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197. Phil Johnson: Entrepreneurs Demonstrate A Special Emotional Intelligence

November 21, 2022 in /by

Business success goes beyond numbers and planning and finance acumen. There’s an emotional component to it, ranging from the courage to make decisions without knowing the outcomes in an uncertain future, to the resilience of weathering storms and coping with unanticipated crises. There is also, of course, the joy of achievement and goal-attainment. There’s a concept identified as emotional intelligence that individuals and teams can cultivate as an element of a mental model that’s well-aligned with business performance and positive business outcomes.
Knowledge Capsule
The entrepreneurial method is to pursue change, but people’s natural attitude is to resist change.
We have an inbuilt, biological resistance to change. It triggers fear and anxiety that get in the way of moving towards the change that we seek. In addition to this emotional resistance, we develop habits that keep us in the status quo, and present another barrier to behavioral change. We all must fight an internal battle between our old habits and desired new habits.
Entrepreneurs develop a special emotional intelligence that motivates action.
Entrepreneurs are in the business of making change. They can overcome the natural emotional and behavioral barriers because they have a highly developed emotional intelligence. They have such an emotional relationship with their vision of a successful outcome for their efforts that they can overcome fearful restraints and resistance to change. They are especially highly motivated to take action. It’s their emotion that drives action, not intellect.
Emotional intelligence is much more influential in business success than IQ.
A 40-year study at UC Berkeley found that EQ (emotional intelligence) is 400% more powerful than IQ in predicting which individuals would have success in their field. Private companies like PepsiCo and Apple have uncovered similar findings in their internal studies.
High emotional intelligence not only releases personal energy and creativity, but it also results in higher levels of interpersonal trust and shared engagement with others. With high emotional intelligence, we are driven to help others to enjoy better experiences as well as to advance out of our own comfort zones to access new areas of achievement.
The consequence of achieving high levels of emotional intelligence is higher levels of trust and engagement in business, and, thereby, better business results.
Everyone can improve their emotional intelligence and benefit from its compounding effect.
We are pretty much born with our IQ — we can’t increase it. But everyone can raise their level of emotional intelligence. Not only that, but emotional intelligence is a compounding asset — we can raise it and raise it again and keep on raising, so long as we work at it.
Part of the equation is personal energy management.
Phil Johnson identifies personal energy as the core element at the heart of the power of emotional intelligence. We “give our energy away” when we permit others to disrupt our emotional flow — make us annoyed or angry or resentful or frustrated. As a consequence, we feel the need to “steal energy from others” by getting the better of them or by exercising a command-and-control management style. The net result is strife, dissension, and misalignment — where team or corporate energy is wasted. We can avoid this waste by cultivating emotional intelligence.
There are high-ROI habits, practices and skills that help to build emotional intelligence.
Happily, we can practice some of the habits and skills that develop and demonstrate emotional intelligence.
One such habit is authentic listening: when we take criticism personally, we give away energy. So, if we eliminate all personal inner-directed emotion from our reception of comments and suggestions from others, we can utilize all the experience and knowledge that’s shared with us for betterment and improvement. Don’t resist, don’t judge. Don’t let attachment to our own preferences get in the way of receiving input. Don’t raise walls. We have no personal interest in what others think of us, only in the information they can impart, which might be useful
The other side of the coin is authentic communication: be sure that all the content of our communication is factual and positively motivating and designed to be helpful to others, strengthening trust and engagement. If we develop a consistent reputation for authentic communication, we’ll raise engagement (and Gallup reports that employee engagement is at a very low level today, which is a great cost to economic productivity).
In addition to habits and practices, Phil Johnson urges us to commit to the emotional labor of recognizing our own fears, biases, and status quo preferences, and to establish an emotional distance between our motivations to action and our ego-based fear. It’s emotional labor that pays interest — it has a high ROI.
Emotional intelligence releases the power of intuition, and creates a state of flow.
When we fear making decisions, we try to rationalize those decisions, to seek objectivity and lower uncertainty. When we distance ourselves from fear, we can unleash intuition — that decision-making capability that is beyond our understanding and comes from our unconscious brain. Intuition takes over more and more as we master emotional intelligence. We make choices that are not intellectual — we go beyond our intellectual ability.
Emotional intelligence takes us to a flow state. We get away from thinking and move towards intuitive doing, beyond our comfort zone beyond our fear and anxiety.
Additional Resources
Phil Johnson on LinkedIn: Mises.org/E4B_197_LinkedIn
Phil Johnson’s Zoom Calendar: Mises.org/E4B_197_Zoom
Videos from alumni of Phil Johnson’s MBL (Master Of Business Leadership) Program: Mises.org/E4B_197_MBL
UC Berkeley Study, EQ >IQ: Mises.org/E4B_197_Paper

196. Bart Vanderhaegen: How Criticism Fuels Knowledge Creation in Adaptive Entrepreneurial Firms

November 14, 2022 in /by

Success in business — serving customers well, and achieving growth in revenues and assets with a return on capital greater than its cost over the long term — is tied to knowledge-building, whereby everyone in the company learns more and more about specialized and advantaged methods of generating value for customers. Customer value fueled by knowledge-building flows back to the company as cash flow as a result of customers’ willingness to pay (which, itself, is a piece of knowledge to be discovered through testing and experimentation).
The uncertainty of the future means that a lot of knowledge-building must be achieved through experimentation — testing ideas to find out if they work or not. The earliest stage of this testing is bound up in the concept of criticism. Bart Vanderhaegen, a philosopher, epistemologist, and business consultant, explains the role of criticism to Economics For Business.
Knowledge Capsule
There is broad agreement on the need for adaptiveness in business.
It is becoming more and more accepted to view firms as operating within a complex adaptive system in which the interactions of millions of agents, and the resultant emergence of new outcomes and new system properties, require an acute sensibility regarding change — and speed of change — in the business environment and an ability to make adjustments in response or, if possible, in anticipation.
This adjustment process often goes by the name of adaptiveness.
What, exactly, is being adapted?
Bart Vanderhaegen’s analysis is that it is ideas that are being adapted and adjusted. He defines idea in this business context as a goal and a plan to achieve that goal — a desired end and the associated means. It is ideas that ultimately result in changing people’s behavior, changing product and service offerings, and changing markets.
If the idea is wrong, it will fail in achieving any desired change. To establish why or how an idea is wrong requires criticism.
Criticism is an artifact of the science of knowledge.
Critical rationalism views knowledge as useful information we use to solve problems we face. It can never be viewed as final — it’s conjecture about possible solutions that we are continuously challenging and criticizing to expose any error that we can subsequently correct to improve upon the solution, and to get closer to economic reality. That’s adaptation.
Firms actively seek the criticism of the market.
Once ideas have been activated as products and services, firms are comfortable with the criticism of the market. As Mises observed, the customer, by buying or not buying, returns a verdict on every business’s offering. And business welcomes the criticism, in the form of sales report, or market share analysis, or market research. The market is full of feedback, and in the case of non-buying, the feedback is criticism and triggers improvements or an adaptation of the plan.
In business, there tends to be less comfort with criticism in the pre-market stage, but it’s a necessary tool for refining options and making decisions.
In Bart’s way of saying it, the word criticism, when used in business, has “kind of a weird smell around it”. There’s a culture of what he calls justificationism. We are taught to project confidence bout business plans. Executives claim expertise in the domains for which they were hired. The boss is correct.
This is all misplaced. What we should be confident about is capacity to solve problems, and not be scared of making mistakes, but rather to be eager to adapt our knowledge to observed reality when it changes.
By utilizing criticism methodically, businesses can unleash its power.
The proper use of criticism is to criticize ideas and not persons. We always want to celebrate the owner of an idea, and grant them autonomy to accept or reject criticism. Bart’s three step method for business criticism is:
Start with the presentation of the idea by the idea owner. There should be the opportunity for a full and reasoned presentation. Questions of clarification can be asked, but no criticism at this step.Then follows the offering of criticism. It should be high quality, constructive and specific as to what elements are in doubt and why, and what can be improved. General opposition such as “That will never be accepted here” (which could be said of any idea) is not acceptable.The criticism session is completed with a consent stage, in which the idea owner indicates which criticisms he or she finds relevant and will act on to improve the idea, whether in ends or means or both. Consent is in the discretion of the idea owner and should not be the result of any pressure by critics, whatever their rank or status. There is no “softness” in this: there is a shared and passionate commitment to improve.
Successful adaptive businesses develop a positive culture of criticism.
It’s important to analyze and classify the prevailing firm culture. Some cultures will discourage or reject criticism as a method for improvement, especially those that are hierarchically organized and have a tradition of authoritarianism.
The appropriate culture values truth and values adaptiveness, and celebrates the identification of error as a successful step towards improvement. Bart called this culture a “tradition of criticism”, which sounds contradictory since the word tradition is usually associated with preserving the status quo; but a tradition of criticism implies a kind of stability around the practice of criticizing. People become comfortable with it, and try to become better at it, and are proud to be part of the path to betterment through criticism.
The Amazon 6-page memo system is a good example of the tradition of criticism. Idea owners are required to prepare a detailed memo describing the idea and the business case and this is submitted to a committee of reviewers in a dedicated meeting, escalating in rank towards the most senior management as the idea is vetted, improved, and increasingly strengthened. It’s a tradition and a part of the Amazon culture.
Such a culture is not initiated with an announcement or a campaign, but emerges organically as a universal tool for everyone in the firm to utilize.
Additional Resources
Pactify Management: PactifyManagement.com
Bart on Twitter: @B_Vanderhaegen
Bart’s podcast: Fallible Management (Anchor.fm/FallibleManagement)
Bart’s email: bart.vanderhaegen@pactifysoftware.com

192. Mark McGrath on Orientation and the Adaptive Entrepreneurial Method

October 19, 2022 /0 Comments/in /by

When firms apply the principles of Austrian economics to business management, we call the result the Adaptive Entrepreneurial Method. It’s adaptive in that it is a continuous learning process, and it’s entrepreneurial in elevating customer value realization as the most important business purpose. Key Takeaways and Actionable Insights. Businesses that follow the adaptive entrepreneurial method put […]