Business Is Not A Set Of Practices Or Strategic Methods Or Planning Techniques. It’s A Mindset

/0 Comments/in , /by

In the current business era, there’s a lot that seems mandatory: using quantitative methods of strategy and planning, following documented IT-enabled processes, organizing fixed structures that can be captured in org charts, and complying with government-mandated rules and regulations. Even the acts of creativity that contribute to innovation are specified, documented, and captured in software. There’s a bias towards fixed cause-and-effect thinking: if a business takes action X, it will result in outcome Y. We are told that case studies will reveal this cause-and-effect linkage in hindsight, to be re-applied in future planning.

There appears to be no room for individualism, spontaneity, unpredictable interactions, or rebellion. Those concepts are insufficiently objective for today’s business executives, consultants, professors and executives. The goal in business is primarily stability: to make a plan and achieve it, to set targets and hit them, to predict quarterly earnings with accuracy, to define processes in the knowledge that they will be followed unfailingly. The goal is to turn business into a science, with hard numbers, laws, and data-driven methods.

But in excess, this objective approach does not support the primary goal of business, which is value. 

The purpose of all firms is to generate value for customers and value is not objective or measurable or amenable to design or planning. Value is a feeling – a feeling of well-being or satisfaction experienced by customers. Different customers experience more value or less value than each other even when using the same product. Value occurs when the customer has used the product or service and compare the consumption experience with their going-in expectations. Value is subjective from beginning to end – from the search for potentially satisfying experiences to the realization in use to the evaluation after use. 

In fact, it is not the firm’s job to create value. It’s the customer’s role to find the most effective solution to their wants and needs. They can express some doubt or uncertainty that there’s anything available to them that exactly meets their need, although they might buy something that the best available option, even though their satisfaction is incomplete. They’re always looking for the discovery of something better. This is the role of the customer – the genius role of insisting on something better, thereby stimulating innovative action among producers to respond with new value propositions. Together, the producer and the customer imagine a new future value via a new or improved service or product; the producer can help the process along with product enhancements and advertising and PR and perhaps prototypes to help the customer’s imagination along.

If the customer’s imagination is piqued, the firm must commit resources to assemble the product capacity that will put an actual, purchasable offering into the marketplace for consumption. There’s no guarantee that this will be profitable or successful. The customer has the final decision. There’s no planning, predictive modeling, sales goal targeting or quantification of any kind that can eliminate or overcome this uncertainty. The customer will choose between all the alternatives available, including to buy nothing at all. It’s all contingent, and there are infinite possibilities. Firms choose their path towards facilitating the customer’s value experience, but there are no objective certainties.

So if business is not objective, quantifiable, or plannable, how would we describe it?

The philosophical word is subjectivism. Businesses would be better equipped for marketplace success if they followed subjective methods. They’re dealing with people and their emotions and their interactions with others in a complex social system. There’s no hard science, no spreadsheets, no data set that can predict the outcomes. 

That raises the question, what are the skills for business, if they’re not numeracy and hard science and mathematical economic. The answer is empathy. The skills of empathy – the ability to see inside customers’ minds and simulate a view of the world as they see it, to imagine what they are imagining, to reconstruct their mental model as opposed to imposing your own – are the most important in every business, and for every individual in every position and every function in business. Everyone must display customer empathy. What is the experience they are having? What’s imperfect about it from their point of view? What might result in a better experience for them, a potentially greater satisfaction for which they might be willing to pay. This empathy is best exercised at the level of the individual customer. If a business can get the empathic diagnosis right for one business, then they can investigate how it scales. Every customer is different, but there might be some patterns of response and interaction that spread out among a population of customers. 

Empathic diagnosis can reveal customers’ intent. What ends are they aiming for? What’s the highest value they seek? How can the firm’s proposition stimulate them to believe that it might contribute to that highest value? Uncovering the customer’s intent can indicate what experiments to run to find out whether any of the propositions a firm is able to get customers to imagine a future where new value is a possibility for them. Experiment is a key word: there’s no certainty in advance. Possibility is another key word: there is a wide range of possible outcomes. But by running the experiments and responding to feedback, the number of possibilities, the range of uncertainty, can be narrowed.

Once the results of experiments are in, then the firm can start unleashing its quants to do the economic calculation. How much will the customer pay based on these experimental results? How many customers might there be? How frequently will they buy. How much advertising budget should I spend to make the value proposition more widely known. Quantification is appropriate for these questions, once the empathic diagnosis is authenticated. 

Of course, the quantification can’t be accurate, and circumstances will change. It’s subjective calculation – the right method for an uncertain and subjective world.

The Value Creators Podcast Episode #9. Mark Packard on Subjectivism

/0 Comments/in /by

At the Value Creators, we favor a much different business model than the one that’s traditionally taught in business school. Our model focuses on value, understanding that value is experienced by customers, and that it’s entirely subjective. You can’t put numbers on it, you can’t capture it in a plan, it’s not something that can be distributed to shareholders. It’s not a thing of any kind.

We build the Value Creators system on the firm foundation of economics. In this episode, we’re going to explore the basis of sound economic theory and a sound understanding of value. A key word is subjectivism, which may sound very wonky, but it’s the gateway to understanding value.

To talk about value and subjectivism, our guest today is Professor Mark Packard. He’s the Research Director at the Madden Center for Value Creation, part of the College Of Business Management at Florida Atlantic University. He’s the author  He’s the author of Entrepreneurial Valuation, An Entrepreneur’s Guide To Getting Into The Minds Of Customers.

Knowledge Capsule:

  1. Subjectivism and Value: The conversation starts with a focus on subjectivism in business, particularly in understanding value. From a subjectivist perspective, value is not intrinsic; it is determined by the consumers’ subjective evaluation of products or services. Businesses must focus on providing things of value that consumers appreciate and are willing to pay for. This understanding shifts the perspective of businesses from being value creators to value facilitators, aiming to deliver a better and more valued experience to their customers.
  1. Empathy and Understanding Customer Needs: To succeed in business, entrepreneurs must have empathy and gain a deep understanding of their customers’ needs and value experiences. This involves spending quality time with customers, observing their lives, and interacting with them to truly grasp their desires and preferences. The goal is to identify what customers would value the most and offer products or services that align with those preferences.
  1. Innovation and Technical Knowledge: Successful businesses combine customer needs knowledge and technical knowledge to innovate and create superior value propositions. Entrepreneurial success comes from finding solutions that customers value more than existing options. It requires constantly learning and refining the understanding of customer needs and leveraging technical knowledge to develop products or services that cater to those needs in novel and effective ways.
  1. Crossing the Chasm: Achieving scale in business involves crossing the chasm between early adopters and the early majority. This requires having a clearly superior value proposition that resonates with a broader audience. To succeed, businesses must focus on customer experience, as early adopters’ satisfaction and positive word-of-mouth play a pivotal role in convincing the broader market to adopt the product or service.
  1. Balancing Uncertainty and Adaptability: Business success is not solely reliant on luck, but rather on a combination of understanding customer needs, technical knowledge, and continuous adaptation. Uncertainty is inherent in entrepreneurial ventures, but businesses can mitigate this by fast-adaptive learning and a willingness to revise and refine their value propositions based on feedback and changing market conditions.
  1. The Role of Knowledge Building: To become better entrepreneurs and business leaders, individuals must focus on knowledge building. This involves running experiments, interacting with customers, and processing feedback rapidly to continually improve the understanding of customer needs and create innovative solutions that provide superior value.

Raushan Gross: Socialism Cannot Work, Not Even in an AI-Driven Economy

/0 Comments/in /by

Many of us seek products and services from sellers with goods of the best quality and relatively lower prices. Sellers seek the highest prices for selling the least amount of goods. Sellers compete for customers but would much rather be the only seller in the marketplace or market space. Furthermore, consumers want more for themselves and less for other consumers.

This depiction of market behavior is normal and may seem chaotic to some who view the marketplace through a socialist lens. With all the recent talk about reining in artificial intelligence (AI), taming AI, and limiting its uses, it sounds like the hubris of socializing artificial intelligence products and services.

However, an AI-driven economy cannot be socialized by a single entity, despite all the noise about AI restrictions, limitations, and tighter rules and regulations sent down from the top elites. We all use artificial intelligence in daily activities, ranging from work and leisure to side hustles, if you have one. With the glitz and glamour of technology, particularly artificial intelligence, the point that is missed is this: AI products and services enable firms to meet demands, assist entrepreneurs to create value, and enhance the exchange processes we all take part in daily.

Zack Dugow, who wrote “How to Defend Yourself against All-Powerful Monopolies That Control Your Business” for Forbes, made an important observation but did not take it to its logical conclusion. Dugow said, “If you have a heavy reliance on one of these monopolies [artificially driven software or social media/web page tools], you need to be able to pivot your business quickly and have your backup plan readily available to you. What service providers can you switch to?”

Should AI technology and AI startups eliminate monopolistic behavior between firms and consumers and rid the market space of the unrealistic notion of any socialization of AI technology? Everything has a price and a cost, which is why socialism was debunked some time ago.

However, what about artificial intelligence? Can it be socialized in the market space? You can socialize some things, but artificial intelligence cannot generally be owned and operated by a single entity or widely restricted from public usage. Someone must own the productive resources, sell services, and upgrade and maintain the hardware and software.

Opening market spaces for AI seems reasonable; however, will the elites plan to socialize AI services and products, close up the industry, and eliminate AI buyer options? When prices, inputs, and outputs are calculated, it becomes an unfeasible proposition that AI services, products, and industries be socialized. Fortunately, more and more AI service startups are available for buyers. Again, people use AI-enabled services and products to a large degree for many day-to-day activities. AI startups are on the rise, and they are listening to the market space, despite the socialist view that permeates throughout the media pushing toward more regulations and clamping down on open competition. Nevertheless, even in an AI-driven economy, socialism still cannot work.

No company has yet been granted exclusive ownership privileges of AI products and services. Not yet! Currently, there are over thirteen thousand (and rising) private startups of AI services and products in the United States alone, according to eWeek. Will artificial products and services remain decentralized? AI is a tool and enabler of exchanges between customers and firms. The advent of AI technologies can ward off monopolist behavior in a free market because, with an innovative approach to a consumer product or service, any company may be able to prove themselves worthy in the face of Goliath. Contrary to popular opinion, firms that use AI to enhance customer satisfaction and increase productivity open more doors for regular folks to start up their own business, which gives buyers more options in the marketplace. It also allows customers to enjoy the many features and benefits of products and services that add value to their daily lives. Some need to see this point. In other words, those who want to centralize AI services and products to one seller and raise the barriers to industry entry are saying out loud that they want more for themselves and less for you (and me).

That means no firm should have the exclusive privilege of being the only provider of AI services. Right? So many industries started as decentralized firms and are now privileged providers. Question: Who sets the prices of AI services, packages, and models? While your local utility provider, in many cases, is granted the privilege of being the only supplier of utilities, Amazon, on the other hand, has not received the same privilege. Amazon has a strong position in the market, but we know of competitors out there we can visit if we would like to. The difference between privileged providers and Amazon is that Amazon is subject to market competition. Therefore, they must listen to customers and pay attention to price increases, warehouse logistics, and customer service improvements.

If AI products and services remain decentralized, it will allow the market spaces to regulate the prices and costs for using AI services as opposed to if AI services are centralized under one firm or an elite few, similar to airline companies. When consumers and entrepreneurs see the rising costs of AI-enabled platforms, it reduces the incentives to use that technology, but it also allows new entrants to come into the market space and attempt to deliver a better product at a marginally better price. To disregard this market movement is the intent of socialism in general.

Furthermore, a handful of AI service providers eventually reduces the quality of this handful of providers (there are many instances of this decline in quality and rising price when a provider is granted a monopoly privilege). However, a natural monopoly might be reasonably valued. Technology of any kind, operating in a free market, should be the mechanism by which people who desire to enter an industry can do so with their skills and investment and make their attempts at competing—even if they are unprofitable, they were able to enter the fray.

What is often misunderstood about monopoly and prices is explained by Murray Rothbard:

There is no direct control over price because price is a mutual phenomenon. On the other hand, each person has absolute control over his own action and therefore over the price which he will attempt to charge for any particular good. Any man can set any price that he wants for any quantity of a good that he sells; the question is whether he can find any buyers at that price.

In a free market, no one is granted monopoly privilege—a privileged market position is earned by providing the best quality and price that consumers are willing to buy. On the other hand, forced or restricted choice is a form of socialism, or at least interventionism. At this time, it seems the capital markets are deciding where to invest, which is apparent in the rising number of firms producing more products and services so that businesses can meet public demand. If, however, all capital for AI investment funnels to one entity, it would be a disaster insofar as an economic calculation.

The idea of socialism does not hold up to its tenets considering AI’s technological advances made in recent years from the rising number of firms, especially advances in AI for entrepreneurs and consumers alike. A socialist vision of the world is very compelling, but reality tells us something different. The basic premise is that someone has to produce, someone has to consume, and there is a price calculation for both to exist. In the reality of socialistic visions, when subjected to market space examination, this premise tends to break down.

In many cases, the producer and consumer are the same people at different times. Production must take time, and with knowledge of prices, producers know the quantity of goods to produce at any given time. Even if one can socialize the production of luxury items, homes, and vehicles, how does one produce the capital required to make those items? Even with all needed inputs, AI cannot engage in the economic calculation needed to make a socialist economy work.

Author: 

Raushan Gross

Raushan Gross is an Associate Professor of Business Management at Pfeiffer University. His works include Basic Entrepreneurship, Management and Strategy, The Inspiring Life and Beneficial Impact of Entrepreneurs, In Pursuit of an Entrepreneurial Culture, and Emerging Institutions of Entrepreneurship. His research interests include topics ranging from entrepreneurship, free markets, economies, markets and competition, and the role of technology in market coordination.