Entrepreneurial Uncertainty Identifier

Decision-making can feel particularly challenging for entrepreneurs.

Entrepreneurs face the unpredictability of the future with a limited set of resources, limited information, very little history of what works and what doesn’t, and few, if any, people to help. There’s no corporate research department and not much big data. Decision-making can be daunting. How can economics help? We discussed this topic in a recent episode with Peter Klein who has already put considerable energy towards helping entrepreneurs identify the different types of uncertainty they face, and be better equipped to mitigate them.

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Click here to download Peter Klein’s Research Paper on Entrepreneurial Uncertainty

Preview of Entrepreneurial Decision Making Under Uncertainty PDF


Entrepreneurs Change The World For The Better By Thinking Exclusively About How To Offer New Value To Consumers.

Original Article by Per Bylund.

Politics is hardly an effective force for bringing about positive change in society. Instead, real change, and especially such that changes people’s lives for the better, comes from elsewhere. It comes from business, and specifically from innovators, entrepreneurs, and pioneers in the market. And very often it does so despite politics and the state — or even in direct conflict with it.

While technology often gets the credit for achievements of the market place, this is too much of a simplification. It is not technology per se that produces the changes and improvements; it is but a common (and eye-catching) means. The real change is brought about through entrepreneurship, specifically through what Ludwig von Mises called the entrepreneur-promoters: the pioneers, the disrupters, the creative destroyers.

These innovative and trailblazing entrepreneurs are often thought of as creators of something new. For example, it is easy to see the immense change brought to the market for personal transportation by new and innovative players like Uber and Lyft. By providing a new type of transportation — ride-sharing — these entrepreneurial firms placed themselves outside of the existing regulatory framework for taxi cabs. And thus they broke new ground and forced deregulation of the often guild-like taxi industry.

Ride-sharing is an obvious and important example of the enormous change that entrepreneurship can have on society — for the better, by providing new goods and services, and thus improving people’s lives. This is the power of the market. But that is too limiting a definition of disruptive entrepreneurship. Such change can also be brought about by incumbent business firms who pursue new and innovative business models.

A Membership-Based Auto Industry

An example of such is the recently advertised change in how automobile manufacturer Volvo intends to do business. While other automobile manufacturers are stuck, partly due to protective regulation, with producing automobiles sold through a vast dealership network, Volvo intends to stop selling automobiles. Yes, you heard that right.

The new program, Care by Volvo, is a flat-rate membership in which you are provided access to your automobile — with maintenance, service, and even insurance included. While this seems like an interesting twist on the face of it, it is a new business model that has the potential to revolutionize the automobile industry. Drivers no longer need to own their cars, and they also, as a result, do not need to worry about anything with the usage of their car. There is an immense convenience gain.

But think one step further. If a Volvo membership, rather than owning an automobile, means you have the right to a vehicle, this could change everything. Imagine going out of town, and being provided with an identical (or, if you prefer, different) Volvo when you arrive at your destination airport. The Care by Volvo program is effectively competing with the rental car business.

Further imagine that “your” Volvo is a self-driving car, as automobiles will soon be, and your leaving town means not only that you can be picked up at the airport by your preferred car, but also that the car in your driveway, or which dropped you off at the airport, can be used by others.

The future that Volvo likely envisions is one in which there is no need for ownership of automobiles because they can provide the transportation service without hassle everywhere and always. The gain is not only that resources become better utilized as automobiles no longer are parked for long stretches of time in one’s driveway or garage, but also that consumers no longer have to make capital-intensive investments in something as banal as personal transportation.

With much more efficient use of transportation resources, one can imagine how automobile manufacturers such as Volvo not only take on rental car agencies and taxi cabs, but also (out)compete public transportation systems like buses, trains, and subways.

Rather than automobile manufacturing being a stagnated industry “of the past,” and under threat from the anti-oil movement, Volvo’s business model innovation can completely change the playing field and revolutionize the entire transportation sector of the economy. (And I haven’t even mentioned how Volvo also envisions soon offering only electric vehicles .)

The driving force here is obvious: entrepreneurship. But the disruption is not from a new player, but from a player thinking anew. The step for Volvo going from a lease-or-sell model to membership is not a huge one in terms of the production or distribution process. The difference lies in how they imagine best serving their customers, and by thinking of their customers first – or the actual value of what they do – they realized they should think differently about their business. Their dealership locations become member care facilities.

By explicitly thinking of and making consumer value the purpose and goal of their business, Volvo has recreated themselves. As a result, they could disrupt the automobile industry. And in the process, they may erase the boundary between different industries involved in providing the value of personal transportation: automobile manufacturing, car rentals, taxi cabs, public transportation.

This is an entirely predictable evolution. The only reason these are considered different industries in the first place is that they started out offering different types of services based on the technology of the day. But what they really do is not to provide technological solutions to consumers, but to provide value. By recognizing this simple but often forgotten fact, artificial boundaries dissolve and more value is attainable for both businesses and consumers. Herein lies the power of business and entrepreneurship to change the world: by serving the rest of us.

Per Bylund is an assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.

8. Will Dinkel on Everyday Applications of Artificial Intelligence

We talked to Will Dinkel, CEO of Nova.ai, an intelligent platform for outbound sales and marketing – and a great example of A.I. as a tool for everyday tasks of everyday businesses of all kinds.

Show Notes

AI has come a long way in a short time. 10 years ago, we always had to have a “human in the loop” for any task that could be made more productive with software. It could never be so productive as to not use human labor. And often that labor was very inefficiently deployed. Will cited the example of tracking labels and numbers on shipping containers – software could record the data, but humans still had to interpret it.

AI is available and relevant for entrepreneurs and small businesses today. Emerging technologies – including AI, Platforms, Apps and Global Exchanges – augment the capacity of individual entrepreneurs: AI is a business tool and a creative tool for entrepreneurs right now.

Outbound sales and marketing is a practical application of AI in a critical everyday activity. The specific area of application we talk about is personalization – which increases engagement and results. Personalization can generate as much as a 10X increase in sales effectiveness. Without AI it’s very labor intensive – 94.2% of the typical enterprise sales team’s budget is labor. With AI, personalization is very much less labor-intensive, very effective, and potentially self-improving over time.

Personalization of sales messaging via AI is an example of bringing machine intelligence to empathy. In episode 5, Peter Klein explained the pivotal role of empathy in entrepreneurial success. With AI – in combination with the empathic entrepreneur – we can make empathy work for us more intelligently, more intensively and with greater analytical rigor.

Machine learning accumulates data over time and, via regression, uses it to make better decisions. When Netflix recommends “British mid-century dramas with a strong female lead” for your viewing enjoyment, it has accumulated your input data (searching, for example), and your output data (what you actually watch) and identified the most dominant co-varying themes in order to identify a recommendation you are highly likely to accept. Initially, the model needs a human in the loop to help it become accurate, but over time it can operate autonomously.

Nova.ai is an example of an application of AI that has become much more broadly capable over time at helping humans perform better. Initially, it was able to identify snippets of sentences and information that were effective in increasing outbound e-mail sales productivity by +40%. Now it can focus on the much broader role of the seller – in a process called Intelligent Customer Management – by sifting through all the data a salesperson has to deal with, identifying the major time sinks associated with it, and lifting the burden by providing analyses and recommendations for the most productive actions.

The future increase in AI productivity will come from it knowing more about the individual user. Currently, AI can sort through data intelligently, but it knows far less about the human user of the data. When that gap is closed, AI productivity will ascend to a new level. Imagine a nutrition bot that knows all your personal health and eating and exercise data. When scanning data in front of your eyes – like a menu or a deli counter – it will be able to make truly personalized, and perhaps life-extending, recommendations.

A.I. productivity will be available to all businesses, big and small.  A.I. will be very egalitarian. Everyone can access it, and the upfront cost is low. In the first industrial revolution, capital intensiveness limited access to opportunity. Not many had enough capital to build a railroad or a steel mill. In the era of AI, we can all access training in coding and AI and machine learning on Udemy or Coursera or one of many other learning platforms.

A good place to start is to open a Github account. GitHub is free at the basic level, and anyone can search for AI applications in any subject of interest. Everyone should have a fundamental programming education and Github is a great place to explore. Nova.ai is the place to find out about Intelligent Customer Management.


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Opportunity Cost Calculator

The entrepreneur must understand the mind of the consumer in order to see opportunity costs in the way the consumer sees them.

Opportunity cost is a subjective evaluation on the consumer’s part. How do they look at alternatives when they are considering the entrepreneur’s offer? Would they assign greater value to the aluminum product compared to the stainless steel product? An entrepreneur needs to be able to answer that question in order to calculate how to design a good deal in the consumer’s eyes. Click here to download the PDF

Preview of the Opportunity Cost Calculator Tool


7. Per Bylund on Opportunity Cost

Hunter Hastings talks with Per Bylund about Opportunity Costs. Why is this important? Because, for entrepreneurs, all costs are opportunity costs; and opportunity costs are the only costs. Opportunity cost is the core of economics, and to develop an understanding of how to apply economic principles to real life, it’s the place we must start.

Show Notes

Opportunity cost is the fundamental trade-off. The value of any action or choice is defined by the value of what I am foregoing — of what I can’t do as a result of choosing. If I decide to make my product out of stainless steel, I can’t also make it out of aluminum. The value I create by choosing stainless steel must be greater than the value I gave up by not choosing aluminum.

We calculate opportunity cost as the NPV of different alternatives. The NPV of the second best choice is the opportunity cost of the first.

The entrepreneur must understand the mind of the consumer in order to see opportunity costs in the way the consumer sees them. Opportunity cost is a subjective evaluation on the consumer’s part. How do they look at alternatives when they are considering the entrepreneur’s offer? Would they assign greater value to the aluminum product compared to the stainless steel product? An entrepreneur needs to be able to answer that question in order to calculate how to design a good deal in the consumer’s eyes.

The way to do this is to solve an equation: consumer value = the value of what I am offering minus the customer’s perceived opportunity cost of acquiring it. We must understand what is the first alternative for the consumer (including doing nothing — not buying). That’s one part of the consumer’s opportunity cost. Second, what are the additional opportunity costs of buying — such as the difficulty of getting to the store to buy the product, or the difficulty of ascending the learning curve to use an app. These are the second component of opportunity cost for the consumer — the alternative is not to have to face these costs and may be preferable.

Use our Opportunity Cost Calculator.

It’s possible to segment consumers by understanding their attitudes to opportunity costs. Book buyers on amazon prefer the low cost and fast delivery. Their opportunity cost is going to the book store, where there is a limited selection and prices are higher. Book buyers who go to the brick and mortar store prefer mingling with other book buyers and perhaps getting a cup of coffee — experiences that are unavailable on amazon. For these consumers, the opportunity cost of foregoing such experiences on amazon is high — so high that it makes amazon’s low price unattractive. These attitudes are held by different kinds of book buyers.

The entrepreneur’s first opportunity cost is the value of choosing another career, such as a corporate job.Many entrepreneurs could make more money — and do so with more continuity and security — as a corporate employee. That’s the opportunity cost. But it may not compensate for the excitement and fulfillment of doing what you love as an entrepreneur. Be sure to calculate the opportunity costs carefully!

Once you’re an entrepreneur, every decision is a trade-off, and calculating opportunity cost is an everyday task it’s important to master. Every resource allocation decision is an opportunity cost decision. How much should I spend on product development, if that means less money for marketing and sales? Whom should I hire versus what tasks should I outsource? Once the decision is made the opportunity cost is locked in. This is especially critical for small and start-up businesses with limited resources and tough cash flow constraints. Always think in terms of opportunity costs when making decisions: what’s the alternative?

The allocation of time is often the most important opportunity cost of all. A classic example is engineering time spent perfecting the product versus getting a just-about-good-enough product to the consumer for evaluation and feedback. The engineering trade-off is that the product is not the best it can be. More time would help. The business trade-off is that customer feedback is the most important resource of all, especially negative feedback which tells you how to improve. Delaying it could be fatal. The entrepreneur must weigh these two alternative uses of time. That’s how the concept of the MVP (minimum viable product) and agile programming emerged. They’re both ways to make the best trade-offs of time allocated to the most important tasks.

The entrepreneur must always be thinking of trade-offs. What am I losing or foregoing by making this choice? That’s the opportunity cost. Calculate it, estimate it and put a value on it. Focus on what you are not doing in order to choose the right thing to do.



PDF icon Download Opportunity Cost Calculator.pdf (101 KB)


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