56. Steven Phelan on Building Trust and Exerting Control in Collaborative Business Relationships

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All business relationships have downside risk: your counterparty / partner / vendor / customer / investor may not perform as you expect or require. In today’s interconnected economy, more and more elements of your business model are provided by relationship partners. It’s wise to recognize downside risk potential and to know how to mitigate it.

Key Takeaways and Actionable Insights

There are two relevant types of risk to consider:

  1. Relational risk, sometimes thought of as character risk: that your business partner may not perform as you’ve agreed to because they are taking advantage of you in some way.
  2. Performance risk, sometimes thought of as competence risk: your business partner intends to perform as agreed, but is incapable of doing so for competence, capability or resource reasons.

For entrepreneurs, there are two levers for risk mitigation: trust and control.

Trust includes Goodwill Trust and Competence Trust — trusting your partner’s character and capabilities respectively.

Control includes output control, behavior control and social control.

Output control is generally thought of as setting measurable targets and monitoring performance relative to those targets. Did your partner meet the agreed-to sales targets in dollars or units? If they did not, they are not performing. This is a means of performance or output control.

Behavioral control focuses not on output but on behavioral inputs: did all the team members check in at 8am this morning as agreed? There is no guarantee that the desired behavior will lead to the desired output performance, but you think they are correlated and the behavioral commitment sends a signal of positive intent.

Social control is thought of as shared values and norms. If the collaborating teams or individuals have shared values and a highly-networked clan-like environment, they are more likely to have shared commitment to the goal.

Trust is much more positive for business relationships than control.

When people in business relationships exhibit integrity and good character, and perceive it and experience it in their collaborators, there is less need for output controls and behavioral controls. They’ll do the right thing without those controls in place.

From an economic point of view, trust reduces transaction costs — the cost of making sure that people are following agreements and doing what is expected of them.

Trust is a business competency.

Trust holds relationships together. For this reason, it is a business competency. It’s the kind of competency that fits well into the Austrian economics mindset: it’s a soft skill, not quantifiable, highly individualistic, with a significant moral component to it (doing the right thing).

Viewing trust as a business competency means that entrepreneurs are able to develop trust-building as a skill, one that can be reinforced and strengthened over time. It starts with an individual’s nature: you are someone who can be trusted. Such a nature attracts others who value it. Business speeds up, and runs more smoothly, with less need for high-litigation problem solving and more instances of viable handshake agreements. Start with your own character and seek to identify the same character type in those you deal with. There’s an element of Austrian subjectivism: there is no formula for “how I can trust someone”, but you can develop the skill over time, even learning from entrepreneurial error when you mistakenly trust someone who doesn’t deliver.

Trust is a value.

People want to feel trusted and seek relationships that feature trust. Trust is a business skill that’s as valuable to you as operational knowledge or financial expertise. Learn how to build and maintain trusted relationships with other stakeholders.

Trust is a resource.

Resource and competency are two sides of the same coin. Trust is a resource that fits into Austrian Capital Theory as an asset that generates revenue from customers. Think of relationship capital and social capital and the culture of the organization that generates trust as assets on the balance sheet, even if conventional accounting can not recognize them.

The 4 Cores Of Trust

In The Speed Of Trust: The One Thing That Changes Everything, Stephen M.R. Covey identified 4 cores of trust.

Integrity: Honesty — telling the truth and gaining credibility by doing so. Leaving no gap between what you say and what you do. Humility — being concerned about what is right and not just with being right. And the courage to do the right thing.

Intent: People judge you by your intent, which grows out of your character. If you “declare your intent” and your behaviors are consistent with your stated intent, people will trust you. Your motive is clear and honest, and your agenda is open.

Capabilities: Can you do what you say you intend to do? Do you exude confidence in your own capacity?

Results: What’s your track record? Do you take responsibility for results?

Integrity and Intent relate to character, capabilities and results relate to competence.

In a high trust relationship, everything speeds up. Trusting people give you the benefit of the doubt. Morale is high, people volunteer to go the extra mile, and they don’t resist changes you want to make. High trust liberates the relationship and its potential.

But don’t trust too much, or where it’s not justified.

In the long run, we all gain by trusting each other to give and not to take. But at the outset, you may not know if you are dealing with a taker or a giver. You should maintain a contingent element in your business relationships.

When you have many opportunities, you should be very intolerant of people who do not live up to their word. Do not be forgiving at all.

If you have fewer opportunities, maybe you have to be more tolerant of others doing the wrong thing and try to remedy the situation while maintaining the relationship. But giving people more than 2 or 3 chances to do the right thing is about the limit. Be willing to cut people off. Re-evaluate and measure the level of trust continuously. Be on guard especially at the earliest stages.

Trust-building Mechanisms

Trust in relationships is a business principle, and, as always, entrepreneurs need mechanisms to apply their principles effectively. Steve Phelan gave us the story of a large and successful General Contractor in the building industry. This GC put an enormous amount of time and effort into relationships with sub-contractors, so that there came to be tremendous trust between the parties. He would start them on small jobs, and gradually increase the size of the job in which they were invited to participate. At each escalation, the sub-contractor had the opportunity to prove that they could handle both the competence and character aspects of the relationship, as well as the capability and results aspects. Trust was built over time — a learning process for trust.

The same was true on the customer side. The General Contractor would decline to bid on very large jobs from a developer with whom he had not worked before. He would always start with a small commitment, and demonstrate mutual integrity and shared intent at that level, before proceeding to larger jobs.

Over time, as a result of this trust learning process, the General Contractor’s reputation and relationships became stronger and stronger, enabling smoother and more efficient operations in good times, and resiliency in downturns.

Summary

You can build trust in relationships and you can recover it. Don’t just think in terms of compliance, think about building a network of trust around you with customers, suppliers, employees, investors and partners. You can lower transaction costs and make your business run more efficiently. Make the investment to strengthen your capabilities in trust-building. Build a culture and a set of norms where people mange themselves and don’t have to be watched around the clock 24/7. Shape the organization you want to operate and live within for the rest of your life.

Free Downloads & Extras

Tools of the Value Learning Process: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

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55. Dr. Mark Packard On The Tools You Need To Make The Value Learning Process Work For Your Business

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In this week’s Economics for Entrepreneurs podcast, Dr. Mark Packard tells us more about his research into the value learning process, and reveals two tools he has developed to help business teams to learn from customers and prospects.

Key Takeaways and Actionable Insights

The Austrian economic principle of subjective value – placing value entirely in the mind of the customer – helps Austrian entrepreneurs analyze value creation from a unique viewpoint. One of these is the value learning process, a new way of thinking about how to be a critical catalyst for a customer’s value experience.

Customers learn intentionally over time, endlessly looking for new and better ways to satisfy their various needs.

Mark’s research has identified 5 stages in this value learning process, depicted in the graphic below.

Value Is A Learning Process Knowledge Map Graphic

Click on the image to download the New PDF

The 5 stages are: Predicted Value, Relative Value, Exchange Value, Experience Value and Value Assessment. Mark describes each stage at the beginning of the podcast.

Because the customer’s value learning process is intentional, it’s one the entrepreneur can monitor, measure and influence.

It’s an example of entrepreneurs learning from their customers, as those customers are conducting their valuation.

The customer is intentional, but not necessarily paying attention, when engaging in valuation.

Entrepreneurs have some work to do to track the customer’s learning process. They’re not taking note as they go. Mark talks about representationalism: how experience is a mental representation that our minds create from the stimuli that senses pick up. That could be going on while the brain’s attention is elsewhere. We’re not thinking consciously about wearing clothes or sitting on a chair, but we are experiencing those activities and we might defer our learning from them to the future, when thinking about buying new clothes or chairs.

For the entrepreneur to learn from the customer, it’s important to listen to the customers who are paying the most attention.

Don’t do your market research with customers from whom you can’t learn because they’re not paying enough attention to your value proposition or to the value experience you are interested in. Find the customers with the most highly developed need, and who are most dissatisfied with the status quo.

Dissatisfaction is a feeling that draws attention away from other distractions. It’s important to customers because it’s disconcerting, unwanted. It’s a high-learning event. In dissatisfaction, customers are finding something new about their need and how to (not) satisfy it. It’s a good time to ask them.

Dissatisfied customers are motivated to share their learning because they are searching for a better solution.

Customers are in the learning process and, if they experience dissatisfaction, they know they need to search for an alternative. Sharing dissatisfaction might result in some new learning for them. They’re willing to talk to you because you are trying to solve their problem.

Focus your research on the highest need, high dissatisfaction customer.

They’ll yield the richest research results, most likely to help you develop an effective value proposition.

When talking to these customers, it’s critical to utilize mindfulness: ensuring customers are in full experiential mode and ignoring all other distractions.

You might think of mindfulness techniques as helping with meditation. But we are able to adapt them for use in our processes of Austrian entrepreneurship. Mark uses step-by-step instructions to talk customers through a mindfulness technique to get the best information and understanding of their needs and satisfaction/dissatisfaction experiences. Entrepreneurs can use the tool at many stages of the value learning process, both at the early development stage for new concepts, and at the marketplace learning stage to tap into their experience of competitive products and services that are making them dissatisfied. We’ve created a new graphic indicating a couple of stages where they could be employed.

With the High Knowledge Customers Tool and the Mindfulness Tool, we’re providing business teams with important equipment to harness the value learning process and reap the developmental benefits of new customer knowledge.

Here is an illustration of where these two tools can be applied in the Value Learning Process. We’ll release Dr. Packard’s teaching course in the coming months, as part of our resources platform for entrepreneurs. These tools and several more will be featured in full in Dr. Packard’s new course. Give us your email address if you’d like to receive information about its release.

Items Mentioned In This Episode

Waiting List Signup for Dr. Packard’s Tools –  Click Here
Austrian Entrepreneur’s Journey Course – Click Here

Free Downloads & Extras

Tools for the Value Learning Process: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

Ready to put Austrian Economics knowledge from the podcast to work for your business? Start your own entrepreneurial journey.

Enjoying The Podcast? Review, Subscribe & Listen On Your Favorite Platform:

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The Entrepreneurial Advantages of Building Human Capital While Young.

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While you were young, did you gain knowledge and learn skills that gave you the human capital necessary to become an entrepreneur or a small business owner? Human capital consists of the knowledge and habits developed as a youngster that form skillsets that later in life can be used in the business world. These skills are developed either through the family unit, culture, or regional location and determine the success or failure of entrepreneurial pursuits and performance. In the young, the development of skills and knowledge are applicable to future ventures in entrepreneurship or small business ownership.

Everything you learned from family dinner conversations and your culture served to build your human capital. Across the globe, the people of various regions cultivate certain skills that enable individuals to consider entrepreneurship as a viable choice of work. Some of you never had the social or family setting that gave you entrepreneurial insights. Some people get this while they are young, and some do not. Acquiring human capital at a certain age bolsters the chance of entering entrepreneurship or small business ownership. If human capital or business insights are not embedded culturally or acquired at a certain point, some individuals will never consider entrepreneurship or be successful at it.

We cannot all become successful entrepreneurs, especially if only a few of us come from a cultural background that rewards an ethic of hard work and related values versus a cultural background in which achieving entrepreneurial success is never even thought of.1 What is valued in the family unit and what is rewarded or praised contributes to our future entrepreneurial skills. Ludwig von Mises noted, “the inequality of men, which is due to differences both in their inborn qualities and in the vicissitudes of their lives, manifests itself.”2 The region of the world in which one lives and the context of the acquired human capital skills are equally vital to having an entrepreneurial skillset.

We hear from many entrepreneurs, and those who are not entrepreneurs per se, that much of their education occurred around the family dinner table, or that they lived in a place where small business activity was plentiful.3 Human capital that is based on family, culture, and regional differences has consequential effects for many considering entrepreneurship.

Cultural factors are critical in developing entrepreneurship. Often these cultural factors are overshadowed by the technical aspects of operating a business—the seen versus the unseen. Parents and the elderly pass on their values to their children, values such as taking risks, being independent, challenging uncertainty, etc. Children who are rewarded or not rewarded will either be encouraged or discouraged to pursue entrepreneurial activities in the marketplace. If a child is never taught to be independent, how is he or she able to systemically think of and identify potential profit opportunities and bring opportunities to fruition?

Habits form over time, and many are culturally based. In some cultures, some children spend up to twelve hours a day playing videogames and entertaining themselves on social media. In other cultures, children are expected to work long hours helping mom and dad with their business or studying to earn the best grade. These youths may work at an uncle’s garage learning all about vehicles or attend college to gain business knowledge. In either situation, these youths are learning about private property, e-commerce, revenues, profit and loss, bookkeeping, and so on—gaining skillsets and knowledge in order to run a business of their own in the future.

Generally, whatever is cultivated in the family unit and culture will manifest and have consequences in the marketplace. Children who acquire a work ethic and values related to entrepreneurial success will have an advantage over their peers who have not had the same experience. The children who have not learned these things will have a much later start or never acquire the skills and the know-how needed to pursue entrepreneurship or small business ownership.

Not everyone has an equal opportunity to become an entrepreneur, as some must acquire a collection of basic skills, knowledge, and habits that may take decades to develop. Taking risks, working longer hours, and making critical decisions require a certain upbringing. Entrepreneurs are not created overnight but over time. However, ten years of working with mom, dad, or an uncle as a youth, gaining practical knowledge, surely provides advantages later in life.

We cannot disregard the location and region in which we lived during the time of our early human capital acquisition. Being located in one region of the earth versus another can surely impact our ability to develop a predisposition or entrepreneurial insights needed for entrepreneurial behavior. Perhaps we live in an area where several industries exist. Being surrounded by these industries allows us to either work for or start a business in a vein that is familiar to us.

As with any location or local market, our human capital can be stymied in a region or location where a product or service is not valued or not supported although it might be highly valued in another market (i.e., if one has to take their product knowledge to another region where the consumers have higher subjective valuations of their productive goods or services).

Unfortunately, the opportunity to attain the same human capital at the same time and place that leads to entrepreneurship is not equally available to everyone. Without the requisite human capital, one can only dream of becoming a successful entrepreneur or business owner. Families and family cultures vary among peoples across the globe, and so does the dissemination of knowledge at the family dinner table. We all come from backgrounds that either reward or punish certain behaviors that later transform into predispositions and values that underpin our ability to, at a minimum, think like and be an entrepreneur. Ludwig von Mises said that entrepreneurs “owe their position exclusively to the fact that they are a better fit for the performance of the functions incumbent upon them than other people are.”4 An interpretation of Mises on this point is that the skills and knowledge develop over time that enable entrepreneurs to uniquely perform the production of products and services for the consumer.

  • 1.See Thomas Sowell’s The Quest for Cosmic Justice. In the section titled “Freedom versus Equality,” he discusses equal performance and social barriers.
  • 2.See Ludwig von Mises’ Planning for Freedom.
  • 3.See Ryan McMaken’s article “Three Economics Lessons I Learned from My Dad.” For example, three lessons that he learned were: lower the cost of doing business, politicians drive up the cost, and the world is always changing.
  • 4.See Ludwig von Mises’s Human Action on the Entrepreneurial Function.
Author:

Raushan Gross

Raushan Gross is an Associate Professor of Business Management at Pfeiffer University

54. Steve Mariotti: Teaching Entrepreneurship as the Universal Route to a Better Life.

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Can entrepreneurship be learned? We’d like to believe it can, since entrepreneurs drive economic growth – creating tomorrow as Per Bylund puts it – and betterment for their individual customers and for society.

Key Takeaways and Actionable Insights

Emergent circumstances placed Steve Mariotti in the position of teaching entrepreneurship to boys and girls in the nation’s toughest high school. After some trial and error, here’s what he established.

There’s a universal desire for the fruits of entrepreneurship. Steve classified this desire as a drive to escape poverty.

You are restricted from ownership, and all the feelings of pride and fulfillment that come with it, when you are poor. Ownership – what economists call private property – is an exciting prospect. If entrepreneurship provides a route, people will take it.

Steve’s innovative entrepreneurship curriculum generated intense excitement.

He had difficulty in commanding attention for English and Math, but the same students who resisted conventional learning were stimulated and energized by the subject of entrepreneurship.

The open door to learning entrepreneurship is understanding market pricing.

Steve started the entrepreneurial journey for students with thinking about pricing of an everyday product – in his case, wristwatches. Why are there so many prices for wristwatches? Why are there so many kinds of wristwatches at different price points? Why is it that one person would pay a high price for one kind of wristwatch and another person would refuse, preferring an alternative at a different price? Just thinking about pricing in this way was a revelation.

Thinking about pricing can lead to an understanding of unit economics.

Entrepreneurs need to know two prices – the one the buyer will pay and the one that represents their cost. Steve quickly established that this knowledge is harder to establish. Is there a profit in the priced transaction for the entrepreneur once all costs – of time, money, effort and alternatives – are taken into account. This requires an understanding of sourcing and supply chains, wholesalers and vendors, direct and indirect costs and overhead, as well as personal preferences (do you really want to spend all the time and effort that the business will require of you?)

High schools are resistant to teaching entrepreneurship, and Steve’s students were constrained by regulation and authority.

“You may not talk about money in the classroom.” These and other restrictions were typical of the barriers Steve faced – and faced down. Entrepreneurship is one of the most relevant skills to impart to high schoolers, and yet the subject was viewed with disdain.

Steve emphasizes practicality as the critical foundation for teaching entrepreneurship.

He taught his kids unit economics, profit and loss, simple accounting and the practicalities of starting, growing and managing a business. No theory. Everyone in his class succeeded with a starter business. Many went on to greater entrepreneurial success.

Steve has taught entrepreneurship all over the world, and found that culture matters a great deal.

In post-communist Russia, young people could not grasp supply and demand, entrepreneurial profit and unit economics. The labor theory of value had been brainwashed into them.

In post-communist Vietnam, in contrast, people thronged to his teaching and eagerly pursued all the behavioral changes he advocated, both at the entrepreneurial level and the government administrative level (like adopting low, simple tax schemes). Theirs was a more receptive culture.

Items Mentioned In This Episode

Steve’s Book Goodbye Homeboy –  Click Here
Steve’s Book Entrepreneurship: Starting and Operating A Small Business – Click Here
Austrian Entrepreneur’s Journey Course – Click Here

Free Downloads & Extras

The Role of Knowledge In Entrepreneurship: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

Ready to put Austrian Economics knowledge from the podcast to work for your business? Start your own entrepreneurial journey.

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53. The Entrepreneurial Ethic: What Drives Entrepreneurs to Create the Future?

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Non-one has thought more deeply about the entrepreneurial ethic than Per Bylund. The subject is critical for understanding the source of energy in the free market system, the sources of economic growth, the creation of value, the making of a just and moral society, and the success of individuals and firms who make the commitment to entrepreneurship.

This week on Episode #53 of the Economics for Entrepreneurs Podcast, I talked to Per about these deeply important subjects.

Key Takeaways And Actionable Insights

The role of the entrepreneur is vital to economic growth, individual well-being and social cohesion. But individual entrepreneurs are not trying to grow the economy or promote a better society. Their goals are individual – to serve one customer by improving their lives with better service and innovation directed at meeting their needs and wants.

Entrepreneurs create the future…

Tomorrow will be different. Tomorrow is created by entrepreneurs. From the high street store owner introducing new inventory to the high tech founder introducing new features, entrepreneurs actively participate in changing the future to the way they want it to be.

…and thereby change the world.

Real change happens through value exchange in the marketplace, facilitated by real entrepreneurs. Changing the world is a matter of responding to customer dissatisfactions, and not false impulses like so-called “social entrepreneurship”.

The Entrepreneurial Ethic Infographic Sample

Click on the image to download the Full PDF Infographic.

To create tomorrow, follow the entrepreneurial ethic.

The entrepreneurial ethic is the belief in taking action to deliver an experience of value to the customer. Customers always feel that things could be better in some aspect of their lives. Entrepreneurs are people who bring that betterment. They do so voluntarily, without fraud or coercion, or deception. Their ethic is to improve the lives of one customer at a time, and then eventually a whole segment of customers, and ultimately of all customers. One entrepreneur serving one customer leaves resources available for another entrepreneur to help another customer. It all rolls up to a better society.

The mechanism of the entrepreneurial ethic is customer betterment.

Entrepreneurs decide on principles for their business – how are they going to facilitate value – and then seek mechanisms to implement their principles. They put theory into practice, operationalizing the Austrian economics idea of the economy as a process for getting to customer satisfaction. For example, they apply Austrian Capital Theory by always making sure that any investment they make in their business contributes to customer betterment. If it’s not important for the customer, they don’t make the investment. If it is, they do. Customer sovereignty is the theory; always asking what the customer will think of any action the entrepreneur takes is the practice.

Betterment is decided by the customer.

The entrepreneurial ethic is that the customer is the boss. The entrepreneur seeks to understand the need for betterment. It is a feeling on the customer’s part, sometimes inarticulate. Customers can’t tell entrepreneurs exactly what they want, but they can express dissatisfaction with the status quo. The entrepreneur gives form to the customer’s dissatisfaction by developing a new value proposition for a new service or product. Do they always get it right? No. The customer’s inarticulateness makes accuracy difficult, and the customer dynamic is continuous change, always rebalancing preferences. The entrepreneur submits to the customer’s decision.

The entrepreneur solves uncertainty, for themselves and society.

Future uncertainty can sound like a burden or a barrier. Entrepreneurs solve this problem. Firstly, they recognize uncertainty. It exists: no-one can know the future. Entrepreneurs break down uncertainty by process. Step-by-step, they set out a pathway to their goal of bettering customer’s lives, knowing that there will be changes along the route as customers change and competitors bring even more change. The mechanism here is learning. Each step reveals new knowledge about whether the entrepreneur has imagined the goal and the path accurately. There will be lots of pivots before reaching the market. The earlier and more frequently the customer value learning can be incorporated, the more accurate the pivots. Entrepreneurs are reflective about every step.

When one individual benefits, there are no losers.

When an exchange does take place, and the world changes as a result, there are two beneficiaries – the customer, who experiences value and the entrepreneur who facilitated it. But no-one loses. There is a false anti-business meme that the success of an entrepreneur can somehow be interpreted as a loss for society. Especially if that entrepreneur becomes a billionaire by helping an especially large number of customers. It’s just not logical. A gain by one individual can not be a loss for society.

The entrepreneur experiences their own kind of value.

A few entrepreneurs become billionaires. Most don’t. They may or may not make more income than they would if they took a corporate job. But the experience of value for the entrepreneur is subjective, just as it is for the customer. They may be pursuing a feeling of self-reliance or a sense of achievement. Importantly, entrepreneurial goals are long-term, often intergenerational. Many individuals start businesses that they can pass on to their children or generate the funds for their children to attend college and become doctors or lawyers or economic professors – positions that the entrepreneurial effort of the parents made possible. Other entrepreneurs set up charitable foundations that can deliver benefits for decades.

Items Mentioned In This Episode

Mises For Business: Mises Institute Economics For Entrepreneurs Podcast Archive –  Click Here
Our Austrian Entrepreneur’s Journey Course – Click Here
Per Bylund on Twitter – Click Here
E4E searchable archive of podcasts and free tools – Click Here

Free Downloads & Extras

The Entrepreneurial Ethic: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

Ready to put Austrian Economics knowledge from the podcast to work for your business? Start your own entrepreneurial journey.

Enjoying The Podcast? Review, Subscribe & Listen On Your Favorite Platform:

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Why Do Entrepreneurs Miss Market Opportunities?

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In his salient book, Capitalism, Socialism and Democracy, Joseph A. Schumpeter explained that introducing new methods of production and new commodities to the market is inconceivable under perfect competition. But the reality of real-world competition is that some individuals capture opportunity and others miss it. Some entrepreneurs have more knowledge about market conditions, and others have less knowledge. Some react and move quickly, and others react slowly. Businesses do not just fail—they miss entrepreneurial opportunities in the market, failing to react just in time to consumer changes.

Because Austrians conceive of the market as a process and competition as inspired by market participants, entrepreneurial innovation is the only way for a firm to survive. The notion of missed opportunities is rooted in Friedrich Hayek’s focus on knowledge and Israel Kirzner’s interaction between the nature of the market and discovery. The fact is, you don’t know what you don’t know, until you do know. Then what do you do with the new knowledge?

In an era of constant change in consumer preferences —from conventional retail to omnichannel retail, for example -many firms will undoubtedly miss entrepreneurial market opportunities because they are not learning from market signals. The question is: What did you learn, and when did you learn it,  after conventional consumers turned into omnichannel consumers and you realized what they want most?

Many businesses do not just fizzle out—they do not learn the Austrian view of market, competition, and knowledge and, therefore, miss market opportunities. Chains and established firms used old methods in a new competitive market and disregarded the metamorphosis of consumers from conventional to omnichannel—from ones who go to a brick and mortar to ones who access multiple sites (i.e., website, social media, your brick and mortar via phone, desktop, etc.) to purchase what they want. These businesses did not learn from past experience how to improve their market position. They did not heed the market signals the consumer gave them to cater to their newly emerging preferences.

We are now living in the Schumpeterian era of innovation and quick-to-market activity, which is the consequence of omnichannel consumerism. For entrepreneurs who are not on this innovation wave, providing goods and services at the time and in the manner the consumer wants them, it is an era of missed opportunities.

What is the real function of the entrepreneur in a market economy? Schumpeter raised a significant point in this context that needs revisiting. The function of the entrepreneur is to be the disruptor–innovator. When has this been forgotten or misconstrued? Schumpeter made it very clear that entrepreneurs have a vital function in the market economy. Their market actions are to find new methods and novel ways of combining and recombining resources to meet the subjective valuation of the consumer—omnichannel or otherwise. Schumpeter said,

…the function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on.

Ludwig von Mises, Kirzner, and Schumpeter agreed that market adjustments are based on consumers’ perceptions, taste, and preferences. These changes might account for why many firms close their doors and discontinue their services. What does this mean for existing market players who may otherwise miss opportunities during these rapid market adjustments? The panacea for many is to follow the market changes so that you do not miss entrepreneurial market opportunities.

Market distortions and economic interventionist policies made by the government can make these market opportunity signals foggy and unclear, which is why you must consider following the adjustments created by consumer valuations. To receive the right signal and eliminate the fog, consider the following reasons why entrepreneurial leaders miss market opportunities:

  1. Entrepreneurs fail to see what consumers want.
  2. Entrepreneurs do not co-create with their consumers.
  3. Entrepreneurs do not foresee the consumer transition (from conventional to omnichannel).
  4. Entrepreneurs have not developed feedback loops between themselves and their customers (i.e., business to consumer or business to business).
  5. Entrepreneurs have not learned from previous experience new ways of product/service bundling in new market conditions.
  6. Entrepreneurs do not combine and recombine resources just in time.
  7. Entrepreneurs cease searching for discoveries within and between new or existing markets.
  8. Entrepreneurs have not acknowledged that entrepreneurs and consumers have incomplete and sometimes error-prone knowledge.
  9. Entrepreneurs remain sticky about what works and neglect consumer-oriented just-in-time opportunities.
  10. Entrepreneurs miss relationships with consumers; they do not ask questions, learn, and respond appropriately.

The correct timing of innovation is never clearly signaled. Entrepreneurs do not know the future of the market  so they can’t act  “just-in-time”. Why? Because, according to Kirzner, other entrepreneurs are consistently making entrepreneurial errors as they pursuevarious ends, consequently changing others’ plans. That is, every market participant has error-prone knowledge and is subject to missed innovations and opportunities.

How can entrepreneurs rid themselves of knowledge that contains errors and avoid foggy market signals? Little bits of knowledge are scattered everywhere, making it possible for some entrepreneurs to get it right and adjust. Successful entrepreneurs judge the market correctly, as Kirzner reminded us. But numerous others judge the market wrong. They do not correctly or clearly anticipate what was going on through the fog. It is errors in judgment, fogginess, and inability to see what is ahead that leads to missed entrepreneurial market opportunity.

That knowledge is prone to error and that market sends distorted signals to entrepreneurs (through no fault of their own) are not the result of market failure but a result of market adjustments that result in missed market opportunities. The idea of missed market opportunities in not the same as opportunity costs. Missed market opportunities occur after learning something new, adjusting to consumer valuations and applying the new knowledge. The omnichannel consumer is changing the market. Entrepreneurs—the disruptors/innovators—must alter their market approach. Those who lag behind market changes will miss market opportunities. Remember, the consumer is entrepreneurial, too!

Entrepreneurs, in the Austrian sense of the term, must find the innovative wave and jump in just in time to reap the benefits of market activity from missed market opportunities based on previous consumer interactions. Market–oriented entrepreneurs realize that they have a small window to adjust, employ innovations, and capture conventional consumer valuation while simultaneously reaching the omnichannel consumer—just in time.