The End Of Employment: The Emerging Economic Structure Of Networked Entrepreneurial Businesses.

The existing socio-political framework is a backward-looking structure that evolved to protect the economic arrangements of a bygone age. It’s no longer useful, and gets in the way of progress.

We can take socio-political framework to mean the accepted way of doing things, the accepted social and political arrangements under which we all live and about which we don’t think too much. Big government, big corporations, employment, the welfare state for those who aren’t employed, government-run education, physical infrastructure, central banks, Wall street and its associated financial architecture. All of these grew up to support the industrial-age economy of manufacturing, economies of scale, trade in physical goods between countries, and the financial engineering required to actualize them.

In Carlotta Perez’s monumental book Technological Revolutions And Financial Capital the author points out that technological revolutions (such as the Victorian Industrial Age or the internet technology and communications revolution of the end of the 20th Century) precede social and political change. Entrepreneurs and innovators discover new ways to create value for customers and users, and people happily adopt these new ways. Only afterwards do politicians recognize the change and rush in to promise to “protect” their voters from exploitation by the new industries. Only afterwards do we get anti-trust laws and the SEC and labor relations laws and OSHA and new layers of the welfare state.

The new political rules are not only for the benefit of parasitical politicians. By the time the politicians have woken up to the availability of their new opportunity to regulate and tax, there are already incumbents who have emerged from the technological revolution. In the early part of the 20th century, it was the big steel, railroad and manufacturing companies. In the middle of the century, it was the big auto companies and durable and industrial goods manufacturers. In the last part of the century, it was the big banks and financial companies and energy companies. Today, it’s the big digital companies, and healthcare. They got big and, once established, they worked with politicians for the socio-political framework to protect their incumbency and discourage or exclude innovative startups and revolutionaries.

In this way, according to Professor Perez, a self-perpetuating ecosystem evolves, linking government, institutions, technology, corporate forms, financial engineering, and the legal system, in order to support and preserve the status quo. What started in innovation coalesces into preservation. She traces several cycles of this type in the last few hundred years of economic and social history.

Carlota Perez: Technological Revolutions And Financial Capital: The Dynamics Of Bubbles And Golden Ages

The other half of Professor Perez’s story is that, just as the new order is cementing itself in place, the next revolution is starting. On the fringes, and in the very early stages, experimentally-oriented entrepreneurs who are not associated with the incumbency are trying out new ideas and launching new initiatives. On the blockchain, on new technology platforms, and within new networks, some of them cyber-protected from external view, these ideas and initiatives will be tested, adapted, revised, renewed and, eventually, scaled. Some will succeed, some will fail, and there will be an accelerated learning that fuels the early phase of a new techno-economic S-curve cycle. What’s harder to predict, according to Prof Perez, is how the new socio-political framework will emerge, because it is a lagging phenomenon. We can’t predict, but we can surmise about what institutional replacements will be made in the next cycle phase.

The end of scale

Big government, big corporations, big finance, big data. The sclerosis of the current socio-political and techno-economic structures is exacerbated by the once-prized but now disdained properties of scale. The theory of economics of scale was a product of the industrial age. Entrepreneurs like Andrew Carnegie built giant manufacturing companies and economists, following dutifully behind, observed cost efficiencies and wrapped a theory around them. Today neither the centralized manufacturing process, the size of the company, nor the concentration of physical capital are required. The network has replaced the monopoly, and whatever efficiencies are to be found lie in connections, speed, and agility. “Big” is no longer relevant or necessary.

The end of financial engineering.

One of the many insights of Prof Perez’s book is the role of finance in the beginning and the end of the S-curve of technological revolutions. In the entrepreneurial beginnings at the bottom of the curve, the role for finance is experimental. Angel investors, seed-stage investors, and venture capitalists of the individualistic rather than institutionalized sort make capital available to the explorers and tinkerers. Some of these investments pay off and many don’t. Prof Perez calls this experimental function financial capital.

She contrasts that to production capital, which is the institutionalized capital-at-scale that arrives at the later stage of the cycle to cement the winners in place and make a return from their incumbency and their exploitation of their position in established markets. Yes, there is still innovation, but much of it is incremental and is processing, marketing or organizational innovation based on already-proven technology, rather than new or radical technological innovation. It’s what we can call financial engineering – including M&A, stock buybacks, and other forms of returns-gathering from activities that are not necessarily aimed at producing new value for consumers and customers.

Today, the emerging, networked, agile experimental corporations don’t seek financial engineering for scale. There are many ways to network into capital as needed, there’s a whole new emerging industry of fintech, and the fee-burdened financial engineering of the oligopolistic Wall Street banks and funds is eschewed as unnecessary and unnecessarily expensive and exploitative.

The end of employment.

John Maynard Keynes’s civilizational-destroying book was called The General Theory Of Employment, Interest, and Money. Employment was central to economists’ thinking back then because the giant industrial corporations had a need for masses of workers capable of performing repetitive routinized jobs. When the giant machine of finance-fixed capital – manufacturing – jobs fell out of equilibrium, employment was the first to go. At that point, governments became burdened with the problem of a disgruntled “labor force” who concocted welfare demands as their response to the dislocation of their employment. At this point, the maintenance of employment had become the very point of the economic and social framework.

In the coming digital age, employment is not the point. It’s replaced by entrepreneurship. In the networked world, every individual has unique knowledge and skills that are traceable with others, and each one of them will identify their individual entrepreneurial advantage. It might take the form of buying and selling, or of contracting for services, or gig work, or art and entertainment, but it won’t be “employment”. Jobs are not a staple of the entrepreneurial age.

The End Of Big Education

Big education emerged in the old socio-political framework to populate the employment pyramid. Government schools turned out the compliant workers for the routinized jobs of the big corporations. Community colleges provided the skilled work ad middle management layers. And the 4-year universities populated the executive levels. It was a well-functioning system, but became corrupted at the top of the S-curve, as is normal. The government K-12 schools are the most decayed, and no longer provide any valuable contribution. The other layers are similarly compromised.

The new forms are already emerging: home schooling, private schools of various kinds, online education, digital badging and certification. An enterprising entrepreneur can assemble their own educational components to give themselves the learning, skill acquisition and continuous improvement that they need for their own custom path.

Private currency

The financial system that evolved to support the big government-big business framework included the gold standard (until 1971) and the complex of national currencies created out of thin air – “printed” – by central banks. Today it’s called fiat money (and its ascent and decline are entertainingly documented by Saifedean Ammous in his latest book, The Fiat Standard).

Crypto currency, a private alternative to government fiat currency, is just now at the very beginning of its emergence at the bottom of the S-curve. It’s significant because it replaces one of the most fundamental building blocks in the socio-political framework, and that’s money. More specifically, it shifts control of money from governments to private individuals and private institutions. It’s part of the entrepreneurial revolution.

Austrian economics

The institutional binding that ties the new elements together in the novel socio-political and technological-economic frameworks is Austrian economics. The mainstream economics of today – often called neo-classical economics by the folks in academia – was compiled in support of all the big government-big business structures listed here. Its theories support government-printed money, government intervention in economic matters to subsidize employment, the legal and financial systems to support big business, large scale financial engineering, and the welfare state.

Austrian economics is the term the academicians give to the opposite way of thinking, economically speaking. Austrian economic theory is centered on universal entrepreneurship and the human value it creates. It is an economics of networks and systems, not of scale, and of individual human contribution to value, rather than “jobs”. It’s comfortable with private, competing monies, and with a stripped down legal framework that is “laissez-faire” rather than prescriptive and controlling. It’s the economics of entrepreneurship, and of the internet and value networks. It’s the economics for the coming entrepreneurial age.

The EZones Movement Unites Entrepreneurs In Shared Citizenry Of The World.

In a panel at the G7-G20 Group Of Nations Summit on Solutions Through Inclusivity, Dr. Dale G. Caldwell expressed concern at the division we are experiencing in today’s society. It feels, he said, as if every choice today is your side versus my side, your party versus my party, your ideology versus my ideology.

But Dr. Caldwell has an insight that points the way to transcending this impasse, and avoiding this collision. 

His insight concerns the global energy of entrepreneurship. He is the originator of the concept of Entrepreneurial Zones or EZones, place-based accelerators of economic growth and community prosperity based on harnessing the energy of entrepreneurship rather than the dependency of welfare and charity. The EZones concept can apply anywhere in the world to raise the economic productivity of communities, and to improve lives.

The entrepreneurs who supply the energy, as individuals, groups, teams, firms, and networks, are unified in the principles and practice of creating value. Entrepreneurship is a producer-customer value collaboration. In today’s interconnected world, the customer might be on one side of the globe while the producer is on the other, or the interaction could take place in a village marketplace. It’s all entrepreneurship.

The entrepreneurial citizens of the world are united not only by their common economic interests, but also by a set of shared human values. Entrepreneurship is an elevated form of interaction between people that rests on proud foundations.

Caring.

Entrepreneurs demonstrate caring for their customers. They know that their customers are seeking to improve their own circumstances, whether in nutrition, connection, access to technology, availability of services, medical care, or any other field of life improvement. Because they care, entrepreneurs can identify new ways to reach higher ground for these customers, and make them a promise of better times ahead. They supply to meet others’ demand and to help them find value in a new and better experience.

The same caring extends to the community in which they operate. Entrepreneurs raise standards so that others can raise their expectations. 

And entrepreneurs care for themselves, aiming to achieve their own highest values in the pursuit of value for others.

Concern.

What economists call demand can be characterized as people wishing that things could be better. They are dissatisfied, uneasy. Entrepreneurs feel concern for this condition, and they develop a passion to eradicate it, and take responsibility for trying to succeed in doing so.

The entrepreneurial role of improving others’ lives stems from this concern. Without it, we would not expect to see the amount of entrepreneurial energy that we do – the unrelenting effort to innovate and improve.

Empathy.

For caring and concern to be directed at the right goals and at the highest and best outcomes for customers, entrepreneurs look to their own powers of empathy – to truly understand and sympathize with the innermost feelings of others. Empathy enables entrepreneurs to identify what’s important to customers and why, and to understand what tradeoffs they’ll make to substitute a new set of circumstances for the one they experience today. 

When customers rank some preferences higher than others, or make comparisons between one choice and an alternative, it is empathy that helps entrepreneurs evaluate, and guides them in designing and shaping just the right solution to the customer’s felt but unarticulated need.

Empathy is the entrepreneur’s number one skill, wherever in the world they operate.

Humility.

To be empathic requires humility, the suppression of one’s own ego-based certainty for the process of discovery of what’s right for the customer. The entrepreneur does not instruct the customer, or impose any conditions on them, or set unreasonable requirements. The entrepreneur asks and inquires, seeking to understand, to get on the customer’s wavelength, to understand their mindset. They design their products and services in the humble desire to be of value.

Dependability.

The entrepreneur is a promise-maker and a promise-keeper. The promise to make life better and to be of value must be viewed as credible. The customer must feel able to depend on the producer. There must be trust, and a reputation must be earned. Entrepreneurs understand this, because it shows up in their P&L. What is sometimes referred to as goodwill or brand equity is, in fact, the trust and reputation that are the product of dependability. 

Universalism.

These characteristics and traits of entrepreneurs are true the world over, whatever the local history or norms or culture or institutional framework. Entrepreneurs treat everyone as a customer, and therefore they grant them the same high status, whatever physical differences there may be.

In fact, entrepreneurship itself is an institution – a set of shared global norms about value and production and trust and interactive collaboration. Entrepreneurship is a unifying code of conduct, a binding pact between producers to strive for the best way to serve customers, and among customers to collaborate in the co-creation of value by demanding the best from every producer. 

Dr. Caldwell’s insight is that all the world’s entrepreneurs share citizenship through this institution. There is no division. All entrepreneurs are striving toward the same goals, but there is no animosity in the rivalry to serve customers in the best way. There is shared learning, since outcomes are freely observable for all to analyze and interpret. There is innovation that enables one producer to leap ahead, but only temporarily until the next response shuffles the leaderboard while raising everyone’s capacity. The dynamics of entrepreneurship result from the shared energy, the shared desire for continuous improvement.

Let’s celebrate this citizenry of the world, and repress the politicians’ desire to divide us. Their incentives are not entrepreneurial, and we should isolate them in their arena of hate while the rest of us join and support EZones as a worldwide movement to nurture and cultivate the shared human values and unlimited collaborative potential of entrepreneurship.

144. Joe Matarese on Expectations and Building a Culture of Continuous Innovation

Every company starts as an innovation. Thereafter, the unceasing challenge is to keep innovating because the market continues to change, technology continues to advance and, crucially, customer expectations continue to rise. Economics For Business speaks with Joe Matarese, Executive Chairman of Medicus Healthcare Solutions, about how to build a culture of continuous innovation and overcome the countervailing forces of the status quo.

Key Takeaways And Actionable Insights

Every company starts as an innovation. The challenge is to continue — and ideally accelerate — innovation without pause.

As Joe Matarese puts it, innovation gets you into the game. It’s how every company starts. There’s the identification of a gap in the marketplace and the operationalizing of a new innovation to fill the gap, better than any other competitor or rival entrant.

Innovation is seldom a great new invention or unprecedented leap. It’s more often the day-to-day incremental changes and improvements in products and processes to meet customers’ changing expectations.

The great challenge is to continue or even accelerate innovation as the company grows and expands.

Continuous innovation combines mindset, processes, technology, empathy, and organizational empowerment.

The world is complex and ever-changing. Innovation is necessary for all businesses to keep up or even move ahead. Innovation is not simple, and it’s not easy — in fact it’s a continuous struggle against opposing forces. Joe Matarese has directed innovation from three vantage points: big corporate, startup, and large growth company. To achieve the goal of continuous innovation requires attention to multiple factors:

Mindset: Innovation must be the commitment for everyone in the company. That means always asking the question, “How can we do better?” Such a mindset requires both tolerance of discomfort — since there’s never any rest — and humility in the face of feedback. Innovative companies hire people with these characteristics and cultivate constant vigilance throughout the firm.

Processes: Things get done through the implementation of processes. Innovative are always seeking to improve their processes — make them faster, lower cost, and more efficient in their use of inputs, especially the use of people’s time. Innovation itself is a process, and process improvement is a form of innovation.

Technology: Irrespective of how innovative any one company may be, technology is progressing at an increasing rate of change with potential to render all processes faster, lower cost, and capable of higher quality and fewer errors. One way to ensure continuous innovation is the rapid adoption and early implementation of new technologies as they become available.

Empathy: Even more powerful than technology is the capacity to tap in to customers’ expectations. This is the source of knowledge about future requirements. Customers are experiencing new technology, are absorbing innovation from other firms in the market (whether they are firms that are competitive to yours or simply adjacent), are experiencing change, and their expectations are changing and becoming more demanding by the moment. By sensing their changing expectations, the innovative firm is in position to be a first responder or an innovator before the expectation has even hardened or matured. Being ahead of expectations is a powerful place to be.

Empowerment: People in front line sales and service functions are closest to customers and their expectations. Line operatives are closest to process implementation. Supply chain managers are closest to business partners and vendors. It is these front-line positions that are best placed to deliver information about expectations and what’s changing. They are also best placed to sense dissatisfaction and unease, and to make real-time changes and adjustments. If they are empowered to make changes and to both suggest and implement improvements — even if what they try doesn’t work — they will be more highly motivated and more likely to serve as an internal engine of innovation.

Tools: Joe shares how his company, Medicus, has developed tools for innovation. Internally, all employees have access to communications tools that ensure the customer data they collect, and the ideas they generate as a result, are widely circulated and responded to. Externally, doctor whom Medicus reimburses for services have access to a tool to record their time that is administratively simple and generates fast payment, addressing two measures of unease.

Our Econ4Business.com platform curates many tools for entrepreneurs. One example relevant to this episode is the “Continuous Customer Expectations Monitor” (see Mises.org/E4B_144_PDF2). It guides entrepreneurs through the continuous process of tracking and keeping up with changing customer expectations.

There is a constant counterforce to innovation that the innovative company must recognize and overcome.

There is an innate human resistance to innovation and change. Consider this from a leading brain scientist and psychologist:

When information streams in through our sensory systems, it first stops off at our amygdalae, which are there to ask the question, “Am I safe?” We feel safe in the world when enough of the sensory stimulation coming in feels familiar. When something does not feel familiar, however, our amygdalae tend to label that unfamiliar thing as dangerous, and they respond by triggering our fight-flight-or-play-dead fear response. —Jill Bolte Taylor, Ph.D., Whole Brain Living (Mises.org/E4B_144_Book)

It’s natural in humans to resist change. It may not be safe. It may threaten my job, or my comfortable routine, or generate unwanted uncertainty. Fear of change is real. The function that exercises the fear response in companies is bureaucracy. Bureaucracy exists to ensure compliance with existing rules, and their consistent and uniform implementation. Bureaucracy is anti-innovation.

When a business leader commits to improving a product or process, he or she is undoing what someone else in the firm had championed and nurtured and maintained. It’s a constant battle that must be waged between change and the maintenance of the status quo.

The adoption of new technologies is an effective technique of innovation, but it can also trigger a fear response.

Technology is the continuous innovator’s weapon. It advances at its own pace, as a form of evolutionary advance. Every technological innovation spurs new applications in the marketplace. The adoption of these new technology applications is a catalyst for continuous innovation in the firm, supporting both product and service improvements and the incremental efficiency of processes — faster, leaner, lower cost.

The fear mechanism exhibits itself as employees worrying about their jobs. Perhaps the application of technology will reduce the number of people supporting a particular process from 5 to 4 to 3 or 2 or even one or none. They fear that progress will punish them. They adopt a defensive mindset. The innovator’s goal is to change the mindset to one of anticipation of rewards for progress.

Basic economics tells us that resources which are no longer utilized in a process that is rendered more efficient are thereby released for higher and more productive uses. Innovation leaders can communicate that, and make sure employees know they will be rewarded for progress via new and better opportunities for them to contribute more through the higher productivity that innovation brings.

The greatest resource for continuous innovation comes from customer intimacy and empathy that senses customers’ escalating expectations.

When we talk about a changing marketplace, we are really talking about customer expectations. Innovation elevates customer expectations and thereby triggers the next round of innovation in a never-ending cycle.

For example, now that many people carry iPhones and other smartphones, they’ve become used to unprecedented levels of convenience, interconnection, functionality, and intuitiveness. Their expectations for every other piece of technology they encounter, and every interface they navigate, are raised to a new level. There’s a marketplace of expectations and every new technology raises the bar.

The way to keep pace, and to have any chance of anticipating and meeting the next level of raised expectations is to get as close to the customer as possible, to be with them when they’re using your product or service or technology and listen and empathize when they express a wish (or expectation) that the experience could be easier, better, faster, less frustrating, more enabling. “I wish it were as easy as my iPhone” is the expression of an expectation that everything should be as easy as the iPhone.

Innovating firms build in mechanisms that make continuous innovation not only possible but likely.

There’s a quote in the book Working Backward, about continuous innovation at amazon, to the effect that “Good intentions don’t work, mechanisms do”. The intent to improve a process or product is not enough; people already had good intentions in the first place. Mechanisms turn intentions into actions and achievements. Some of the mechanisms Joe Matarese recommended are:

Mechanisms for taking in data from and about customers: Customer intimacy has a mechanism, in the form of frictionless and unstructured data collection. Give front line employees and the technology they use the unfiltered capacity to gather customer information about their dissatisfactions and report it back.

Let people experiment: The E4B technique of explore and expand applies to everyone in the organization. Elevate experimentation over compliance. That’s the way learning happens.

Eliminate bureaucracy that is not mission-supportive: Every company eventually builds bureaucracies in order to support consistent application of business rules. Innovators differentiate between bureaucracy that is mission-supportive and bureaucracy that is mission-obstructive. HR is often a department where bureaucracy grows. If HR is helping to recruit talented people who will contribute to innovation, then the bureaucracy is mission-supportive. If HR imposes rules that unnecessarily impede innovation, then that part of the bureaucracy should be shut down. The goal is to liberate the value-generating creativity of everyone in the organization, and not to impede it.

Decentralization and entrepreneurial empowerment: Decentralization is a mechanism of innovation. The goal is for your organization to consist of hundreds of individuals thinking creatively and solving problems for customers. You want them all to think and to learn! They must know that the firm cheers them on for doing so.

Additional Resources

“Designing An Organization For Continuous Innovation” (PDF): Download PDF

“Continuous Customer Expectations Monitor” (PDF): Download PDF

Medicus Healthcare Solutions: MedicusHCS.com

Econ4Business.com

Whole Brain Living: The Anatomy of Choice and the Four Characters That Drive Our Life by Jill Bolte Taylor: Mises.org/E4B_144_Book

Four Simple Rules For Initiating Entrepreneur Zones Anywhere In The World.

Entrepreneur Zones or EZones are place-based accelerators located in economically challenged communities that result in a sustainable ecosystem creating local living wage jobs. The concept was originated by Dr. Dale G. Caldwell, the Executive Director of Fairleigh Dickinson University’s Rothman Institute Of Innovation And Entrepreneurship.

An EZone is a collaboratory that provides guidance, training and financial support to companies within a specified geographic area. Coopetition, a form of mutuality where the businesses work together while competing for clients, is the key to ensuring that the businesses have the necessary support and skills. The goal is for these businesses to become profitable enough to generate as many jobs as possible in the local community.

Dr. Dale Caldwell, Professor Scott Livengood and Hunter Hastings will discuss EZones at the G7-G20 Group Of Nations
Solutions through Inclusivity Virtual Summit on November 17th, 2021

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The science of systems-building has evolved significantly over recent decades. While recognizing that economic ecosystems emerge and grow as a result of a vast number of ongoing interactions between people, firms, neighborhoods, markets, supply chains, prices, jobs, education, health and many more, it is nevertheless possible to identify the web of causes that result in sustainability and economic thriving. Causality can be linked to a simple set of rules that everyone in the system knows and can follow; the rules become a culture and the culture nurtures successful outcomes.

The four simple rules for EZones are:

1) Through empathy, identify a desired valuable experience.

Entrepreneurs generate value for others – their customers. Value is a tricky thing to identify – it’s entirely in the mind of the customer, subjective and idiosyncratic and often changeable. EZone entrepreneurs actually enjoy a potential advantage. They live in the local community and are close to their neighbors and friends and have a better idea of the dissatisfactions people want to address. Maybe an entrepreneur knows that a mom in town would like to work at a paying job if only she could get help with cooking and laundry and babysitting or in-home teaching. Maybe the entrepreneur knows that the local quarry owner needs a special kind of driver for the under-maintained trucks that are finicky and unpredictable in their performance. Maybe the entrepreneur is aware of some artisinal craftsmanship that could find a market on Etsy. Empathy is the skill to identify others’ desires and dissatisfactions. Everyone is capable of empathy; the skill can easily be honed to apply in economic situations.

2) Translate empathy into a deliverable service.

There’s a gap between understanding another’s needs and successfully offering a solution that results in a transaction and a sale. The articulated (or unarticulated) need is never identified with perfect precision and the product or service that’s designed to meet it is never 100% accurately targeted. That’s OK. It’s normal. The task is to make the design deliverable. Can the entrepreneur bring the finished product or service to the customer in such a way that the customer can buy and the exchange can be made? Can the proposed in-home cooking and cleaning service recruit the right people that the customer will trust, train them and place them in the customer’s house on the right day for the right number of hours to perform the service in way the customer wants. This process is capacity building. How is the entrepreneur going to get the job done? What people are needed? What tools will they need? Will they be well-aligned with the mission of serving the customer? Capacity is the state of readiness.

3. Remove all barriers.

Even when capacity is built and aligned, there will be barriers to completing a market transaction – mostly in the mind of the customer. Is the price right? Are there alternatives i don’t know about or have not fully evaluated? Can I trust the entrepreneur to keep the promises made? Am I really ready to take this leap? The entrepreneur must be able to sense all these barriers (often unspoken) and maintain the energy to remove them as they arise. This phase of entrepreneurship has been likened to sharpening a pencil – the art of removing and removing until the point is as sharp as desired and ready to use for the purpose it was designed. Entrepreneurs are constantly sharpening.

4. Set up feedback loops.

Ecosystems grow and thrive as a consequence of their feedback loops. Feedback loops are a form of closeness to the customer – setting up mechanisms for monitoring, listening, data collection and adaptive response. It’s another aspect where EZone entrepreneurs are advantaged: they are in the community, naturally close to their customers both physically and emotionally, and open for communication. As they expand their markets beyond the community, including via the internet and e-commerce, they extend this natural advantage into better customer listening and customer service that will serve them well as their businesses grow.

These four simple rules – empathy, capacity, no-barriers and feedback – will guide EZone entrepreneurs in a system of networked value co-creation with customers that can scale to any level once it gets started.

How does it get started? There are 4 simple steps to energize the 4 simple rules.

Convene the network.

The “Big Bang” for the EZone ecosystem is the first convening. There are existing businesses and business owners in the EZone geography, and there are aspiring entrepreneurs who haven’t yet got started. There are community supporters who want to help – whether these be churches or associations or clubs or business roundtables. There are educational institutions, whether these be schools or colleges or universities. There may be some large firms (banks, for instance) who would like to support EZone growth. There might be non-profits and philanthropic organizations to help. There is technical infrastructure to be tapped. There may even be government support, although EZones don’t expect it and don’t want to be restricted by bureaucratic rules and impediments.

Physically bringing together all these groups to talk and begin thinking about a shared vision and mission is both necessary and sufficient to impart initial momentum to the EZone. Energy builds from this start.

Value Co-Creation Training.

Entrepreneurship is a learnable process. Professor Scott Livengood has designed a training curriculum specifically for EZones and their participants. It starts with developng the appropriate mindset, emphasizing that entrepreneurship is subjective and that the right mindset is the precursor to sound entrepreneurial judgment. The training is fun and engaging, encouraging and empowering. it imparts knowledge, skills and process and introduces tools for participants to use with immediate effect. Most importantly, it can imbue with confidence even those who are uncertain.

Let the exchange begin.

The secret to getting started is to get started. Entrepreneurship is exchange. The first exchange tumbles the dominoes. EZone training and infrastructure are in place to help entrepreneurs get everything ready to go, whether that is setting up digital or physical storefronts, initiating manufacturing, assembling supply chains, connecting to business partners, or developing sales and marketing campaigns. The checklist may be long but it is do-able. Entrepreneurs simply need the momentum to get up to – and one step beyond – the start line.

Explore and expand.

Once under way, the entrepreneurial process is relatively simple: continuously explore different elements and components of the value proposition, evaluate the customer acceptance via feedback loops, and do more of what works and none of what doesn’t. The explore and expand mechanism is a flywheel – it keeps on turning and growing and strengthening. Entrepreneurs quickly get to the point where momentum can take over and management and growth replace experimentation – but the EZone entrepreneur never stops exploring.

4 simple rules and 4 simple steps are sufficient for EZone acceleration from inception to expansion to sustainability.

143: Per Bylund: How Austrian Entrepreneurs Succeed

Successful entrepreneurs are Austrians, they just don’t know it yet. This is a famous assertion from Dr. Per Bylund, and we dissect its meaning in the latest Economics For Business podcast.

Key Takeaways and Actionable Insights

Success starts from a deep understanding of subjective value (see Mises.org/E4B_143_PPT).

What’s the value of a successfully completed Google search? What’s the value of the feeling of satisfaction that results from having cooked an excellent meal enjoyed by your family? What’s the value of the PowerPoint template you utilized to make a well-received boardroom presentation that may boost your corporate career?

Austrian entrepreneurs know not to ask the question in that form. First, value is not measurable; it’s a feeling or experience in the mental domain. It may have great intensity, it may have long duration, but it can’t be measured in dollars or with any other number.

Yet the generation of customer value is the entrepreneur’s goal. How can the goal be achieved when the understanding of value is so challenging and its measurement is impossible? This is the brilliant advantage of the Austrian entrepreneur.

The customer learns what a value experience feels like.

A customer can’t describe the value they are seeking or what goods and services will deliver it. The value process is not one of demand and supply. As Ludwig von Mises understood, customers feel a sense of unease — “things could be better” — and begin to explore possible avenues to relieving their unease. Of course, this exploration takes place within a complex system of needs: individual and personal goals, family comfort and security, job success and economic status. Customers sort through possibilities with incomplete information and in the context of uncertainty. The gap between feeling unease and finding the best good or service to address it is large. They might try multiple potential solutions with varied cost/benefit profiles before they arrive at one that seems best, or better than alternatives. In other words, they learn: value is a learning process.

The entrepreneur helps their customers to learn.

The customer’s value thinking is constrained: in the present, they can’t imagine a solution that they haven’t yet tried or that has not been available to them. The entrepreneur innovates around the constraint, by providing and communicating new means that the customer could utilize in the future.

Entrepreneurs can’t directly shape the customer’s choice. It’s a fallacy to believe that advertising or promotions or presentation of features and benefits can accomplish that. The customer’s context is too complex for such a simple mechanism to work. The entrepreneur creates a tomorrow in which the customer will feel better off, and provides the means to facilitate the experience, a means for the customer to learn what a better tomorrow feels like. They meet customers in a market that doesn’t yet exist.

Austrian entrepreneurs have a unique value generation tool.

The complexity of the customer’s value system — all the components of value interacting and changing in time — can be simplified with the use of a key that Austrians call the hierarchy of values. Every individual has a set of goals or values they pursue in life. Some of these are more important than others — we call them the highest values. For example, people who engage in sport and athletic activities may have several values for doing so: for fitness and health, for social reasons, for self-improvement, and so on. One value may be the most important in their own individual hierarchy — for many people it is the sense of achievement. By improving their speed or time of running or bicycling, by winning a tournament or a league or playing on a winning team, the individual can experience a sense of personal achievement that is rare, valuable, and fulfilling.

It is a commercially strong behavior to appeal to this highest value among customers. Nike does this for example with its “Just do it” appeal. To simply undertake the athletic activity is achievement: you’ve done something. And, of course, Nike wearables help the process of experiencing the highest value.

All entrepreneurs can appeal to customers’ highest values, and the Austrian entrepreneur has deeper insight into this action.

Austrian humility is a success factor.

So much of business success is projected as heroic implementation of superior strategy. Austrian entrepreneurs do not suffer from such hubris. They take a humble approach to business, understanding that the customer is often engaged in searching and learning without a clear outcome in mind, and that, therefore, the entrepreneurial business cannot be certain of any future results. Entrepreneurs humbly follow, letting the searching customer take the lead, and accepting the customer’s terms of service.

This is how entrepreneurs learn how to facilitate value — often from the harms they suffer from getting their value proposition out of alignment with the customer’s preferences. If the value proposition is wrong, or the price is too high, or the convenience not to the customer’s liking, then no transaction is made, and the entrepreneur must — humbly — adjust. The most successful entrepreneurs are able to maintain their attitude of humility at all points in the value cycle.

Austrian entrepreneurs take the role of fitting in to the customer’s value system. It’s a flow, not a plan.

Conventional business planning is anathema to Austrian entrepreneurs. The linear process of producing and selling to generate transactions with the goal of meeting a targeted volume or revenue in a fixed period of time is not appropriate for the humble, learning, exploring business of entrepreneurship.

Entrepreneurial success stems not from good planning but from adaptively fitting in to the evolving value system we call the market — a system that is different for every individual customer, and into which many overlapping and competing entrepreneurial value propositions are also trying to fit.

Planning is not a good tool for this purpose. Creativity, imagination, and adaptiveness are called for. The dynamic of learning from the customer and adjusting to changing signals calls for responsiveness not plans. The entrepreneurial journey with the customer is a flow, sometimes through white water. In this context, the Silicon Valley concept of pivoting is appropriate, although not quite as the West Coast gurus see it. Their pivot is a one-time major shift in direction, perhaps to a new business model when the original one proves inadequate. The Austrian pivot is continuous and flowing, adjusting the boat to the subtle and frequent signals sent by customers.

Explore, Realize, Then Keep Exploring.

We’ve talked in the past about an “explore and expand” model for entrepreneurial value generation. The entrepreneur co-explores various paths to value with the customer, and when one emerges as productive of significant value, the entrepreneur can expand the allocation of resources to that path and drive revenue growth, through selling more to the same customers, or recruiting new customers or both.

Professor Bylund added some nuance to this: the entrepreneur never stops exploring. When an exploration results in substantial value realized, there remains a lot of further exploration to understand the value experience of the customer in greater depth and detail, and continuous monitoring of changes and adjustments in the customer’s system and value network. The entrepreneur is continuously tested.

The entrepreneurial ethic is an ethic of service; profit is a shared outcome of consumer and producer choices.

Entrepreneurial firms are in business to serve customers. This principle may be appropriately expressed via mission statements and expressions of purpose; it remains the core of all entrepreneurship. Profit is an outcome of two collaborative choices: the exchange price the consumer is willing to pay for the value they anticipate receiving, and the choice of costs the entrepreneur considers proportionate to the value he or she expects to generate for the customer. There are many entrepreneurs in the market for resources bidding on costs at the same time, and so the individual entrepreneur’s choices are conditioned by those made by others. Profits emerge from this system.

Cash flow is a better indicator of the capacity of the entrepreneur’s business model to convert resources into exchange value for customers (although not the artificial cash flows of engineered P&L’s — rather, the true cash flow of the customer’s eagerness to exchange for the newly produced offerings from the entrepreneur).

There’s a distinctly Austrian approach to entrepreneurial business.

In a famous paper called “Inversions of Service-Dominant Logic,” professors Stephen Vargo and Robert Lusch called for inverting “old enterprise economics or neoclassical economics” in favor of a new perspective. One of their proposals was an inversion of “entrepreneurship and the view that value creation is an unfolding, emergent process” to a position “superordinate to management”. Business schools, they stated, teach a management discipline rooted in the industrial revolution. There’s an emphasis on centralized control and planning. Vargo and Lusch sought to replace this approach with value creation as “an emergent process within an ever-changing context, including ever-changing resources; it is, by necessity, an entrepreneurial process”.

The distinctive Austrian entrepreneurship approach captures and expresses the emergent process, and provides entrepreneurs (and managers) with the tools and methods to help them shape thriving businesses as they discover new solutions to relieve customer unease.

Additional Resources

“Explore and Realize (and Keep Exploring): How Austrian Entrepreneurs Generate Value on the Path to Business Success” (PowerPoint): Download Slides

“Inversions of Service-Dominant Logic” by Stephen L. Vargo and Robert F. Lusch (PDF): Download_PDF

Don’t Accept False Dichotomies. Entrepreneurs Exercise Integrated Systems Thinking.

We talk about politicians trying to divide us, but personnel consultants, business advisors, HR executives, and some psychologists are often worse in wanting to divide us into dichotomies. They tell us we’re either creative or logical, but we can’t be both. We are either intuitive or analytical. We have hard skills or soft skills. Some follow the heart, others the mind. The yin is the critical thinking, executive function, intellectual and cognitive side of us, and the yang is the emotional, prosocial, interpersonal side. Those consultants who exhibit a philosophical bent might talk in terms of Apollonian and Dionysian types of thinker – logic, rationality, and analysis versus intuition, feeling, and synthesis.

Some personality tests utilize multiple variables and combine them in characterizing individuals who are subjected to their question banks. The output is said to represent our strengths (versus weaknesses) or typology (we’re this type, not that type). They’re still ultimately dichotomies, arrayed via X and Y axes or 2X2 charts or high-low graphs.

The dichotomy is false. Either/or thinking of any kind is an error, and the error is magnified when classifying human beings. People are complex systems, a dynamic integration of learning, preferences, genetics, family background, experiences, job history, health, and many, many more elements. They can’t be divided into two piles.

The alternative approach is systems thinking. According to Derek and Laura Cabrera in Systems Thinking Made Simple, we all have it in us to be:

  • critical thinkers who can analyze and solve problems;
  • creative thinkers who can see new and innovative solutions to problems;
  • scientific thinkers who can recognize biases;
  • prosocial thinkers who can work well with others and build strong communities;
  • emotionally intelligent individuals, posessing a sense of self and what we offer to the world.

How do we achieve this balance? It’s an emergent property of practicing systems thinking. We can think about how we think, and therefore how we act and how we collaborate with others. Awareness about how we think is essential for the kind of balance and integration the Cabreras advise is possible.

  • Awareness that everything we think about, perceive and experience is the product of our own mental model which is an approximation of the real world. Self-analysis regarding our own mental model – how good or poor an approximation of the real world is it? – is always a good basis for integrated thinking.
  • Awareness of the role of our own emotions, motivations and preferences in the distinctions we draw, the choices we make, and the decisions we take.
  • Awareness that both our own thoughts and those of others are influenced by unique individual perspectives rather than objective analysis.
  • Awareness that there are many ways to organize and interrelate ideas and things and your current way of doing so is just one of many possibilities.
  • Awareness that cognition, emotion and motivation all influence our mental models and our behavior, and the ability to distinguish among them.

Taken together, this integrated awareness constitutes what the Cabreras call metacognition: thinking about how we think. It’s often referred to as emotional intelligence. Insight into our own thoughts is key to high achievement in all domains.

In business, we refer to the individuals who exhibit integrated, balanced, and systems thinking at the highest level as entrepreneurial. Entrepreneurs, those who think about how to create new and higher levels of value for customers, are systems thinkers at their core:

  • They practice empathy, which is the building of mental models of others – i.e. customers – and the running of imagined value propositions through these models to understand their potential to generate a preferred experience that will result in a business success.
  • They translate the insights from these models into a deliverable service, an act of design that calls for the assembly and combination of multiple components, making choices from the customer’s perspective to decide on which elements to include and which to discard.
  • For service delivery to be accepted by customers, entrepreneurs identify all the possible perceived barriers to purchase from the customer’s point of view, and remove them by conceiving of the best-performing mechanisms.
  • They set up, monitor and resond to feedback lops, which is the essence of adaptive systems thinking.

There is no dichotomy in entrepreneurial thinking. It’s not mediated by strengths and weaknesses, and it’s dominated by neither emotion nor reason, but incorporates both. It’s creative and practical, objective and subjective, empathic and self-aware. Entrepreneurs consciously build their own mental models and continuously test them against the reality of the world of economics. The only dualism that’s relevant is what works and what doesn’t in the world of commerce, and these two possibilities are processed together as learning. The goal is durable success, and entrepreneurs exhibit no ambiguity in their assessment of results.

When the consultants and psychologists want to test you to ascertain whether you exhibit the entrepreneurial personality, it’s best to politely decline. There’s nothing of advantage to learn.

Better to focus on and sharpen your systems thinking:

  • Always thinking of the customer first, assessing their system and their place in it, all of the influences on their choices, and all their desires, preferences and dissatisfactions;
  • Working to translate your customer understanding into a deliverable service, which requires you to consider all the elements and components that make up that service, and how to combine them and integrate them in a single value proposition;
  • Identifying all the potential barriers to purchase – whether the barriers are feelings, insuffiicent knowledge, better alternatives, price or lock-in to existing choices. Removing all barriers requires identifying them – and how they work together – first.
  • Setting up feedback loops and adaptive mechanisms so that you can always respond to customer inputs. Develop an adaptive system.

By focusing on these rules, you’ll build an entrepreneurial system that gets stronger and stronger over time.

There’s no dichotomy. it’s not win-lose or strong-weak or logical-emotional. It’s an integration of components and elements into an entrepreneurial system that learns and consistently improves progress towards a goal.