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.
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.
What is capital? Capital is value.
And since all value is subjective, capital can be understood as the value subjectively attributed to any resources available to a business for production. That means it includes capital goods like machines and offices, intangibles like brands and lines of code, and people and their skills and knowledge, both tacit and explicit, accumulated and
evolving.
In this episode, Peter Lewin, Professor of Economics in the Naveen Jindal School of Management at the University of Texas at Dallas, talks about capital, defining it, understanding it, optimizing it, identifying its role in business, and how it becomes valuable.
Economics lost its understanding of real life and real people when it became mathematicized. Businesses risk the same fate when they focus on numerical goals rather than customers’ feelings.
The vast majority of businesses – the very backbone of the economic system – are derogatorily defined as small and medium enterprises by government statisticians. A better mental model is that they are the champions of value creation.
Hermann Simon is a renowned management thinker and author, and chairman of the consulting firm Simon-Kucher and the founder and leader of the research project he calls Hidden Champions. Hidden Champions uncovered the data demonstrating that – compared to the larger and more publicized companies of the major stock indexes like the S&P 500 – small and medium businesses are typically more profitable, more efficient (higher revenue per employee), faster growing, better at investing in and producing innovation, and better at making a return on that innovation, i.e. creating new value.
Continuous change is a feature of the adaptive entrepreneurial model of value creation. Digital marketing is a perfect illustration. By definition, it’s a field characterized by feedback loops and the only way to stay ahead is fast response and a willingness to learn and change.
Kevin Roy, CEO of digital marketing agency Green Banana has been a pioneer in this field and stayed ahead as a leader.