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

/0 Comments/in /by

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

_____________________________________________________________________________________________________________________________________________________

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

/0 Comments/in /by

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.

/0 Comments/in /by

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.

142. Murray Sabrin: How Entrepreneurs Beat the Fed-Generated Boom-Bust Cycle

/0 Comments/in /by

Entrepreneurial businesses acknowledge and understand the inevitability of boom-bust cycles in the Fed-manipulated economy. But they refuse to be defeated or even deterred. They find the profitable pathway through both the boom and the bust. Murray Sabrin has compiled a guide in his latest book, Navigating The Boom/Bust Cycle, An Entrepreneur’s Survival Guide

Key Takeaways and Actionable Insights

So long as we have central banking, entrepreneurs will experience boom-bust cycles. They adapt to this reality.

Entrepreneurship is, in its essence, focused on the generation of new value, producing betterment, growth, and improvement. While customer preferences and the nature of competitive offerings may change, and conditions such as pricing and contracts may vary, entrepreneurs work towards continuous enhancement of markets.

Their efforts are thwarted by governments, who can’t leave markets alone to function smoothly, and especially to central banks who aim overtly at manipulating markets through artificial credit creation. Austrian entrepreneurs are acutely conscious of this problem, since they understand Austrian business cycle theory. But they must nevertheless adapt to the boom-bust problems the central bankers bring about.

The first tool of adaptiveness is the recognition that there is the private economy and the public economy are different and separate.

Some economists talk of a mixed economy, but, as Mises pointed out, such middle-of-the-road thinking is socialist. The public economy is where the government trades, including trading in money, debt, and credit manipulation, and in the regulations that governments use as their management tool.

Entrepreneurs seek to establish a private economy where the government does not trade. The most important part of the market where the government is absent is the creation of customer value, especially in the form of innovation. Governments destroy value and deny innovation. When entrepreneurs can operate in the light of value generation, leaving governments in the dark, there’s room for profitable operations.

Entrepreneurs can further protect their safe haven with good anticipatory timing of the boom-bust cycle. There are signals that help.

Murray Sabrin’s book provides a long list of websites and links where relevant data is published that can help entrepreneurs watch the trend that might signal the timing of the boom-bust cycle.

The first signal is the so-called inversion yield curve, when short term interest rates start to elevate, and even get to higher levels than longer term rates. This is unnatural, implying that there is greater uncertainty in the short term than the long term. It can only happen when markets are fearful of the short-term consequences of government policies and interventions, even though they are confident of entrepreneurially-induced growth and improvement in the long run.

As a rule of thumb, according to Murray, the beginning of a recession can be anticipated roughly one year from the inversion of the yield curve. Of course, other factors can intervene, such as the government’s idiotic shutting down of businesses over the fake COVID-19 pandemic. Nevertheless, entrepreneurs should pay attention to the yield curve signal. They can monitor it at Mises.org/E4B_142_Fred.

Another signal for entrepreneurs to monitor in the overall economy is the unemployment rate. This rate declines during the boom, and actually starts declining as the recession is ending or a few months afterwards. There are variations in the pattern by industry, which Murray describes in detail in the book. He provides a list of 12 St. Louis Fed employment data series to monitor, covering sectors such as manufacturing, durable consumer goods, finance and insurance, and construction.

He offers many more signals — such as homebuilder stock prices — to monitor boom-bust timing. There is plenty of data for the savvy entrepreneur.

Strengthening value effectiveness and value security beats managing for efficiency.

The economics profession has been guilty of misguiding entrepreneurs with its focus on efficiency, i.e., managing for fewer inputs per unit of output, and eliminating “waste”. It can cause fragility, impede value generation, and slow down innovation and responsiveness to change.

One example is the management of supply chains. Managing them for maximum efficiency can also make them insecure, if, for example, there are no ready supplier replacements when one slips up. We are experiencing the impacts of supply chain fragility right now in the US. It’s for reasons extraneous to regular business operations, but the effects serve to highlight the need to keep supply chains secure under attack from government interventions. Entrepreneurial businesses that develop the strongest possible upstream supplier relationships and cultivate a richly connected value network may be able to perform better when boom-bust hits the supply chain.

Entrepreneurs fight the Fed on inflation.

The Federal Reserve insists on maintaining its 2 percent inflation target, which is economically destructive in many ways (see “Why the Fed’s 2 Percent Inflation Standard Is So Bad” by Ryan McMaken: Mises.org/E4B_142_Article). Entrepreneurs pursue deflation, always aiming to deliver better quality at lower prices. Why? Because it’s what customers want, and entrepreneurs are in business to serve customer needs. Entrepreneurs bring abundance. The Federal Reserve, taking the position that higher prices are good for the economy, promotes scarcity.

Entrepreneurs make their workforce a strong resource, rather than a source of cost-cutting in economic downturns.

The purveyors of so-called efficient management traditionally see the workforce as a cost, and urges entrepreneurs to cut costs by firing people in economic downturns. Entrepreneurs focus on effectiveness instead, and see their workforce as a resource and a source of ideas and initiatives for improvement and adaptation in all environments. A motivated frontline workforce is closest to customers and can bring back information, ideas, and new initiatives to make the business more responsive to customer needs and more capable of delivering desired customer experiences. This is the case whatever the state of the Fed-manipulated economic cycle.

Growth entrepreneurs think expansively at all times.

Entrepreneurs create new value for customers, and they don’t call a halt to their pursuit of value just because of the macro-economic data that’s being reported in the mainstream media.

They understand that customer preferences, or the order of those preferences, may well change in a boom or a bust time, and they maintain their vigilance in monitoring and responding to these changes. These are the signals to which they respond, not the economic headlines. Entrepreneurs look for the opportunity to introduce new goods and services at all times, and not just at the “right” moments in the economic cycle. They’re always looking for new ways to deliver more value. Perhaps, in a downturn, there’s a greater call for service and repairs on existing equipment than for buying new equipment. Entrepreneurs can adjust and recombine their assets to provide more repair work and thus make up for lost sales revenue.

Entrepreneurs are great cash flow managers, and tend to keep cash on hand or available for those times when this level of money can be utilized for expansion. One potential application in this book is the acquisition of assets from other businesses in a downturn, when business operators who are less savvy run out of cash and offer assets for sale at low cost. Murray calls this “picking up the pieces”.

There may also be the opportunity to expand geographically into new regions. There’s always growth somewhere.

In sum, the answer to the boom-bust cycle is value agility.

In the 4Vs business model on the Economics For Business platform, the fourth phase of the value cycle is value agility. We use this term to indicate the speed of responsiveness that successful entrepreneurs exhibit in response to customer feedback. Murray Sabrin uses the same term in his book, and defines it as “a process where entrepreneurs… adapt and adjust to continue to meet consumers’ perceptions of value your business delivers” (p. 111).

He asks, “do entrepreneurs stick it out when the economy is in a slump or wave the white flag and close the doors?” Mastering value agility means never being faced with that agonizing decision.

Additional Resources

Purchase Navigating The Boom/Bust Cycle, An Entrepreneur’s Survival Guide at the BEP Web store Use promo code BOOM20 for 20% off.

See a preview of Murray Sabrin’s book at Download PDF

“The 4Vs Business Model” (Video): Watch the Video

The Economics For Business platform: Econ4Business.com

“Why the Fed’s 2 Percent Inflation Standard Is So Bad” by Ryan McMaken: Read it on Mises Wire

10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity (Chart): View/Download

EZones Encourage Entrepreneurship In Order To Address The Decline In Economic Mobility.

/0 Comments/in /by

There is increasing evidence of a decline in economic mobility in the US. Economic mobility is the American dream: wherever an individual or a family starts on the economic ladder, the opportunity is open to ascend, and for each generation to do better than the previous one.

Economic Mobility Has Halved in 40 Years.

According to the World Economic Forum (WEF), upward mobility of the sort we associate with the American Dream is declining quite rapidly. Fewer people in the lower- and middle-classes are climbing the economic ladder, according to the WEF analysis. Whereas, at the 50th income percentile, 93% of those born in the decade of the 1940’s would out-earn their parents, the equivalent number for those born in the 1980’s decade was 45%. On this reading, the expectation of upward income mobility has declined by more than half in four decades.

Analysts at Foreign Affairs and the American Academy of Political and Social Science have made similar observations about declining economic mobility.

Why? Declining Entrepreneurship.

Why is this the case? There’s are many theories, one of which is related to parallel declines in the incidence of entrepreneurship as the engine of mobility. A study published by Northwestern Law showed that, of the wealthiest households, almost 60 percent of the top 1% are involved in entrepreneurship – defined as either self-employment or business ownership. Does wealth cause entrepreneurship or vice versa? The study’s results show that, “across the board, entrepreneurship – and in particular incorporated business ownership – is associated with the greatest upward social mobility”.

However, the problem that’s emerging today is that “the already wealthy are much more likely to avail of this mode of wealth-building than the poor”, and so entrepreneurship is powering less bottom-to-top mobility than in the past. Mobility requires both income and the access to entrepreneurial capital to generate it, and lower-income families are finding themselves separated from the capital needed to start and sustain businesses.

The case for entrepreneurship as the pathway to upward mobility for low-income families is complicated. There are high fixed entry costs, time lags, and the volatility in financial returns that are inherent to entrepreneurship, and so its relationship to wealth accumulation is intricate. The intricacies are well worth parsing out, especially given the disproportionate rate at which we observe business owners among the wealthiest Americans. 

The Northwestern Law study points to a definite conclusion.

We find that entrepreneurship, and in particular incorporated business ownership, does indeed facilitate social mobility. The magnitude of this effect is sizable: spending a third of one’s career as a business owner is associated with a one-decile gain in wealth standing as compared to an otherwise similar household…….business owning households which started off poor (i.e. bottom wealth quintile) are much more likely to become wealthy than those relying solely on wage work.

https://wwws.law.northwestern.edu/research-faculty/clbe/events/innovation/documents/sarada_tocoian_entrepreneurship.pdf

We Need A Resurgence In Entrepreneurship For Poor Communities And Families.

The Northwestern Law study comes to clear conclusions:

  • Business ownership predicts higher wealth, and is also associated with higher wealth mobility for disadvantaged groups such as high school drop-outs
  • Entrepreneurship …..is indeed a vehicle for wealth building, and perhaps the most effective one for the least affluent of households.
  • In addition, the legal form of the business itself is strongly associated with outcomes. Gains from incorporated business ownership outweigh that from wage work across the board. However, unincorporated business ownership is a vehicle for upward mobility for the lower half of the wealth distribution.

A challenge to be resolved is that the positive impact of entrepreneurship and business ownership is unevenly distributed by race.

In the period covered by the Northwestern Law study, 57% of White family units owned a business at some point, whereas only 28% of African American families did. For Blacks, business ownership rates increase more dramatically with education, however they remain below those of the ethnic majority even for college graduates. 

But we are making some progress, indicated by the entrepreneurship gap closing over time. The study looked at the same statistics for the parents’ generation. It appears that racial differences were even more pronounced, with only 15% of black parents having owned a business at any point. For both races, business ownership rates have increased slightly over time, mainly driven by the less educated.

EZones Are The Emerging Answer.

Dr. Dale G. Caldwell, who combines the two perspectives of an active pastor in black churches with that of his role as Executive Director of the Rothman Institute Of Innovation And Entrepreneurship at Fairleigh Dickinson University, has an answer to the dilemma of poorer families lacking access to the very institution that will help them rise, entrepreneurship. He has conceived of EZones  – Entrepreneur Zones that are physically located in distressed inner cities and other economically deprived locations, and which provide an entrepreneurial ecosystem for these economically challenged communities. An ecosystem, by definition, interconnects and stimulates many people, institutions, resources, and capabilities. EZones begin by convening a group of economic actors with shared interests in creating new value in their community: existing entrepreneurial businesses, entrepreneurs eyeing start-ups, representatives of big businesses like banks who want to contribute, universities and schools in the vicinity, and influencers who can help and support. Once the shared interest in value creation is established, the next phases include business training, network building, and continuous workshopping to highlight and extend successful initiatives and add knowledge and resources. There are processes to inject and attract capital on a “pay-it-forward” principle that has the potential to establish a permanent fund. While the EZone is physically located in an identifiable geography, it is connected to the city, region, nation, and the world via technology, internet marketing, and communications, and the principles of entrepreneurial business building. 

EZones have the potential to solve the problem of declining mobility and declining entrepreneurship. EZones provide access to entrepreneurship and to its key tools for success to precisely those individuals, families, and communities that can most benefit from it.

Group Of Nations Embraces Inclusive Entrepreneurship To Reduce Global Poverty.

/0 Comments/in /by

In The Ethics Of Capitalism, leading economist Jesus Huerta de Soto argues that the most just society will be the society that most forcefully promotes the entrepreneurial creativity of all the human beings who compose it. When we think of a global society, we can then understand that entrepreneurship is the path away from injustice, and from poverty, for all the world.

At the G7-G20 Solutions Through Inclusivity Virtual Summit on Nov 17, 2021, I’ll be making this case along with my colleagues Dr. Dale Caldwell from Fairleigh Dickinson University and Professor Scott Livengood from Arizona State University.

Entrepreneurship is a philosophy of universal individual creativity and capability. Everyone has a sense of how the world can be made better, and entrepreneurship is the universal method of achieving that betterment. It starts with an attitude that all people share: a continual eagerness to seek out, discover, create or identify new benefits, and better conditions. Economists use the term value – a feeling that the new circumstances suit people better than the status quo. People aim at experiencing value.

Entrepreneurial creativity is a shared activity of consumers and producers. It’s hard to say where it begins, and the co-creation never ends. We might say that consumers or customers initiate the process by expressing dissatisfaction – the feeling that things could be better, and they’re not better yet. They don’t know the solution to their dissatisfaction, and they may not be able to articulate it very well, but they have the feeling. Every human being feels it in some way, every day, everywhere in the world. Dissatisfaction is a universal resource for entrepreneurial initiative.

The role of the entrepreneurial producer is to sense this dissatisfaction. The entrepreneur’s antennae are always up and quivering, scanning the environment for dissatisfaction they can utilize as the source of an idea. There’s a skill for doing this well: we call it empathy. Empathy is the ability to think as if you were inside the customer’s mind, feeling what they are feeling, experiencing their emotions. Empathy can be refined as a business skill, but it’s inherent in everyone. It’s how the human race gets along. It’s the principle behind every trade and every exchange. The entrepreneur understands how to make the customer feel less dissatisfaction, and more satisfaction through trade. The closer the entrepreneur and customer are connected – the deeper the empathy – the better the producer becomes at satisfying the need, and the happier the customer becomes in the confidence that their needs can and will be met.

All of these feelings, this empathy, and this creativity come naturally to people all over the globe. Entrepreneurship is the human condition. It’s the social coordination function of matching people’s most important wants with the available resources and goods and services that fulfill those wants.

Where people might need some help is in implementation of this coordination function. That’s where the concept of Entrepreneur Zones or EZones comes in – the idea that Dr. Caldwell and Professor Livengood and I are presenting to the Group Of Nations. The word “Zones” implies a physical location – and that’s exactly what we envision. An EZone can be located anywhere in the world, and it’s particularly appropriate for the energetic uplifting of a place that is currently in need – a developing nation, for example, or an underdeveloped inner-city in any of the developed countries, or a community anywhere.

One of the steps in EZone development is training – encouraging the entrepreneurial mindset and communicating the steps of the entrepreneurial process. It’s a knowledge process and the requisite knowledge is available to all: it’s subjective (we all have individual knowledge); practical (how to help people); it’s exclusive because it’s individual and that has immense economic value; tacit, meaning it’s not well articulated, but we can draw it out of people through encouragement; and it’s creative, i.e. doesn’t require any resources, it’s developed out of nothing. When people understand the economic worth of their own knowledge, then we can teach them how to apply that knowledge in helping others to improve their lives. There are many pathways available to them. The formal technique is the value proposition, which includes a precise identification of the customer and their wants, and a precise description of what offer the entrepreneur will develop to assuage their wants. This proposition is easily testable – we can teach that, too.

A tested value proposition requires a business model and a development process to bring it to market. The process is also teachable and demonstrable. Part of the process is assembly of resources, including capital, but also supportive services and supply chains. We can teach the assembly methods, and make connections to all the resources, including how to negotiate, contract and collaborate in win-win arrangements.

Professor Livengood teaches entrepreneurship at the university level in the USA, and he has also gained first-hand experience with transferring and recalibrating that training for the poorest displaced refugees in camps in Africa. He discovered that the principles, processes, and practices remain the same, and that language and communication must be fine-tuned to the specific audience, in order to give them the confidence that successful entrepreneurship is in their reach. Dr. Caldwell is an active pastor as well as a university professor, and he has intimate first-hand knowledge of the entrepreneurial potential of people in deprived communities. Both Professor Livengood and Dr. Caldwell exemplify the multi-level applicability of the entrepreneurial method to the pursuit and achievement of prosperity for everyone.

Entrepreneurship is the best path upwards for every community. It’s moral, ethical, and economically sound. Entrepreneurship is the engine of prosperity and growth. It’s exciting and energizing for everyone in the community. The economic gains are broad and deep. Families are strengthened through both shared purpose and reliable income. The kids are better nourished and perform better at school. Violence and anti-social behavior are reduced because people are concentrating on economic opportunity. Jobs are created so that everyone in the community feels their own part of the opportunity. New services are drawn to the EZone, improving the quality of life. Larger companies come to town, attracted by the high-energy workforce and the quality of life in the community. The entrepreneurial community connects to the world and serves markets all over the globe while receiving new inbound services. Improved technology comes to town. Churches enjoy more attendance and their pastors feel renewed. The uplift is general and universal. There’ll be more communities looking over, liking what they see, and jumping on the bandwagon.

You can see the agenda for the Group Of Nations Summit here, register to attend here, and read more about the Solutions Through Inclusivity Summit here.