2. Trini Amador on the Role of Values in Business

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Values As A Basis For Business Building And Brand Building.

In Economics For Entrepreneurs, we will attempt to bring you some usable tools that represent a way to apply economic principles to your business to help you to greater success. Economists talk about individuals embracing values as a guidepost to the right behavior and the right choices. An example of such a value might be Family Security. An individual who holds this value in high esteem will make certain choices about their career, for example, perhaps emphasizing stability over frequent change. Another individual who prefers an exciting life might make the choice of more change, excited by the possibilities it brings. How can entrepreneurs diagnose and understand these idiosyncratic choices and take cognizance and advantage of them in business? This week we talked with Trini Amador, who is an entrepreneur who advises some of the biggest corporations in the world on these mysteries, and has built a highly successful values-based brand of his own. Here are some highlights.

Show Notes

People adopt values as a guide to their behavior and a signpost for prioritizing their preferences and choices. For example, a sense of achievement might be a value for one individual to pursue, and in as many circumstances as they feel are applicable, they’ll ask themselves, “Will this choice or action bring me a sense of accomplishment?

There are many possible values; individuals tend to be most motivated by their “highest values”. Entrepreneurs who can identify these highest values in their customers, and can develop an understanding of how to appeal to them, can be especially successful in designing value propositions and service offerings.

The way for entrepreneurs to understand how to appeal to consumers’ highest values is to think about climbing up the values ladder to reach the top. Their first encounter with your business will be at the bottom rung – the service or product you are offering. Their first question will be, what’s the benefit for me? If they see a functional benefit, they’ll ask themselves if it makes them feel good – proud, comfortable, energized, whatever feeling is relevant. If they experience an emotional benefit, they’ll ask if your offering fits with their highest value – that’s what makes them a devoted and loyal customer.

The tool to help your business climb the values ladder is the Mean-End Chain. We posted a simple example with Episode #1.

When you’ve constructed a Means-Ends chain for your target customer, you can begin to populate a brand framework. People are loyal to brands, and they often pay a premium price. A brand can be a person (you) or a business (yours) or a product or a service. Trini explains how to populate the brand framework to make your brand relevant to the target audience and differentiated by making a unique promise that you keep every time.

These are the brand building tools utilized by the world’s most successful brands. Trini delivers the insider’s knowledge.

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Rokeach’s Values

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The Use Of Terminal And Instrumental Values In Understanding Consumer Motivations.

Economists know that consumers make purchase decisions in the context of their subjectively held values. Each individual holds different values. They all have a hierarchy of values – some are more important to them than others – and this internal hierarchy determines how they make choices. They are always pursuing their “highest” or “ultimate” values, and selecting the ends that they think will help them attain those values.

Click Here for a PDF Version of Rokeach’s Values Sheet

Sociologists can name those values. Based on research among specific populations, they can identify and record patterns that apply. This is helpful to the entrepreneur because convincing a consumer that a product or service can contribute to the consumer’s value attainment is a step towards making a sale. Some people call this process “marketing”, but it is really just applied economics.

Milton Rokeach was a sociologist who researched these matters. He developed a Value Survey that he used to collect large amounts of respondent data, and he published his findings in a number of books, including The Nature Of Human Values (Macmillan, 1973).

He defined “terminal values” as the personal end-states toward which individuals strive. One example is “inner harmony” – the achievement of a balance between internal desires and external pressures. In his view, there could also be social end states desired by individuals, such as Global Brotherhood.

Rokeach also identified “instrumental values”, defined as the values we “ought” to have to achieve our ends (morals – such as honesty) or the personal competencies we need to have (confidence, reason).

A value is a preference, as well as a “conception of the preferable”. One value does not define any individual’s behavior, and Rokeach called the combination of values a “value system” – multiple, clustered values. Rokeach thought the total number of terminal values was 18, and the universe of instrumental values could be 60 or 70 in number.

This means that it is possible for the entrepreneur to identify the values held and pursued by consumers in a specific category of business. The entrepreneur can see these values as motivational to the consumer. The return on identifying, studying and understanding these motivational values comes from developing innovations, services variations and communications which are better aligned with consumers’ values and therefore more attractive to buyers. The most successful entrepreneurs are able to imagine the values system that exists in the mind of the consumer.

The Means-End Chain

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What is the Means-End Chain Tool and How Should You Use It?

Economic principles can be used in business through applications that we refer to as tools. The Means-End Chain tool is an example of a tool that we talked about in Economics for Entrepreneurs Episode 1 with Peter Klein.

The Means-End Chain

The Means-End Chain

  • Customers and consumers act with a purpose. They are trying to attain Ends.
  • When they buy a product or service from an entrepreneur, they are choosing a Means that they believe can help them attain their chosen End.
  • The Ends are subjective, so entrepreneurs aim to understand the motivations behind the purchasing behavior.
  • The immediate End of the purchase is the Benefit provided by the features and attributes of the product or service.
  • That is an intermediate End – the first link in the Means-End chain. Once the functional benefit is chosen by the consumer, they experience an emotional benefit – they feel better as a result of the functional benefit.
  • The emotional benefit is a contributory benefit – another link in the chain – to the ultimate benefit, the Highest Value that the consumer is seeking to attain in this category of activity.
  • If we know, or can deduce, the highest value, we can construct for the consumer a “strongest route” to get there: by buying our product or service, experiencing the functional benefit it provides, enjoying the emotional benefit, and feeling good about making progress towards their highest value.
  • Highest values include ideas such as Family Security, or A World Of Beauty, or A Sense Of Achievement. We will examine highest values in a future episode.

Click Here to download the Means-End Chain tool PDF

1. Peter Klein on Means and Ends

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There are some economic principles that can help entrepreneurs in their business-building endeavors. One is the understanding of ends and means. What ends (goals, objectives) are your customers pursuing, and how do they choose the means to achieve those ends? The customer is in charge of choosing ends, and the entrepreneur takes charge of offering the most attractive and valuable means. How do entrepreneurs solve that equation? We asked Peter Klein. Peter is Professor of Entrepreneurship at Baylor University’s Hankamer School of Business. He is also Senior Research Fellow at Baylor’s Baugh Center for Entrepreneurship and Free Enterprise and Adjunct Professor of Strategy and Management at the Norwegian School of Economics. He knows ends and means.

Show Notes

Economics helps entrepreneurs in a very practical sense by shining a very bright light on human motivation. In economic terms, people act. They do things. And when they do things, they always have purpose in mind. They are goal oriented. The entrepreneur’s job is to figure out how to help customers achieve a goal that they already have in mind.

Thinking about this principle in simple terms helps entrepreneurs develop a deep understanding of customer value chains. Why for example, do people choose to drink coffee? It doesn’t just happen. People raise a coffee cup to their lips because they want to enjoy the taste. Or maybe to give themselves a caffeine boost. Or perhaps they are drinking coffee in a social context and they want to enjoy the shared experience. Economists are always thinking about the customer’s goal in taking a certain action — and entrepreneurs can benefit from thinking the same way.

How and why do people decide on their ends? Economists — and entrepreneurs — don’t judge. We just want to find out what ends the customer is pursuing. And how behavior might change if circumstances change — for example, if prices rise, the customer might buy less or stop buying altogether.

How can entrepreneurs find out about what motivates customers to pursue certain ends and use certain means? By immersing themselves in a market — like the consumer market for coffee as a beverage — and thinking about it from all angles: psychology, economics, history, culture, fashion, supply chain, marketing. Like Howard Schultz observing coffee shop behavior in Milan as a precursor to launching Starbucks in the US. He deduced from his observations what Americans might derive from a similar experience if he provided it.

How do entrepreneurs develop the appropriate skills and knowledge? Not from reading books, that’s for sure. It’s instinct plus tools. The tool discussed in this episode is the Means-Ends Chain. It’s the tool that helps entrepreneurs understand that they are not selling — and the customer is not buying — coffee, but an experience.

The skillful entrepreneur links the proximate product — the coffee — to the desired experience — the “third place” experience as Starbucks calls it — in a convincing and persuasive manner. This requires exploration and experiment to get it right. It’s never obvious.

That’s why economists refer to uncertainty — it’s the situation all entrepreneurs face. You never know the future outcome until you try. The entrepreneur must be flexible in exploring the customer’s ends and means. Uncertainty rules.

Entrepreneurs exercise judgment, and try to develop insights, but can never achieve certainty. Data might help but it’s not infallible. Eventually, the entrepreneur must decide to “go for it” without certainty of being right. It’s the “plunge” decision. Learning, big data, and surveys are inputs, but they can’t make the decision; only a human can.

Experience can help. In the US, the average age of the first-time entrepreneur is mid to late 40s.Experience in an industry and lived experience are helpful. And intergenerational sharing of experience — like finding a mentor — can also contribute the experience you don’t have.

Entrepreneurship is not rocket science. Know your market, know your customers, and trust your judgment and your instincts.

Introducing Economics for Entrepreneurs

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The Mises Institute is launching a new podcast with the title Economics For Entrepreneurs. Why should you listen?

The entrepreneur is the central hero in the dynamic order of Austrian Economics. Mises referred to entrepreneurs as “the driving force of the whole market system”.1 Jesus Huerta de Soto points to the unique role the theory of entrepreneurship plays in Austrian Economics.

Neoclassical economists… overlook the co-ordinating force that Austrians attribute to entrepreneurship. The entrepreneurial process….is a dynamic, never-ending process which constantly spreads and furthers the advancement of civilization.2

Mises and de Soto were writing about economic roles. In Economics For Entrepreneurs, we are focused on the flesh-and-blood individuals who tackle the entrepreneurial task every day. The entrepreneurs who detect consumer and customer dissatisfactions and imagine — then produce — solutions for those dissatisfactions. The entrepreneurs who serve others by creating new value and, as a result, create the most just, moral and beneficent society for all, while creating a life of purpose and meaning for themselves.

We want to contribute knowledge and insight to that process. We want entrepreneurs to be successful. We’d like everyone to be an entrepreneur.

How is our podcast going to help? It’s a three step process. The first resource for successful entrepreneurs is understanding the laws of economics. If you have clear insight and a rigorous practical application of these laws, you have a competitive advantage over others. We’ll talk to the leading economic thinkers about the exactly how economic principles are best applied in business.

The second resource is the set of tools to apply these principles, and we’ll describe and, where possible, provide those tools for entrepreneurs to use. They can range from frameworks and processes to tools for planning and brand building. Some will make you better at specific tasks, others will augment your individual capacity, so you can be more effective.

The third resource is your imagination. We can’t provide that, but we can stimulate it. As you listen to both up-and-coming and established entrepreneurial practitioners, we think your imagination will be unleashed in multiple new directions.

The laws of economics, the tools for practical application, plus your imagination. We think that’s a winning formula.

Moreover, there is a world-changing innovation at work to which we can all contribute. If we are able to interconnect a worldwide group of entrepreneurs, the people who are the creators of new value in society, we will be able to unleash a wave of collaborative genius to change the world for the better. One entrepreneur can be smart, and one innovation can create value and one firm can grow revenues and profit. If they all share their learning and share the new information they create, and everyone acts on that learning at speed and scale, then we get to a new horizon of value creation. It’s what Austrians call spontaneous order, the driving dynamic of entrepreneurial human action, the never-ending process that constantly spreads and furthers the advancement of civilization.

We hope you will join us at Economics For Entrepreneurs. We’ll be on all of the usual podcasting platforms, plus Mises.org and HunterHastings.com.

  • 1.Human Action, Scholar’s Edition, LvMI, Ch XIV.
  • 2.Jesus Huerta de Soto, The Austrian School.