-called business brokers, but they were not dedicated specialists, not professionals in the specific process of selling, unreliable and poor at client service. As an alert entrepreneur, Jessica understood that this finding signaled a market need. The first step to design for an under-served market is to draw on relevant experience from parallel markets. Business development always starts with first principles: is there a market to be served, in that some potential customers feel an unmet need or have a meaningful problem to be solved? Jessica had first-hand knowledge of the problem, and talking to entrepreneurs in similar situations reinforced her confidence in the market's potential. The comparison market Jessica chose was investment banking, which can be thought of as selling businesses of a larger scale. There's an established investment banking process and a timeline of steps and milestones from preparing an evaluation, to developing the pitch deck, to the identification of the best buyers and the tailoring of a marketing plan for them. Jessica's husband had some relevant investment banking experience which enhanced the knowledge transfer from one field to another, and provided a reality check for the process design. Business-to-business services development and execution has its own set of rules; the most important one is the nurturing of relationships. A business brokerage is a high-intensity B2B service bundle requiring a lot of in-person customized relationship management. There's pitching the potential customers in the first place, customizing the service tom their particular business and to meet their specific needs, with a big need for staff training to deliver these specialized services. B2B service providers must be both sales experts and process experts. That requires a lot of human capital. Jessica's answer was to design and build a system-based model that, once in place, could be repeated and reproduced via well-trained staff with the right IT support. She has found B2B services to be even more demanding than sourcing rare wines for connoisseurs. Selling a business is somehow more personal and individual. A client's perception of what their business is worth may be quite different than the market's perception. It's the nurturing of relationships that smooths out the potential jagged edges in these transactions. Some insights for entrepreneurs selling their business. Identify your exit options from Day 1 of your business. Since it's impossible to control exit timing - which may be due to unforeseen changes in circumstances - it's best to lay the runway from the start. Plan to run a salable business, as well as one that's profitable and growing. Don't have a fire sale or panic sale or be unprepared.Tailoring your selling process to the size and type of your business is important. There are different influences on what moves valuations up or down depending on business size, but, in all cases, it's a process with a beginning, a middle and an end to be planned for in advance. You've got to know how to find buyers, how to source offers, and how to keep your business in good shape for due diligence.Conduct regular health checks for evaluation. Always know what your business is worth. Find out how businesses are valued in your industry or sector. Make sure your business shows well on the criteria that are applied in your field.EBITDA multiples are the dominant valuation metric. You may read in the Wall Street Journal about businesses being acquired for brand value, or for technology integration, or for other reasons of corporate M&A strategy. For small and medium size businesses, EBITDA multiples remain the dominant metric. There's some art regarding what the precise multiple may turn out to be, but it'd within a range and is not going to vary wildly.There is some room for qualitative factors and subjective valuation. Jessica listed subjective factors ranging from the degree of business involvement of the owner (and the worry that their future absence might be detrimental) to the perceived quality of the brand and its imagery and reputation.The ultimate asset is a proven and scalable business model. If you can demonstrate that your business model returns increases in revenue and profit growth for additional investments in capital or people or marketing, then you are most likely to find an eager buyer. Make sure you can model your business in this way and that the data are clean and credible. Additional Resources Getting The Most For Selling Your Business by Jessica Fialkovich: Mises.org/E4B_185_Book ExitFactor.com Jessica on LinkedIn: Mises.org/E4B_185_LinkedIn

Do the principles of customer value generation that we espouse in our Economics For Business program apply equally for both B2C and B2B businesses? The answer is emphatically yes. B2B customers are seeking subjective value and a value experience just as B2C customers are. They have a clear sense of the things that matter to them, and those include emotional and personal values as well as price and functionality and performance. In fact, trends that begin in the B2C domain often quickly begin to influence the B2B domain, and the alert entrepreneur can track those trends in B2C and establish an early advantage by exploring them for their business customers. Rick West has done exactly that with his business services company, Field Agent. Key Takeaways and Actionable Insights In addition to identifying a meaningful problem, and providing an effective innovative solution, entrepreneurs in today's B2B market must offer the right service delivery platform. Rick West created a company called Field Agent to provide B2B customers with a meaningful service: monitoring their retail stores and shopper behavior and collecting in-store data about the interactions of shoppers, stores, shelves, displays and products. This kind of information is high value for both the retail operators (like Walmart) and the companies that sell products through retail stores (such as Procter and Gamble or The Coca-Cola Company). The set of services often goes by the terminology of “shopper marketing”. Typically, such business service offerings have a long and cumbersome sales cycle. The service provider and the service client get in contact, there are meetings, prices are negotiated, and contracts are prepared and signed. Then, once the service is executed, there are more steps in analytics and preparation of presentations of findings, and another big meeting to discuss the findings and recommendations. Lots of meetings, lots of travel, lots of time, lots of lawyers. Is this the right service delivery platform? It's been virtually institutionalized over time. But it's not a good fit with modern business models and the modern technology-shaped environment. The Amazon effect. Think about purchasing on a shopping platform like amazon.com. The customer first self-educates. If there's a complex product to buy – such as an expensive flat screen HDTV with internet connectivity and interaction with all the latest entertainment ecosystem devices like Roku and streaming services like Apple TV – the customer might search for information via google, might visit some ratings sites, do some comparison shopping, and generally collect information to get to the point where they are confident of making a purchase. They don't need to speak to an HDTV salesperson or a “customer success manager” or to sign a paper contract. Or think of a slightly more complex transaction such as buying a car on Vroom. There are some contracts to be signed via DocuSign, but confident shoppers are comfortable with self-educating, making their decision, committing, and experiencing the delivery of the car to their home, perhaps with the added service of taking away their old one. This is the world of services and service delivery we live in today. Your B2B customer also has a life as a consumer and an internet shopper, and is fully aware of the efficiency, convenience, and safety of these kinds of transactions. Call it the amazon effect: customers becoming comfortable with the “click-to-cart” experience, without interpersonal interaction with a salesperson or other service personnel. Why not in B2B services? Click-to-cart has arrived in B2B services. Rick West's customers for Field Agent services can purchase them on plumshop.com. A full array of shopper marketing services is offered via pull-down menus in categories such as Audits, Marketing, and Insights. Under these headings are Display Photography, Price Check, Shelf Management, Price Sensitivity Study, and dozens more, all in the language of shopper marketing that's well understood by the knowledgeable B2B service buyer. Clicking on any one of these takes the client to a price list and a detailed description of the service and its output, all in the colorful and engaging presentation style of an e-commerce site (like amazon.com!) The client can create an account online and make a transaction just as easily as buying a TV on amazon (and probably easier than buying a car on Vroom). Self-educated buyers know exactly what they want, and the description and designation of the services are crisp and clear. Clients can check out testimonials, comparison shop, and take all the steps any smart B2B service purchaser would take to get themselves to the point of confidence and trust. Some customized services will always be a client requirement, but there will be a rapid shift to more and more self-service. Some clients and some projects will always require a custom, tailored response, and Rick's company has both custom service and automated service capabilities. One point he makes is that a first project might be customized and accompanied by in-person client service, while for the second or repeat purchase, the client will be comfortable with the click-to-cart process. Rick's guessing a 70:30 split for automated versus customer services over time in his field, especially as the interface software learns and becomes better and better at responding to client needs and preferences. B2B entrepreneurs are trend-spotters in the B2C domain. People are people. Economic behaviors that we can observe in consumer shopping and buying are bound eventually to show up in business-to-business markets. They're the same people – your B2B client is a consumer when not at work. Smart B2B entrepreneurs keep an eye open for B2C trends that can be expected to transfer to B2B and jump on them early. Additional Resources Field Agent: FieldAgent.net Plum: PlumShop.com/fa/shop Rick West on LinkedIn: Mises.org/E4B_184_LinkedIn

How do companies make decisions? Data certainly don't make decisions, nor do analytics, nor do the computers they run on. Human begins make decisions — the human factor is crucial. Subjectivism is paramount, even in the age of big data and A.I. The key still lies with the people who are interacting with the data to generate human insights. Ahmed Elsamadisi is one of the leading data scientists in the world. He's worked on self-driving cars and nuclear defense and some of the biggest business challenges on earth. He believes that it is the stories we tell from data that drive business success. We are privileged to interview him at Economics For Business podcast, and he gave us a lot of useful advice we can all use every day in managing our businesses. Key Takeaways and Actionable Insights The data community has made data and algorithmic analysis far too complex, to the point where it's no longer useful for business. The path-dependent route to today's complex data tables was paved with lots and lots of columns and lots and lots of rows. These data tables are leftovers from the early days of computing SQL language was designed to manipulate these rows and columns. A.I. comes along and can analyze all the possible combinations of data cells. Business executives ask their data departments to generate a lot of these combinations to search for patterns. It often takes a long time, a lot of revisions, and generates no clear answers. Another aspect of history is the use of dashboards. We tend to design dashboards rather than formulate good business questions. The metrics on dashboards are sometimes useful for operations but they're often not at all useful for understanding the causal connections between data points. Consequently, different people can interpret them in different ways and there is no consensus as to what they mean and what to do about it. The purpose of data analytics is to generate good decisions that lead to action. The entrepreneurial method drives towards D and A: decisions and actions. Analytics should help to formulate the hypotheses on which to base decisions. The problem with complex dashboards and algorithmic pattern recognition is that they often don't give clear direction on recommended action, especially when the interpretation varies depending on who is doing the interpreting. Ahmed's experience is that sharing a numerical dashboard with 10 executives is very likely to result in 10 different interpretations, and the resultant confusion and disagreement freezes action rather than accelerating it. We need data to tell us stories that we can all rally around. The most powerful tool for developing consensus around action is narrative — often called storytelling. While 10 dashboard interpretations might lead to 10 different action plans, a single well-told story can align everyone who hears it, understands it, and internalizes it. We heard about the power of narrative in episode #181 (Mises.org/E4B_181) in which Brian Rivera explained the role of storytelling and sensemaking in The Flow System of management, and in episode #152 (Mises.org/E4B_152) where Derek and Laura Cabrera explained the power of aligned mental models for driving business. Stories achieve alignment. Ahmed Elsamadisi built his service, narrator.ai, to output data analytics in the form of a story. The complexity riddle is removed and replaced with a narrative that all executives, not just data scientists, can understand. Narrator.ai re-integrates data science with the all-important human element of understanding stories. The way to get data to tell stories is with a conversation. Ahmed says that the way we ask questions (data queries) is flawed. It's quite a normal practice to set the A.I. to search the data tables to look for patterns to see if anything interesting emerges. This is what Ahmed calls “lazy hypothesis generation”, which is never going to yield useful actionable insights (yet many big analytics companies are taking in huge customer revenues for just this service). Clients may claim to be making data-driven decisions but that's mis-characterizing this business behavior, typical though it may be. Ahmed advises us to think more in terms of a conversation with data. To facilitate this, he has developed a universal data model with just three variables: an entity (such as a customer), an action, and time. Every business question is about a customer taking some action in some time period. The universal data model enables the conversation: what action did the customer take in what period of time, e.g., when did they open the email and what action did they take after opening it. This is not a database query, it's a more thoughtful question about the customer experience and how to understand it. Ahmed told us that training customers in this conversational mode of interaction with the universal data model results in a cultural shift in thinking. The conversation can go back and forth in several iterations until the understanding is fully honed. Clients hear the data talking to them through the stories that narrator.ai generates. The have deeper insights and a story to share to form a consensus around the action that the story suggests. Narrator.ai clients have used stories for everything from describing new product specs to updating board decks. Great conversations with data are based on empathy and thinking about the customer experience. At Economics For Business, we elevate customer empathy a the most important business skill, in the context of an understanding of customer value as subjective, a good feeling from an enjoyable or satisfying experience. Ahmed advises us to think in this same way when formulating conversations with data to generate insights. If we think about the customer's experience, desired and actual, and the actions they take before and after that experience, and the time context of the experience, we'll do well in formulating good questions. The action component of the universal data model is central to the Austrian deductive method: knowing what people do can help us deduce motivation and expectation. Knowing what they did next can shed light on the ends they had in mind. Actions like opening e-mails or repeat buying are also revealing of intent and expectations. The more we converse with the data, the more insight we can gain. Storytelling with data is another implementation of subjective quantification — with the benefit of enhanced intuition over time. In episode #176 (Mises.org/E4B_176), Peter Lewin introduced us to the Austrian concept of subjective quantification — turning customers subjective valuations into numbers such as capital value on a balance sheet. We tested the subjective quantification term with Ahmed, and he endorsed it — with a major addition. It's important to include the dimension of time. If, over time, we have better and better conversations with data and formulate better questions and hypotheses, we'll get better and better at generating insights. Our intuition will improve. We'll get a better “feel” for the data. Even our empathy can become more accurate. Additional Resources Narrator.ai and its excellent blog, Narrator.ai/Blog "Top Ten Signs You Have A Data Modeling Problem": Mises.org/E4B_183_Blog Ahmed Elsamadisi on LinkedIn: Mises.org/E4B_183_LinkedIn

It's often the case that lead users — the most sophisticated, committed, and energetic users — are an excellent source of innovation ideas. Those customers who are most engaged are thinking the most intensely and the most creatively about what they want from the usage experience. We came across a particularly instructive example: video game modders. Who are modders, what do they do, and what can we learn from them? Professor Gordon Miller has studied this important entrepreneurial phenomenon, and he joins Economics for Business to share his knowledge. Key Takeaways and Actionable Insights. Modding is user-generated value innovation. Modding, from modifying, is the act of a changing a game, usually through computer programming, with software tools that are not part of the game. This can mean fixing bugs, modifying content to improve it, or adding content. But modding is not an activity taken on by those at game companies—developers release patches and downloadable content, not mods. Modding is instead done by players and fans of the game… Modding is more than adjusting the preferences or game settings, it is making changes that cannot be made through the game as it is. Game producers and designers enable and encourage this user innovation. Game producers have come to recognize that the creative ideas and initiatives of the modding community can contribute new value to their businesses and franchises. Games like Minecraft enable users to explore, within a predesigned GUI, a practically endless 3-dimensional world to build innovative structures and other things like functional computers and console emulators. Minecraft also makes available code and tools for modders to create mods that are essentially new games, or major innovations within the original game. The famous DOTA (“Defense Of The Agents”) game is entirely the product of the modding community, encouraged and enabled by the developer, Valve Software. Modding is a practical application of the theory of absorptive capacity. Absorptive capacity refers to the capability of a firm to recognize, collect, assimilate, process, transform and use external knowledge for competitive advantage in innovation, flexibility, and overall business performance. The external sources of knowledge are knowledge networks, either formal or informal or a combination of both. Formal networks might include suppliers and partners, university research departments and labs, and even industry share groups. It's sometimes called open innovation — actively looking at and tapping into what other firms are doing. Informal networks are those like the modder community — lead users, user groups, tinkerers, and so on. This is sometimes referred to as distributed innovation or user innovation — it's not the producer originating the innovation, but an external informal source. The challenge is to be able to generate awareness of these sources of knowledge, evaluate them, bring them inside to the company for evaluation and processing, and turn them into useful innovations or internal changes. In highly dynamic industries, it is productive to tap into these knowledge networks. Professor Miller refers to the external networks of knowledge, both formal and informal, as the wisdom of the crowd. If you are operating in an environment characterized by high dynamism and rapid change, the wisdom the of crowd is an important and often decisive resource. The wisdom of the crowd can contribute to innovation and business performance, especially in the form of idea diversity.Innovation performance improves through better firm capitalization of knowledge resources.The wisdom of the crowd offsets firm rigidity — making it more receptive to new ideas,Entrepreneurial judgment can increase innovation performance by increasing absorptive capacity.Innovation performance feeds back into absorptive capacity, creating an iterative self-improvement loop. Professor Miller proposes three areas of business development by capitalizing on external user groups. First, firms struggling to innovate due to internal rigidities may well benefit from developing communities — similar in concept to modding communities - connected to their own industries. By absorbing and incorporating the learning that occurs in such groups, they can take advantage of readily available innovative ideas for change. Second, these communities may also provide a wellspring of talent for enhancing the firm's absorptive capacity in useful ways. This is a pool of unique and entrepreneurial individuals with the potential to enhance the firm's human capital and make the firm more explorative. Third, even if the firm does not fully tap in to all the knowledge coming from the community, there is still the potential for new solutions to emerge that are stimulated by external ideas. There are always hobbyists and fans, and technology easily facilitates their interactions. Crowdsourced knowledge provides a uniquely useful tool for enhancing organizational innovation. The wisdom of the crowd is a path to profit. Modding as an art form allows players to express what they most want games to be. This becomes a useful indicator for determining the most profitable paths to pursue. Firms seeking to enhance their innovative capabilities and remain profitable must pay attention to external sources of learning, however informal. Additional Resources Download our free E4B PDF: "Assessing Your Firm's Absorptive Capacity": Mises.org/E4B_182_PDF The Invisible Hand In Virtual Worlds: The Economic Order of Video Games by Matthew McCaffrey: Mises.org/E4B_182_Book

The traditional approaches to the structure and management of firms are becoming barriers to customer value. The Austrian capital theory approach recognizes that all value in the corporation flows to it from the value experiences of customers. Therefore traditional organization design — centralization, hierarchies, divisions, bureaucracy, command-and-control — insofar as they are poorly aligned with customer value actually detract from the value of the firm. There are alternative approaches to business organization, several of which we have highlighted in Economics For Business. One well-articulated alternative is The Flow System (Mises.org/E4B_181_Book). We talk to one of the authors of the concept, Brian Rivera. Key Takeaways and Actionable Insights The first principle of all business organization is the delivery of customer value. The superiority and broad applicability of the Austrian business model emanates from its value-dominant logic. The purpose of business is to facilitate a value experience on the part of the customer. Only value matters, and all else (resources employed, raw materials used, production costs, organization, supplier partnerships, etc.) follows. Austrian capital theory enables managers to identify value drivers (i.e. what resources, raw materials, production costs, organization, partnerships result in the most value for customers). The focus of the Flow System is to deliver the best value to the customer through FLOW: the interconnection of complexity thinking, distributed leadership, and team science. Flow is another term for entrepreneurial judgment. In Brian Rivera's book, The Flow System, flow is described as “a narrative of in-the-moment decision making of judgments”. It is entrepreneurial action and interaction with the environment, irrespective of structure. It's goal-oriented adaptive and collaborative behavior of teams and firms. The Austrian perceptions of the market as a flow, value as a flow and capital as a flow mean that the Austrian business model is perfectly consistent with The Flow System. Mastering complexity thinking is fundamental to implementing the flow system. Many business environments exhibit high variability and uncertainty. We've used the term VUCA to characterize them: volatile, uncertain, complex and ambiguous. All business managers and entrepreneurs can benefit from adopting a complexity world-view, and understanding business as a complex system. Complex adaptive systems are open, continuously dynamic, evolving, learning, and responsive to external changes. They can oscillate between order and disorder, they're non-linear and can't be predicted or controlled. Brian Rivera highlights a number of techniques to manage in such an environment, including: Sensemaking: the development of narratives or storytelling to conceptualize the complex environment and develop an appropriate set of mental models. The question to ask is, “What's the story?” — the story that can unite the firm and its partners around a shared understanding and shared purpose. Weak signal detection: in complexity, signals are never clear; uncertainty is the norm and errors are always a possibility. Weak signal detection is simply intensifying the scnning of the environment for insights and noticing more, so that both threats and opportunities can be detected earlier to avoid surprise. Action: the only source of real knowledge about the world is experience, and experience results from action. Therefore, The Flow System emphasizes action — the D and the A in the OODA loop. The Flow System employs a new definition of leadership: distributed leadership. Distributed leadership is described as leadership that extends horizontally, vertically and every place between. The tools of leadership are not structures (such as hierarchy and top-down management) but methods: Psychological safetyActive listeningIntentShared mental modelsBias towards actionCollaborationMentoring. Perhaps the most essential factor is psychological safety among team members. It's a group property — a shared belief in which the team is safe from interpersonal risk taking. Individuals can speak up, take risks, and experiment without fear of criticism or reprisal so long as every action fits within the shared belief framework. There is no command structure, and teams are the building blocks of the organization. There's a new field of team science for collaborative functioning in the workplace. Team science is multi-disciplinary. Teams are necessary for the development of solutions in many problem areas, and the research behind team science has been conducted in many fields (ecology, healthcare, organizational science, psychology and more). A team is a collection of individuals with a shared goal, who interact and are interdependent in their tasks, who have different roles while sharing responsibility for outcomes, and constitute a social entity embedded in a larger system (a business unit or corporation) requiring them to manage relationships across organizational boundaries. A major section of the book The Flow System is devoted to an overview of the current state of team science as it relates to business organizations, covering team size and composition, teamwork, team processes and team transitions, team culture, team effectiveness, and combining teams for multi-team scaling. Here's a sample concerning the functions of shared leadership in a team: Compelling team purpose — exceeding individual goals.Members work jointly to integrate their complementary talent and skills.Outcomes are collective, joint efforts.Members adapt their working approach to each other.Mutual accountability plus individual accountability. Core principles and attributes of The Flow System. Customer firstValue is a flowComplexity thinking, distributed leadership and team science can facilitate the flow when they are interconnected and synchronized. Additional Resources E4B Knowledge Graphic — "The Flow System Guide" (PDF): Mises.org/E4B_181_PDF theflowsystem.com flowguides.org The Flow System by by John Turner, Nigel Thurlow, and Brian Rivera: Mises.org/E4B_181_Book Teams That Work: The Seven Drivers Of Tea Effectiveness by Scott Tannenbaum and Eduardo Salas: Mises.org/E4B_181_Book2

Entrepreneurship today is a movement, a welling-up of new economic creativity, combined with a great desire for economic freedom and the joys of self-reliance and discovery. The movement is newly empowered by enabling institutions that simply weren't around a few years ago, including the internet and its digital economic platforms. Professor Raushan Gross is a great observer and great documenter of this entrepreneurial surge, and he joins the Economics For Business podcast to share some of his original and distinctive observations about the very human aspects of his new entrepreneurial studies. Key Takeaways and Actionable Insights Let's not over-theorize and over-professionalize entrepreneurship: it's people finding new ways to thrive by creatively serving other people. There's an explosion of university entrepreneurship programs, entrepreneurship research and entrepreneurship methodologies. There's an attempt to professionalize entrepreneurship, to make it a product of business schools. Raushan Gross sees things differently, through a humanist, subjective and ethical lens. He looks at the culture of entrepreneurship, the social movement of individuals making their way in life in a new manner, seeing new opportunities to make their lives better for themselves and their families by making life better for others. There's a newly emerging set of institutions and a new class of entrepreneur: the digitalpreneur. Economists take an interest in how institutions shape behavior and economic activity. They see institutions as constraints. They sometimes call them “the rules of the game”. Professor Gross has a different take. The new institutions of entrepreneurship — the internet, digital platforms, e-commerce, digitization in general — are not constraining; rather, they are openings to a new space with new possibilities. This digital space is welcoming. There's abundant knowledge to be shared. There are new ways to think about access to resources, about production and marketing and organization. There's a new world of price signals, much more flexible and fast-changing, and the route to cash flow and profit is faster. Professor Gross identifies digitalpreneurs as a new economic class: not higher or lower, not defined by their origins or background, free to move at any speed and to access any place in their relentless, unbounded pursuit of entrepreneurship. Today's entrepreneurs are rewriting economic history: from the invisible hand to the visible hand to the digital hand. Adam Smith introduced the metaphor of the invisible hand — the concept that individual economic actors and firms entrepreneurially pursuing their own profit goals generate the economic system we call free market capitalism, with benefits for all of society. Friedrich Hayek expressed a similar idea as “spontaneous order”. The invisible hand guided the rapid growth in real standards of living of the industrial revolution. Then the visible hand imposed itself: the concepts of management control, and of planning and centralization. Creativity, innovation, and rapid growth were suppressed, while bureaucracies expanded. We got “Bullshit Jobs”, in David Graeber's locution, from which creativity and caring were expunged. Professor Gross takes us beyond both the invisible hand and the visible hand to the digital hand, which gently guides digitalpreneurs to participate in or even create new markets. The digital hand is generative. It enables digitalpreneurs to operate their own digital platforms, to construct their own digital economy, to assemble their own economic knowledge and to find their own unique place in the knowledge economy. The digital hand opens up new pathways to economic freedom. Digital entrepreneurship can be conducted at any scale, but watch out for the dead hand. Where are the corporations in their embrace of digitalpreneurs? Certainly, there are the new digital corporations like Amazon and Google who seem willing to hire members of the new class and turn them loose in creative experimentation. But what about the old economy corporations who need to make the transition to the new world? Are they hiring entrepreneurs? Are they enabling entrepreneurs, freeing them from bureaucracy and from the command-and-control hierarchy? The evidence so far is that they are not. How to integrate the entrepreneurial orientation into a corporate organization remains an unsolved mystery. How can the corporate advantages of reach and scale be leveraged to further realize the senses of purpose and meaning that drive entrepreneurship? How can corporations shift to the entrepreneurial culture? They need to find ways to eliminate what Professor Gross calls the Dead Hand — bureaucracy, regulation, control, risk-aversion, centralization, procedures, and rules. But corporate culture is not the only barrier to the realization of the entrepreneurial society. There are other cultural barriers to overcome. Professor Deirdre McCloskey is famous for her analysis that the catalyst for what she calls The Great Enrichment — the 3000% increase in real standards of living in certain Western countries from 1800 to the present — was a change in how we talked about entrepreneurship. The perceptions and descriptions of the bourgeois life of commerce transitioned from scorn to admiration. Entrepreneurs came to be seen as bold and innovative, a force for good, providers of desirable services enhancing the quality of life. Professor Gross sees a fresh need for such a change in language and cultural support for the new age of digital entrepreneurship. One example he gives is the language of venture failure. Initiatives that are concluded early or don't hit some target or don't attract sufficient buyers or don't generate enough profit to be sustainable are deemed “failures”. This characterization tends to lead to erroneous conclusions about risk (as in risk of failure) and about the people who engaged in the initiatives (“failures” or, worse, “losers”). There's a much different and better way to frame the same data as learning, and augmenting the pool of knowledge. When we think of entrepreneurship as a flow, we can visualize how information flows from the past to the present, elevating the intelligence of every entrepreneur and every firm that's operating today. Not only does knowledge flow, it compounds, so today's entrepreneurs can be exponentially more informed than their predecessors. The more we adopt this win-win cultural approach to cumulative entrepreneurial knowledge-building, as opposed to the win-lose language of failure and success, the closer we'll come to the beneficent entrepreneurial society that Adam Smith imagined, before he was so rudely interrupted. Additional Resources Join Economics for Business today and receive a free copy of The Emerging Institutions of Entrepreneurship eBook by Raushan Gross: Mises.org/E4B_Join

There is an excellent, deeply researched, Austrian economics-founded theory of customer value: the value learning cycle, which we explored thoroughly in Episode #178 (Mises.org/E4B_178). How do entrepreneurs and executives apply that theory to create customers, delight them, and grow strong brands and businesses? That's the subject of the second part of Mark Packard's business handbook for value creation, Entrepreneurial Valuation: An Entrepreneur's Guide To Getting Into The Minds Of Customers (Mises.org/E4B_179_Book). Key Takeaways and Actionable Insights Entrepreneurs can't directly access the customer's mental model, but they can apply empathy to run simulations. Entrepreneurial empathy is the ability to see the world through the mental model of the customer. We all see the world through mental models rather than directly, and each of us has our own, unique mental model. But mental models can also be shared and aligned. A mental model is a way of thinking about real situations or about the real world. It's quite possible to describe someone else's mental model. We can first ask them questions (“How do you think about your current situation?” “What do you do when the car you drive gets to 50,000 miles on the odometer?”) and then run hypotheses or ideas through the model that emerges (“How do you like this?”, “How does this make you feel?”, “Would you buy this product?”) Empathy is knowledge-based, and therefore can be practiced by any entrepreneur. It's not the case that some people are more capable of empathy than others. Since empathy is knowledge-based, it can be learned, developed, and trained. It's a process of filling different buckets of knowledge about your customer. There's factual knowledge about them, as well as factual knowledge about their consumption or usage (e.g., location, frequency, any reports, or ratings they've provided). And then there's experiential knowledge — what an experience felt like to them. Only the customer has this experiential knowledge, only they can feel it. But if the entrepreneur can understand the customer's mental model, it's possible to simulate what that experience might feel like — feel what they feel. It's possible to get closer and closer by experiencing it yourself: eating the food you're offering them or the beverage you've designed, using their mental model rather than your own. The customer's experiential knowledge is tacit — it can't be communicated directly — but entrepreneurs can get closer to it through simulation, and interpret it through empathic technique. Be aware that there is always the risk of what Mark calls interpretive loss — we listen or observe but we don't interpret the data properly or fully. Our downloadable pdf provides direction on where interpretive loss occurs and how to safeguard against it. There are some techniques to reinforce the accuracy of empathic investigation. Lead users: In every category, there are users who feel needs and experience unsatisfaction / dissatisfaction more intensely. Give investigative priority to them.Contextual in-depth interviews: Communication can be more productive using specific techniques from our E4B tools library. The contextual in-depth interview technique is one of our useful tools.Ethnographic deduction: Ethnography is the technique of observing users in action. It's a better tool than a survey or questionnaire — what users do is more informative than what they say when answering surveys. Researchers deduce motivations from observation.Behavioral data: Some data streams can be the equivalent of ethnography — observing users buying or searching as an indicator of their needs, preferences, and concerns.Entrepreneurs can also learn from themselves: We are all both consumers and producers. In the categories that are most important to you, observe your own behavior as a user. Be aware of your concerns as a customer. Make your empathy channel customer-to-customer. From value propositions to innovation. Developing a value proposition is a problem-finding process. Designing an innovation is a problem-solution process. Problem-finding is the development of knowledge of a problem to be solved from the customer's perspective, using the experiential learning from the mental modeling exercise. A problem is not the same as a need — it's a specific gap in the solution landscape of products and services from which the customer can choose, a gap that can be filled with a new solution yet to be identified but capable of identification. Problem-solving is the application of resource knowledge and technical knowledge to identify a new solution. The entrepreneur must navigate multiple uncertainties to arrive at a solution — demand uncertainty (is there real demand?), technical uncertainty (will it work?), resource uncertainty (will I be able to gather the resources to get to a solution?), capability uncertainty (can I do this?), and competitive uncertainty (will someone else beat me to it?). Mark's book includes a multi-step process for problem-solution creativity. One of the most interesting is knowledge combining. What's a pancake boat? It's a combination of two very basic words and ideas that represents the potential for something new. Perhaps a very flat-profile boat for floating under low bridges. Or a breakfast barge touring the harbor. The point is the combination. When entrepreneurs can combine technological knowledge with problem knowledge, it's possible to invent a new solution without inventing a new technology. Mark has two suggestions to help with knowledge combining. One is to become interested in technologies. If you are having a hard time devising a solution, it's probably because you are not familiar enough with technologies that are already available to do so. Find tech websites that can keep you up-to-date on the latest discoveries and applications. The more you understand about the properties and capabilities of resources and technologies, the better you can leverage those properties and what they do. The second suggestion is a specific method. List as many different resources, technologies, and skills that you know about — software skills, hardware skills, people skills, technologies you've worked with, processes you've worked with, etc. Keep the list updated. Then turn to the problem you are trying to solve. Mentally step through all the resources on your list and bring each of them into active memory. Try to think of a possible solution using each one. Keep going through the whole list. You're bringing technical knowledge schemas forward while holding your problem knowledge in active memory. Do any of the solutions stand out? Are there any that are truly outside-the-box? Are any of them impossible with current technology? That's good. Do more research. You might find a breakthrough answer. It takes time, commitment, and resources, but when you are passionate about the entrepreneurial process the effort will pay off big time. Entrepreneurs get inside the mind of the customer to make the world a better place. The goal of entrepreneurship is to enhance and improve the state of well-being experienced by customers. To achieve this goal, entrepreneurs aim to understand the customer's mental model, and run creative solutions — potential futures — through it to simulate the customer's new experience. It's a counter-factual exercise, but entrepreneurs can improve their capacity, and their odds of success, with practice, commitment, and the use of some of the cognitive techniques Mark Packard recommends. Additional Resources "Contextual In-depth Interview Technique" (PDF): Mises.org/E4B_179_PDF "Interpretive Value Learning" (PPT): Mises.org/E4B_179_PPT Entrepreneurial Valuation: An Entrepreneur's Guide To Getting Into The Minds Of Customers by Mark Packard: Mises.org/E4B_179_Book

Getting into the minds of customers is the universal need of everyone in business. A new book by Mark Packard, Entrepreneurial Valuation, provides a new understanding of how customers identify value in the constant, never-ending flow of the value learning cycle. Mark joins Economics For Business for a two-part episode on how entrepreneurs can better understand value in order to delight customers. Key Takeaways and Actionable Insights Getting into the minds of customers is the universal need of everyone in business. The business world is enthusiastically adopting the insights of Austrian economics. They appreciate the unique economic perspective that can help grow and strengthen customer-facing businesses — and that means all businesses. Professor Mark Packard is presenting his insights on customers and how their minds work when choosing what to buy in a new book, Entrepreneurial Valuation, with the sub-title An Entrepreneur's Guide To Getting Into The Minds Of Customers (Mises.org/E4B_178_Book). It's a business book for every business and every businessperson. The first step is to experience value as customers experience it. They learn it. The purpose of business is to create value for customers. And for customers, the pursuit of value is everything. It's life — a never-ending process of identifying what they expect to be valuable to them and trying to weigh up their choices between alternatives. Human beings are always valuing, all the time. In fact, Mark makes the point that we should think of value as a verb, not just as a noun. Value as a noun has a specific meaning: it's an experienced benefit that constitutes a change in well-being from a state of unwellness to a better-off state. The benefit is the experience, and it can be ascribed to something that made us feel better off, which therefore has value. Valuing — the verb form of value — refers to human beings constantly deciding what to do and what to choose based on their valuation process. And that process is learning — learning from previous value experiences, and learning from observing others. As customers, people are always asking: what makes us and others the best off we or they can be? Entrepreneurs must have their own, complementary, value learning process: learning what customers value and, ideally, what they will value in the future. Customers can be unsatisfied or dissatisfied. It's important that entrepreneurs address these value states differently. The default state for people is unsatisfied. We have unmet needs that we feel all the time. Mises called it a state of uneasiness. Needs like hunger can be satisfied in the short term, but the satisfaction degrades quickly. Needs like security or freedom or friendship may always be unsatisfied, or at least part of the time. There is always a state of greater well-being to aspire to. Dissatisfaction is a different state. A customer may have applied their value knowledge — made a valuation — to predict a future value experience, and it falls short of their expectations. They made an error. This results in a feeling of dissatisfaction Both states are opportunities for entrepreneurs: to meet a hitherto unmet need, or to substitute satisfaction for dissatisfaction via a new or better solution. It's important to know the customer's state of well-being and its source. Customers have limited value knowledge and considerable value uncertainty, yet they must make value predictions. Customers use the value knowledge they possess, from previous value experiences or observing others in the market, to try to predict a future improvement in well-being for themselves. What choices should they make to achieve this improvement? How do they make the prediction? They perform a mental simulation of future value experiences. They imagine themselves having a future value experience with a particular product or service. Via the simulation, they form their predictive valuation: the benefit they expect to experience in the future. When they actually use the product or service, they assess the actual value experience and compare it with the prediction, thereby updating their value knowledge. They ascribe to the product or service the satisfaction or dissatisfaction experience they feel. Or they might ascribe it to a set of circumstances or some other context. In any case, they have a new mental model: a new experience they can ascribe and use for future predictions. Value learning is a cycle. Self-assess to identify unsatisfaction and dissatisfaction;Search for new value propositions with new satisfaction potential;Compare the new value proposition with alternatives (and with others' experiences);Make an economic calculation: willingness to pay;Purchase;Usage experience — including objective value experienced in consumption and subjective value experienced as degrees of feelings of satisfaction (e.g., delight at exceeding expectations versus satisfaction at meeting expectations versus disappointment at failing to meet expectations);Assess usage experience compared to value expectation;Adjust value knowledge base and revise future expectations. Austrian economics helps businesses get into the minds of customers to monitor and understand their value learning. Economics is a much better discipline than finance on which to construct an approach to growing a successful business, because economics is the science of choice: how customers choose the ends they pursue and how they choose the means they perceive as best for attaining their ends. It's the Austrian school of economics that is most useful. Traditional economics believes that customers seek utility — what's useful to them. But subjective value doesn't reside in utility, it resides in the satisfaction that comes from the feeling of making the best choices. Behavioral economists believe that customers have a tendency to make poor choices (from the economists' point of view) because of incomplete value knowledge. But Austrian economists accept the customer's mind as it is. The goal is to understand how customers choose and how they experience value in their everyday lives, how they negotiate value uncertainty, how they set expectations for the future and how they compare actual experience with expectations. What goes through their minds? To know that requires getting inside their minds, which is what Professor Packard is trying to help us to do with his new book. Additional Resources "Experiential Value Theory: How Customers Think About Value" (PPT): Mises.org_E4B_178_PPT Entrepreneurial Valuation: An Entrepreneur's Guide To Getting Into The Minds Of Customers by Mark Packard: Mises.org/E4B_178_Book "Tools For The Value Learning Process" (PDF): Mises.org_E4B_178_PDF

The business-as-a-flow orientation embraces continuous adaptive change within the firm. Traditional slow-motion control mechanisms like strategy and planning are no longer appropriate. The new toolkit that entrepreneurs are developing includes the after action review (AAR), a learning tool rather than a misguided attempt at predictive control. Key Takeaways and Actionable Insights In a VUCA world, entrepreneurial orientation embraces change and adaptation in order to reach goals. Learning fast is critical in times of accelerated change. A business firm must change at least as fast as its market and its external environment if it is to survive and thrive — ideally faster. In earlier podcasts, we've made reference to the OODA loop as a non-linear change management framework: Observe changing data, filter those Observations through your firm's capabilities, culture, heritage, and experience to understand what the new data means to your firm specifically, re-Orient if it's indicated, make new Decisions and take new Actions, and monitor the feedback loops for updated Observations. Speed of progression through the loop is a competitive advantage — make changes faster than your competitors. One of the keys to successfully managing change is a bias for action. It's possible that in some situations some businesses may fear taking action — they lack confidence in their own hypotheses and are concerned that their action might be “wrong”. Austrian entrepreneurship takes a different perspective. Entrepreneurial orientation and intent shape decision-making by giving it a high potential focus and, thereafter, every action is framed an experiment from which to learn. Learning enables a greater capacity for reframing. Curt Carlson, in E4B podcast #175 (Mises.org/E4B_175), told us that relentless reframing is key to success in innovation. Learning through action is paramount. The tool for learning from action is the AAR – After Action Review. The After Action Review is a simple device that asks the questions: what did we intend would happen, what did actually happen, what can we learn from what happened, what will we change next time we take action. Intent — What are the intended results and metrics?It's important to continually review the shared understanding of intent among those participating in any action or project or initiative. Shared intent is the mechanism that supplies direction and thrust so that everyone is moving in the same direction. It's sometimes called commander's intent (in the military) or leader's intent (in Agile team science). It's key that every team member subscribes to and can articulate the intent.Performance — What happened? Is there a performance gap compared to intent?“What happened” can be a challenging question because observation is often subjective, and individuals in different vantage point and with different perspectives can provide different reports or estimations of what happened. Cultural factors become important – front line actors and individuals located lower in a hierarchy must be able to speak freely about what they observed without fear of contradiction or condemnation by superior. A performance gap must be viewed as a learning opportunity that is good for the entire team and the firm as a whole.Learning — What was the cause or source of any performance gap?In a high-speed learning culture, teams are eager to identify causes or issues that give rise to performance gaps. In complexity thinking, it is not always possible to identify linear cause-and-effect linkages, but it's generally possible to identify areas for improvement as a result of experiencing a setback. It may simply be necessary to run more experiments until a better performance can be attained. It may be possible to identify obstacles that can be removed. It may be possible to identify risks that can be mitigated. In any of these cases, learning via experience (i.e., after action) advances knowledge and augments adaptiveness.One possible learning is that the intended result is not, in fact, within the capacity of the firm, leading to either a decision to augment capacity or a decision to redirect existing resources into other lines.Next Time — What should we change?Learning leads to new hypotheses which can be implemented through new action. The After Action Review identifies what changes in behavior are appropriate to try in a future action. There's the opportunity to eliminate waste, or abandon no-longer promising trials, or experiment with improved ideas. In a learning culture, there is eagerness to return to action armed with new knowledge and to explore new potential. AAR's can span all time periods: before action, during action, after action. When should a firm conduct AARs? All the time. In fact, there's a role for before action reviews, during action reviews and after action reviews. All have the same structure. What is / was / is going to be our intent?What challenges will we expect to face / are we facing / did we face?What have we learned in the past / what are we learning right now / what caused the latest gap?What will make us successful this time / what adjustments should we make right now / what will we change next time? A learning culture and orientation are critical to the successful application of AAR's. Learning via AARs is not mechanical, it's cultural. The culture of the firm must be that there's no development, no progress, no improvement without learning. Mark McGrath links the learning culture to the growth mindset. The relevant assessment is not one of strengths versus weaknesses but the mindset of the firm compared to that of its competitors. Seeking growth is a mindset, and so is learning. It's a humble mindset in which we recognize our bounded understanding and seek eagerly to augment it with new knowledge. There are simple shared rules for individual AARs and for the learning culture: shared goals and mental models, open to every level of the organization, psychological safety, transparency, shared findings, preparation for next time. Within these rules, every firm can build a capacity for learning that becomes a capacity for growth. Additional Resources E4B AAR template (PPT): Mises.org/E4B_177_PPT Background reading: NextForge.com "Orientation: Bridging The Gap In The Austrian Theory Of Entrepreneurship" by Mark McGrath and Hunter Hastings (AERC 2022 Paper): Mises.org/E4B_177_PDF1 Mark McGrath on LinkedIn: Mises.org/E4B_177_LinkedIn OODA Loop: Mises.org/E4B_177_PDF2

At the core of the entrepreneurial orientation that is the engine of vibrant, growing, value-creating, customer-first businesses, we find the principles of subjectivism and subjective value. Subjective value embraces not only the value the customer seeks, but also the value that entrepreneurs establish in their companies: capital value. Once businesses master these two principles in combination, they can open new horizons of innovation and growth. Key Takeaways and Actionable Insights A fundamental advantage of Economics For Business over traditional business schools is the understanding of subjective value. It's hard for conventional businesses, and for the traditional instruction in business school, to fully embrace all the insights of subjectivism and the subjectivism of value. The traditional bias is towards numbers, quantification, prediction, and financial control. Value is conflated with price and profit. Value is what customers will pay, cost is what the producer pays for inputs, and profit is the difference. Value is inherent in the thing that is produced. Finance and accounting are the numerical tools for computing these relationships. When business embraces subjectivism, the value is not in the thing. Human minds bring value to the thing. Value comes ultimately from the consumer or end-user. They evaluate the offerings available to them and make value decisions, to part with their money (or not) to claim the value that's offered. Value is better thought of as a verb rather than a noun. It's an emotional driver of decision-making. Firms can't impose their concepts of value on customers. A key difference for the subjectivist approach is that customers alone determine value and producers can't create it and sell it. Value is experienced by customers and, of course, experience lies entirely with them and can't be reproduced or projected or simulated by producers. That doesn't mean that there's no role in value generation for businesses. Steve Phelan broke down the firm's value role into 3 parts: value imagination, value delivery and value capture. Value imagination is a belief about the future — entrepreneurs imagine (or have a “hunch” about) a future in which a target customer experiences value from the producer's offering, the goods and/or services they make available to customers. This imagination step is a major component of the entrepreneurial journey construct we employ at econ4business.com to help businesses generate value and grow. It's creativity at work — where value creation starts. Value delivery is implementation of the imagined value: designing the goods / services for commercial offering, assembling all the components required for implementation (including people in team roles as well as production assets) and taking the offering to the marketplace with a price and a value communication bundle. Value capture concerns how much of the value experienced by the customer flows back to the producer. Typically, value production takes place in a system — perhaps including retail channels, or a wholesale partner, or a bank of financial partner. How much of the value flow do they take? Or how about competition, who might copy and undercut. Or suppliers who violate contracts or under-perform on contracted services. Entrepreneurs must pay close attention to value capture. Subjective value thinking extends to business investment decisions. Subjectivism applies not only to value but to the assets of a producing firm. The subjectivist approach understands assets as providers of potential services that customers might value. Most classes of assets (including people) can be assigned to multiple different uses and multiple configurations for the provision of different services. Entrepreneurship weighs up — evaluates — all the possibilities and assigns the assets to their greatest value generating uses. Value calculus assesses the value-producing arrangements inside the firm. Entrepreneurial producers of value face in two directions: outward to the market and customers, and inwards to the firm and its internal organization. Looking inwards, producers must calculate which assets — including both human capital assets and physical assets — in which combination result in the greatest value for customers at the least cost. This requires an evaluation that assesses value flowing to the customer from the firm. Since value is subjectively determined by the customer, this calculation is extremely challenging. Peter Lewin called it subjective quantification, and Steve Phelan used the term value calculus. It's a combination of qualitative and quantitative assessments that's learned over time. It's highly contingent on the (changing) value preferences of customers. Internally, managers must combine their people assets and physical assets in a way that produces most value based on this uncertain and changing value calculus. Entrepreneurs and owners can't be the decision-makers for everyone, and so the organizational technology must be designed for greatest value generation. Instructively, that organizational technology has been changing over time — from highly structured and divisionalized organizations to today's more open, networked, and interconnected organizations. The tool for capturing this value calculus is EVA — economic value added. Capital is a value. In fact, Ludwig von Mises remarked that it was unfortunate that business ever coined the term capital goods, because it tends to make us think of capital as something solid and fixed. It's not — it's the result of the value calculus that Steve Phelan talks about. Capital value can be measured, but not in the way that is captured on a P&L or a balance sheet — creating numbers that appear to be exact, and fixed and fully determined. Entrepreneurs must estimate capital value and the estimate is that of the valuer. They do so algorithmically — there's a process and a routine but it's not necessarily mathematical. It includes breaking down the asset combination into smaller and smaller components — perhaps individual people or teams, or perhaps divisions versus the entire company, or perhaps some set of components that can be thought of as an integrated grouping — and assessing their relative capital value contribution. Money values can be used since this helps the expression of relative value, but the algorithmic computation is never exact. Its validity is always in the eye of the valuer. The goal is to find costs that don't add value, or don't add as much value as other costs. Accounting and finance — one looking to the past to measure what happened and one looking to the future to predict what will happen — offer objective-looking numbers, but they truly reflect the subjective value calculus of the entrepreneur in trying to allocate economic value added as accurately as possible. Additional Resources "An Austrian Theory Of The Firm" by Peter Lewin and Steven Phelan: Mises.org/E4B_176_PDF1 Austrian Capital Theory: A Modern Survey of the Essentials by Peter Lewin and Nicolas Cachanosky: Mises.org/E4B_176_Book "Entrepreneurship in a theory of capital and finance — Illustrating the use of subjective quantification" by Peter Lewin and Nicolas Cachanosky: Mises.org/E4B_176_PDF2

Curt Carlson has devoted his life to value creation and innovation — VC&I as he sometimes characterizes it. He has been CEO of SRI, a “pure innovation” company where the business model was to create important new innovations that positively impacted the lives of many people. Examples of his innovations are Siri (ultimately sold to Apple) and HDTV (the technology that enables the streaming so many people enjoy today). He started a consulting company called Practice Of Innovation, which established methods of innovation available to everyone and every firm. Now he teaches at University, aiming to develop a new generation of innovators. He talks to Economics For Business (econ4business.com) about value creation and innovation as a life skill. Key Takeaways and Actionable Insights Value Creation is a complex adaptive system. Value creation is a system of many agents, components, arrangements, technologies, constraints, and unpredictable emergent outcomes. There are a challenging number of variables, and there's a requirement for highly integrated collaboration and recursive and iterative process, utilizing adaptive feedback loops and continuous readjustment. It's hard — and quite rare — to get right and easy to get wrong. The essential element of value creation is the mental model. The mental model for value creation is solving important and meaningful problems for others. It shouldn't be about launching a new business or a new technology, but about helping others. And, since people don't think in terms of “I have a problem to solve,” the value creator must also understand the customer's mental model. They experience dissatisfactions. They wish things could be better. They make trade-offs. They can't always articulate what they want. They have to learn what to want, and value creators can help them to understand what they can want in the future. Mental models are fundamentally important to the creation of value. We all have mental models of the way we'd like the world to work. The value creator is able to identify — “get inside” — others' mental models and see the world the way others see it. This perspective is vital — the critical first step in the value creation process. The calculus of value is subjective. Value can only be defined by the individual who experiences it. Individuals make a mental calculation of value – it might include some numbers and some thoughts, feelings, preferences, and ideas. They are able to make this calculation in their own mind, even though the potential costs and benefits lay in the future. The dimensions of value are many. When evaluating the purchase of a car, for instance, the price is part of the calculation, but so is the appearance and pride of ownership, the comfort, the gas mileage, the color of the seats, the cost of maintenance, and many, many more features and attributes and functional and emotional benefits. Despite the difficulty and complexity, people are agile and adept at making this complex calculation. Value creators must be able to appreciate how customers make the subjective calculation — the calculus of value. The removal of barriers to the experience of value is a good way to create it. Convenience is often highly valued by customers. It represents the removal of barriers to value – easier to operate, less time taken, less physical or mental effort required. These are all valuable. The iPhone provided a more convenient way to enter data (responsive touch screen versus traditional keypad), and this played a big part in its adoption and success. The mental model is that people want to do things that are easy to do. They don't want the clumsiness of a tiny keyboard on a phone. They don't want to read a 20-page user guide for a new piece of software. They don't want packages that are difficult to open or retail stores that are crowded and hard to shop. Identifying and understanding mental models like these gives skilled value creators their competitive advantage. If barriers are perceived negatively by customers, then create value for them by getting rid of barriers. A need is not a problem to be solved. A need is a mental model. Reframing is the tool for understanding. Curt uses the example of the slow elevator in a prestigious office tower. Residents complain. Engineers might try to solve the problem by re-engineering the elevator for greater speed. A value creator would try to identify the mental model of the complainers. That's reframing. They are annoyed because they feel that their valuable time is being wasted; they're bored for a few seconds. Understanding this mental model opens up the possibility for new value approaches. Add a digital screen in the elevator with a news feed so that people can use the time to catch up on the latest headlines. Or add a mirror so that they can use the time to check their clothes and hair before going into the meeting. Most value creation challenges can be better addressed through reframing. In fact, Curt describes his innovation method as “relentless reframing”. The art of value creation is teasing out the customer's mental model. Do it again and again, back and forth between the value creator and the customer, to get the understanding of the customer's mental model right. Value creation is coupled with innovation: VC&I. The definition of innovation is not just the new idea or new product or new service. It's the sustainability of any new solution once it's delivered into the marketplace. Customers use it and prefer it, they pay enough for it to sustain the financial business model, they repeat their purchases and provide supportive comments and assessments. To be truly sustainable, the innovation must appeal to a lot of people, not just a few early adopters. The benefits must be greater than the costs to the user, based initially on their value calculus, and subsequently on their actual experience. And the offering must be better than competition. To get customers to change from a competitive offering, Curt says the degree of superiority must be 2X to 10X. Curt uses the N-A-B-C process tool as a methodology for innovation teams. On previous visits to the Economics For Business podcast, Curt has laid out the framework of his N-A-B-C model and how to use it. See our E4B graphic tool (Mises.org/E4B_175_PDF) and the Key Takeaways summary from the podcast #37 (Mises.org/E4E_37). N = Need: Identifying and understanding the customer's mental model, and perceiving the world as they perceive it, getting to their perspective of how the world can be improved. This is where relentless reframing applies. A = Approach: Designing an innovative solution with a sustainable business model. The temptation is always to jump straight to the approach without truly understanding the Need, according to Curt. This always leads to error and requires a pivot. B>C = Benefits Per Costs: This is the customer's value calculus, very hard to get right as a result of its multi-dimensionality and combination of qualitative and quantitative measures. C = Competition: What are the alternatives among which customers are choosing, whether direct or indirect - remembering that not buying anything is an alternative they'll consider. Overcoming inertia requires a high degree of superiority. Our econ4business.com toolkit (Mises.org/E4B_175_PDF) includes a full explanation of how to apply this tool. Value Creation and Innovation is a life skill that can be taught to everyone. Solving others' problems is a deeply human activity. We're all wired to do it for each other, every day. Value creation can be taught to kids of any age in school, and it can become a life skill. It can be taught to people studying any discipline in universities and colleges, from humanities to hard sciences, so that they can apply it in their field. It can be taught in every firm, whatever the line of business. The resultant life skill is the mental model that life is about solving meaningful problems for others. It's about understanding and appreciating others' mental models. Reframing is the tool for gaining this understanding. Value creation is a fundamental capacity for everyone. They can make an impact on society by solving problems that matter. Additional Resources "N-A-B-C Innovation Process" (PDF): Mises.org/E4B_175_PDF Curt Carlson on Innovation Champions: Mises.org/E4E_91 "Answering the Million Dollar Question (Part 1)—How Value Creation Forums Help Create Winning Research Proposals": Mises.org/E4B_175_Article

Negative feedback loops are the ultimate source of value. Mises called it “uneasiness and the image of a more satisfactory state”. Bill Gates said that “Your most unhappy customers are your greatest source of learning”. Negative feedback loops give us the opportunity to improve our service delivery capacity, and the value proposition behind it. Sterling Hawkins has identified the ultimate feedback loop for personal performance. He calls it discomfort. We should seek discomfort, analyze it, understand it, and utilize it as an ultimate tool for improvement. His book is titled Hunting Discomfort (Mises.org/E4B_174_Book) and we talk to him about it on the Economics For Business podcast. Key Takeaways and Actionable Insights Discomfort is a feedback system. There will always be physical, mental, emotional, or even spiritual discomfort in our lives. It's necessary and useful. It signals to us how we are interacting with our environment. It keeps us oriented. Sterling's case is that we shouldn't try to avoid it, we should embrace it – he recommends that we actively practice hunting discomfort. Once we find it and embrace it we work our way through it, and the result is personal growth. We get better. First, face reality. The first discomfort Sterling outlines is facing reality. In business, we often say that it's a great challenge to align the firm's internal assessment of reality with what is actually going on in the external environment, especially in times of rapid change. We may just not see reality accurately. Our product may not be as well-liked by customers as our research tells us it is. We can't change reality, but we can change how we see it. We can change our belief structure. One way is to run many experiments where we can objectively and empirically measure results, and expand on what works and discard what doesn't. We might find some things that work that we didn't believe could. And we might find that we thought worked simply does not. Both represent valuable learning and provide us with a reality we can grasp. Eliminate self-doubt. Self-doubt is mentally wrestling with questions and beliefs and insecurities. It's the world of “I might” rather than “I will”. Sterling's advice is that self-doubt can be a gift. It indicates an unwillingness or inability to commit. And yet commitment is often associated with entrepreneurial success. It's part of what Professor Peter Klein calls entrepreneurial judgment: the capacity to choose which action to take and to follow through with it. Choose your commitment as wisely as you can – which includes choosing those actions not to take. Sterling's metaphor is Get A Tattoo. It's an irreversible commitment everyone can see. Some people find discomfort in exposure. If you commit, you might feel more exposure than you're comfortable with. You might have to raise money, when it's not your skill. You may have to make a presentation about which you're not feeling 100& comfortable. You might be the only one expressing disagreement in a meeting full of groupthinkers. Sterling's recipe is to assemble a support group — he calls it your street gang. They're supporters, subject matter experts, mentors. You'll make your commitment to them, and they in turn will give you honest feedback, trust, and loyalty. You'll still be committed but you won't feel so exposed. We take on greater and greater challenges — and that's uncomfortable. As businesses take shape and grow, the challenges only get bigger. We might get to the point where we want to avoid some of the big challenges. But that's the wrong viewpoint. The alternative is to turn challenges into an opportunity to find new ways to utilize our resources — to use them as a portal to advance from the status quo to a new reality. The method is reframing. What if you tried the opposite of the status quo solution? What if you looked at the challenge through someone else's eyes, using their mental model rather than your own – what would they do? What if you change the assumptions about the way you're addressing the challenge? There are many ways to reframe challenges, and reframing can release you and give you new energy. The greatest discomfort is uncertainty. Economists talk endlessly about uncertainty in business. It's a consequence of the unknowable future. But you own your own uncertainty — for entrepreneurs, it's a feeling, not an economic concept. It's subjective. We're not only uncertain about outcomes, but about resources, about financing, about our capacity, about our partners. Uncertainty is multi-dimensional. It's also guaranteed — we can't avoid it. Economists, therefore, say that entrepreneurs bear uncertainty. It's what they do. It comes with the job. Sterling's word is surrender: don't fight or fear uncertainty, but accept it willingly as a cost. Give up resistance. Get into your discomfort zone. Entrepreneurs need to be doing hard things most of the time, however uncomfortable that might be. Additional Resources Hunting Discomfort. How To Get Breakthrough Results In Life And Business No Matter What by Sterling Hawkins: Mises.org/E4B_174_Book Visit SterlingHawkins.com

How do we change others' behavior? In business, it's a challenge we face every moment. Can we persuade a customer to switch to our brand or service? Can we get the board or the C-Suite to approve our proposal? Can we convince a VC to fund our startup? The common denominator across all these tasks is influence. How do we make the case with sufficient influence? The solution lies in using tools informed by Neuroscience. Economics For Business talks with Rene Rodriguez about his book Amplify Your Influence (Mises.org/E4B_173_Book), and his research into the neuroscience behind influential interpersonal communication. Key Takeaways and Actionable Insights. Influence is a determinant of business success. In the past, there was a classification distinction between “soft skills” in business management and the more highly respected quantitative capabilities of finance and strategic planning. Today, that is no longer the case. The ability to harness communication to change others' behavior is fundamental to making progress in the business world, and an inability in this area means an executive or manager will be perceived as ineffective. Setting out a vision that no-one follows is fatal. Influence is also the way to help people make better choices for themselves. Influence can be considered by some to be manipulation, but there is absolutely no need for that perspective. Influence may be exerted to help people better evaluate the choices and options open to them. Influence is providing information that may not otherwise have been available to the audience, or that had not been considered in the most appropriate light. Influence unleashes what Rene Rodriguez terms “voluntary energy”; they are pleased and delighted to be offered a better decision-making path. There is hard science behind the soft skills of influence. Influence is applied neuroscience. Neuroscience explains how and why humans resist change. It's a threat. The first reaction to any new information is often resistance. We don't like to question what we believe we know, or abandon the guidelines on which we've been operating, or change the heuristics we use. It's a common, shared trait. That's why influence is the “how” of leadership: influencing behavior change when the natural response is to resist it. It's also the goal of marketing, teaching, managing, selling, and communicating. It pays to learn a little bit about neuroscience for each of these actions. The power to influence can be amplified by using three techniques. As with any business tool, there are techniques that can be perfected to improve the performance in use. Rene highlighted three: Sequencing: The brain processes information in certain sequences. First, it looks for threats (like “change” or “new ideas”) in order to sort between danger and safety. If it perceives a threat, it shuts down – no influential communication will get through, Next it seeks value – feelings of being valued, being engaged, being inspired. The right sequence of message delivery starts with a communication of positive value (so that the brain can believe it is in a safe place), followed by communication of caring, active engagement and inspiration. Framing: people perceive their own reality through their own framing. If your frame of reference for pizza is high calories, excessive cheesy fat and too many carbohydrates, it doesn't matter how delicious the pizza recipe Pizza Hut presents to you, you are going to be unreceptive. In the battle for attention and shared meaning, an influencer must set and claim the frame in advance of any message presentation. Communicators and innovators practice framing and reframing to improve their skills. For example, creative innovators always create the frame of solving a problem for others, requiring them to see the problem as others see it and experience it, and enabling the future communication of the solution as a relief of unease or removal of dissatisfaction or discomfort. Framing is based on empathy - seeing from others' perspectives and aligning with their values. That's why the Economics For Business value proposition design tool starts from “Who is the customer?” and “What is their need?”. The tie-down: There needs to be a close. Our target audience's brains are flooded with information from all directions at all times. We need to make our message stick. The tie-down is a tool to make sure the audience has the chance to understand what our information will mean to them, what value it can add to their lives, and how it will help them achieve their goals. To ensure execution of the tie-down, Rene recommends that we all have an Influence Objective in mind: the specific action, thought or behavior we are aiming to influence. The tie-down is often a summary or emphasis of benefits, or a powerful takeaway or a “magic phrase”. It ties down our message in the audience's brain. The art of influence lies in storytelling. Brain scans show that when we are caught up in a story told by a skilled storyteller, we stop daydreaming and become fully present. We become focused. We narrow our attention to what the storyteller is saying. There's a response in positive brain chemistry, as well as empathy and trust — a neural coupling between the storyteller and the audience. Stories help us organize data, discern value, and make better decisions. Influencers work hard at becoming good storytellers. Rene left us with a 10-step guide, which we provide as a free pdf. Additional Resources Amplify Your Influence: Transform How You Communicate and Lead by Rene Rodriguez: Mises.org/E4B_173_Book "10 Steps to Amplify Your Influence" (PDF): Mises.org/E4B_173_PDF

A strange strand of thought has emerged in European political economy circles that has been given the name of The Entrepreneurial State. The headline claim is that the state (i.e., nation state governments) can and should intervene in the economy to bring about innovation, and that, indeed, it is absolutely necessary for grand, mission-driven undertakings such as climate change amelioration and the commercial development of next-generation technologies. Economics For Business talked to Christian Sandström, co-editor with Karl Wennberg, of Questioning The Entrepreneurial State (see Mises.org/E4B_172_Book), a compendium of analysis by thirty-two leading economists (including friends of E4B such as Peter G. Klein, Samuele Murtinu, and Saras Sarasvathy) to demonstrate the fallacies of the case for an entrepreneurial state. There's a lot of sound economics to be learned from Professor Sandström's book. Key Takeaways and Actionable Insights There's a warm climate in Europe for government solutions to perceived economic problems. “The entrepreneurial state” is one of the forms these solutions take. Entrepreneurship is well-developed in Europe, and recognized as a growth accelerator. Nevertheless, since 2008-9, country-level growth rates have been below expectations. Professor Mariana Mazzucato originated the concept of “the entrepreneurial state”, telling fellow economists that they were all wrong in expecting growth to come from private entrepreneurship. Only government has the scope and scale to act entrepreneurially at the level of lifting the growth rate of the whole economy, overcoming the barriers to the introduction and commercialization of new technologies, and tackling the great missions such as climate change amelioration. Historically, she claims, this precedence has always applied: the state leads innovation and private entrepreneurs follow to fine tune the details of marketplace adoption and implementation. The ongoing failure of Green Deals represents just one illustration of the errors of the entrepreneurial state. One essay in Professor Sandström's book spotlights what he calls Green Deals: directed investments in various technologies aiming at so-called sustainable development. Public funds distort incentives in the market, making it “rational” for firms to pursue technologies without long-term potential. One of his examples is a municipality in northern Sweden that accumulated billions of Swedish Krona in debt investing in industrial plant aiming to create car fuel from cellulose, with the ambition of creating an environmentally friendly substitute for gasoline, which would also result in new jobs and a regional resurgence in competitiveness. The process of extracting ethanol from cellulose proved to be more difficult than promised, and no technological breakthroughs occurred. The 2008 recession resulted in falling prices for ethanol, yet more public money was poured in. The end result has been a high debt burden on the municipality, no new jobs, and no reindustrialization for the region. As Professor Sandström and his co-author Carl Alm conclude, this case and other similar cases stand in stark contrast to ideas about an entrepreneurial state successfully taking on risk and pursuing new technological opportunities. There are fundamental reasons why governments can't act entrepreneurially. First, governments don't operate in markets and they are not subject to market tests, like going out of business if they fail to meet customer needs. They bear no genuine entrepreneurial risk. They have no competitors and so no process of competitive refinement and improvement. Their entrepreneurial actions can't be evaluated. In effect, they want to achieve innovation without entrepreneurship, which is an impossibility. Governments lack the required competence for the tasks they claim to be able to undertake. Peter Klein, Samuele Murtinu and Nicolai Foss introduce and explain the economic concept of ownership competence. Entrepreneurs operating in competitive markets have strong incentives (i.e., their own property and their own funds) to allocate resources that they own or control to the most productive applications and to generating the value that the market prizes most highly. Knowing what to own, when to own it (or dispose of it), and how to create value through ownership, all under conditions of uncertainty, requires a skill set that bureaucrats and public actors don't have and can't exercise. Public employees can't exercise the ultimate responsibility that comes with ownership. Bureaucrats can't reproduce the human factors of entrepreneurship. Saras Sarasvathy introduced us to the entrepreneurial method of business innovation in episode #131 (Mises.org/E4B_131). Entrepreneurs self-select into the role of uncertainty-bearing, and then initiate projects and advance through a process of market co-creation, making commitments and then adjusting those commitments based on feedback loops and customer responses. They develop a lived experience that enables them to identify new goals to pursue and new means for pursuing them along the pathway. Creativity and adaptability are more relevant to success than investing acumen and planning. Governments can't operate in this way. They place big bets, with quantitative goals and illusions of predictability of outcomes, and they pay with other people's money. They are not capable of finding the serendipity that guides the entrepreneur. Governments don't understand the innovative generativity of new technologies. Professor Sandström's book includes quite extensive examination of what is identified as the Digital Platform Economy (DPE) — the digital entrepreneurial ecosystem of platform access to markets, data, algorithms, and cloud computing capacity (There's a useful report on the DPE provided in the book at Mises.org/E4B_172_PDF). Digital platforms are enablers for entrepreneurial creativity and business building as a consequence of the access that they give to new business tools and the interconnections to resources, both human and material. The platforms are provided by private companies, and the resulting value creation is user and customer co-generated. Governments misunderstand the Digital Platform Economy. They see platform providers as monopolistic owners of excessive market power to be regulated and taxed, and totally miss the value generation of hyper-connectivity between buyers and sellers, the complementarity of firms on both sides of the platform, the open access and the lowered transaction costs. These digital platforms will do much more to encourage entrepreneurial growth than any government ever could. Governments' errors are repeated because there is no genuine evaluation of their activities, initiatives, and “missions”. Professor Sandström investigated the way that the results of government innovation expenditures and initiatives are assessed. He found that most evaluations are conducted by consultants, paid by the hour and mindful of the opportunity for future business if their work is well-received by the government that employs them. Some other assessments are conducted by the government departments themselves. Perhaps unsurprisingly, Professor Sandström could find only 5% of these assessments that were critical in any way (mostly simply to say that the desired results were not achieved). Moreover, the assessments were economically incomplete. There was no identification or discussion of opportunity costs (what better uses could the funds have been put to) or of administrative costs, which are high since bureaucratic infrastructure grows with each new initiative. The government's best role is to remove itself as a barrier, and possibly to help remove additional barriers (for which it often bears responsibility in the first place). Is there such a thing as innovation policy? Professor Sandström says no. He does point out that, in the Austrian tradition, removing barriers to entrepreneurship can help to create the type of environment in which innovation can flourish. This might involve the elimination of legislation and regulation that gets in the way. It could also include nurturing educational institutions to bring the right kinds of thinking and learned skills into the marketplace. Any such initiative should be general and non-selective. Picking winners should be left to markets. Additional Resources Questioning the Entrepreneurial State: Status-quo, Pitfalls, and the Need for Credible Innovation Policy, edited by Karl Wennberg and Chris Sandström (PDF and ePub): Mises.org/E4B_172_Book "The Digital Platform Economy Index" (PDF): Mises.org/E4B_172_PDF Chris Sandström on Twitter: @ChrisSandstrom

How do businesses actually manage — rather than plan for — continuous change? The increasing adoption of systems thinking in business tells us that the world is changing very fast, and companies need to change at least as fast as their environment in order to thrive. It's comfortable to talk about but hard and uncomfortable to do. Most people prefer to continue to do what they're used to rather than embrace change and constant experimentation. There's a lot to be learned from the military where special forces are trained to specialize in rapid reaction in chaotic or VUCA (volatile, uncertain, complex and ambiguous) worlds. They face an ever-changing environment (often described as kinetic). They have a very pure evolutionary process: what wins, survives. While the military organization is hierarchical, military operations are flat so that tactical decisions can be made by the people on the ground. While we are anti-war, we can nevertheless recognize that the military has experience and expertise in managing and organizing for continuous change. We can learn from it. There are significant barriers to overcome to implement rapid change management in business. Certainly, the time scales are different. Companies change at an intergenerational pace, one generation of managers (or managerial techniques) learning from the last one. In hierarchical organizations, people reach managerial and executive positions by accumulating experience. By the time they get to their high position in the hierarchy, they have locked in an old mental model. They miss the signals of change and fall back on preconceived ideas and notions and methods. In addition, there is considerable inertia to overcome — a resistance to change that acts as a blocker to agility. It's human nature to resist change. Once a company has established a niche or a market share, it's genuinely hard to abandon the strategy or the tooling or the products and services and the marketing that got them there. To put it in military terms, change is a constant battle. Situational awareness is a set of tools that are transferable from military to business to improve management of change. Situational awareness governs how well your understanding of the world maps to reality. It operates along two perspectives and 3 time frames. Internal situational awareness concerns the orientation of your firm, resources, capacity, the capabilities of your team, morale and so on. External situational awareness concerns markets, competitors, customers, trends, technologies, and all the environmental factors that are subject to change. The three timeframes in military terminology are tactical, operational, and strategic. The tactical timeframe concerns people on the ground in contact with the environment. In business, this can be the sales team or customer service or engineers in direct contact with customers. They're doing implementation work but they are also the sensing mechanism. They may have daily or even hourly cycles for intention to change, making the change, learning from the consequences of the change and moving forward to the next change. They must be empowered, trained and equipped, and confident about their freedom of action and adaptation. The strategic timeframe is the macroeconomic scale of what the firm is trying to achieve for the customer. This frame may be months or years, and dictates how to organize, how to invest, and where to allocate resources. The operational timeframe is between the other two. How does the firm integrate short term implementational excellence with long term strategic engagement with a changing environment? How does the firm integrate all the hourly and daily information coming from the front line with the long-term investments and resource allocation projects? In a software business for example, there may be a trade-off between building new tooling, which takes time, and rapidly delivering products from established tooling. How to apply situational awareness. Actively use the 6-box framework (internal /external perspectives, tactical/ operational/ strategic timeframes. To achieve better alignment of internal / external timeframes, look for mismatches across boundaries in the firm. Do the people working on the front line have the same understanding of the importance of the work as the managers and executives. Does getting thing done seem more difficult than it should be? Are the feedback loops fast? Is the information in the feedback loops spread throughout the firm, through multiple teams, divisions and silos? What's the gap between perceived ideals and actual experience? To implement across three time frames is an exercise in portfolio balancing and active discovery, with a high premium on sensing skills. How much time and resource effort should a firm spend on refining its tooling (the operational timeframe) so that every produced end-product is exactly the same (the tactical timeframe) while keeping an eye out for environmental change, when a future competitor might introduce a faster cheaper product (the strategic timeframe)? As Austrian economics always stresses, there's no objective answer, just subjective learning from experience. For example, Netflix was part of the strategic timeframe that Blockbuster failed to manage. Blockbuster was operating its stores in a proven fashion (tactical) and adding new stores (operational), while rejecting the implications of the Netflix model. Today (May 2021), Netflix shows signs of missing some strategic signals. They made content their focus (tactical) and built original production capability (operational) but may be finding that customer tastes are changing and the appeal of their produced content is in decline (strategic). Similarly, for the last few years, funding has been easy for startups (tactical) and so they have focused on long term market development (strategic) without hitting profit and cash flow milestones (operational). Now that funding is drying up, they are having to shore up their operational capabilities. There are a couple of techniques that are helpful. One is Horizon Scanning: allocating some resources to identifying and picking out future external scenarios that represent potential change or strategic threats and building a response in advance. Another is red team thinking: mapping out future internal failure modes and then working backwards from them to identify the trip wires to look out for, and to nip emerging issues in the bud. The after action review (AAR) is an important element of situational awareness. The AAR is applied not just in the military but in fast change business environments such as agile software development. It's a tool to separate the quality of the decision you made from the outcome of the action that you took. We tend to get attached to our decisions, even if they were based on poor principles. The components of an AAR include: What was expected to happen?What actually happened?What went well and why?What can be improved and how? The discussion must be open and honest without hierarchy or blame. As far as possible, everyone on the team should participate so that all perspectives can be included. The focus is on results and dentification of ways to sustain what was done well as well as the development of recommendations on ways to overcome obstacles. It's really important to identify with high fidelity what happened, because only then is there a good chance to identify new opportunities or trends with equal fidelity. In situations of uncertainty, it's important to identify “what happened” accurately, in order to be able to identify what it means and what it implies for future actions. AAR becomes part of disciplined execution. The Economics For Business community is familiar with the explore/expand method of managing business complexity: explore many options through experimentation and expand (by allocating more resources) those that show good results. Annika Steiber in episode 170 (Mises.org/E4B_170) called this capability “ambidexterity” — combining two logics of business in consistent and reliable execution on one hand and openness to change and exploration on the other. Ben expands this thinking into the concept of disciplined execution. Once a process is proven and is producing reliable results, map it out carefully and then take individual steps or parts of the process and see if they can be further improved, e.g., by automation, without changing the outputs. Processes thus become more resource efficient in producing their output. Always be trying to improve what you already do well. Similarly, once an “explore” project starts to become productive, apply the same continuous improvement standard. Map the process, examine parts that can be improved, and do so part by part so production is maintained and efficiency is increased. All of this change dynamic should be driven from the bottom up. Process improvements, fast responses to feedback loops, experimentation and rapid change are all insurgencies — the established hierarchy and mental models will often find them hard to embrace. Insurgency is a bottom-up dynamic. When transformation is pushed from the top down, it often happens that the territory changes before the consultants have drawn the new map. The hierarchy's role is to provide strong alignment with the orientation of the firm and its culture and vision-mission, alongside loose control of front-line action. Additional Resources "Apply Situational Awareness To Manage Change" (PDF): Mises.org/E4B_171_PDF Ben Ford's website, where you'll find his Mission Control services: MissionCtrl.dev Ben Ford's LinkedIn page, with a lot of presentations and recordings to learn from: Mises.org/E4B_171_LinkedIn

Innovation in organization is at least equal in importance to technological innovation and product / service innovation. It tends to get less attention, which is a great opportunity for imaginative entrepreneurs to implement change for competitive advantage. Dr. Annika Steiber has studied organizational innovation for over twenty years and is a global authority. She shares her insights with Economics For Business, including her analysis of the most dramatic organizational innovation of all, Rendanheyi. Professor Steiber's most recent book is Leadership For A Digital World (Mises.org/E4B_170_Book1), and is her most comprehensive guide yet for business management in the digital age. She's the author of eleven books, including The Google Model (Mises.org/E4B_170_Book2) and The Silicon Valley Model (Mises.org/E4B_170_Book3). Her Menlo College Rendanheyi Silicon Valley webinars are available at Menlo.edu/Webinars. Key Takeaways and Actionable Insights Organizational innovation doesn't get the attention it merits, even though it can contribute greatly to customer value generation. Innovation thinking tends to focus on technology innovation and product/service innovation, with the definition of innovation as the successful introduction of new customer value to markets. Organizational innovation is not often seen through that lens. But it should be. We can reframe the problem this way: does bad organizational structure subtract from the customer value experience? We can all think of ways in which it might do so: for example, poor customer service when customer-facing employees are not empowered, and layers of bureaucracy that impede responsiveness to customer needs. In those cases, organizational innovation could readily generate improved customer experiences and enhanced customer value. Dr. Steiber had made organizational innovation her research focus for over two decades. There are a small number of organizational innovators, and a lot of imitators. Google has been one of the originators of new organizational models. Many organizational innovations are pre-packaged — LEAN is an example — and implementers are following someone else's lead. Others are long drawn out evolutions of incremental improvement without a great burst of innovation. One example of what Dr. Steiber calls "an entirely new animal" in organizational innovation can be found in the early years of Google, which she studied first hand — she was embedded in Google as an independent researcher. She observed a different management model than anything she had seen before anywhere in the world. From this research, Professor Steiber developed six new management principles, published in her book The Google Model, and summarized in our free PDF (Mises.org/E4B_170_PDF). Silicon Valley companies employed and expanded on the Google Model. Dr. Steiber studies the peers of Google in Silicon Valley and found that they all adopted the Google Model and its six principles, some more slowly than others. Interestingly, her research pointed to a DNA advantage for Silicon Valley going back to the gold rush: it was a location that attracted and was populated by innovative and entrepreneurial people who were capable of building businesses and new institutions from scratch in the late 19th Century, and in the 20th Century, it was the place where Information Technology emerged, was expanded and accelerated and first put to use in business. Knowledge and knowledge flow replaced management structures and face-to-face administration, including at early pioneers such as Hewlett-Packard. Read "The HP Way"—an early Silicon Valley organizational innovation manifesto (Mises.org/E4B_170_PDF2). The six management principles Dr. Steiber describes are: Dynamic capabilities. Ability to integrate, develop, and reconfigure internal and external competencies in order to meet rapidly changing surroundings. A continuously changing organization. Instead of waiting and springing into action after needs become pressing, a company should ensure that its organization is permeated with a proactive approach to change. A people-centric approach. People-centric, focusing on the individual and liberating their innovative power and providing them with a setting in which they can express their creativity. An ambidextrous organization. Two different forms of organizational logic within the same organization: daily production, which works best with a conventional planning-and-control approach, and innovation, which requires greater freedom, flexibility, and a more open attitude toward experimentation. An ambidextrous organization must successfully handle and utilize the energy inherent in the contrast between these two forms of logic. An open organization that networks with its surroundings. Permeable boundaries and a constant and conscious exchange of information with the surroundings. Long-term survival requires that companies develop into more open networking systems. A systems approach. A holistic view of the system and understanding that the system can spontaneously develop new characteristics that can be difficult to predict. These new characteristics can be positive, negative or a combination of the two, creating a demand for additional measures, such as decreasing the fallout from unexpected negative system effects. We highlighted a couple of these new management principles. A continuously changing organization The most successful companies are designed for constant renewal. They expect change all the time, and they lead its development. They aim for excellence on every dimension, applying three layers of expertise: Be proactive: Search for change internally and externally. Embrace it and practice it.Experimentation culture: Try every initiative assuming that it could be a new opportunity. Mobilize fast.Don't follow. Take the lead, change the standard, be disruptive rather than disrupted, practice creative destruction. These companies never lose external focus, continuously monitoring developments and competitors that could disrupt them, and constantly market-testing new initiatives. They have highly developed sensing capabilities. An ambidextrous organization Combining the two logics of flawless daily execution for known established businesses and exploratory experimentation seeking unknown new business innovation is an organizational breakthrough. It's a systemic view of an organization combining different kinds of leadership for the two styles, different cultural signals, different milestones, different incentives, and different evaluation criteria. One system is designed for stability and one for change. Rendanheyi: the most radically entrepreneurial organizational innovation. True organizational innovation is very rare, but there is a new one that Professor Steiber described for E4B called Rendanheyi. Rendanheyi is an organizational innovation for the network age in which a large company (Haier, the Chinese company that first instituted the model has 70,000 employees) splits itself into hundreds of microenterprises of averagely 60-70 people — but could be as low as 10 or so - each enterprise performing as its own entrepreneurial business with its own P&L, its own customer base, and control over hiring, budget, and distribution of profit, and over its own value-adding line of business. Defining characteristics include: No bureaucracy, hierarchy, or pyramid forms of organization; no managers.Employees are not referred to as such — everyone can be an entrepreneur is the mantra; they choose which microenterprise to work in. The focus is on the customer or end-user and not on pleasing the manager above. Incentive systems reward all employees for value creation, and all individual employees are constantly trying to understand how to increase value for customers. Increased value creation is rewarded, and so wealth generation is democratized.Zero distance to the end-user: this is a Rendanheyi principle that brings the consumer or customer inside the microenterprise to co-create new value in the form of new products and services and solutions. Wholesalers and retailers, for example, can inject distance between a Haier micro-enterprise and its users; the enterprise might look to digital solutions to eliminate that distance. Generally, they seek to identify barriers to zero distance to the users and get rid of them.End-user is a general term, so that those micro-enterprises that are serving other businesses rather than consumers can nevertheless practice the zero distance principle. For example, there may be a marketing micro-enterprise within Haier that serves a manufacturing micro-enterprise and a sales micro-enterprise. All can be aligned with zero distance and can work to fulfill end-users' needs.Paid-by-user. This principle focuses micro-enterprises on end-user value by emphasizing that all businesses live or die based on whether the end-user pays them for value perceived, or not. It's Austrian customer sovereignty in action. The general tendency in paid-by-user is away from transactional relationships to extended relationships across multiple purchases in ecosystems and via subscriptions and memberships. Relationships are an important focus, and the focus is on creating life-time users. A sports team on the playing field is a sound analogy for Rendanheyi. There is no central control, each team member is collaborating and combining specialized skills for a team result. There is only limited call for corporate functions at the center of the Rendanheyi organization. There is a role for developing and furthering vision that crosses multiple micro-enterprises, and for portfolio decision-making as to where to invest resources. Some orchestration functions can be assigned to the center — for example, furthering ecosystem thinking whereby micro-enterprises serving a consumer domain such as the kitchen can develop multiple services including information services and integration services across multiple appliances, tasks, and problems for the kitchen ecosystem. The result of the Rendanheyi model is the animation of a living system, a superorganism. Rendanheyi provides a genuinely new and different perspective on entrepreneurial organization at scale. Additional Resources "Six Organizational Principles for Adaptive Entrepreneurial Models" (PDF): Mises.org/E4B_170_PDF Rendanheyi Silicon Valley Center: Mises.org/E4B_170_Rendanheyi Menlo College Rendanheyi Silicon Valley Webinars: Menlo.edu/Webinars Menlo College Digital Management Courses and Webinars: Executive.Menlo.edu

Is there any industry a passionate entrepreneur can't improve and enhance by elevating the customer experience? The answer is clearly no. Economics For Business talks to Jeff Arnold, who finds insurance fun, exciting, and a source of inspiration, and who is advancing profitably towards the new future he's imagining, where buying insurance is so enjoyable that customers will stop shopping on price and clamor for the new experience he is designing. Key Takeaways and Actionable Insights Passionate, creative entrepreneurs can deliver profitable innovation to any industry, no matter how static and rigid it may seem. Jeff Arnold loves insurance. He told us he finds it fun, awesome, and exciting. Studying the intricacies of contractually trading and transferring risk for payment generated a lifetime interest and passion in him. He's turned that passion into revenue and profit by delivering new value to customers in aspect of their life or their business that is extremely important to them. As a good Austrian, Jeff Arnold views his industry first from the customer's perspective. Customer-first. That's the Austrian way of business. When Jeff thinks about insurance, he thinks from the consumers' perspective. They pay hundreds of thousands of dollars over a lifetime for insurance of many kinds: house, automobile, business, medical care, and more. Do they know exactly what they are buying — or, perhaps more importantly, not buying because of exclusions buried deep in the small type of the appendices to an insurance policy agreement? How do they feel about the customer interface, including call center phone trees and hard-to-decipher policy documents? From this perspective, he is able to develop design principles for an insurance business with a better customer experience: Help customers to think about a systematic lifetime plan for all their insurances;Help them develop the knowledge required to properly understand insurance offers and alternative policies;Give them the opportunity to customize insurance products for their needs as opposed to buying a commoditized vanilla product;Help them to get the exchange value from the purchase that is right for them.Give them an interpersonal experience that's much better than the industry norm. Jeff focuses his customers on value, not price. Most often, buyers approach an insurance purchase with a transactional frame of mind: how can I pay the lowest price. They'll shop around to find it. Jeff wants to put an end to “price shopping”, to be replaced with a value calculation: what coverage do I need, how did I get it, and who is the best provider? The value calculation often entails discovering and eliminating exclusions — coverages that are excluded in the fine print of the contract. These exclusions occur in home insurance (which is especially hard to read and understand) auto insurance (there are 12-14 exclusions to look for according to Jeff) and commercial or business insurance (where many coverages are automatically excluded and must be built back in item by item, with careful attention to detail). The value solution lies in the integration of technology and personal service. Jeff's latest business, RightSure, aims to get individuals the right insurance by using A.I. in combination with “famously friendly humans”, i.e., staff carefully selected and trained to deliver knowledge and service in an amenable way. The A.I. can provide a preliminary phone interface, a chatbot interface on the website, and can do an excellent job of matching customer needs to the right policies. Famously friendly people can patiently explain all the policy options, point out what's covered and what's excluded, answer customer questions, and help them to make informed decisions. They're good at listening, exhibit high empathy, and can help customers navigate from suspicion to trust. The combination of A.I. and famously friendly humans delivers a superior customer experience while also achieving high levels of efficiency. The return on investment in human capital is as high as the return on technology capital. The combination generates brand uniqueness. Jeff represents entrepreneurship in action in the insurance industry. Jeff Arnold is a quintessential entrepreneur. He's driven by a passion for his industry, where he spent a career in multiple roles before launching his current business. He gathered knowledge he learned from others and from his own experience in those various roles. He innovates by having a more highly developed customer focus than others, and commits to a better experience for his customers than they can expect elsewhere. And he knows how to combine and recombine assets and resources in new ways to deliver that better experience. He continuously monitors the customer experience and customer sentiment to keep improving. His primary skill are empathy and imagination — understanding the experience customers prefer and designing it in his mind before bringing it to life. He doesn't need technology expertise to bring his vision to life; he can buy that on the market. It is the human factors of empathy and imagination that lie behind his superior product. Imagining the future drives product and service innovation. After a lifetime in the insurance industry and informed by hundreds and thousands of conversations with consumers, Jeff can accurately identify current dissatisfactions and easily imagine future products and services to address some of those satisfactions. Some of the ones he mentioned in our conversation were: The macro policy: Why do customers have to buy home and auto and business and medical insurance I separate policies and separate transactions. What if there could be one macro policy for a family, adjustable to new needs as life goes on yet still a “one policy” solution for managing all the risks a family faces? Expanding liability coverage: It seems like lawmakers and courts are continuously finding new things the rest of us are guilty of, like saying bad things on social media. Liabilities are expanding — Jeff called it social inflation. What if our policies could keep up without us having to adjust them in new transactions? New payment systems: What if we bought automobile insurance by the mile instead of in a lump? Or what if we got refunds based on good driving habits (which is beginning to happen with telematics)? Generally, the payment system of lump sums for coverage over a time period can be replaced by behavioral measures of consumption. These are the kinds of innovation Jeff is imagining, and working hard on bringing to market. Entrepreneurs make the world a better place. Additional Resources Jeff Arnold's author page on Amazon.com: Mises.org/E4B_169_Author Jeff's website, Ambassador For The Insurance Industry: JeffArnold.com The Art Of The Insurance Deal by Jeff Arnold: Mises.org/E4B_169_Book RightSure.com

Markets are marvelous. They're the poetry of economics. They are one of the most remarkable technologies humans have ever built. Beautiful businesses develop new markets both outside and inside the firm. We discuss markets with Anthony J. Evans, a business school professor who teaches that all businesspeople must become economists. Key Takeaways and Actionable Insights A business economist is an Austrian who looks at the fields of economics and business to see how one is best applied to the other. Aim to be a good economist and a good business practitioner. Managerial economics is the application of the economic way of thinking and the insights of economics to the managerial task of creating value. It was Shlomo Maital who wrote, “Managers can't just employ economists, they must become economists” (Mises.org/E4B_168_Book). Anthony Evans follows that direction and teaches his students at ESCP Business School that they'll be more productive and more capable as businesspeople as a result of learning and applying economics. Market system economics provides businesses with the best toolkit for success. Businesses are participants in the market system. Managerial economists study markets in order to find ways for businesses to use market insights, harness market mechanisms and understand the signals and information that markets provide. It's easy for firms to overestimate their ability to affect the markets in which they are participating, and don't sometimes they don't fully understand or properly analyze what market prices are telling them. Prices are the most important market signals, and they can transmit information about potential futures. They can guide firms on understanding how much value they are creating relative to competitors. They can provide signals about how to increase revenue by moving process higher or lower. They can help businesses understand opportunity costs and transaction costs. Markets are decentralized experimentation, and if some new experiments by disruptive competitors are commanding purchases from actual buyers today, that may signal more buyers and more transactions in the future especially after prices adjust to higher transaction volumes. Monitoring prices and reading the signals must be a core managerial skill. Market tests should be applied whenever feasible. Technology can help. Businesses should run a market test for every question that a market can answer: is this offering or initiative valued, is it preferred, can we put a price on it, will varying the price change the level of demand or acceptance, is the benefit greater than the cost, do some customers prefer a competitive offer? Run a market test — A/B test, pilot program, prototype evaluation, survey with customers, whatever is feasible. Today's technology provides tremendous help with low-cost digital testing methods, fast feedback loops, and efficient data processing. In fact, more and more, technology can relieve managers of the task of formulating their own understanding by automating the test procedures and the analytics and recommendations. Markets can be brought inside the firm to improve business performance. Markets stimulate innovation, lower costs, and efficiency because customers always want better, cheaper, and faster and competing entrepreneurial firms always want to provide those benefits in the search for profits. The same effects of the market order can be sought inside the firm. What is the market value and the right price for marketing services from the marketing department, or HR services or IT services? What's the marginal cost versus marginal benefit analysis for one more HR staff member, or the opportunity cost of one more IT system installation versus one more sales campaign? What's the value of the knowledge flowing through the firm? These are the kinds of questions that the market order can answer, and managers should always be asking them. Prices can be the metric for all learning. Market economics can also guide organizational design and processes. Markets are dynamic and ever changing. Businesses must reflect and emulate this dynamism. Organizational design and structures must be flexible enough to enable dynamism and not erect barriers to change and adaptation. What are the forces that make markets grow and decline, and what are the forces that have this effect on firms? Organization should harness the forces of market growth. Professor Evans' suggestion is a constitutional view of the firm. Let simple rules of conduct emerge from a shared sense of vision and mission, codify them, and then let decentralized teams run the experiments that feel constitutionally right to them given their reading of market signals. Subjective value is immeasurable, but can be gauged in market tests. The purpose of a firm is to generate subjective value, which is created by customers through their own experiences and co-created by the firms and brands and services that facilitate those experiences. Subjective value is intangible and immeasurable. But exchange value — what customers actually pay in an exchange transaction — can be a proxy in some cases. Subjective value is a hard concept to grasp for those who have been educated or trained to think of value in objective terms, as something inherent in a product. Professor Evans finds his students, when asked to describe the value of an offering or an idea, instinctively gravitate to the product-based view, citing attributes, features and performance benefits. Taking the customer perspective is very hard, and perhaps unnatural. The economic point of view is always to put the producer in the shoes of the customer, to take the customer's view and identify the customer's mental model for processing information and observation. It's hard to do, and requires significant cognitive effort. But done well, it's key to marketing, innovation, product improvement and competitive positioning. Empathically diagnosing subjective value is one of the greatest insights economics can give to business. Entrepreneurs thrive in markets. Markets are the place where entrepreneurs ply their skills, and the entrepreneurial role will never diminish. Their imagination of the future and anticipation of future demand – even under conditions of uncertainty – their creativity and their judgment will always be important in the context of dynamic interactions of multiple players, offerings, and institutions within markets. The human factor is the most important. Entrepreneurship is not an academic matter to be debated for the distinction of different nuances, but a practical matter of working and succeeding in markets. It concerns the identification of a profit opportunity via some kind of new product, service, method, or recombination of capital, and the ability to introduce this novelty into the marketplace, actively making decisions about resource allocation, cost, investment, communications and all the other elements of a business, overcoming obstacles and resolving difficult challenges. It is, as Professor Evans stated it, both ideational and implementational. Ambidextrous. And the common backdrop for all entrepreneurs and businesses of all kinds is continuous change. In his book Economics: A Complete Guide For Business (Mises.org/E4B_168_Book), Prof Evans states that, “Economic change will disintegrate existing combinations (of capital goods) and force entrepreneurs to find new ones”. This action, which Prof Evans refers to as “recalculation”, is core to the dynamics and agility of entrepreneurs in markets. Recalculation is the creative pulse that provides the energy for generating new capital structures out of old ones. Austrian economists have always been acutely aware of change as an economic factor. Perhaps the business world is catching up, but Austrians have always been ahead. It's the perspective that entrepreneurs and businesses can co-ordinate with each other fruitfully in markets where change is so pervasive and so fast that no-one has complete knowledge and yet must be able to act. Austrian economics demonstrates that good outcomes are possible, even in these conditions of bounded knowledge, for everyone participating in the market, so long as entrepreneurs are free to do their work without intervention. It's a very powerful message. People in business can be proud of acting as value generators and not feel any imposed need to “give back” or sacrifice themselves to artificially constructed restraints. Additional Resources Economics: A Complete Guide For Business by Anthony J. Evans: Mises.org/E4B_168_Book AnthonyJEvans.com

There's a lot of speculation about the future of work — what form it will take, where it will be done, and who will do it (including the robots versus humans debate). We talk to Mo Hamzian, an entrepreneur who is not only theorizing about the future of work, but building newly imagined workspaces that combine spatial design with technology and custom services, making elite workspaces available to everyone. Entrepreneurship is now both an economic and societal trend, opening up business opportunities of its own. Entrepreneurship is now, as our guest Mo Hamzian styles it, “a thing”. It's in the forefront of culture, it's always in the news, it's a lifestyle choice as well as a business choice, it's a career, it's a source of new heroes for our time. Institutions of entrepreneurship are growing: schools are teaching entrepreneurship, media are covering entrepreneurship, technology is supporting entrepreneurship.Standards are emerging: tools like our own value learning process and 4 Vs value generation model, as well as processes like the Business Model Canvas are becoming standards of the entrepreneurial method.The sharing of entrepreneurial knowledge in a community is expanding via mentoring by experienced entrepreneurs. As a consequence, we see the emergence of new societal norms. An entrepreneurial society favors self-reliance over dependency, resourcefulness over entitlement, breakout achievement versus structured conformity, and creativity over formula. Entrepreneurship is understood as a journey that is never completed, and may adaptively follow many diversions in pursuit of evolving goals, rather than a predictable climb up the hierarchical ladder of the corporation. Keep thinking rather than keep climbing. Even inside the corporation, structure is giving way to small self-organizing teams and corporate procedures are being replaced by adaptiveness and agility. One of the implications of the growth of entrepreneurship is the trend that gets the name “The Future Of Work”. Entrepreneurship brings many significant social changes, including flexibility of time and place and methods of work. And the government's pandemic policies of shutting down office and work spaces and encouraging work-from-home accelerated those changes. Now it is clear, more than ever, that, in the digital age, there is no need whatsoever to commute through grey suburbs on jammed roads or overcrowded trains to get to a dull and depressing cubicle farm just so that you can be in the same building with the other sad souls who are your colleagues. Cities will empty out, commercial office markets will enter a period of secular decline, and individuals will feel liberated and empowered to do their best work in the physical location and surroundings of their choice. One way to seize the opportunity represented by the future of work is via real estate itself — repurposed and re-imagined. Mo Hamzian is an entrepreneur who sees the opportunity in real estate for work where many might see only decline. He looks at it through a different lens, as entrepreneurs do. Can real estate provide the multi-purpose flexibility and adaptiveness required for today's and tomorrow's work patterns? It can if looked at creatively. The creative lens is the customer-first lens: everyone deserves the best workplace. Business thinking that prioritizes customer sovereignty can often solve the most challenging problems. Mo Hamzian translates the unmet needs of today's distributed workforce as seeking the best space from which to work — comfortable, well-equipped, good acoustics and conferencing technology, a place that “recognizes you” and your needs. He developed his ideas, in part, by studying the workspaces of the business elites — the top bankers, tech executives and corporate CEO's. These are immersive, high tech, high comfort, high style ecosystems you never want to leave. They're available to a very few. What if they were made available to a much wider audience? This is the way many markets evolve — first, affordable at great expense only for a few, then quickly expanded to a mass audience. This is the idea behind VEL — Mo Hamzian's startup to bring elite workspaces to a wide audience of users on demand. Do your best work: the VEL concept is aimed at personal productivity, encouraging the individual to achieve high quality output in a temporary workspace. This implies, of course, some responsibility and commitment on the part of the user.Achieve flow: the ultimate level of individual work is characterized by the feeling of flow — the fulfilment of experiencing how good you are and how much you are improving while doing your work. VEL's workspace and technology are designed to support flow.Elite environment for everyone: Mo Hamzian's study of immersive elite workplaces enables designs that bring the same experience to a temporary workspace.Technology: From wi-fi telecommunications and conferencing to (in the future) A.I. and VR and holography, there's a lot that technology can do to support high quality and high productivity work, and VEL can provide it on demand at variable cost and affordable pricing.Flexible access: customers can rent VEL space and technology by the hour or by the day, in whatever configuration they prefer.Democratization and decentralization: VEL workspaces are available to all, with an aim to distribute them across the country for wide availability, whether urban, suburban, or rural, wherever work can be done.Customization and recognition: Ultimately, the high-tech VEL workspace will recognize the individual when they walk in and configure to their customized set of needs. The VEL concept removes frictions and barriers that might otherwise stand in the way of the future of work and the future of distributed entrepreneurship. As we advance towards a more entrepreneurial future across the entire business landscape, from big corporations operated by flexible, agile teams to individual practitioners, gig workers and small, highly specialized and highly networked companies, concepts like VEL will be an important part of the enabling infrastructure. Additional Resources Mo's LinkedIn page: LinkedIn.com/in/MoHamzian Mentioned by Mo as a worthwhile mentoring site: GrowthMentor.com VEL website: MyVEL.com

To what extent should entrepreneurial businesspeople concern themselves with macro-economic variables? At E4B, our point of view is: not much. We don't believe you can fully trust the data, we don't believe you should put much credence in the interpretations of it, and we encourage businesses to concentrate on serving customers and generating value. We made an exception this week to discuss the phenomenon of the inverted yield curve, because it might, conceivably, have some immediate effect on businesses and their customers. We talked with Dr. Murray Sabrin, author of Navigating the Boom/Bust Cycle: An Entrepreneur's Survival Guide. Key Takeaways and Actionable Insights The yield curve inverted. What does that mean? Technically, the yield curve inversion refers to short term interest rates on the 2-year treasury note doing above the interest rate on the 10-year treasury note. [[{"fid":"132151","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Chart 1","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"1":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Chart 1","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Chart 1","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"1"}}]] The reason this is of interest is that, historically, it's a signal that the countdown to a recession has begun. At the human level, it means that market participants expect tighter short-term borrowing conditions, potentially making financing business activity more expensive and more difficult. In reality, there's no way to be certain of future conditions, and there are so many variables, from inflation to unpredictable Federal Reserve activities, that prediction is inevitably inaccurate. Moreover, on their own terms, the Federal Reserve interest rate data are not consistent. The 3-month treasury rate remains 2% below the 10-year rate — no inversion there. [[{"fid":"132152","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Chart 2","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"2":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Chart 2","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Chart 2","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"2"}}]] Therefore, predictions of a recession should be taken with the proverbial grain of salt. It may be different this time. What matters is what entrepreneurs do in the face of this uncertainty. Dr. Sabrin has a number of ideas and pieces of advice for businesses. Examine conditions in your own sector rather than in macro-economic variables. Economic conditions and trends and outcomes vary significantly by sector. What's happening in automobiles, housing, energy, and retailing is sector specific. Look especially for those sectors where free markets are allowed to operate; there may be different trends there. For example, deflation (a continuous trend towards lower prices) might be anticipated from the technology sector as result of innovation and competitive striving, rather than the price inflation we are being promised from other sectors. Similarly, pay greatest attention to your most relevant geography: neighborhood, city, and state. Economic conditions in Florida are a lot different than in California. Manhattan is different than San Diego. Your neighborhood might be different. Maybe your business operates internationally. Think about your relevant geography and not about the macro-economic headlines. Focus first on your supply chain. Dr. Sabrin's extensive research into the longitudinal success of entrepreneurial businesses emphasizes the important of reliable inputs. In risky economic periods, the supply chain may need bolstering — extra inventory coverage, additional suppliers in case of disruptions. This may be expensive and more expensive to finance amidst rising rates, but guarding against supply chain disruption is a primary concern. Don't risk disappointing your customers because your supply chain breaks. Maintain your most important lending relationships. If financing is a concern, look to bolster and strengthen lending relationships. Secure a line of credit. Nurture the relationship with your bank. And explore the newly emerging landscape of fintech lending — another example of free markets expanding the range of options and possibilities for entrepreneurs. Here's a financial landscape map from an earlier E4B podcast — use it to become familiar with the latest financing options: Mises.org/E4B_166_PDF Your individual cost curve is not the same as that of the market. The current pervasive concern is with higher interest rates and higher costs. These are macro-economic variables. But the cost curve for your business does not have to be the same. Many suppliers will be lowering prices and offering promotions or special terms to maintain their business flow. You can take advantage by shopping around, rebidding contracts, and seeking out the most eager suppliers. Your micro-economics can be different than the headline macro trends. Most importantly, seek opportunities within changing economic circumstances. An inverted yield curve is just another instance of continuous change, and change is the condition under which entrepreneurs thrive. They find opportunities in change. There are always growth sectors, there are always customers with needs, and there are always new openings, even when some doors are closing. The agile entrepreneur is alert to new possibilities. Additional Resources Navigating the Boom/Bust Cycle: An Entrepreneur's Survival Guide by Murray Sabrin: Mises.org/E4B_166_Book "Financial Capital Options For Businesses at All Stages" (PDF): Mises.org/E4B_166_PDF

What drives customer behavior and customer choices? It's the existential question for business; you've got to know the answer. But it's a mystery, hard to unlock. The solution to this answer lies in what market researchers call insights, based on the Austrian deductive method that we summarized in episode #164 with Per Bylund (Mises.org/E4B_164). In episode #165, we talk to Darshan Mehta, a lifelong professional in the field, an advisor to global and local brands, an originator of insights technology, and a deep thinker in the field. Key Takeaways and Actionable Insights Insights mark the road to innovation and differentiation and give businesses a competitive advantage. By definition, an insight is a deep understanding of the motivation of an individual: why they do what they do, choose what they choose, and stop doing what they used to do? What guides their behaviors, what they do with their time, and how they find betterment and ease? These individual motivations can sometimes be exhibited as technology trends, social trends and cultural shifts. Insights help businesses understand the drivers of these shifts in the landscape, as well as how these shifts, in turn, change individual behavior. Causality works in both directions. Insights are multi-dimensional, and businesses need to install multi-dimensional systems to generate insights. No single method and no single information or data source will deliver the deep and rich insights businesses need. Darshan Mehta recommends a multi-dimensional approach. Conversations with customers This is the number one source of data for insights generation: deep, rich, personal, subjective, and revealing. It requires some skill development to be good at customer conversations. Empathy is a key ingredient — what Darshan calls “being a people person”, interested in how people feel, and with the curiosity to learn and the humility to understand that a lot of what is important to customer decision-making resides in the sub-conscious and is difficult to articulate. In fact, conversation helps people to learn how to describe their feelings and motivations, if the interviewer lets the conversation develop slowly and with time for self-reflection to dawn. The human-to-human connection factor is important, whether in a one-on-one conversation, a group setting (such as a focus group) or an online chat. Whether your business is present in the conversation or not, customers are having those conversations, so it's important to listen and take part. There are tools on the econ4business.com website to frame in-depth interviews: Contextual In-Depth Interview Method: Mises.org/E4B_165_Contextual and for listening with empathy: Episode 33 "Isabel Aneyba: Listening From the Heart and the Techniques of Empathy": Mises.org/E4E_33 Behavior observation The Austrian deductive method comes into play when the data is in the form of behavior that we can actually observe — accompanied shopping, ethnography, buying data, shopping data, video data, eye-tracking, A/B testing. All of these give us information about behavior. The next step in insight generation is to deduce the drivers of the behavior. Sometimes we may have some conversational data or sentiment data (such as from surveys) to combine with the behavioral data, sometimes not. The process of working backwards from behavior to motivation uses the question, “Why?” Why did they act that way? Why did they reject an alternative? What could possibly be behind the behavior? If they acted unexpectedly, or out-of-pattern, or differently than last time, why was that? The standard of 5 Why's is often invoked to get to the deepest understanding. But it's not the repetitive 5 Why's of the child asking mom why they can't have a piece of candy. The Why's must be deeply thought-out, probing, significant Why's to get to the next level of understanding. Data analytics Analysis of so-called big data can make a contribution to multi-dimensional insights generation, especially if the data relates to behavior such as buying patterns, clickstreams, and cultural shifts in behavior (like Tik-Tok usage). Data can't reveal drivers or deeply felt dissatisfactions, but it can reveal trends and even suggest some preferences (e.g., shifts in usage from one brand of social media to another). Data analysis algorithms don't ask why, they ask what — especially what data patterns and pattern shifts can be observed. Bear this in mind when integrating data analytics into your multi-dimensional insights generation process. Learn the language of dissatisfaction. The drivers of customer choice are always derived from dissatisfaction. Because they are seeking betterment, they must, logically, be dissatisfied with current conditions. It's very tricky to identify dissatisfactions because the language of articulation is subjective and personal. Researchers and engineers and designers talk about “pain points”, but customers probably don't. They may talk about what makes them “crazy”, or “upset”, or “frustrated”. Relative satisfaction / dissatisfaction could be revealed by brand-switching. Installing feedback loops for activation immediately after the customer's product or service experience can help gather relevant data, especially if you can gather the feedback in the customer's language rather than your own. Insights are built through combination, recombination, and synthesis. “Insights lie where worlds collide” is a quote from Darshan's book (Getting To Aha! Why Today's Insight Are Tomorrow's Facts). What he means by that is it's a combination and recombination of conversational data and analytical data and trend observations and cultural shifts that ultimately generate the insight. Blending and mixing and putting elements together to reveal new possibilities beats logic in the process of insights generation. Call it synthesis. And before synthesis can take place, the ability to break down wholes into component parts in a creative way is required. Analysis and synthesis, destruction and creation. Ultimately, human emotion lies behind all insights and all innovation: experiences are feelings. Technically, the drivers of customer behavior change can be tracked to functional factors such as speed (faster), cost (cheaper), and / or convenience (easier). But beyond these lies emotion — the feeling that an experience is, was, or can be great. Customers buy experiences, not goods or services. A solution that evokes emotion results in (according to Darshan) a response that's 12X stronger than one based on just faster/cheaper/easier. Therefore, an insight that evinces emotion — reveals it, brings it to light — is the most valuable of all. It's important to understand the language of positive emotion, as well as the language of dissatisfaction. An experience evokes emotion when customers call it amazing or super-cool or use superlatives of that kind. Customers bond most strongly to businesses that can align with their highest values. Beyond even the strongest emotional benefits lie highest values: lifetime values for which customers are always striving. Examples include family security — always a goal and never entirely realized — a sense of achievement — there's always more to achieve — and a world of peace — we know today how elusive that is. Brands that can associate themselves with these highest values — purpose-driven brands — or help customers attain them for themselves will be especially prized and loved in today's markets. Humanizing brands in a digital world is a difficult standard to attain, and making the emotional connection with the customer on the subject of their highest and most strongly held values is the pathway. Listen to the Economics For Business Podcast (Mises.org/E4BPod) on the role of highest values in business. It's a modern expression of customer sovereignty that brand buyers are so active in evaluating products and services based on their assessment of the values exhibited by the corporations behind them, and that they seek to change the world through buying and not buying. Better insights can help led us to a better world by identifying dissatisfactions and pointing to new solutions. Insights are visions of what makes us human, improving what connects us and unites us. Additional Resources Getting To Aha! Why Today's Insights Are Tomorrow's Facts by Darshan Mehta: Mises.org/E4B_165_Book iResearch.com