10. Ed Pletner Applies Alertness, Discovery, and Capabilities-Based Strategy to Start, Manage, and Grow His Firm

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Ed Pletner talks with Hunter Hastings about applying these economic concepts to start, grow, and manage a thriving and highly differentiated business.

Show Notes

Entrepreneurial theory in Austrian Economics employs several terms to describe the entrepreneurial process and the exercise of entrepreneurial skills. 

  • Alertness refers to the ability of some entrepreneurs to identify, and quickly gain profit from, marketplace opportunities to buy from one resource and sell to another in a way that benefits both and allows for a profit.
  • Discovery refers to the process of applying empathic diagnosis to accurately identify unmet needs of potential customers and to rearrange resources to meet that need, enabling customer value and generating entrepreneurial profit.
  • Capabilities-based strategy is the idea of identifying certain key resources — tangible or intangible — that enable a firm to establish a strong and potentially lasting competitive advantage in the marketplace. This approach to strategy is often packaged up in textbooks as the Resource Based View (RBV) of the firm.

Ed Pletner started his entrepreneurial journey with a straightforward application of alertness. 

Ed began as an eBay “trading assistant”, buying from one source (individuals or businesses that had something to sell) and selling to other individuals who wanted to buy, and taking a commission on the trade. With effort, energy and hard work, Ed quickly established that he could sell to large audience and develop a revenue-generating business without the need for a large overhead or expensive technology.

As his trading business expanded, Ed discovered ways in which to serve many large customers with a new service of electronics recycling. 

Ed began buying his own electronic equipment for resale from garage sales and local swap meets. He describes this as a “great experience” of discovering both sides of the service equation – who wants to sell and why; who wants to buy and why; and what are the specific conditions necessary to complete the trade.

It all started with buying and selling technology hardware. At the beginning, Ed was moving it from garage to garage — a seller’s garage to his own, in order to store it before reselling it. Then the business became engaged with bigger quantities — warehouse to warehouse.

He couldn’t sell everything — some items had to be recycled or destroyed. It was at this point that the discovery process yielded the business opportunity of data destruction and electronics recycling.

From dynamic marketplace change, there emerged the customer need for secure and compliant data destruction as an integral element of electronics recycling. The problem to be solved was called E-waste.

We always encourage entrepreneurs to find a problem that customers want solved. Ed discovered e-waste. When hardware is recycled, there is always an associated amount of data: customer records, company data, financial records, health records, memos, emails etc., on hard drives, thumb drives, and all kinds of digital media. It has to be destroyed. And the customer needs to feel confident and assured that there is no failure or leakage in the destruction process, and that they can prove to regulators or auditors that they did the right thing and hired the right experts to avert any potential issues or claims.

Ed was able quickly to recognize the opportunity to become a trusted service provider in data destruction.

Ed invested in capabilities to enhance and strengthen his credentials in this emerging market that had a strong need for standards. 

Ed understands subjective value. Value is, as he puts it, “in the eyes of the beholder”. And in this case, the beholders were the clients who had stringent guidelines to follow — HIPAA guidelines, or financial industry guidelines or contractual customer requirements — regarding how data is destroyed. It was most important to these clients to be able to retain a service that is compliant — that can provide proper certification of destruction and a third party audit. They are looking to avoid both legal and financial penalties and any reputational risk.

Ed invested in establishing his company, avritek, as a properly certified vendor. R2 Responsible Recycling is the industry environmental standard for electronics recycling. ISO 14001 and OHSAS 18001 are environmental and worker safety and health certifications. NAID (National Association of Information Destruction) is a location-based certification with onsite auditing for both paper and digital data destruction standards. Avritek has them all.

Ed has embraced the capabilities-based strategy approach wholeheartedly, always asking how he can expand his capabilities to serve clients better. How do we install a larger shredder to better serve large scale clients? Which ERP system shall we install to tie in all our processes and partner services? This is a lot different than spreadsheet based planning and budgeting. It’s all about delivering more value to clients via better capabilities.

Customer segmentation follows from commitment to capabilities. Avritek does not have to target customers. It aligns with them and synchronizes with them by understanding what they care about and providing the capabilities to enable them to exercise that care. In San Diego, where avritek is based, there are many biotech firms. They care deeply about data security, not only for compliance reasons but also because “they are in a caring industry”, as Ed puts it.

Interconnectivity opens up an international business footprint for the capable, service-oriented firm. Avritek is San Diego based. Many of its clients have offices and locations in multiple states and multiple countries. By partnering with similarly-credentialed electronics recycling companies, Avritek can provide a complete service to clients, along with a single point of invoicing, administration and relationship management. In this way, capabilities-based strategy is an excellent route to organic growth with high levels of capital efficiency.

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Alertness, Discovery, and Capabilities-Based Strategy

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Entrepreneurial theory in Austrian Economics employs several terms to describe the entrepreneurial process and the exercise of entrepreneurial skills.

Alertness refers to the ability of some entrepreneurs to identify, and quickly gain profit from, marketplace opportunities to buy from one resource and sell to another in a way that benefits both and allows for a profit.

Discovery refers to the process of applying empathic diagnosis to accurately identify unmet needs of potential customers and to rearrange resources to meet that need, enabling customer value and generating entrepreneurial profit.

Capabilities-based strategy is the idea of identifying certain key resources — tangible or intangible — that enable a firm to establish a strong and potentially lasting competitive advantage in the marketplace. This approach to strategy is often packaged up in textbooks as the Resource-Based View (RBV) of the firm.

In a recent podcast episode, Ed Pletner helped us gain a deeper understanding of this theory by putting it in the context of his business. Check out the results below or click here to download the PDF version.

Alertness, Discovery and Capbilites-Based Strategy

9. Peter Klein on Entrepreneurial Decision Making

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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? Today we discussed this topic with Peter Klein.

Show Notes

Economics helps us understand the process of decision-making, and how to enhance it with human creativity and wisdom rather than spreadsheets and analytics. The first step is to recognize and embrace what economists call uncertainty. Entrepreneurs face it all the time. We can’t know the future, or even the number of possibilities. The world is organic and human, and future outcomes depend on the interactions of millions of humans. No-one can predict them. Don’t try. But don’t be intimidated by uncertainty.

Understand the difference between risk and uncertainty. Risk is a mathematically definable probability. When we roll a 6-sided die, we don’t know which number will come up but we can calculate the probabilities for each one of 6 possible outcomes. That’s a highly defined situation with a mathematical probability, as is insurance risk. Uncertainty is different – we can’t list the possible future outcomes or attach a probability to each one.

In uncertainty, think of decision-making as a continuous process, not a fork in the road. There is no need to fear decision making. It’s not a back-and-white choice, X or Y, right or wrong. Think of decisions as continuous; we decide, we try something out, we experiment, we get results, we adjust, we try again. Every piece of new information we obtain from experiments helps us make a more informed decision next time. Entrepreneurs are good at dealing with this continuous flow of decisions, and making adjustments as they go – like a basketball coach on the sideline. The system of decision making is far more important than any one single decision.

Peter Klein calls this process entrepreneurial judgement. Entrepreneurial judgement is reasoned, purposeful action regarding feasible outcomes. It’s not formal or mechanistic or mathematical, but nor is it blind guessing. The key is that it is the entrepreneur who makes the final decision. He or she is not executing decisions that others make. Entrepreneurs make their own reasoned judgement in a middle ground between guessing and mathematical certainty.

There is a face it all the time. to mitigate uncertainty. Dr. Klein defines the process as (1) defining what type of uncertainty you are facing (2) taking appropriate steps to narrow the scope of the particular type of uncertainty you are facing; (3) exercising judgement – i.e. making a decision and taking action – in a timely manner when uncertainty is reduced but not eliminated; (4) gathering feedback for your action and continuously repeating this process.

Environmental uncertainty is external to the entrepreneur and means that many possible outcomes could result from a decision. You plan to launch a new product. You don’t know how the competition will react, or how the consumer might change or what will happen to regulation. In this situation, entrepreneurs try to narrow the range of possible outcomes, using experience, history, testing and other means. For example, you could run a test of different price levels to ascertain which one generates the most purchases, and use the test results to narrow the possible outcomes.

Creative uncertainty is internal to the entrepreneur with a defined goal but many possible options of means to reach it. You want to sell a million units at $5, but don’t know which combination of messaging, media, and promotion is best to help achieve the goal. You narrow the range of possible options by hiring an expert marketing agency, instructing them to develop 6 alternatives, and choosing between the options based on consumer reactions.

Absolute uncertainty occurs when there is a wide range of possible outcomes, and a large set of possible options for action, in a dynamic environment of change. You want to start a company but you are not sure which consumer needs you are best placed to meet, or which of many options you would select to meet them. You have to find a way to narrow both the possible outcomes (which needs will I serve) and the possible options for action (what kind of a company will I launch). Dr. Klein used the example of Netflix. Reed Hastings wanted to start a tech company but wasn’t sure what kind – absolute uncertainty. He settled on direct delivery of VHS tapes, with moderate success, but at least he established a consumer need to fill. But then the technology environment changed, first to DVD’s (easier to ship) and then to streaming (better consumer solution but technologically very challenging). Netflix thought and re-thought the environmental uncertainty (changing technologies and consumer tastes) and the creative uncertainty (how would pricing, subscriptions, packaging etc affect outcomes?) in a continuous process of experimentation and recursion.

Entrepreneurial decision-making is evaluating and mitigating uncertainty. Narrow the range of your options and possible outcomes. Decide and act, and don’t be afraid to do so. Think of decision-making as a continuous process, one at which you can get better over time and with experience.

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Entrepreneurial Uncertainty Identifier

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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.

Click here to download the PDF Version

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.

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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

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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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