What’s A Good Entrepreneur To Do? Make A Profit, Thereby Serving Society In The Best Possible Way.

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A January 2020 Forbes Magazine article titled “Why Doing Good Is Good For Business” clearly left out critical information: who is the good or bad entrepreneur? According to the author, good entrepreneurs are doing good if their primary objective is not to make a profit. And bad entrepreneurs are doing bad if their primary objective is to make a profit.

Basically, the author suggested that, to be good, a business should not pursue profit and, along with it, customer satisfaction. Ignoring the profit motive is deemed more important than the entrepreneurial reward of profit that comes from providing a service or product to customers who demand value. The bad entrepreneur is only concerned with making money, surviving in the market, and serving consumers. The bad entrepreneur pursues charitable deeds but not at the cost of what consumers demand. You see, being the good entrepreneur only helps a few concentrated groups but ignores the diffuse effects of many consumers, profit rewards, and potential failure. What is the good entrepreneur to do?

Let’s be honest. If the entrepreneur is not primarily motivated by profit, what happens if the business fails or can no longer service its customers due to profits invested in nonmarket activities that do not serve them? Unfortunately, there is a public perception that does not allow entrepreneurs to pursue a profit motive only, because others must choose for them—they call them good entrepreneurs. They call them good if they subordinate the profit motive to lofty, nonmarket, eleemosynary endeavors outside the scope of producing consumer value.

Professor Walter Williams wisely advised: “Profit guides resources to their highest valued uses as determined by people’s wants and desires.”1 Should entrepreneurs disregard the profit motive, making it secondary, and replace it with nonmarket motives? What would the effect of nonmarket motives be on the entrepreneur and the customer? When Coca-Cola changed its formula, said Williams, it was because of customer preference. Consumer preference was a warning sign to the potential loss of profit which brought back the original formula! Actually, good entrepreneurs focus on nonmarket motives—endeavors that are outside their division of labor in the first place. Ludwig von Mises once asked, “What is the good entrepreneur to do?”2

Shouldn’t the primary goal of entrepreneurs be to remain profitable so that, at a minimum, they are able to run their businesses and continue production, which then serves customers who choose to buy their products and services? Don’t entrepreneurs deserve to earn a reward for taking risks and putting their livelihoods in jeopardy to procure materials and goods to bring to the market? To eliminate the profit motive is to ask entrepreneurs to provide their vital service to consumers perhaps at a higher cost than they would otherwise. Profit is not only the reward given by satisfied customers, but is also a market signal of what to do more of and what to do less of. You see, the good entrepreneur, not having a profit motive, primarily focuses on motives that do not serve customer needs.

Market Customers Are Ignored

For example, your local pizzeria owners generally do not know you personally, but they know that you want hot delicious pizza. That’s their motive. Fortunately for pizzeria owners, there’s a reward for preparing that pizza for you. But if your local pizzeria owners do not make a profit, they will no longer exist in your community to serve pizza. End of story.

Therefore, we must ask: are good entrepreneurs, motivated not by profit but by nonmarket issues, likely to be successful and stay in business? Why is there an expectation that entrepreneurs run a business without a profit motive? They can’t. The good entrepreneurs are nonmarket oriented and put profits into nonmarket endeavors aside from producing value for their customer; these nonmarket motives are placed before the profitability of the business and a value-added process for customers.

Having a motive other than profit poses a critical problem. Mises asked, “How can a conscientious entrepreneur persuade a banker or a capitalist to lend him money if he himself cannot see any prospect of a profitable return on his investment?”3 The good entrepreneur, in fact, must ignore customers and forgo profit for nonmarket activity, in which the entrepreneur has a great chance of failing due to financial instability and loss of customers.

What Is the Good Entrepreneur to Do?

When the profit motive is taken off the table as a primary objective, there are several consequences. There ceases to be a way to reward the entrepreneur over and above the costs of doing business. Someone must bear the consequence if the business isn’t profitable and struggles financially. Customers leave.

Good or bad entrepreneurs, if they wish, can be motivated by other things than profit. But the question remains: what cost are they willing to pay to keep the business from failing? Surely, there are other motives that can come into play, but does the entrepreneur who decides not to do what’s in vogue become a bad entrepreneur? Survival of the business comes first; serving consumers comes next. If good entrepreneurs fail, who subsidizes them? If bad entrepreneurs survive and continue to provide value, are they not doing what they are rewarded to do? Bad entrepreneurs can choose what they want to do with their profits, as long as it does not interfere with market exchanges and customer satisfaction.

There is nothing better than to support one’s community and do good deeds for others. However, we must examine a simple fact. If an entrepreneur is not driven by profit first, then a profit-driven entrepreneur will come along, do things better at a better price, and obtain a greater market share. This is a fact of the market process. The problem comes when the good entrepreneur is asked to be guided by nonmarket activities, as Mises stated. He said that entrepreneurs are viewed as “hard and selfish” if they are guided by a market position instead of a nonmarket position and asked, “What is the good entrepreneur supposed to do?”4

Market Consequences

How soon we forget that, as Mises noted, it is “consumers and not the entrepreneurs that determine the direction and scope of production”? In order to serve customers, entrepreneurs must maintain a profitable operation—this is what a good entrepreneur does. If the entrepreneur chooses to disregard the profit motive, customers will not be served. If they are served, at what cost?

Some expect to interfere with an entrepreneur’s business endeavor to pressure them to provide nonmarket outcomes. Basically, they expect the entrepreneur to run a business without a profit. But the same people demand products and services from the entrepreneur. The nonmarket profit motive does not work.

The entrepreneur operates in a market economy, where consumer signals regulate the production or service offerings of businesses. Is it feasible to ask that entrepreneurs use their privately-held resources for nonmarket endeavors notwithstanding the profit motive? Should I ask my favorite pizzeria owner to not be motivated by profit, yet demand he keep making those hot, yummy pizzas? Whatever motive the entrepreneur decides to assume, there surely will be a market consequence.

Nonmarket pressure groups demand that good entrepreneurs only be motivated by what they think is important or the latest nonmarket trend. The fact is, as individuals, entrepreneurs can decide what motivates them and pursue the means to that end. The main concern should not be whether the entrepreneur is primarily motivated by profit or not, but the diffuse effects on customers. Further examination is needed as to the costs in the market.

How do motives that are not based on profits bring results in a market economy? Does a secondary motivation other than profit negatively affect the survival of the good entrepreneur and/or consumers? If so, then we can assume that “the wishes of customers can be safely ignored because there’s no bottom-line discipline of profits.”5

Are you the good entrepreneur?

————————————————————————————————————–

  • 1.Walter E. Williams, More Liberty Means Less Government: Our Founders Knew This Well (Stanford, CA: Hoover Institution Press, 1999).
  • 2.Ludwig von Mises, Interventionism: An Economic Analysis, ed. Bettina Bien Greaves (Irving-on-Hudson, NY: Foundation for Economic Education, 1940).
  • 3.Mises, Interventionism.
  • 4.Mises, Interventionism.
  • 5.Williams, More Liberty Means Less Government.

Photo by Brooke Cagle on Unsplash

60. Rory Sutherland: How The Austrian Approach Helps Entrepreneurs Multiply Value. It’s Alchemy.

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In episode 60, we are joined by Rory Sutherland, Vice Chairman of Ogilvy, one of the world’s largest advertising and marketing agencies, one with a long tradition of customer insights. Please listen to the podcast, in which Rory as a raconteur delivers great fun and entertainment as well as helping entrepreneurs to think more incisively about customer motivations.

Key Takeaways and Actionable Insights

His latest book is titled Alchemy, which explores how a deep understanding of subjective value can lead to outstandingly effective creative marketing. But he doesn’t use the term subjective value – instead, he calls it psycho-logic. One of the key planks in Rory’s argument in favor of psycho-logic is that it deliberately follows the path of Austrian economics, and rejects the mainstream economists’ unrealistic assumptions about the quantified logic and cold, rational calculation of homo economicus.

Rory Sutherland's Black Box

Click the image to download the Full PDF

There is a “black box” in the human mind between objective reality and behavioral choices. The “black box” is subjective value.

According to Rory, only Austrian economists understand that when entrepreneurs change the way a product or service is described or change the form of attention, they are able to synthesize new value by making customers think differently about any offering.

He offered many examples. One is the way we consume technology. Mainstream economists view technology through the reductionist lens of efficiency: it replaces human agency and reduces work. Austrians – and advertising agencies – view technology through the humanistic lens of augmentation: it makes us better, gives us alternatives and improves our satisfaction. Changing the form of attention changes perceived value.

Another, even more human, example was about our perception of waiting. If waiting (e.g. in a hospital waiting room) is viewed as delay, it is frustrating. If it is viewed as special treatment (“We want to assign you exactly the right specialist, so please step into our special waiting room until the doctor is available”) it may be valued as privileged attention.

The shallow kind of quantified logical explanation mainstream economics gives to customer choices completely freezes out the question of subjective perception and emotion. Austrian economics offers entrepreneurs a significant advantage in a better way to think about the mind of the customer – the “black box”.

Psycho-logic elevates the subjective value of meaning over objective reality.

One of Rory’s insights is that “How we behave and how we feel is much more a product of meaning than it is of objective circumstance. Our behavior is mostly driven by emotions, and our emotions are mostly driven by meaning rather than objective information.”

One of the consequences is the endorsement of the Austrian method: to observe behavior and work backwards to deduce the emotions and the subjective meaning and individually-specific contextual perceptions that drive behavior.

You can’t rely on market research because a large part of the reason customers might give for their behavior is post-rationalization. Rory says that customers change their behaviors for emotional reasons, and rationalize them with logic later.

The Austrian method of individual analysis is gloriously scalable for entrepreneurs as a result of its fractal characteristics.

The behavioral science of searching for individual motivations in the emotions of subjective value might appear to be unscalable. But the opposite is true, says Rory. “It’s gloriously scalable. It’s kind of fractal.”

In this context, fractal refers to the existence of similar patterns recurring at smaller scales that can be infinitely self-similar and iterative in processes and over time. Fractal describes what otherwise appear to be partly random or chaotic phenomena – like the spontaneous order that Austrians discern in economic systems.

For entrepreneurs, says Rory, it is possible to learn lessons from the psycho-logical analysis of one customer that can be applied to many more. You can learn something in one business sector and apply it to another, or learn something in a huge organization and apply it to something tiny.

Context is important to customer choice because perception tends to be comparative versus absolute.

Rory is a student of evolutionary psychology. He quotes Don Hoffman in The Case Against Reality: Why Evolution Hid The Truth From Our Eyes: Evolution doesn’t care about accuracy, it cares about fitness. We’ve evolved to develop perceptual mechanisms that are not necessarily designed to present objective reality to us, but to help us survive. The great mistake mainstream economists make is to think humans are trying to optimize the world as though we are engineers or physicists – trying to map objective reality onto behavior – without understanding the “black box” that comes between perception and behavior.

Customer perception price is a relevant example of comparative logic and context at work. Is Nespresso expensive coffee? Yes, if it is compared to Maxwell House or Folgers. No, if compared to visiting a Starbucks store. The frame of reference for comparison changes the behavioral outcome. There is no objective standard.

The most important comparison customers make is with their own expectations.

Rory cited the effect that Yelp restaurant reviews can have on the expectations of prospective diners who read them. If they choose to go to the restaurant, their expectations are shaped in such a way that the actual experience is evaluated against that expectation, not in any absolute way. Depending on a customer’s frame of comparison and their expectation, the same experience can be perceived as brilliant or terrible.

Entrepreneurs can manage customer’s expectations and frame their comparisons. That’s often the role of advertising and marketing. These provide the context in which customers can appreciate and enjoy their experience. Until both the good and its communication are optimized, there is no value.

When entrepreneurs shape the customer’s expectations through advertising, marketing and branding, they are not just adding value for the customer, they are multiplying it.

According to Rory, “Marketing doesn’t add value, but multiplies it. (And bad marketing, by  the way, destroys it.)” The good – the product or service offered by the entrepreneur – and the perception of it are interdependent and we should use multiplicative dynamics not additive dynamics. If you have a product but you can’t work out a way to sell it, you have an invention, not an innovation. Marketing takes invention to innovation, or, as Peter Drucker said, the only two things that create value are marketing and innovation.

Rory described it this way: “Entrepreneurs can discern what people want and find a really clever way to make it, or discover what they can make and find a really clever way to make people want it.” Either or both are fine as paths to profit.

Brands are an excellent technique for expectations management. They represent an exercise in what Austrians call uncertainty and Rory calls outcome variance. Brand preferences are smart behavior on the customer’s part because of the trust and reliability that they perceive in their favorite brands. Choosing an alternative might risk  missed expectations.

In the multiplicative dynamics of marketing, entrepreneurs must aim high.

“It’s perfectly possible that what is constraining the United States’ economic growth is actually the level of the speed at which consumers’ tastes can change rather than the speed at which producers can manufacture exciting things for them to buy.’

It’s rational for customers to follow habit, to do what others do, in order to avoid outcome variability – to maintain their expectations. There is a cost to early adoption of new innovations.

Therefore, entrepreneurs seeking new customers must pay attention to multiplicative dynamics to elevate customers’ value expectations to a sufficiently high level that they will change their behavior. As Curt Carlson said, this requires an innovation to offer a 2X to 10X better experience.

Because of multiplication of perceived values, Rory advises that it is often effective to focus marketing on one aspect, or one feature, of an offering so that it becomes the key multiplier. It might be the camera on an otherwise industry-average smartphone, or the Uber feature that manages the expectation of when your ride will arrive.

Experimentation and iteration are important tools in the entrepreneur’s effort to unlock psycho-logic. Counter-intuitiveness is crucial.

Because value is subjective and entirely contained in the customer’s mind, it’s hard to unlock. That’s why entrepreneurs are the drivers of economic growth. Entrepreneurs, says Rory, do not have to appear logical to everyone else.

Entrepreneurs’ freedom to make counterintuitive bets means that, when they succeed, they’re disproportionately successful, because they represent a biased correction mechanism.

Rory cited James Dyson as a counter-intuitive entrepreneur: “Who needs a $7000 vacuum cleaner?”

Experimentation and iteration are the right technique to get to the successful outcome. And there is nothing more joyful  than when a final iteration succeeds!

The language of magic and alchemy is appropriate to describe the entrepreneurial process, subjective value, and the management of expectations and perception.

Mises recognized it. (See Ch XVI Prices Section 5). Rory Sutherland captures it in his book, Alchemy: The Dark Art And Curious Science Of Creating Magic In Brands, Business and Life (Buy It On Amazon).

 

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59. Sean Ring: What Successful Entrepreneurs Understand About Iteration

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Hunter Hastings asks Sean Ring, Finlingo Co-founder and CEO, for his number one secret for entrepreneurial success. His answer: Iteration.

Sean offers additional insights, as we’ll see below, but the power of iteration is his number one: doing things over and over, with a view to improving. Always learning, always changing, never getting tired of improving and tinkering, whether it’s with your life path, your self-knowledge, your skills, your code base or your business. You can never predict the future, but you can always monitor your felt uneasiness and take action to relieve it by doing better.

Key Takeaways and Actionable Insights

Sean navigated his lifepath through specialized areas of the financial services industry and through multiple locations around the globe, accumulating knowledge and insight at every step along the way.

Armed with degrees in finance, Sean found his way into banking, and into derivatives accounting with Lehman Brothers. Then to the “back office” (operations) at Credit Suisse, then the front office, then client management. It was a winding path, finding out what he was good at, where he needed to improve, and what he liked and disliked about corporate life. He worked in New York City and London got a taste of international travel and living that he enjoyed.

Blank Map of Sean's Iterations

Click to see the blank map filled in with Sean’s actual iterations.

He took a pause: time off and a self-assessment to organize his individual resources.

The corporate treadmill can be mesmerizing. Sean took a year off to take his bearings, including a measurement of his personality traits using the OCEAN model, as well as subjectively self-assessing his strengths and areas for improvement.

He began to focus on organization — both the entrepreneurial function and the personal skill. Not only was organization a way to self-improve, it was a step on the pathway to entrepreneurship, the role that Joe Salerno describes, from Mises, as supervising and organizing the various elements of productive property into a coherent structure of means, i.e. the firm.

He identified financial training as his professional field.

Sean found he was excellent in front of the class. His communications abilities enabled him to express complex topics so that young trainees would understand and absorb them. His hard work ensured no gaps or weaknesses in his training materials. His gregariousness helped him to learn from other experts. He found himself highly motivated by helping young people embark upon the path as he had followed, but armed by Sean with more knowledge.

At the same time, Sean himself never stopped accumulating certifications, qualification and badges.

Skills need continuous refreshment. In the financial services industry, there are complex technical issues to master, from financial instruments to trading techniques to compliance to ethics. Sean dedicated himself to accumulating a wide range of certifications, both to confirm his own levels of technical excellence in his field, and to communicate to others his rigorous pursuit of knowledge. He is a big believer in testing and its importance in maintaining quality and integrity in service industries like finance where technical complexity sometimes doesn’t combine well with transparent and high-trust relationship practices — what Sean calls the combination of hard skills and soft skills.

And he found a business partner with complementary skills and a shared mindset.

Between them, Sean and his business partner Andy Duncan combine marketing / sales / communications / finance expertise with coding, A.I., and cognitive psychology. They share founders’ ambitions, work together well, and both enjoy Austrian Economics. Entrepreneurial initiatives are more likely to succeed when two or more partners can combine relevant skills and experience in a collaborative relationship.

All these steps bring Sean to a logical milestone on his life path: co-founder and CEO of a tech start-up employing advanced technology to achieve new levels of testing integrity to his industry.

Finlingo employs AI and advanced coding to write exam questions for technically complex financial certifications and to infinitely replicate those questions, so that no two candidates get the same questions, no questions can be memorized, and the exams can’t be stolen or hacked. Instructors and institutions enjoy a write-once-and-relax experience in composing questions and setting exams, a significant relief of uneasiness.

Sean shares his 5 key learnings for a successful entrepreneur’s journey.

  1. Iteration: Entrepreneurs learn that they’re wrong every day. Every fork can be re-taken. Every initiative can be improved. Every left turn can be re-thought as a right turn. Keep iterating.
  2. Humility: The mindset for iteration is humility – entrepreneurs know that they don’t know a lot, that every decision is based on imperfect knowledge, and every judgement is subject to uncertainty.
  3. Self-awareness: Deal with your own internal pressure; manage your own expectations – success does not necessarily come quickly and you don’t necessarily advance in a straight line at a constant pace.
  4. Lean cost discipline: Keep costs low, and don’t bankrupt yourself by spending too much too soon. Afford yourself the opportunity to make the mistakes you need to make.
  5. Family: Keep your spouse or partner supportive; communicate well.

Sean’s Principles of Austrian Economics

What are the principles of economics most useful for business success?

  1. Subjective value: Entrepreneurs can easily get wrapped up in their own (objective) beliefs about the importance and market impact of their product or service. The only thing that matters is how customers feel about it. Truly understanding subjective value and thinking and feeling like the customer is a key to success. Sean asks: what is the wish list inside the customer’s mind at any one given moment and where does your service stand on that list. Top of the list may be the pressing need to pick the kids up from school when you are trying to sell an annuity or insurance policy. Be aware, and empathetic.
  2. Customer sovereignty: “The market always asserts itself”, in Sean’s phrasing. It tells you what it wants. The market is the real boss. Listen to the market feedback and interpret it intelligently. The market may want features that you think are unimportant. The feedback may come to you as “not easy to use” when the right interpretation is “build me a better dashboard”.
  3. Unique assembly of assets: Entrepreneurial success is often a synthesis rather than the invention of a new-to-the-world idea. If a customer needs both A and B, and you can provide a service that integrates A with B, that might be enough to create a new business. No need to invent the wheel.
  4. Iterate, iterate, iterate.

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58. John Cox: Facilitating Value Through Skilled Orchestration

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There’s a skill that can turn any individual entrepreneur or small business into a global powerhouse exhibiting the highest quality service levels to the most demanding customer base. That skill is orchestration. Listen to a master orchestrator, John Cox, share important lessons from his entrepreneurial journey on this week’s E4E Podcast.

Key Takeaways and Actionable Insights

Entrepreneurs make orchestration a value-producing service.

Entrepreneurs don’t necessarily need to own the capital and resources required to deliver value. What they do is organize capital in a new way to facilitate a new value experience for customers. They orchestrate capital, resources, people, skills and technologies. Their orchestration creates a unique combination of resources, uniquely applied for a highly valued customer experience.

First, the entrepreneur imagines the customer’s future experience and how they will value it.

Entrepreneurs create their own opportunities by imagining a future experience that customers will find valuable. John Cox, a tax accountant and lawyer, discovered in his client interactions that his customers had to deal with many different service providers when managing their own finances — investment advisors for stocks and bonds, investment funds for non-public investments, tax preparers, tax lawyers, contract lawyers, accountants, estate planners, and many more.

There were inefficiencies and frictions in these arrangements — time and money for the client to talk to the lawyer and accountant separately, and then for the lawyer to talk to the accountant before agreeing on a unified solution for the client. John imagined a future where there was a single point of contact with a better client experience at a faster speed and a lower cost.

Second, the entrepreneur orchestrates top providers in each field to efficiently channel their services through them as a single client contact point.

A single point of contact dedicated to the client’s needs can provide a singularly valuable benefit — quality, speed, efficiency, low cost and high trust all in one place. John’s deal with the provider orchestra was to bring customers, providing the players with a place to demonstrate their unique skills and contribution to the integrated offering, as well as a revenue stream at lower cost (no sales costs and lower overhead).

Relationship capital results in the customer getting an integrated, high-quality plan and good outcomes with an interface of both trust and convenience.

John brought relationship capital to the client solution in two ways. His clients knew him as a tax accountant and lawyer of high capability and trustworthiness, so that when he added new outside services to his offering, there were grounds for extending their trust. Second, he brought relationships with the outside service providers that the client did not have to develop and maintain themselves.

Better outcomes, lower cost and established trust — a valuable client experience.

Technology brings higher levels of integration to the orchestra.

In the earliest days of his orchestration of services, John was a leading edge user of technology. At the beginning, it was the new Digital Equipment Corporation (DEC) mini-computers and peripherals, of which John’s firm was one of the earliest users. Later, he networked many lawyers together on an Apple network — again, as one of the earliest such users. Today it’s the internet that provides the technical backbone for orchestration. Orchestrators are adept at employing the latest technology for managing distributed resources.

Customer value is enhanced even further when the orchestrator has skin in the game.

When John expanded his orchestrated offering to include private investments in apartment buildings he purchased, his client relationships were strengthened further by the “skin in the game” effect. Clients believe that when a provider’s own capital is at risk as well as theirs, there is an even greater focus on shared value.

Skin in the game is not mandatory for orchestrators, but it can be relationship-reinforcing in appropriate cases.

Entrepreneurs who excel at orchestration are systems thinkers.

Orchestrators assemble a system of services to deliver a unified client experience. Systems thinking requires understanding of what the client wants from the system (safe asset value growth, for example), how they want to interact with the system (one point of contact, unified reports, etc.) as well as which external services to include in the orchestration and how to be the conductor who gets them all working together in harmony.

In addition to assembling the orchestra, the orchestrator must be skilled in higher-level ecosystem thinking about the larger systems into which the orchestra must fit: prevailing financial systems, compliance systems, regulatory and reporting systems and so on.

Learn more about John’s Californians for Honest and Non-Partisan Government Effectiveness: Change-CA.org

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57. Per Bylund on Coronapreneurs: How Austrian Entrepreneurs Manage An Exogenous Shock To The System

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The coronavirus panic is an exogenous shock to the economic system. For entrepreneurs, the pathway to dealing with its consequences starts with systems thinking.

What’s the ecosystem in which you operate? How does your business fit in? How can you systematically adapt to the changes going on upstream, downstream and laterally? How can you contribute to system resilience? How can you tap your resources of adaptability, agility, and imagination? We talk with expert systems thinker Per Bylund on E4EPod.

Key Takeaways and Actionable Insights

Two methods of applying reason to the analysis of changing circumstances can be particularly helpful during cases of external, or exogenous, economic shock, such as the current coronavirus panic.

The first is thinking in terms of economic output. The second is systems thinking.

Applying these methods can help Austrian entrepreneurs to make sound decisions amidst the high-speed rate of change of economic conditions.

Coronapreneurship Cover Photo

1) Identify the ecosystem in which you operate and analyze expected changes in output. If you operate in the health care ecosystem, output can be expected to rise. More hospital beds in use, more cleaning services utilized, more deliveries to hospitals, additional workers hired. If you operate in the food and beverage ecosystem, output may stay the same but the location of consumption may shift, for example from bars and restaurants and company cafeterias to homes. If you work in the physical mobility ecosystem of cars, buses and planes, output can be expected to decline. In the digital mobility ecosystem of Slack and Zoom and webinars, it can be expected to increase.

Try to approximate the output potential of your ecosystem over the next few weeks.

2) Next, review the conditions in your own micro-system of suppliers, customers and support services (such as banks). Dr. Bylund advises us first to look upstream to suppliers and vendors. The key economic tools here are communication and information. They will not know your business needs in these changed circumstances unless you reach out to tell them. Call them on the phone, talk person-to-person, let them know what you expect and what you need. You’ll be reducing uncertainty for them and you’ll be strengthening your relationship and building trust, with beneficial long term consequences.

If supply might be interrupted, you will benefit from contingency planning which looks at all possible scenarios, which is a characteristic of the Austrian view of uncertainty. Dr. Bylund suggests we look at a worst-case scenario, a best-case scenario and one in the middle. This will narrow your uncertainty and the range of possible actions and make them more manageable.

3) Next, look downstream to customers and consumers. If you are a B2B entrepreneur, your customers are in the same position as you relative to your upstream suppliers. Talk to them, build relationships and find out their needs. How can you facilitate new value for them? Offer assistance. If you are able to help them with their cash flow or their inventory management or other aspects of their business, it’s an opportunity for long term business building. Extended terms, discounts and bonuses, if you can extend them, have the potential to pay back in the long term via loyalty and extended relationships.

For B2C businesses, the same mindset applies: how can you facilitate new value experiences under changed circumstances. Some of the same tools might apply, such as extended terms, discounts and savings. Or the answer might lie in new distribution methods, such as home delivery or curbside pick-up outside restaurants. Always keep the value process in mind: consumers still want value from you, but the way they experience that value may change.

Of course, in both cases, you must carefully manage your own cash flow, and this is a critical metric under these circumstances. Weak cash flows are the biggest small business killer.

4) Therefore, it also makes sense to look laterally across your ecosystem to collaborators and enablers like banks. Be clear with them what your requirements are, and make sure they communicate clearly to you what new facilities they are able to extend, both of their own volition and in response to new legislation coming from the Federal government. We Austrians are skeptical about government intervention in the economy at any time. However, it behooves all business owners and manages to be up-to-date in their knowledge of available assistance.

Read Dr. Bylund’s entrepreneur.com article on this subject here.

And download our knowledge graphic as a guide to your system thinking here.

Let us have your comments, suggestions and ideas on our Mises For Business LinkedIn page here.

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We Need More Entrepreneurs To Encourage More Entrepreneurship And A More Dynamic Economy.

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Most of the market activities in which entrepreneurs are engaged are readily seen. People buy and sell things or provide services at locations to paying customers. But if we examine the unseen activities, we will learn how entrepreneurship is a perpetuating market process. More entrepreneurs tend to create more entrepreneurship, both among themselves and by setting the stage for the creation of new entrepreneurs. That is, a population with few entrepreneurs produces few entrepreneurs. A population with more entrepreneurs produces even more entrepreneurs.

Real-world experience matters. Becoming an entrepreneur requires the knowledge and insight that come from being aware of previous market errors—the errors made in the trial and error of entrepreneurs who came before. Errors and missed opportunities generate market knowledge and information for future entrepreneurs. This is good news! If past entrepreneurs had not served their customers, made mistakes, combined inventions, transformed innovations into usable products, and finally become a success, then others would probably not consider pursuing entrepreneurship. There would be no such path to self-ownership.

It takes entrepreneurs to produce entrepreneurs. We cannot imagine a world without them. Therefore, it is not just the immediate consequences of hampering markets which makes self-ownership difficult for entrepreneurs. We must also examine the secondary effects on potential entrepreneurs of eliminating paths to entrepreneurship in the long run. Up-and-coming entrepreneurs must do three things: (a) choose an entrepreneurial path that already exists, (b) be mindful that there are market errors waiting to be made, and (c) find insights made by previous entrepreneurs.

Choose an Entrepreneurial Path That Already Exists

Where there is an economic climate for entrepreneurship, where one can “hit the ground running,” entrepreneurship naturally flourishes and prospers. A rise in propensity for entrepreneurship and self-ownership results in more business model imitation and makes the market ripe for one to follow in others’ footsteps. The saying “the greatest form of flattery is imitation” rings true for aspiring entrepreneurs who may hesitate in pursuing profitable market opportunities due to a lack of insight.

In a recent article, Alexander Hammonds discussed this topic. In many cases entrepreneurship has been suppressed or smothered by interventionist and antimarket policies, which makes it extremely difficult for many would-be entrepreneurs to identify a starting point to enter the market. This creates disincentives for new entrepreneurs to enter the market and pick up where others have left off. Thus, innovation and self-ownership are more likely to prosper in an environment where there is a history of entrepreneurship.

The market economy will always possess one relationship—the one between entrepreneurs and consumers. One will serve the other—the entrepreneur will serve the customer. The consumer will look for the entrepreneur who does it better. Just because it’s been done before does not mean you can’t do it over again or imitate it. Don’t just think outside the box, make the box bigger! The pizza restaurant has been replicated for centuries, but because of previous entrepreneurs’ mistakes, others have started pizza restaurants with their own spin. The restaurants down the street from you saw someone else do it and decided to do it differently.

Be Mindful That There Are Market Errors Waiting to Be Made

Randall Holcombe said, “The connection between entrepreneurship and economic growth is that these previously unnoticed profit opportunities must come from somewhere.” There will always be entrepreneurs who make errors in the market that produce insights for others to discover. The beauty of a free market system is that it creates opportunity for others. When a business misses an opportunity, another one can close the gap by making the product or service better. The critical question is: will there ever be a time when the market produces no errors? No.

Find Insights Made By Previous Entrepreneurs

Holcombe explained the critical role of entrepreneurial insights—insights that manifest themselves in the actions and thoughts of future entrepreneurs. F.A. Hayek advised that entrepreneurs must be able to act on these insights to continue in entrepreneurship. Entrepreneurs pick up market insights and pursue improvement through awareness, discovery, and knowledge. Future entrepreneurs must understand that even though it has been done before, it can be done again. I hear it all the time from people who say, “I had a good business idea. But it’s already been done.” Don’t let this stop you. Market insights provide other entrepreneurs the opportunity to close the market gap by creating a product or performing a service better than the entrepreneur before them. Insights are learned and market gaps are closed because of a favorable economic climate and a long history of entrepreneurial insights scattered like bits of pieces across populations.

If you are thinking about becoming an entrepreneur, know that your entrepreneurial predecessors have left behind insights that are waiting for you to notice and grasp them. Glean from the errors, mistakes, and missed market opportunities of others to create a better product or service for the consumer.