72. Peter Klein: Four Considerations for the Delegation of Derived Judgment

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Business books and business school courses tend to think of organization design as the structuring of a hierarchy, or the linkages of nodes in a network. The boxes and lines are departments, executives, assignments and communications flows.

Professor Peter Klein invites us to think in a different fashion. Organization design is the distribution of judgment among collaborators. The judgment of many people is necessary to the firm’s existence and value-facilitating practices.

Key Takeaways and Actionable Insights

For entrepreneurs, the future is not risky, it’s uncertain.

Risk is a calculable mathematical probability, like the result of 1000 tosses of a (fair) coin, or the likelihood of you being involved in a car accident in 40 years of driving on US interstate highways.

The outcomes of entrepreneurial decision making are not calculable. They can’t be computed. Yet entrepreneurs need to make decisions, without having all the facts in hand today, and without knowing the odds of the future results. That’s uncertainty.

Therefore they exercise judgment. Judgment is action. It’s business practice.

Judgment is not guessing, or speculating, or hoping. Judgment is action. Specifically, judgment is taking ownership of property and resources, combining and recombining them in different ways, and using them to make a product or service to offer to the market.

Judgment also incorporates spirit: the imagination, energy, creativity and bravery that entrepreneurs apply when they act. Judgment is human action.

And judgment is continuous. Entrepreneurs are called upon every minute of every day to make decisions of judgment.

Judgment quickly becomes team action.

As firms grow, the founder can’t be the sole exerciser of judgment, or the only one making commitments or acting creatively and imaginatively. In larger, more complex, multi-divisional forms, there are many executives, managers and employees who will be called upon to make judgments. And they will be well-qualified to do so, since they have special skills and tacit knowledge that the rest of the firm, including the founder, do not have.

In fact the founders or owners (or Board Of Directors) actively seek the judgment of the whole firm, in order to achieve the highest level of business success. Often, they make sure that everyone in the firm has enough “skin in the game” (in the form of incentives, commissions and supplemental compensation) to motivate them to give their best judgment.

How does judgment apply in complex organizations?

The firm develops a mix of original judgment and derived judgment (see Mises.org/E4E_72_PDF).

Derived judgment is Peter Klein’s term for the delegating of decision-making power and its distribution throughout the firm. Original judgment — the ultimate decision-making power — rests with the entrepreneur-founder, or may reside with a Board Of Directors or an appointed CEO. Derived judgment is granted to others throughout the firm who have special knowledge and skills to act creatively and imaginatively on the specific uncertainty they face in their positions.

The skill of original judgment is selecting the right people to exercise derived judgment, and designing the right combination of motivating incentives and appropriate controls.

What’s the best combination of incentives and control?

Austrian subjectivism and individualism, along with opportunity cost analysis, can point the way to the best mix of incentives and control.

Subjectivism tells us that there is no objective right answer to questions about which decision rights the owner should delegate to which employees under specific circumstances. The answer to those questions depends on the particular circumstances of the venture, its technology, its market, its business environment, the characteristics of the employees and the characteristics of the owner.

Individualism tells us that there are no generalizations about people — each one has different knowledge and skills and characteristics like reliability or trustworthiness, as well as creativity and imagination. The entrepreneur must judge each one individually, and match them as well as possible to specific circumstances.

Opportunity cost analysis tells us to always weigh the potential upsides and potential downsides of each choice and each appointment of an individual to a position in which they can exercise derived judgment. Exercise judgment about judgment.

Consequently there are four considerations:

  • Be as sure as you can to choose the individual with the most (and most relevant) tacit knowledge for the area in which they are going to exercise derived judgment.
  • Choose the individual who adds the greatest amount of experience as possible to the relevant knowledge.
  • Make sure the derived judgment of managers and employees is guided by a well-articulated mission (why we do what we do) and business model (how we do what we do). Pay attention to how well these are understood and shared.
  • Balance knowledge and experience against the potential for abuse (misjudgment) and the potential cost of that abuse should it occur. Don’t risk “destructive entrepreneurship”.

There are no “bossless” organizations.

Peter Klein points out that even in the flattest of organizational designs (think Wikipedia, Zappos, Spotify, or W.L. Gore) there is always some kind of governance, either of rules or of hierarchical authority, to limit the risk from derived judgment gone awry.

Don’t design an organization with an excessive amount of derived judgment relative to the controls that are in place.

How good are you at original judgment and at delegating derived judgment?

Entrepreneurship in action is real people in real-life situations. It’s not theory. Some are going to be better than others, as indicated by results and outcomes.

It will be useful for you — although not definitive — to self-assess your entrepreneurial judgment and how you delegate it. Gallup’s Builder self-assessment promises to help you build a thriving company and a winning team. Personality assessments like the Big 5 are less specifically tailored to entrepreneurial judgment but can nonetheless shed some light on personality traits that are applicable in entrepreneurship, whether in a small business, a growth firm or a corporate structure.

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Entrepreneurship Is The One Institution We Can Rely Upon To Maintain A Prosperous And Civil Society.

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In this time of social unrest, Americans’ confidence in our institutions is in decline. A sample from Gallup’s frequent annual poll  includes these selected comparisons between 2019 (latest available data) and 2000.

% Confidence in Institutions (Great Deal + Quite a lot)
2019 2000
Congress 11 24
Big business 23 29
Newspapers 23 37
Banks 30 46
Small Business 68 57

Relatively few Americans declare confidence in political institutions, as represented by Congress. Roughly twice as many – but still less than a quarter of Americans – express more confidence in big business and banks. Newspapers, similarly, command only low levels of confidence. All the poll data from 2019 are lower than those from 2000, indicating across-the-board declines of confidence in institutions in general.

The Institution Of Entrepreneurship

Except for small business. Two thirds of Americans declare confidence in this institution, and that number is higher than in 2000. We can easily look beyond the structural definition of small business – which is, after all, defined by government statisticians gathering employment data – into the institution of entrepreneurship.

Entrepreneurs are those individuals who shoulder the task of making things better for the rest of society. They are society’s optimists. They recognize current conditions for what they are – and then imagine a future in which conditions are better. Then they sacrifice themselves to bring that future about, expending capital and labor now for the prospects of revenue in the future. That future is uncertain –  entrepreneurs do not know if their initiative will be as well-received by customers as they hope it will. They press on anyway, their goals being discovery and achievement and making a difference, more than profit.

In this sense, entrepreneurs perform the kind of social function that is badly needed in a time of lost confidence in institutions. Having little time for the rear view mirror and gazing intently through the windshield at the road ahead, they substitute sanguine imagination for everyone else’s dissatisfaction and disappointment with the status quo. They don’t dwell on past injustices, as so many young people seem inclined to do today; they’d rather concentrate on what is possible in the future. When they see barriers they dismantle them.

Solving The Problems Of Others

Entrepreneurs are problem solvers – and the problems they solve are those that their fellow citizens (all potential customers) deem most pressing. If you’re looking for a solution to a problem, seek out an entrepreneur rather than an elected official or bureaucrat.

Entrepreneurs’ problem-solving technique combines empathy with rigorous cause-and-effect thinking. Empathy is the entrepreneur’s tool to understand why people – why society – feels a certain way. What does dissatisfaction stem from? Why do people feel uneasy the way they do? Entrepreneurs take society’s pulse  and measure society’s level of pain. From this input, which is largely emotional, they try, as rigorously and logically as they can, to reverse-engineer a cause-and-effect chain. If dissatisfaction and pain are the outcomes, what are the causes? Entrepreneurs are not policy-makers like politicians, whose aim is to appease. They are obliging and accommodating collaborators whose aim is to please.

Entrepreneurial Creativity

Entrepreneurship is a profoundly human, social and creative activity that changes our world for the better. In contrast to the destruction that our current social justice warriors seek to impose, entrepreneurs create new economic value via a transformative act of human imagination. Their ingenuity is limitless.

What are the entrepreneurial actions that result from this creative societal problem-solving disposition? Entrepreneurs start firms, grow businesses, research and introduce innovations, lower customers’ costs and increase customers’ convenience. Their guiding principle is that whatever customers want, customers can have. The responsibility to improve life is given to the customer, in that they are tasked with communicating, as clearly as possible, what needs to be done and what needs to be provided and what needs to be changed to make them feel better. Entrepreneurs put their own private property at risk to create customer benefits that add up to social benefits for all. The customer is sovereign in this exchange – what they want is what is produced. If they stop wanting it, entrepreneurial production ceases.

Contrast this with political action. Politicians put none of their own private property at risk. In fact, they steal property from some citizens, through taxation and debt (which is a tax on future citizens), in order to redistribute it in some new form to a different set of citizens. They appease one group of citizens with the property of another group. Where the entrepreneur’s collaborative deal with customers is win-win (entrepreneurs make profits when customers approve their initiatives), the politicians’ deal always involves loss. The politician achieves office when an opponent loses an election, and makes policy that imposes loss on some part of the population. Politicians deal in losses, entrepreneurs deal in benefits.

Individual Action, Social Benefits

Society would be happier and healthier if we turned to entrepreneurs for all our solutions, and to politicians solely to protect the system of private property and freedom of contract that makes entrepreneurship possible. It would be healthier still if we were to encourage the spirit of entrepreneurship in a larger group: the spirit of service to fellow-citizens through innovative technological problem-solving. The measure of success for this system is what historian and economist Deirdre McCloskey calls “trade-tested betterment”. What she means by that is the customer-determined improvement in the quality of life (i.e., betterment) validated by customers buying or not buying what entrepreneurs offer as potential solutions to their problems and their pain (i.e. trade-tested).

If those who protest and complain today were themselves to adopt the entrepreneurial spirit in their own lives, they would find that they could not only build better platforms for progress, but also introduce more purpose, meaning and autonomy into their own lives. The entrepreneurial life is purpose-driven (solving others’ problems), a source of meaning (solving problems is more meaningful than carrying protest signs or throwing rocks) and the ultimate autonomous lifestyle (discarding dependency on employment wages or welfare payments).

Entrepreneurship is an American institution. Every immigrant who ever came here brought an entrepreneurial spirit: life will be better for me and others if I escape from the limitations of my current situation and join this open, betterment-demanding, property-protecting, innovation-welcoming country and see what I can do. The institutions that grew up with our innovating immigrants and their offspring are now largely decayed and decrepit. But entrepreneurship is one institution that there is no need to abandon. In fact, it’s necessary that we revive it.

 

 

71. Sanjay Yadav on the Process-Based Skills of Negotiation

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Negotiation is an important economic process. The results of negotiation can significantly influence outcomes for all businesses. There are costs to asymmetry of negotiation skills between firms, customers, suppliers and partners.

Sanjay Yadav is an expert in negotiation. He learned his skills from both sides of the desk: in procurement and operations for large multinationals, and then in contract negotiation for creative services businesses of all sizes selling their services to similar multinationals.

From this unmatched combination of experiences, he has developed processes, tools and techniques and a comprehensive training program for executives.

Key Takeaways and Actionable Insights

Negotiation skills are vital to your business.

How well you negotiate will directly affect your cash flows, your costs, your margins, your scale, your financing and your resource allocation. It will indirectly affect your brand reputation, your organizational designs and your delegated management capabilities based on the employment contracts you negotiate.

Negotiation can be taught and learned.

As with everything in business, knowledge absence renders your outcome more uncertain. If your knowledge of the appropriate skills is lacking, you might experience disappointing results when negotiating with customers, suppliers, partners, employees and others in your ecosystem. If your role includes negotiating, allocate some time to skill development.

Negotiation is a process — the best results come from knowing how to do the right things in the right order.

For example, taking time to establish shared trust at the outset is better than having to recover lost trust later in the process. Think through the process from beginning to end — including what could go wrong or what unexpected difficulties might arise — so that you are never thrown off-track. When you know the correct next step to advance negotiations, you’ll be prepared in advance for that step and be ready with the appropriate action.

Negotiation is responsive to many Austrian principles.

Individualism: Austrian economics helps us think about the individual with whom we are negotiating, rather than the organization he or she represents. Every individual in every negotiation has unique identity, unique needs, a unique set of preferences and a unique context. Understanding individualism helps build trust and rapport.

Empathy: We are trained in Austrian economics to go inside the mind of the customer, in our imagination, in order to empathically understand their dissatisfactions and unmet needs. The same is true when working with a negotiator on the other side of the desk from us. Empathy helps us understand their goals and motivations, and to potentially create some subjective value from that knowledge. And it helps us think about the best tone and language.

Roundaboutness: Your actions early in the negotiation process will emerge as consequences later. If you pitch an absurdly high price at the beginning of a negotiation, thinking it will give you flexibility to lower it later, you’ll lose the trust of the other party and make negotiating harder. Small positive signals at the beginning can become major negotiating advantages later.

Entrepreneurial mindset: An entrepreneur thinks in terms of solving a problem — or relieving a dissatisfaction — for others. The market rewards creative solutions. Negotiation is an entrepreneurial undertaking — think about how to solve the other party’s problem.

Understanding value and communicating value are critical success factors.

Austrians have the best understanding of value. This is a huge advantage. At the outset, be sure to spend significant time communicating to the one with whom you’re negotiating the value of your offering. Value is not related to cost; it’s related to the experience your customer / partner / supplier is going to have as a result of collaborating or contracting with you. Be sure your counterparty can properly assess the subjective value you are going to create for them. If they anticipate the same value that you propose, then negotiation will not be a barrier to an exchange.

You can establish a negotiation culture.

Some companies — especially a small one negotiating with a large one (and especially with the procurement department!) — fall into the trap of feeling overwhelmed or under-qualified. Confidence in both content and process is important for success in negotiation. You can develop a negotiation culture of confidence via training, practice and preparation.

Negotiation is a universally applicable skill.

Mastery of the negotiation process is a life skill as well as a business skill. You’ll feel confident about establishing and managing relationships between your company and its customers, as well as with people you contract to provide services at your home, and in any kind of association or organization. You might find yourself negotiating with your spouse. Use your skills!

Negotiators are happy people.

Sanjay’s sign-off advice: negotiators are happy people. They know the value they are offering, they know how to get the appropriate rewards for their value, they are comfortable and confident with the process of negotiated value exchange, and they know how to resolve conflicts.

Free Downloads & Extras From The Episode

Negotiation: Our Free E4E Knowledge Graphic

Our latest free e-book, Austrian Economics in Contemporary Business Applications: (PDF): Our Free E-Book

Discover negotiation readiness at Sanjay’s website PurpleSkyPartnership.com

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70. Per Bylund: How Entrepreneurs Build Businesses That Are Beautiful Islands Of Specialization

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Per Bylund discusses the distinctive Austrian theory of the firm on this week’s Economics for Entrepreneurs podcast. He captures his unique business strategy construct in the metaphor of Islands of Specialization.

Key Takeaways and Actionable Insights

How do creative entrepreneurs design and build new businesses, new products and new services that grow and succeed? You’ll make a big difference for your own venture if you follow Per Bylund’s advice to Think Better, and Think Austrian. One step in the right direction is to clear your head of thoughts about competitors to fight, markets to invade, beachheads to take, or moats to construct around your business and your brand.

The alternative way of thinking is to envision your business enterprise, your brand or your offering as an island of specialization. What you create, launch, build, grow and sustain is something that is so special that your customers experience a deep and rich feeling of value that they can’t possibly get anywhere else. For your customers, it provides the business equivalent of a visit to (and eventually permanent residence in) a comfortable, amenity-laden resort on a beautiful tropical island, where the staff recognizes and caters to their every wish. There’s nothing else like it.

How can you create one? There are four principles that successful entrepreneurs follow to build their island.

Tropical Landscape Cartoon

Click on the image to download the PDF

Aim To Please. That’s not the kind of advice you’ll find in business school or textbooks. Yet it captures the core of our Austrian approach to business. The customer is the reason for you to be in business. Aiming to please them is the right way to think about strategy. Aiming to please is a process of observing, listening, studying and empathically sensing what will please customers the most. You aim to understand their ecosystem and their logic, their hopes and their dreams. Your offering is the way you indicate to them that you can fit in to their ecosystem and contribute to their goals. Your business model is the way you arrange your activities to please customers once you’ve fully understood their preferences and desires. Competition, cost, resources and other considerations are secondary.

Don’t copy — move beyond. Military business metaphors depict competition as conducting wars over business territory, or fighting for customer attention. In Per’s Austrian way of thinking, there is no new value for customers when a firm merely copies what is already offered by others. There’s no point — no value — in fighting over market spaces. Value emerges from what’s new and better and different. Smart entrepreneurial island builders assess the current landscape, predict where the customer will be in the future, and navigate to that place to build a new island.

Build from strength. Entrepreneurs distinguish what is unique about themselves, their partners and employees, their processes, their brand and their resources that can be of benefit to customers. Much of the uniqueness is subjective — the owners’ or the business’s identity, their unique knowledge and expertise, their relationships and interconnections that can co-ordinate the assembly of specific solutions. It’s not about arraying more destroyers on the battle lines than the opponent; it’s arraying a set of uniquely desirable and attractive brand features and attributes that are attractive to the customer.

Maximize value not output. The island builder keeps on building. Not for scale or market share or maximizing output. The direction of growth is to maximize value. Value is a feeling of satisfaction in the customer’s mind. Maximization, in this view, refers to higher levels of satisfaction, over a wider range of experiences, for more customers on more occasions. Maximization is not a quantitative or mathematical concept, to be compared with rivals to ascertain who is “winning”. It’s a qualitative concept — what quality of value has been experienced, and how can it be improved.

The four guiding principles — aim to please, in unique ways, based on your own identity and strengths, always thinking about the value that’s experienced by customers — lead to beautiful businesses. If you are developing visual island imagery in your mind’s eye as you read this, think of a balmy climate, vibrant flowers and trees, bubbling streams and distinctive animals and birds. Let your imagination run free in conjuring up beauty — that’s what entrepreneurs do as the start, grow and sustain their businesses.

Free Downloads & Extras

The Two Kinds of Knowledge Entrepreneurs Must Have: Our Free E4E Knowledge Graphic

For a full-length essay by Per Bylund (“Make Your Startup an Island”), download our latest free e-book, Austrian Economics in Contemporary Business Applications: (PDF): Our Free E-Book

For a shorter essay, see Per’s Entrepreneur.com article, “Forget the Moat and Make Your Startup a Tropical Island”: Click Here

For a full exposition of the Austrian theory of the firm and the concept of islands of specialization, see The Problem of Production: A New Theory of The Firm: Click Here

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How Entrepreneurs Build Beautiful Businesses.

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In his book, Narrative Economics, Robert Schiller, Nobel Prize-winning economist, tells us that the greatest influences on the nation’s economy come from the stories we tell ourselves about it.

A depression lasts longer when people tell themselves and each other that it’s going to be a long time before things turn around. Recoveries accelerate when people turn optimistic and tell each other that the good times are just over the horizon and will be back soon. Currencies lose their purchasing power when people tell each other prices are going up and its best to exchange cash for products now and not wait for the higher prices. Trade unions are vilified when people start talking about excessively high wages pushing up inflation. Schiller has a lot of stories, or narratives, as he calls them.

These are macroeconomic tales, about trends in GDP, and the price level. But the same is true at the microeconomics level. The reason why there is so much negativism about business, capitalism and free markets is that people are telling each other negative stories about business aggressiveness, unsustainability, lack of sympathy and general coldness. We’re angry at business, it seems.

One source of this anger are the business school instructors, and their textbooks and business biographies and histories that portray businesspeople as a warrior class and business competition as warfare. Invading industries, taking beachheads, fighting for market share. The Art Of War by Sun Tzu is often cited as the most popular business book, and a source of business strategies.

Another military metaphor is defensive – protecting your castle. “You need a “moat” — essentially, a barrier that can protect your business from potential encroaching forces”, says one writer in Medium.

The military narrative is a horrible metaphor for business. The blood and gore and destruction and operational chaos that war metaphors bring to mind have no place in our image of what businesses do and the service they provide. Customers buy products and services only if they believe that, by so doing, they’ll make their lives better in some way. Otherwise they wouldn’t buy. Businesses exist to generate this sense of betterment, of satisfaction, of well-being among their customers. If they are not good at it, they’ll lose the patronage of that customer to a business that pleases them better. Consequently, businesses are always trying harder to understand what will make their customers happy, and to perfect their own knowledge of how to deliver that happiness.

We need a new narrative of business formation and business action that is an alternative to the military metaphor, especially so that we can teach our kids in school that business is a channel for their aspirations, not a regimen to which they are to be subjected. We need a business-is-beautiful metaphor. That its purpose is to serve and to please and to make life better. That it’s the source of what’s good: income to nurture families, products and services to nurture life.

One business guru who is leading us in this direction is Per Bylund, a professor at Oklahoma State University’s Spears School Of Business. He writes about business owners and executives and managers building an island – an island that is inviting enough to attract visitors who will enjoy their time there, and perhaps become residents. An island that’s separate but well connected by bridges and ferries and transportation to bring people comfortably to and fro. Like any island, it’s unique. No two are the same.

Professor Bylund calls them “islands of specialization”, designed by entrepreneurs and their management teams to serve customers in a specialized way that will merit their patronage, keep them visiting, and make them loyal. His strategic advice to businesses has no military overtones.

“Aim to please” is his first principle of beautiful business. To attract people – customers – to the island is simply a matter of understanding what will please them. This requires empathy – understanding people, their hopes and dreams and desires and preferences, and catering to them. It’s a matter of discovery and translation. Business strategy, in this vision, is not aggression but deference: seeking to please others.

“Don’t copy – move beyond” is the next principle. The military metaphor sees competition as conducting wars over business territory, or fighting for customer attention. That’s a misconception of the economic concept of competition. In the economic way of thinking, there is no new value for customers when a firm merely copies what is already offered by others. Value emerges from what’s new and better and different. Smart entrepreneurial island builders assess the current landscape, predict where the customer will be in the future, and navigate to that place to build a new island.

Once they establish the new location, entrepreneurs build from strength. They distinguish what is unique about their resources that can be of benefit to customers. Much of the uniqueness is subjective – the owners’ or the business’s identity, their unique knowledge and expertise, their relationships and interconnections that can co-ordinate the assembly of specific solutions. It’s not about arraying more destroyers on the battle lines than the opponent; it’s arraying a set of uniquely desirable and attractive brand features and attributes that are attractive to the customer.

And the island builder keeps on building. Not for scale or market share or maximizing output. The direction of growth is to maximize value. Value is a feeling of satisfaction in the customer’s mind. Maximization, in this view, refers to higher levels of satisfaction, over a wider range of experiences, for more customers on more occasions. Maximization is not a quantitative or mathematical concept, to be compared with rivals to ascertain who is “winning”. It’s a qualitative concept – what quality of value has been experienced, and how can it be improved.

The four guiding principles – aim to please, in unique ways, based on your own identity and strengths, always thinking about the value that’s experienced by customers – lead to beautiful businesses. If you are developing visual island imagery in your mind’s eye as you read this, think of a balmy climate, vibrant flowers and trees, bubbling streams and distinctive animals and birds. Perhaps there’s an attractive resort hotel welcoming and catering to customer-guests. Let your imagination run free in conjuring up beauty – that’s what entrepreneurs do as the start, grow and sustain their businesses.

Per Bylund, PhD, is assistant professor of entrepreneurship and Records-Johnston professor of free enterprise in the School of Entrepreneurship at Oklahoma State University. His areas of research are entrepreneurship, management and economic organization. He is author and editor of four books.

69. Mark Packard’s Value Learning Process: The Two Kinds of Knowledge Entrepreneurs Must Have

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Mark Packard has a big insight about how entrepreneurs manage innovation. Producers don’t innovate, customers do. That may sound a little odd, but Mark’s Value Learning Process makes it clear.

Key Takeaways and Actionable Insights

Innovation is one of the keys to business success.

The world is changing at such a pace, and your customers’ preferences are changing so fast, that your business has to change at the same speed, or even faster. How to keep up is a part of the entrepreneurial challenge.

Mark Packard has a big insight about how entrepreneurs manage innovation.

Producers don’t innovate. Customers do. That may sound a little odd, but Mark’s Value Learning Process makes it clear. Customers are always looking for new value. They’re always dissatisfied, seeking to make things better for themselves. They know what’s wrong or disappointing or less than perfect with their current experience. And they’re always looking for new solutions, better ways to do things, improved experiences. If you know how to interpret their behavior and their dissatisfactions, they’ll tell you what to do.

Then, as a producer, you need to figure out how to do what the customer wants.

Two kinds of knowledge and two kinds of thinking are essential.

Entrepreneurs need to know about what customers want. Then they need the know-how to deliver the solution. Mark calls these two kinds of knowledge: Needs Knowledge and Technical Knowledge. They require two different mindsets.

Needs Knowledge and Technical Knowledge

Click the image to download the full PDF.

Mindset 1: Think like a customer.

If customers are the ones who innovate, entrepreneurs must be able to think like customers. Really think like them. Be dissatisfied. Demand better. We call the required entrepreneurial skillset “empathy”. It’s sentiment mirroring – your brain and sensory system has to be able to mirror those of the customer. You must feel the same feelings they do. It can be done. Practice it.

A big part of the economy is consumers innovating for themselves. Think like they do. Make a list of what’s most important to you. These are innovation opportunities that you know more about than anyone else. Think about how you’d like to improve your experiences in these areas. What features can you not do without? Why? Think like a customer. Start with your own problem in order to immerse yourself in the problems others want to solve.

Mindset 2: Think like a producer.

You love your customers. You want to please them. Develop the technical knowledge to do so. This doesn’t necessarily mean high technology. If you want them, for example, to enjoy a new kind of convenience grocery store with an organic food emphasis and lots of innovative food-to-go options, you need to know store operations, supply chain logistics, inventory management, and flexible / adaptive hiring practices. You need mastery of technical knowledge.

And while you don’t need to be a programmer, you do need knowledge of the latest technologies from a producer’s viewpoint: how do these technologies help you to deliver a better, faster, lower cost customer experience. Geeking out on these technologies is a good idea for producers.

Knowledge Compounding.

Many innovative solutions come from combining two existing pieces of knowledge. Combining needs knowledge and technical knowledge can produce a new solution to the market. Mark also talks about combining active knowledge — what we know about that’s prominent in our mind — with semi-active knowledge — what we know about that we don’t use every day or is stored away deeper in our memory that’s hidden by our recency bias.

These and other knowledge combinations can generate big ideas. In fact, Curt Carlson in episode #37 told us that combining knowledge is not just additive, it’s multiplicative. Knowledge compounds when we combine it, leading to faster innovative progress. Utilizing Mark Packard’s knowledge combination techniques is the way to get there.

Free Downloads & Extras

The Two Kinds of Knowledge Entrepreneurs Must Have: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

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