214. Professor Shawn Ritenour: The Vital Role Of The Entrepreneur In Economic Development

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Entrepreneurship is well-defined in economics, and well-recognized as the engine that drives economic growth. That means people enjoying greater well-being, including but not limited to material prosperity. But economic growth can be uneven. Some countries, some regions, and even some firms do not generate the same levels of economic growth as others. How do we understand this variability? We look for what holds entrepreneurship back.

Knowledge Capsule

Economic development can be a self-reinforcing cycle of continuous improvement in people’s circumstances.

Greater material prosperity is a valid and worthwhile goal for economic development. But, says Shawn Ritenour, economic development goes beyond that goal: it delivers a greater variety of goods and services that individuals and businesses can use as means to achieve their own diverse ends. The production of this greater variety requires entrepreneurship in the creation of new ideas and the pursuit of new value, and it generates new entrepreneurship by supplying a greater variety of resources to work with in those pursuits.

To generate this cycle, an enabling environment is required — one that acts as a catalyst for entrepreneurship.

Economic development is a multifaceted process in which several forms of human action combine in a system for economic prosperity. It’s not instructive to try to isolate financial capital or capital goods or technology or even human capital, and culture and social institutions can’t be ignored. These sources of prosperity must work together in an orderly fashion to generate the necessary synthesis.

The vital role is that of the entrepreneur.

The entrepreneur is the one who undertakes production, the one who combines resources to produce a product that meets customers’ needs and enables those customers in their own economic pursuits. Entrepreneurs kick off the cycle. Firms and organizations can act entrepreneurially, but it’s fundamental to understand that individuals — sometimes working in teams or committees — are the ones behind entrepreneurial decision-making. The entrepreneur is not necessarily a single person, but entrepreneurship is always a human action.

How do we get entrepreneurship started?

Entrepreneurship requires customer knowledge, technical knowledge and financial capital. Customer knowledge includes the empathic understanding of what’s needed for customers to be able to better meet their own needs. In the context of economic development, this knowledge is probably widely available to private entrepreneurs, but it may not be available to governments, whose understanding is distorted by predispositions to develop specific industries or subsidize specific economic sectors, or towards a particular technology. For these reasons, there can be no “entrepreneurial state”. Individuals with their own ideas and their own private property will provide the energy o break economic inertia.

Technical knowledge defines a sufficient understanding of the technology and technological resources to deliver the desired new value to the customer. In under-developed economies, this technical knowledge may be thin, so reinforcing the technical knowledge of entrepreneurs is appropriate, through education, injections of new technology, training, mentoring, or other forms of knowledge transfer.

With the right understanding of customer needs and the command of the right technology, the entrepreneurs involved in the development state will always need financial capital, because production takes time to organize before cash flows in to the firm from customers. In development contexts, entrepreneurs often will not have savings of their own, and there may not be an appropriate institutional infrastructure of local banks and lenders and investors.

Therefore, customer knowledge, technical knowledge and financial capital combine to provide the foundation for entrepreneurial leadership and growth. They’re integrated: it’s important for the sources of financial capital to understand and appreciate the nature of the customer and technical knowledge that is being deployed. Typically, this takes the form of venture capital or private equity.

Education is another important element in the institutional environment for entrepreneurship.

Entrepreneurship as a skill or capability can not be taught — it requires a special orientation that’s more developed in some individuals and firms than others. But principles, process and tools can be taught, and experienced entrepreneurs and businesspeople who have developed market savvy can share knowledge that they have acquired. Communicating the entrepreneurial mindset and methods in all stages of education will help to create and promote an entrepreneurial community that’s supportive of economic development.

One aspect of learning is to understand the entrepreneurial ethic of sacrifice, that it takes a lot of time and effort and expenditures and extended commitment before business success can be achieved. There’s more hard work than there is magic.

Institutional elements such as property rights and sound money are important components of entrepreneurial development.

Property rights and sound money may sound like abstract concepts, but they are extremely influential in economic development processes. Property rights mean that entrepreneurs can assemble and go to market with their own resources in whatever way they prefer. Sound money means that entrepreneurs can anticipate a return from their productive activities that’s not eroded away by inflation, and they’re not led into miscalculation by monetary manipulation (e.g., unanticipated escalation of future borrowing costs).

Removing obstacles to entrepreneurship is the best economic development policy.

Traditional approaches to economic development favor centrally planned initiatives, government spending, and policies in the form of subsidies or special incentives. They’re not typically market-based approaches. But the right approach is the opposite of policy-making. Instead of trying to design and add new structures, development should be focused on the removal of barriers — on identifying what’s getting in the way of nurturing a rich and robust entrepreneurial culture, and focusing on the removal of those obstacles. Leave the entrepreneurs to identify the specific products and services and businesses that can flourish, and to attract the investment capital that will support those businesses, without the need for “policy”.

Additional Resources

The Economics of Prosperity: Rethinking Economic Growth And Development by Shawn Ritenour: Mises.org/E4B_214_Book1

The Economics Of Prosperity (Edward Elgar): Mises.org/E4B_214_Book2

Shawn Ritenour at Mises.org/Ritenour

Shawn Ritenour at Grove City College: Mises.org/E4B_214_Profile

213. Sharekh Shaikh On The Digital Revolution In Market Research

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Market research is a tool for gathering data about customers and consumers that businesses hope will lead to insights about their behaviors and preferences that can be translated into innovation, better service and better business performance. As with any dynamic system, it has changed over time, and the effects of entropy have begun to show themselves in invalid techniques, invalid data, and invalid conclusions. And as with virtually all business systems, the coming of the digital age provides businesses with the opportunity to review, revise and improve existing practices and existing thinking.

Knowledge Capsule

Traditional models of market research are losing validity.

The Economics For Business approach to market research leans to the qualitative, such as one-on-one conversations with customers and detailed ethnography whereby businesses can observe customer behavior directly. The market research industry grew up favoring quantitative research at scale for its own reasons: that’s where the money is. Sharekh Shaikh points out that a $USD 70 billion industry was built largely on large scale panels — recruited audiences adding up to hundreds or thousands of individuals, to whom the market research industry could launch survey questions (“data gathering instruments”), generating large amounts of response data for quantitative analysis and numerical reporting.

Customers of these research reports use the output for decision support. Consideration of launching, or of purchasing and installing, a software suite or platform costing millions of dollars can be justified with the results of a survey costs tens of thousands of dollars or low six-figures.

One of the planks supporting the value proposition of market research panels is the difficulty of recruiting qualified respondents, such as CIO’s or CTO’s for an enterprise software survey. Panel operators’ revenues reflect their claims to solve this problem, but Sharekh Shaikh tells us that the reliability of their claim has eroded. Panels now may include inaccurately identified respondents (wrong title or role, for example, because the respondent has changed jobs or roles), or even fraud (responses provided by others than the supposed respondent, including bots). The data from the panels is no longer as valid as it once was, and its decision-support quality no longer as high.

This general decline in the quality and reliability of traditional research is taking place in many categories, not just tech — consumer package goods, entertainment, fashion, and any industry that uses these methods.

The digital revolution brings new opportunities for change, including in traditional market research.

It’s unusual to think of digitization as increasing human contact, but in research it’s the case. Sharekh’s research platform, CleverX, has effectively removed the intermediary, the market research panel operator and market research respondent recruitment agency, from the equation, so that the firm requiring research can be connected directly with the respondent with the desired experience and user perspective.

Respondents sign up to a place on the platform by supplying their personal data, career profiles, qualifications, credentials and experience. Their incentives include their desire to participate in and contribute to industry developments, as well as the compensation offered. By learning the questions that are being asked, the professionals who sign up to be respondents can gain insight into the developments that are being pursued in their industry. Being a panel member is career and professional advancement.

The firm seeking to gather data can identify their respondents and assemble their own panel, using their own criteria and specified profiles, and building a direct relationship with their respondents and customers. Moreover, they can use any data collection tool they prefer, whether that is a technical tool such as Survey Monkey, or direct one-one-one conversations on Zoom or Microsoft Teams, digital focus groups, or any other format. By integrating with calendar software, research interviews with CXO’s can be organized and calendarized. These powerful toolsets result in higher quality research being completed up to 10X faster.

Digital technology also facilitates video interviewing, so that researchers can talk directly with respondents, and develop a relationship with them. The video interviewing can be asynchronous: given a query, respondents can video-record their responses whenever convenient, TikTok-style. AI can add enhancements such as sentiment analysis, body language and facial expression interpretation.

The distinction between quantitative and qualitative research disappears and we realize qualitative data at scale.

Market research can become continuous monitoring in the adaptive entrepreneurial system.

The reality of markets today is high-speed continuous change. Market research as a tool has always been at a disadvantage in delivering snapshot that take time to process, by which time the market has moved on. Now, with digital techniques, continuous monitoring is possible. Sharekh mentioned several applications:

  • Customer understanding of digital developments: as platforms and systems evolve, customers may not be able to keep up with the technology, or may not be taking advantage of new feature. Digital research techniques can monitor and measure customer understanding dynamically, and point to gaps in their comprehension.
  • Dynamic product development: as developers move a product towards market, digital research techniques can expose potential customers to the development path, and help developers to integrate real-time findings.
  • Monitoring changing lifestyles and mental models: since digital research technologies can provide a continuing connection with customers, it can measure not only their responses to queries, but also their behaviors, attitudes and thinking in general. It’s possible to develop profiles and personas and segmentations into which innovative ideas can be inserted to simulate reactions and acceptance.

CleverX represents exactly the kind of knowledge recombination that can result in revolutionary change across an entire industry.

A core concept in entrepreneurship is the combining of existing knowledge in new ways for new solutions. Sharekh Shaikh combines his software engineering knowledge with knowledge of the market research space and knowledge of the dissatisfaction of end users with the available research tools. His newly-launched company, CleverX, is a fast-growing new entrant in the research space as a result of providing a totally new service: the facilitation of a direct connection between researcher and respondent with digital intermediation in place of previous-generation tools. The experience for the customer is better data, at faster speeds, gathered more conveniently and faster, and, consequently, of greater use in development and innovation processes.

Additional Resources

CleverX.com

Sharekh Shaikh on LinkedIn: Mises.org/E4B_213_LinkedIn