37. Curt Carlson’s Systematic, Repeatable Process to Generate Customer Value

Is successful value creation through innovation the product of genius? Or of luck? No, it’s the product of a system, applied with discipline. Utilizing the system can result in repeated success in customer value generation.

Key Takeaways and Actionable Insights

Curt Carlson is the world’s leading expert practitioner. He is the founder and CEO of Practice Of Innovation, LLC, and was President Of SRI International, identified as the most successful innovation company in the world based on its development and introduction of globally important innovations like Siri for the iPhone4 and HDTV. Under Curt’s leadership, SRI grew 3.5X and created tens of billions of dollars of new customer value.

Curt believes any company can systematically generate new value for customers, and reap the rewards of the market for doing so, when they rigorously apply three fundamental rules.

  1. They have a simple value creation methodology that everyone in the company (and its collaborative partners) can describe, understand and apply every day in every job function. (Curt’s test: ask everyone in the company what the firm’s value creation method is: if they can’t describe it, there isn’t one.)
  2. They have metrics to define innovation work that is important rather than merely interesting. While subjective value is not quantifiable, there are proxies for measuring importance and market potential.
  3. They have a system for active learning. Innovation is a learning science, and active learning is a specific, high speed, high productivity version of learning, applying the best learning science principles.

In this week’s podcast, we focused especially on the simple, effective value creation methodology that Curt identifies by the initials N-A-B-C.

NABC Innovation Process

Click the image to view and download the full PDF

N is the identification and quantification of the important customer need. In B2B businesses, it’s possible to monitor financial flows and identify needs based on quantifiable elements – cost savings, time savings, and measurable quality improvements. In consumer businesses, need identification is much harder, and quantification impossible except by proxy, since needs are subjective and individual. Importantly, they are also multi-dimensional, and need identification must encompass all the dimensions.

It’s important to deeply understand human wants, whether it’s for convenience, or higher order wants such as pride and identity. Surveys told Steve Jobs that consumers wanted a “new keyboard” for existing Nokia phones that were hard to use. Jobs’s intuition was that what they really longed for was convenience. The touchscreen on the iPhone provided convenience and opened a doorway to all kinds of additional services.

A is the Approach the entrepreneurial innovator takes to meet the customer need. The approach is the design of an experience that the customer will desire. The Approach mist embrace both the assembly of the right resources into a technical solution, and the business model so that the solution makes money. There’s an iterative back-and-forth between technical solution and business model that can continue for years. Nike’s technical solution for shoes is good but not unique; its business model for sponsoring athletes to inspire aspirational consumers who wanted to “be like Mike” (or today like LeBron) elevated their offering from product to experience.

B is Benefits Per Costs. Curt uses this construction to emphasize that there are large buckets of both benefits and of costs. Benefits include not just features and performance and appearance, but also the feelings produced by the experience. Costs are similarly multi-layered: not just dollars, but also the effort required to acquire the product, and perhaps to master its use, the opportunity cost of what is given up, durability, and more. The innovative entrepreneur must look at costs from all of these angles and calculate that the “benefits per costs” for customers are much better than alternatives.

Curt’s rule of thumb is 2X to 10X better. People measure perceived benefits in percentages. 10% better, 50% better, 100% better than the status quo or the alternatives. Transformational innovations are 2 – 10X better.

C is the competition and other alternatives – both today and in the future. What are all the other ways the customer can experience the benefit they seek? What are alternative ways for them to spend their money – perhaps on a different experience that’s not a direct substitute but on which they’ll spend instead of buying our solution. How does your innovation fit into their lives so compellingly as to become preferred over all these alternatives?

N-A-B-C is a simple framework, but it’s not easy to achieve results. It requires iteration at speed among many collaborators (including customers, and possibly investors), all with different and specific talents and tacit knowledge. No individual can command sufficient knowledge, so team learning – active, comparative learning, frequently updated – is critical to the outcome.

The result is transformational: for customers who experience new value, for the firms that facilitate it, and for the individuals who practice the discipline of innovation.


Download Curt Carlson’s NABC Innovation Process PDF: Our Free E4E Knowledge Graphic

Buy a copy of Curt Carlson’s book, Innovation: The Five Disciplines For Creating What Customers Want.


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36. Professor Arthur Diamond on Sustaining Innovative Dynamism

This week, while keeping our eye on our highest value – entrepreneurial success – we raised our focus to the system level and the meta-ideas that sustain entrepreneurial effort and Austrian innovative dynamism.

Key Takeaways and Actionable Insights

Professor Arthur Diamond has written a wonderful book about nurturing the system in which we entrepreneurs operate. The subtitle of his book is Sustaining Innovative Dynamism. Like all great writers in the Austrian tradition, he recognizes and celebrates the contribution of the entrepreneur to society: to make others’ lives better.

In many ways, this is both an economic and an ethical stance. To quote Jesus Huerta De Soto (in a similarly titled essay, The Theory of Dynamic Efficiency):

….the most just society will be the society that most forcefully promotes the entrepreneurial creativity of all the human beings who compose it1.

But Professor Diamond is a little bit concerned that the environment for entrepreneurial dynamism is under assault in the US. It’s up to all of us to work hard to sustain the system. Professor Diamond lays out the threats under three headings.

Sustaining Innovative Dynamism Infographic

Click the image to view the full PDF.


The entrepreneurial culture would celebrate the contributions of its entrepreneurs to a better life for all: prosperity, comfort, efficiency, health, personal achievement, and the human augmentation that comes with technology. Our lives are not only more prosperous, but more productive and more enjoyable, longer and healthier, thanks to entrepreneurs.

Often when we do celebrate entrepreneurs, it’s one hand clapping. Bezos, Musk, Gates and Jobs and others are recognized, but also sometimes vilified, and often judged on whether they “give back” – as if there was some guilt about their incredible contributions to human well-being.

And, Professor Diamond points out, a truly entrepreneurial culture would celebrate the lives of meaning and purpose led by entrepreneurs on every scale, from small business to big business.

We can all participate by celebrating the heroic stories of the entrepreneurial life, telling them loud and often.


Under this heading, Professor Diamond focuses on the law, private property and markets.

We can observe our legal institutions turning against entrepreneurs in the form of tort suits and punitive damages. Professor Diamond calls for reform to preclude unreasonable awards of damages, and points to examples where doing so has resulted in unleashing entrepreneurship (such as 7000 new doctor’s practices opened in Texas after a damages cap on malpractice cases was put in place).

Private property protection is fundamental to the economic freedom entrepreneurs exercise to bring the benefits of innovation to society. Government is always tempted to seize private property, and often succumbs to the temptation. We must publicize each instance and protest each time.

Markets are the institution that facilitate the entrepreneur’s presentation of new offerings, and the consumer’s freedom to choose from what’s on offer. We talked about matching venturesome consumers (early adopters) with venturesome entrepreneurs, and removing the barriers that often come between them (for example, in medical innovation markets).


At this point, Professor Diamond exhibits amplified animation, recognizing that government regulation is the greatest threat to entrepreneurship and innovative value creation on behalf of others. He’s angry. He discerns two types of anti-entrepreneur regulation. The first is regulation that is sourced in purportedly well-intentioned (but demonstrably wrong-headed) efforts to protect consumers or workers. Here, we must energetically point to the greater benefits that ensue from the exercise of economic freedom than from its constraint.

One particularly important example is medical innovation. Too often, the heroic efforts of medical entrepreneurs to alleviate pain and suffering are thwarted by FDA regulation.

The second kind of regulation is the overtly corrupt protection of industry incumbents and big business, lubricated by lobbying and political quid pro quos. Here, we must all be whistleblowers.

Key Takeaway

Maintain entrepreneurial energy at all times and spread it in all directions. Celebrate heroic stories at every scale. Educate the world on the ethical and moral superiority of the entrepreneurial society, as well as its prosperity and well-being. Denounce legal predators, regulation and protectionism. We must contribute to the development of the entrepreneurial culture, institutional framework and governance as much as we do to customer betterment.

Downloads & Extras

Sustaining Innovative Dynamism: Our E4E Knowledge Graphic

Entrepreneurial Stories For Young Socialists: Arthur Diamond tells Walt Disney’s story.

When New Yorkers Cheered The Wright Stuff: Arthur Diamond tells The Wright Brothers Story.

Openness To Creative Destruction: Sustaining Innovative Dynamism: Arthur Diamond’s book.

Visit Professor Diamond’s personal website and blog, and read his article on Innovation Unbound, which begins: Inventors and entrepreneurs are key drivers of innovations that result in improvement in human welfare.

35. Chris Wilton’s Recipe for Success

Is there a recipe for entrepreneurial success? Chris Wilton has established a successful and growing catering business, and the recipe he developed has some ingredients that every entrepreneur can utilize.

Key Takeaways and Actionable Insights

Economists (e.g. Murray Rothbard in Man Economy and State) often talk about the recipe that entrepreneurs develop for business growth and success. They don’t quite mean it literally — a fixed proportion of ingredients combined in the same way and the same sequence every time for the same result — but the analogy is nevertheless useful. Recipes are plans entrepreneurs utilize to advance from one step to the next in pursuing their goals.

A recipe is intellectual property — software if you will. Sometimes it’s opensource, sometimes it’s proprietary. When a chef utilizes a recipe, even one that is well known, both the chef and the customer anticipate something unique: Mary makes the best chocolate cake! Lots of people make chocolate cake, and they might use the same ingredients as Mary, but, in the subjective view of a customer, no one’s result is as good as Mary’s.

To get a result, Mary has to combine hardware with the software, and perhaps there is an edge there. We might call that the capital structure that is perfectly tuned to Mary’s purpose and matches her skills. Perhaps it’s even possible to assemble superior ingredients — a special and better kind of chocolate for example.

Mary might also need collaborators. She certainly needs customers to subjectively evaluate her cake.

We’ve probably tortured the analogy enough at this point. But hopefully, we got you thinking about the role of the entrepreneur in assembling resources in order to produce something that the customer values.

In this week’s podcast, Chris Wilton of Wilton’s Catering gave us his recipe for a successful and growing business. We’ve captured it in the accompanying PDF, linked below.

Chris Wilton Recipe for Entrepreneurial Success

Click the image for the full PDF

Here are some of the headlines:

Start with self-assessment: The one universal attribute of entrepreneurship that everyone seems to agree on is: it’s hard. It requires creativity but also discipline, determination and grit. It’s important to have examined your own disposition before you embark on the entrepreneur’s journey. Passion and drive are mandatory. (There’s a self-assessment tool, and a journey map.)

Identify a market and a customer: Chris Wilton knew his industry, and worked hard to pick the right beachhead customer. The beachhead customer is the first adopter who will be your customer-partner in getting your business off to a good start. Chris chose a nearby university with a highly developed and diverse set of catering needs, where he could develop his unique style of food and service.

Plan, plan, plan: Prior to launch, Chris spent months developing a detailed plan. Working from the customer (what are their needs — identified by multiple, frequent, in-depth customer conversations) backward through on-site service and set-up, delivery, capital equipment, real estate, raw material procurement, recipes, hiring and training and operating manuals. Chris’s time allocation and effort in planning was intensive. And it paid off.

Develop a customer experience, not just a service: Chris is totally focused on delivering a delightful customer experience, which entails a lot of empathic listening to the customer to understand what they expect, and then disciplined and detailed execution at every event and every meal, including the customer experience orientation and training of staff. After the event, always ask and listen for customer reactions. Was the experience good? How could it be better?

Innovate, innovate, innovate: You evaluate so that you can innovate. Innovation is continuous improvement — always looking for something new and better that will create new value for customers. A new or improved recipe, better preparation methods, improved staff training — it’s all innovation when it’s done to elevate the customer experience. One of Chris’s technique’s is sampling events where he can try new things, give away his food for free, and get feedback that he can use to perfect the innovation.

What’s the end-result? For Chris, it’s happiness. He loves and enjoys what he is doing, and he brings happiness to customers, to the attendees at customer events, and to his employees. That’s the great fulfillment of entrepreneurship.


PDF icon Download Chris Wilton’s Recipe for Entrepreneurial Success PDF (141 KB)


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34. Peter Klein on Pricing

Pricing is fundamental to business success – to generating transactions, to cash flow and to profitable operations. There’s a lot of uncertainty for entrepreneurs in the pricing process, and economics is a good source of clarity. In fact, Peter Klein tells us that economics used to be called price theory, recognizing this fundamental role of pricing in economic exchanges.

Key Takeaways and Actionable Insights

Austrian economics offers a special way of thinking about pricing that is helpful for entrepreneurs. Here is a 12-point list of pricing fundamentals.

The Process of Pricing Discovery

Click to download the full PDF.

1. Consumers set prices. This insight establishes the right entrepreneurial mindset: the entrepreneur can’t control pricing and shouldn’t try to. It only leads to  frustration. Act on the basis of the consumer as the determiner of market prices.

2. Consumers don’t set or negotiate the price in every transaction. They are the determiners in the medium and long term. If sufficient numbers of them don’t feel they experience value at the price they’re asked to pay, they won’t buy and the entrepreneur will not be able to generate the revenue that’s called for in their business model. They’ll have to change their price, or their offering or their valued proposition.

3. A price holds only for one transaction. Just because it was the right price to get one consumer to transact at one moment in time and one context, does not mean it will hold for the future. Just because it is the sticker price or asking price does not mean the consumer has no alternative but to pay it.

4. That’s why Austrian Economics sees pricing as a dynamic and creative discovery process. The entrepreneur is charged with discovering the price the consumer is willing to pay now, in the future, in different circumstances and different contexts.

5. Price discovery goes further – to the design of specific packages of product / service and experiences. What will the consumer pay for the product now, with no waiting? What will they pay for same-day delivery? What will they pay for the product / service in a special physical location – is a newly-released movie in a luxury theater valued more than a 3-month old movie on a streaming service? Is a coffee in a cafe where the consumer can sit for a while more valued than a take-away cup?

6. The creativity and dynamism of pricing extends to promotions and discounts, including coupons, loyalty bonuses and time-based offers (10% off until midnight!)

7. The key to getting this creative and dynamic discovery process right is a deep knowledge of the consumer and their individual preferences. Senior discounts might be effective when they’re offered at a time of day that works for the retired seniors and not for working people. Coupon offers are effective for people with the time and inclination to collect and clip them, but wasted on consumers who feel too busy for such efforts. The smart entrepreneur exercises price segmentation.

8. The same principles apply to B2B pricing, although it might not be apparent in the entrepreneur’s subjective experience. The entrepreneur might feel that a retailer or wholesaler or customer to whom he or she is selling makes a take-it-or-leave-it offer on the price they are willing to pay. But the creative dynamism of discovery applies – the entrepreneur experiments with different packages of service levels, contract duration and other variables to find the right value combination that works best for both parties.

9. Once prices are discovered, the entrepreneur assembles resources to facilitate a profit at the prevailing price. This process is fundamental to Austrian price theory, yet the opposite of the typical business school scenario of cost-plus pricing. Business schools often get things backwards.

10. Entrepreneurs discover many ways to manage costs in the supply chain to meet the price the market dictates. One we talked about was channel management. For example, in the burgeoning Direct To Consumer (DTC) business model, entrepreneurs have eliminated the costs of doing business with physical wholesalers and brick-and-mortar retailers. Often the consumer is willing to pay an unchanged price. Alternatively, the entrepreneur can offer greater value via a lower price, as is the case with Warby Parker in the eyeglasses business, as well as many other innovative DTC brands.

11. The key to this process is simply to treat what accounting defines as “costs” as prices that are upstream from the entrepreneur. All prices can be discovered, negotiated or re-channeled. It may not seem that way to the entrepreneur who is buying from a seller with asymmetric negotiating power. But the dynamism, creativity and innovation of the price discovery process is always available and always on the entrepreneur’s side. The only prices we know are historical. All prices in the future are to be discovered and creatively negotiated.

12. Sometimes the creative solution is for buyers to organize themselves in a way that brings new negotiating power. Peter Klein used open source software as an example – users who are uncomfortable with the sticker prices of Microsoft or Oracle create an alternative service with an alternative price.

In summary

A price is the outcome of a single transaction – it does not necessarily hold for future transactions.

Prices are determined by the consumer – in the medium to long term.

Ultimately, the consumer also determines prices further up the value chain because all intermediate prices must contribute towards a cost-of-goods that is less than the price the consumer is willing to pay.

Entrepreneurs take control when they consider pricing as a dynamic, creative discovery process. Creativity spans pricing segmentation (different prices for different customers on different occasions in different contexts), pricing objectives (one transaction, multiple transactions, long term loyalty, etc) and product-service-price repackaging.

In all cases, deep knowledge and understanding of customers and vendors yields the understanding that informs effective creativity and discovery, and experimentation yields new knowledge.


PDF icon Download The Process of Pricing Discovery PDF (141 KB)


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33. Isabel Aneyba: Listening From the Heart and the Techniques of Empathy

Per Bylund teaches us to explore the only two fields that matter for entrepreneurial success: understanding the laws of economics and understanding the mind of the customer. Isabel Aneyba is an expert in the techniques of empathic diagnosis that yield the understanding of the customer’s mind, and she shares these techniques — and her success in starting and growing a customer research company — on the Economics For Entrepreneurs podcast.

Key Takeaways and Actionable Insights

Listening to customers is a planned activity. Yes, we suggest regular, frequent, conversational interaction with customers. But not without a calculated purpose. You need to know in advance what you will do with the information — what decisions will you make that you can’t make now. This enables you to define the expected value of the information, and how much of your scarce resources of time and money to allocate to gathering and processing it. If you don’t know the purpose and estimated value of the research, don’t conduct it.

5 Steps To Help You Listen With Your Heart Graphic

Click the image to download the full 5-step PDF

Conduct conversations with customers at least every week. Isabel includes conversations in the customers’ homes or offices, conversations in your offices, face-to-face (including digital face-to-face using webcams). To make emotional connections, we look into each others’ eyes. Certainly, these conversations can be integrated with findings from other customer data sources, but they can’t be replaced.

Exercise your passion for listening; don’t focus on asking questions. The style of conversational research is the opposite of interrogation. Don’t work too hard on composing a list of questions, and sticking to your list. Once the conversation starts, let it flow. Focus on what the customer is thinking and feeling, not on facts. Use non-verbal cues to do so (Isabel tells us how during the podcast). Employ gentle probes (“Tell me more about that”) rather than direct questions. Let the customer do the talking and make it comfortable and easy for them. Good researchers, and all entrepreneurs, have a passion for listening.

Storytelling is the great revealer. Rather than ask a structured set of questions about, for example, the stages of a customer journey, it’s better to get the customer to tell a story, in their own words. Invite them to start at the beginning and continue to the end, without interruption. For example, the story of a visit to the doctor might begin with feeling symptoms and end with the doctor’s prescription. The customer will tell you everything that went on in between, from the drive to the office to the time in the waiting room to the doctor’s demeanor. Let them tell the story uninterrupted. You can loop back later into internal details.

Try other exercises besides asking questions. In some cases, Isabel favors the exercise of having a customer make a collage out of photos, magazine pages and other materials. The choices in the collage can revel preferences, and the customer is naturally open to explaining why they made the choices and what the collage and its elements means to them.

Listen with the heart to uncover hidden truths. Isabel explains how:

  • Open the conversation with an “emotional handshake”. Find a conversational path (which might not concern your business question) for the customer to express emotion. “What do you love to do?”
  • Listen for the customer’s emotional drivers — expressions like “I feel” or “I enjoy” — when they talk about a behavior or choice or a functional benefit. These expressions reveal emotions, and you can gently probe whether these emotions represent the subjective reason why customers behave as they do.
  • Interpretation is required — the customer won’t tell you that they take action X because of emotional driver Y. You have to make the connection. Then gently probe to see if you can find confirmation.

Apply the learning to design a better customer experience. Remember that customer research has a purpose. Your purpose in business is to create and keep a customer. Customers purchase your good and services for the experience they anticipate. By listening for their emotional drivers, you’ll identify gaps in the current experience — examples of customer unease. Use the information you gather to eliminate the gaps, and relieve the unease.

Compute the return on information. How much does the information gathering cost? How much value will you able to facilitate for the customer by designing an experience they feel better about?

Free Downloads & Additional Resources

“5 Steps To Help You Listen With Your Heart” (PDF): Click to Download

Isabel Aneyba’s company, COMARKA Consulting & Marketing Research

“Qual Method Aims to Unite Clients, Respondents in Co-creation”

“Let’s Work Together: The Consumer Co-Creation Camp”