How should you think about the different stages of Value Facilitation?
On a recent podcast episode with Per Bylund, we discussed the notion of subjective value and its importance in business development. We created the following infographic to help entrepreneurs gain a better understanding of the process. Check it out below or click here download the PDF version.
In our ongoing project to build a solid bridge between the theory and practice of entrepreneurship, we explored the connection between organizational psychology and the entrepreneurial personality.
Lisa Stevenson studied I/O Psych as an undergrad, in connection with business courses, and became fascinated with it. I/O Psych is shorthand for Industrial and Organizational Psychology – the application of psychology in the workplace. Lisa went on to post-graduate studies and a Masters Degree in I/O Psych. She applied it in consulting companies, first as a recruiter and then as an organizational development consultant.
The application of I/O Psych is aimed at improving people outcomes and people performance within firms.
The discipline embraces talent and fit – does an organization have the right talent to get jobs and projects done now and in the future, and do the people with the right talents “fit” the firm’s values. Often, firms use I/O Psych to develop pro forma profiles and compare individual assessments to those profiles, looking to emphasize the most desired characteristics and avoid those that are unwanted.
One of the methods of I/O Psych is the application of self-assessment tools.
There exists a wide range of psychology-based or psychology-inspired self-assessment questionnaires and surveys that are focused on assisting firms and their HR departments to evaluate and optimize their employee base. One particular application is the combination of different personality types in teams in an attempt to balance strengths and maximize collaborative output and productivity. One of the prominent self-assessment tools Lisa mentioned is MBTI (Myers Briggs Typology Indicator) – a popular free version of which is available at 16personalities.com. Another is Business Chemistry, the internal tool used at the global consulting firm Deloitte, where Lisa works in Talent And Development. You can take this self-assessment yourself at businesschemistry.deloitte.com, and find the explanations and implications of their personality classifications. A third widely used self-assessment tool is StrengthsFinder from Gallup.
Can self-assessment help entrepreneurs to succeed?
Lisa says yes – but not in the same way that corporations use self-assessment. The entrepreneurial role – whether (co-)founder / CEO or team member – is different. It requires adaptability, being able to do lots of things well, not just one thing; to earn new jobs and skills, including “dirty work”; to be deeply involved in all aspects of operations to understand and master how the entire business functions, not just one aspect of it. When she is hiring for entrepreneurial roles she looks for (1) a bias for action and (2) a willingness to take risk (such as learning a new skill or taking on a new task) combined with a skill at mitigating risk (learning fast, narrowing options quickly, reversing bad choices when new information requires it, without self-criticism). Entrepreneurial self-assessment is not concerned with strengths and weaknesses, but with knowing oneself candidly and acting on that information. There is an entrepreneurial personality based in bias for action and risk mitigation, but it’s not the same for every entrepreneur. It’s best to find your own balance. (At Economics For Entrepreneurs, we are developing a self-assessment that assesses behavioral traits rather than personality traits – you can take the first iteration here.)
As an entrepreneur, Lisa applied the lessons of self-assessment both to herself and to her brand.
Lisa started a growing jewelry brand called Rise Hawaii. Initially, it was based on her hobby of free diving and scuba diving. She would collect shells and sea glass and sell them to jewelers. She discovered that there were no jewelers making exactly the kind of jewelry she preferred personally – a combination of delicate elements with high-end precious metals. She started designing, then manufacturing – learning skills like dipping shells in molten gold – then selling online and distributing to retail stores. Rise Hawaii is now a fast-growing international brand selling online and through more than 20 retailers.
Personality analysis helped her in two ways. She understood her own personality from the self-assessments she had taken, and could observe her own behavior in stretching herself too thin in her business by trying to please every potential customer and meet every demand. By understanding the underlying personality traits, she was able to change behavior for the good of both her business and her best customers. She also applied a similar assessment technique to the personality of her brand. Lisa realized that, initially, she was trying too hard to emulate established “Hawaiian jewelry” branding adopted by others, but this did not reflect her authentic self. She consciously realigned her brand’s personality with her own. The result is a unique and sustainable brand positioning and a happy owner.
And self-assessment helps Lisa imagine her entrepreneurial future: growth through alignment with companies and causes exhibiting values she shares, including worthwhile purposes such as ocean conservation.
There’s a way for all entrepreneurs to benefit from self-assessment and self-awareness.
Take one or more of the self-assessments accessible via the links provided here. Absorb the background information that’s provided. Use it to be self-aware: what do the results tell you about yourself? Did you learn anything new? Can you observe your own behavior and see personality traits at work? Are there any ways in which you are being inauthentic – behaving in ways that others want you to, rather than being true to yourself? What do the results tell you about your personal balance? Where does your profile need shoring up with new practices, new learning, or someone’s help? The key is to be aware, to understand yourself.
businesschemistry.deloitte.com
Entrepreneurial StrengthsFinder
E4E Behavioral Self-Assessment
Find Rise Hawaii on Etsy at RiseHawaii and on Instagram at @rise.hawaii
Mainstream economics today does not believe in ethics, or does not count ethics as a part of its program. Instead, it is based on the concept of “rationality”, asserting that both individual human action and economic policy at the government level are determined by mathematical calculations and valuations of costs and benefits. Specifically, the ends that are pursued can be “maximized” by optimally assigning the available means. The result of this approach is that ethical principles lose relevance as guides to human behavior. They are not optimal. They do not help to maximize the beneficial consequences of human action.
However, mainstream economics is a failure. The mathematical calculations are impossible. The economic process is driven by the innate creative capacity of human beings, constantly discovering new ends and means, giving rise to new flows of knowledge and information, making it impossible to calculate the future consequences of different human actions and/or political decisions. This is precisely why socialism and government intervention and central planning fail.
The entrepreneurial approach to economics does not try to calculate or predict outcomes. It recognizes that social affairs evolve spontaneously as a result of the participation of a very large number of human beings who act in very varied ways in different specific circumstances of time and place. They are guided by ethical principles that act as a sort of “automatic pilot” for behavior and therefore for human freedom.
Entrepreneurship consists of the innate capacity for all human beings to appreciate or discover the opportunities for gain that arise in their surroundings and to act to take advantage of them. Entrepreneurship is the human capacity to continually create and discover new ends and means that have a higher value. The ethical approach is not to redistribute what exists, but to stimulate creative entrepreneurship that is best adapted to the betterment of society. One axiom for such stimulus is that all human beings have a natural right to the fruits of their own entrepreneurial activity.
The market economy arises from this creative entrepreneurial capacity of human beings. In the dynamic creation of new knowledge and new opportunities arising from the interaction of thousands of human beings, it’s impossible to calculate costs and benefits. All human beings need a moral framework of principles to guide them towards the behaviors they should follow in order for there to be social coordination as well as individual betterment. This coordination process is both spontaneous and dynamically efficient. Therefore, justice and effective markets are not two values to be traded-off, but two sides of the same coin. Only justice can lead to efficiency, i.e. social coordination, and what is efficient can not be unjust. Moral principles of behavior and economic efficiency mutually strengthen and support each other.
Consequently, we can conclude that the most just society is the one that most forcefully promotes the entrepreneurial creativity of all the human beings who compose it. To do this, it is indispensable for each human being to be certain that he or she will retain ownership rights to the results of their entrepreneurial activity. Any system that expropriates these rights is immoral.
Mainstream economics disagrees. It focuses on the results of the social process, rather than the moral behaviors and rights of those who participate in it. It is a static analysis – it takes an historical moment in time when goods and services are given and fixed, and focuses solely on the distribution of them. But entrepreneurial impetus means that there is never a static moment in time. Production and distribution are taking place simultaneously, with continuous change.
The only way to impose the static concept of social justice on the dynamic entrepreneurial market is to stop it – to coercively prevent the free practice of entrepreneurship and the creativity and coordination that makes civilization possible. From an ethical point of view, the moral principle that all human beings have a natural right to the results of their own creative entrepreneurial activity is violated. Social justice is essentially immoral.
Free markets driven by entrepreneurship are the only just markets. And it is perfectly compatible for this entrepreneurial creativity and spirit also to be used voluntarily to seek, discover and alleviate any situations of urgent need into which other human beings may have fallen.
Adapted from The Ethics Of Capitalism, Jesus Huerta De Soto, Journal Of Markets And Morality, Fall 1999.
How should entrepreneurs think about the economic concept of competition? Is there anything to learn? Is thinking about the concept useful for entrepreneurs running businesses? We asked Per Bylund to steer us through this thicket.
In mainstream economic theory, competition occurs between producers or suppliers of commodities. The good is pre-defined and undifferentiated, and competition is a matter of price and the production function. If this theory were looking for an example, it might find it in the gasoline market, where there are lots of gas stations with identical product, everyone has the same information, and price is the main means of competition. Economic theory calls this “perfect competition”, which is an ideal compared to “imperfect competition” (monopoly, duopoly, oligopoly, etc). It’s all pretty unrealistic and there’s nothing for an entrepreneur to learn.
Austrian economics sees competition as entrepreneurs competing for the customer’s dollar. The starting point is consumer sovereignty – the idea that the consumer (or the customer in B2B exchanges) is the one to exercise choice, and therefore determine what is purchased and, consequently, which brands, products and services are successful. An entrepreneur is competing with all the other ways a consumer could spend their dollar: by not buying at all, by buying a direct substitute, or by spending it in another category, or by deferring their purchase to a later time.
To succeed in this competitive environment, the entrepreneur should seek to create unique value. The Austrian logic of competition is value-centric. Value is subjective – it’s a perception of the consumer or customer. The entrepreneur competes for the consumer’s dollar by creating a value that the consumer can not realize from any other source – including non-consumption. The entrepreneur searches for uniqueness, to find a niche where he or she can serve the consumer in a way that no-one else has done before. This is what Peter Thiel calls a “monopoly” in his book Zero To One: a unique offering in a precise niche.
The way to compete is to develop a better empathic understanding of consumers’ needs. Every entrepreneur has the opportunity to be the best at developing an understanding of a target customer’s needs. In many cases, the competitive edge will be in choosing the right audience to serve – narrow enough that the empathic diagnosis is specific and precise and therefore more likely to yield an opportunity to serve the segment in a unique way. Generalizations and common denominators may not be precise enough and may cause the entrepreneur to miss precisely what it is about an audience’s needs that provides an opening for differentiation. Differentiation means a higher level of perceived value for that audience.
Positioning and telling a uniquely persuasive story are a big part of competitive value delivery. In so-called “perfect competition”, all players, producer and consumers, have the same information. Of course, the opposite is true in real life. One of the important differences in information lies in how value is positioned to the consumer, how the value story is told. Entrepreneurs compete to tell the best stories and communicate in the most persuasive ways.
In this way of thinking about competition, so-called “business strategy” is not particularly useful. Five-year plans and specific organizational goals (like doubling sales) are not useful and there’s a high likelihood of failure. They represent the wrong focus. The right focus is “how can we increase value for the consumer” or “how can we be unique?” How can we satisfy consumers in ways that no-one else does? Dynamism means that all players are changing all the time, including consumers, and so entrepreneurs must be learning and adjusting all the time, and always trying to create new value.
Can strategy tools be useful? Strategy tools can be useful to help structure thinking and help you to be sure not to have overlooked some element you should have considered. The VRIO method helps you to think about assembling a unique set of resources to support a unique value delivery to customers. Modern entrepreneurship education offers a number of frameworks to help entrepreneurs in starting a business, like the Disciplined Entrepreneurship Canvas and the Lean Startup Canvas. They are both pretty good at starting with consumers and the value the entrepreneur can create for those consumers. We’ve re-created a few versions of the Lean Startup Canvas for you to download here:
Bottom line: Austrian Economics’ value-dominant approach provides better guidance for entrepreneurs than the formulas for strategic thinking that come from business school. Start with the customer. Understand their needs, create value for them, and keep refreshing that value. In fact, this is a collaborative view of the market. Entrepreneurs share the desire to find a unique niche and establish a unique service, and they’re happy to compare notes and methods in order to help each other, which is one of our aims at Economics For Entrepreneurs.
Strategy tools can be useful to help structure thinking and help you to be sure not to have overlooked some element you should have considered. The Lean Startup Canvas helps aspiring entrepreneurs learn how to create a business by starting with a focus on the value they can create for specific consumers.
We’ve re-created a few versions of the Lean Startup Canvas for you to download here:
Check it out! A few weeks back I joined Doug Stuart to discuss my book, The Interconnected Individual, and why we should look forward to the exciting new economic realities of the future.
Click Here to listen to the full podcast on the Libertarian Christian Institute’s website.