Customers Are Your Firm’s Capital. Invest In Them.

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In a book titled “Who Do You Want Your Customers To Become?”, Michael Schrage identifies customers as a firm’s human capital. The purpose of a firm, in his construct, is to design future customers: to anticipate how they will behave and think and feel when they adopt and use the firm’s new product or service.

This view has a lot of merits. It’s future-oriented as all entrepreneurial perspectives must be: what sort of future can I imagine and how can I bring it about? It’s based on customer primacy, recognizing that it is future users of the firm’s innovation who will be decisive in success or failure. It recognizes that value lies in customer experience and that there is a lot of uncertainty in predicting future value because the customer doesn’t know what that experience is going to feel like.

Can a firm design this future experience, as Michael Schrage suggests they do? It’s unlikely. Why? Because the experience is entirely subjective. The evaluation of it is in the consumer’s mind. And since it’s a future experience, and hasn’t yet occurred, then the feeling of it is impossible to frame.

However, there is a wonderful nugget of new understanding in the concept of customers as capital. In traditional economics, businesses invest in their own capital base in order to generate a future revenue stream. Investment in manufacturing capital enables the production of goods to sell and thereby generate sales revenue. Investment in people and their skills and technology to support them enables the delivery of services that generate customer revenue. Capital generates revenue flows. Interestingly, the revenue flows back to the capital owner from the customer. Do we have the picture the right way round? This kind of capital isn’t generating revenue flows, it’s attracting them from customers. Should customers think about investing in customers rather than in their own capital?

Capital increases capacity to produce and perform. When Apple puts an iPhone in the possession of a customer, it is enabling that customer to become more productive – to send e-mails more easily and frequently, to gather information faster, to make or view videos conveniently, to listen to music, to buy and sell through e-commerce, and a whole host of capabilities. Many of these new and enhanced capabilities will directly benefit Apple of course – using paid services, buying accessories, using the Apple Pay system, and generally expanding Apple’s ecosystem and network. Google search technology makes customers into better searchers, using the system more frequently, making it more intelligent, providing feedback.

Amazon Web Services rents or leases its own capital to customers in the form of cloud storage and cloud-based computing and additional digital services. The customers control that capital for the duration of the lease period. They are capitalized by AWS. They are more capable than they were before – they can produce more, and contribute more to both the amazon ecosystem and the economy as a whole. AWS is investing in making its customers better users of AWS by providing them with capital. When the capital is in the customer’s domain, the revenue flows back to AWS.

In the second sense of capital, Apple, Google and Amazon are investing in enhancing their customers’ human capital value. They become more skillful, have access to more knowledge, can make network connections more fluidly, and can work faster and with more convenience and remotely. At this new higher level of human capital value, they are more valuable customers. Customer loyalty is an old-fashioned way to think. Customer enablement is closer to the case. And every time Apple sends a software update over the network, or Google adds some code or some new links to its search algorithm, or AWS adds a new service to its suite, they add even more to the capitalization of their customers. More enabled equals more valuable.

How can your business invest in making its customers more capable by putting capital in their hands or putting it under their control? If you are a supplier of products to the building trade, can you provide them with ordering software or search software or payment systems software to make them more capable and more efficient? If you are a direct primary care physician, can you provide your patients with more access to knowledge or more connections on their network or some other knowledge capital that will make them smarter and better patients? If you are a trucking company can you provide warehouses with better tracking data so that the bay is more likely to be open when you arrive, saving both you and the customer precious turnaround time? These are not investments in your own capital, they’re investments in customer capital – in customers as capital.

The other side of the coin is that customer dissatisfaction that results from poor service or unkept promises is a wasting of your capital. Destroying your own capital is no recipe for success. Customer churn is like burning down your office building or your factory. Do everything you can to make sure it doesn’t happen to you.

Considering your customers as capital will change the way you think of investing and allocating resources.

Do We Need The Contra-Capitalist Big Corporations?

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Big tech. Big pharma. Big food. Big banks. Big oil. We’ve got questions about all of them. Big tech is surveilling us and stealing our privacy. Big pharma is exploiting us and poisoning us. Big food is compromising our health and fitness. Big banks are destabilizing boom-and-bust machines. Big oil is destroying the planet.

Do we need them? In the past, they were necessary to tackle problems of scale – the accumulation and control of sufficient capital to undertake massive industrial-era projects like building railroads or oil fields or pipelines or energy grids or fleets of ocean-going ships, or airplanes, or supplying every household in America with 1.88 vehicles.

These achievements – and many, many more – have delivered tremendous benefits and improvements in productivity and in the quality of life. They’ve opened up the globe to trade and eliminated most poverty. They were part of what Professor Deirdre McCloskey calls The Great Enrichment, the flowering of opportunity and economic growth since the 19th century that is unparalleled in human history.

But capital accumulation is not needed in the same way in the digital age as in the Industrial age. To a large degree, scale can be downloaded from the internet and capital can be controlled by renting it by the minute. Amazon Web Services (AWS) is the epitome of capital rental. Companies don’t need their own server farms and specialized software to run their digital operations – they rent from AWS. Their storefronts and fulfillment and customer service run on AWS. According to Wikipedia, as of 2021, AWS comprises over 200 products and services including computing, storage, networking, database, analytics, application services, deployment, management, machine learning, mobile, developer tools, RobOps and tools for the Internet of Things. 

As an even more specific example of distributed control over capital, consider AWS Ground Station.

Do you need satellite capability to collect data? Check the website:

AWS Ground Station is a fully managed service that lets you control satellite communications, process data, and scale your operations without having to worry about building or managing your own ground station infrastructure. 

…..you can use Amazon S3 to store the downloaded data, Amazon Kinesis Data Streams for managing data ingestion from satellites, and Amazon SageMaker for building custom machine learning applications that apply to your data sets. You can save up to 80% on the cost of your ground station operations by paying only for the actual antenna time used, and relying on the global footprint of ground stations to download data when and where you need it. There are no long-term commitments, and you gain the ability to rapidly scale your satellite communications on-demand when your business needs it.

This is the new age: capital on demand. Who needs big corporations?

This realization frees some brain capacity to think about some of the bad things that come with big corporations. There are plenty.

Bureaucracy

We want our corporations to create value, and to improve people’s lives through innovation and service. Parts of them do. But those parts are surrounded by, and sometimes suffocated by, bureaucracy. Bureaucracy was developed by corporations not for purposes of innovation, but for the opposite. It’s an engine of control, to limit the autonomy and creativity of people who work in the corporation, and to impose rules, guidelines, methods, and processes. Compliance is a big word for corporate bureaucracies. 

Loss of speed

Big corporations are structured. They have hierarchies and layers, divisions, functional departments, regions, and subsidiaries. Structure is the enemy of speed. When any individual or team has to seek approval, ask for funding, submit for compliance and check for authority before acting, time is used and wasted. Speed of action and speed of responsiveness to marketplace and competitive changes are imperative in the digital era. Losing speed is losing productivity. It’s a loss imposed on the firm and the economy. 

Regulation

Big corporations attract regulation, and in many cases initiate it. It’s called crony capitalism. By agreeing with government how to regulate their industry, they achieve three things: (1) a known environment in which to operate (the opposite of systems innovation); (2) employment for an expanding bureaucracy (big banks, for example, have huge compliance bureaucracies); and, consequently, (3) competitive insulation, since smaller entities can’t afford to divert resources into their own compliance bureaucracies. 

Regulation, of course, is a huge drain on productivity and a huge barrier to innovation. It’s one of the major ways government undermines the economy, and big corporations are complicit.

Financial engineering

The creation, maintenance, and profitability of big corporations often have more to do with financial engineering than serving customers and innovating. This term includes all activities that appear to strengthen financial reporting on paper without improving customer value. Stock buybacks are a perfect example. There is no customer purpose in stock buybacks. The activity is purely for changing proforma “per share” ratios. The same is often true for M&A – most acquisitions do not improve customer value because they are not executed with customers in mind.

Generally, the financial engineering mentality of today’s big corporation is not customer-favorable.

Defensiveness

Once corporations get big, they have something to defend: their size (investors insist they must grow), their revenues (the topline, as it is called, must slope upwards), their market share (they must not “lose” share), and their influence (more lobbyists). Their focus is diverted from innovation and improved customer service to maintenance and “sustainability”. Defensiveness does not generate growth.

Contra-capitalist

Big corporations are not anti-capitalist. But they often get capitalism a bad name. Robert Bradley Jr. created the term contra-capitalist when describing the corporate behavior of Enron (for whom he once worked). This company abandoned and subverted capitalist practices, often with the support of institutions like the Ex-Im Bank, and mostly stayed within the law. Freewheeling accounting practices, contorted debt structures, hyped projections, and hubristic imprudence all contributed to Bradley’s realization that his former employer practiced contra-capitalism. 

Do we need big corporations in the interconnected digital era of distributed control over capital? Not really. We should certainly never use big corporations as good examples of capitalism and free markets; they are far too often contra-capitalist.

Twice The Well-Being, Twice the Production, Twice The Love.

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The purpose of an economy is to facilitate the feeling of well-being for its participants. That’s different than the official version, of course, which is to grow GDP, a combination of government spending and consumer spending on produced goods and services. 

GDP is reported as an agglomeration of all kinds of constructed numbers. We’ll-being is not measurable but its qualitative dimensions can be drawn by gauging the sentiment of citizens. The sentiment gauges are currently registering some weakness.

Well-being is produced by the private sector of the economy. There’s a well-established, time-tested proven system for doing so. It starts with the evidence of negative well-being. People exhibit an unease, a vague feeling that things could be better than they are. This vague feeling is the genius of the consumer. The human drive for betterment, to trade current circumstances for a new set that might feel more pleasant or more satisfying, is the energy of innovation, technological progress, economic growth, and civilizational advance. It’s an amazing feat of imagination, being able to see, in the mind, a future that doesn’t already exist. A counterfactual, as the scientists sometimes put it. The consumer’s imagined counterfactuals create new possibilities. 

On the production side of the private sector, there exists the function of entrepreneurship. Entrepreneurship is an act of individuals, either solely or in groups and teams, often in the form of firms and business corporations. Firms sniff out consumer unease. It’s what they do. It’s their purpose. Informed by this discovery of unease, entrepreneurs get to work to relieve it. They do so via innovation, designing a new proposition they can share with the consumer: will this work for you? will this make you feel better? have you considered this? If they get any feedback (“Yes, I’ll buy it.” “No, that’s not good enough.”) it informs a continuous change and improvement process until the offering is right for the consumer. 

In economics, the experience the consumer feels is called value. We can call it well-being. The feeling that things are getting better, that there are new options and new choices, that someone is listening and responding. This feeling is produced by the entrepreneurship of the private sector.

The other part of the economy is government and what government subsidizes. Government does not produce anything. That’s not its purpose. It extracts from the production of the private economy, via taxation, via debt creation, via regulation (limiting choices for both entrepreneurial producers and their consumers), via the diversion of resources (employing people as bureaucrats who could be much more usefully productive in the private sector), and using technology and capital that could also be deployed usefully for private purposes. Government spending as a percentage of GDP is a proxy for the ratio of government extraction to total production, and that number in 2020 was 44%. 

Making things worse, the government monetizes its debt via the Federal Reserve, thereby increasing the money supply in the economy. This money is depreciating at a constant and rapid rate. Saifedean Ammous in The Fiat Standard smooths out his estimate of monetary inflation at 7% per annum, which is enough to halve the value of anyone’s dollar holdings in 10 years. So the value of savings in the private sector that could be re-invested in innovation and creating new capital – which is what produces more well-being for people – is halved every 10 years.

We can safely say, as an approximation, that the activities of government mean that production in the US economy is at half the level of its potential. Consequently, entrepreneurship is at half the level of its potential. This implies that the well-being achievable by people as a result of entrepreneurial production is at half the level it could be. We could see twice the level of well-being from twice the level of production were it not for government crowding out entrepreneurship. 

And since entrepreneurship is love in action, the level of love in society is halved. Entrepreneurs work on empathy – they’re like angels, understanding what people want, and what dissatisfactions are burdening them, and then working hard to help people shed those burdens. They love their customers, and seek to earn customers’ love in return. It might be called customer service, or customer loyalty, or customer satisfaction, but in reality, it’s love. The greater the level of entrepreneurship, the greater the love. 

So there is potential for twice the well-being, twice the production, and twice the love compared to what we experience today. If we can attract more people to entrepreneurship, and point more consumers to the enjoyment of entrepreneurial output, we’ll go a long way towards achieving the kind of society we’d all love.

The Starting Point For Business Is Choosing the Customers With Whom You Will Share The Value Generation Journey.

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How do businesses get started? Or innovation projects, or marketing campaigns, or any other type of commercial value generation?

The conventional belief is that the starting point is an idea. The idea of the iPhone or the Tesla or Lily’s stevia-sweetened chocolate bar. Ultimately, the idea will turn into a new product or service that “reveals to the market what the market did not realize was available” as economist Israel Kirzner phrased it.

But this conventional view is actually a misunderstanding of how business works. Business is an activity with a goal: to create and retain customers. The first step in the process is to imagine a future benefit – an experience that’s better than today’s for which a customer will happily pay. An experience is in the mind; the design of the experience is for someone. It’s for a customer. Hence the customer is the starting point.

Empathic Design.

To be successful requires the exercise of empathy. The customer’s experience is not the same as that of the individual or team that’s working on the innovation project or the marketing campaign. It’s subjective and individual, as is the concern with a current experience not being quite satisfactory enough. An innovator must “get inside the customer’s mind” in order to develop some understanding of what dissatisfaction feels like and what form future expectations of something better might take. Empathy enables the innovator to construct a mental model of how the customer’s mind works, how they think, how their preferences are arranged, how they feel about different choices – how they “tick”. To build such a mental model requires a focus on one customer – perhaps an ideal customer, but certainly a real person – in order to perfect it and make it accurate. Then it can be stretched and expanded to apply to a group or a market segment, recognizing that, in the process of expansion, the model becomes less and less accurate for any one single customer. That’s why businesses start with just one customer.

With a mental model in hand, the innovator advances through a design process – designing a future experience that will deliver a future benefit. It’s not all engineering, and it’s not entirely science; there’s a lot of art in it. Art is that part of design in which the designer proceeds on their own initiative without input from a buyer. Van Gogh didn’t seek instructions on what to paint and how to paint it. But there is a limit to how much art can go into your innovation. The customer has the final say, exercised through the action of buying or not buying.

Empathic Engineering.

This integration of art and engineering is why business analysts are beginning to explore design science. The design process is a series of steps aimed at producing something that can succeed in the market. The first design might be a sketch on the back of a napkin, the second one a memo, then a meeting to discuss the sketch and the memo, and then a team collaboration to develop specs and a prototype, with a design development path that accumulates more and more knowledge inputs until it produces a saleable product or service. The customer is involved at all times. They’re the point of departure – who are we designing for, what experience do they want – and involved at every step, until the ultimate one of a decision to purchase. Design is creative, and creative people can often come up with unprecedented designs – new knowledge that didn’t exist before. It becomes a science when each of the design steps can be tested.

Testing can be engineering or empathy. The engineering test is functional: does the design work, does it perform the task it’s supposed to, will it last or will it break, will it integrate well with the physical environment in which it’s going to be embedded? The empathy test is emotional: does it appeal to the customer, do they feel it can address their felt dissatisfaction with what’s available now, do they anticipate an experience they’ll enjoy and value? In the market, the emotional test is more important than the functional test. In design, it’s people first, things second.

The design process – from the sketch on the napkin to the first shipped product or first service – takes time. The value is realized at the end when the customer buys, but that is not the only point at which the customer is involved. It’s valid to think of the successive design stages as a journey – one on which a business invites the customer along, sharing every step, making joint choices and joint selections of features and design components, discussing and dialoguing, with a lot of “what do you think” and “what if we tried this approach”.

The Idea At The End.

The customer doesn’t know all the right answers. They don’t know the final destination in advance. They’re along for the ride so long as they are given input and so long as it is clearly their interest that is being pursued. Sometimes they need to be told what they can want, because they don’t know what’s possible; they don’t know what they can have in the future. The role of the business innovator is to reveal to them – all in good time – what they didn’t know was possible. The idea is at the end, not the beginning. The journey to get there is a shared mystery.

And there may be competing journey options. Other businesses may be offering a similar destination, a similar value, and a similar experience. It won’t be exactly the same so the customer must make a decision which journey they’ll ultimately complete. They’ll make comparisons, they’ll try to weigh the alternatives. Emotion will be the ultimate decider – the customer will feel like (rather than make a calculation) that one choice will lead to a better place than another.

Choosing the customer at the beginnig of the journey is the most critical decision a business team can make. They’re going to commit to traveling closely with that customer for an extended period of time. They’re going to listen calmly to every suggestion, every complaint, every expression of “that doesn’t quite do it for me” or “it’s not quite what I expected”. They’re going to led the customer lead them on twists and turns that might not ultimately lead to the right end-point.

You’d better love that customer. Choose wisely.

The Entrepreneurial Society Is A Vision Of The Future.

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It’s easy to despair about the state and direction of our society. It feels overwhelmed by division, consumed by nastiness in politics, under attack from cyber technology and manipulative algorithms, and threatened by nation-state violence, governmental restrictions, crony capitalism, and the all-powerful pharma-industrial complex. To name just a few of the current – and worsening – threats.

It’s also easy – if you try – to conjure up an entirely different vision, one that is optimistic and positive. I call mine the entrepreneurial society, and I am working with many collaborators to realize it. 

Entrepreneurship is a function in society. And it’s also a role that many can play – there are no barriers to entry and no structural barriers to success. The function is to identify unmet needs – what people want and don’t currently have, what they wish for, circumstances with which they feel dissatisfied and would like to change. Entrepreneurs aim to meet these needs and bring the betterment that people want, in return for a profit. The profit is not just monetary; it includes psychic profit, such as pride in achievement, and a sense of meaning and purpose. There’s an ethic of service in entrepreneurship.

Think about a future in which entrepreneurship is the norm for society, where everyone devotes their commercial energies to serving others, whether as business owners and founders, or as collaborative teams, or as employees of entrepreneurial firms. An entrepreneurial society.

Here are some of the ways the entrepreneurial society will be an improvement.

The service ethic prevails: people’s energy channeled into making life better for each other.

Successful entrepreneurship requires, as a first principle, the exercise of empathy. Entrepreneurial business requires deep understanding of another’s wants, preferences, desires, biases, and motivations. To develop skill at empathy is to think about others’ points of view, their experiences, their mental models, how they see the world. There’s no judgment, simply a genuine effort at subjective understanding. “ How can I please this person? How can I make their life a little bit better?” is the operative motivation.

It’s the service ethic. When it prevails in society, we’ll be in a better place.

True Justice and Fairness.

Everyone possesses unique tacit knowledge. Everyone is endowed with imagination and creativity. Everyone is capable of thinking about new value for others. There are an infinite number of services that can be conceived of and generated in a service economy. 

True justice is when all the people are free to use their knowledge and creativity to serve others and profit from doing so. As they proceed along this pathway, they’ll get better and better at the front end – the empathy and imagining the better future – and at the back end – the results, the exchanges they make, the profit they realize. 

True fairness is when these entrepreneurs get to keep the fruits and profits of their endeavors, building up their private property, reinvesting in it in more productive capital, enhancing their ability to serve and to profit, experiencing business growth, and experiencing personal and private fulfillment. Life, liberty, and property are our natural rights, according to John Locke. Although the words were edited in the Declaration of Independence, to “life, liberty and the pursuit of happiness”, the principle remains. By owning, utilizing, strengthening, and growing our private property, we realize fulfillment in life. Entrepreneurship provides us the pathway.

Self-reliance, adaptability, and learning.

The entrepreneurial society will reverse one of the major tendencies in the current society, that of dependency. Entrepreneurship draws on self-reliance for drive and energy. Individuals and small teams are typically at the forefront of experimentation and innovation that results in new value for customers and economic growth for communities and the nation. They gather evidence, formulate hypotheses and explore alternatives via their own volition, not as a result of the direction of others. They make adjustments based on feedback loops, and they eagerly learn how to change and do better. 

This kind of initiative is frowned upon in today’s society. It’s seen as risky, and people should not have to take risks. They should be protected against risk with bailouts and other forms of redistribution. They should be compensated for error via welfare. But without risk and error, there is no discovery, no advance, no improvement. 

Dissipating power structures.

Entrepreneurship thrives on open competition. Entrepreneurs are rivals for customers, so they strive for continuous improvement in customer service and customer satisfaction. The consequence is rapid change and dynamism, and social structures that are adaptive and flexible in embracing change. Stodgy bureaucratically regimented hierarchies can not respond to these dynamics. Such bureaucracies are found especially in government, which will not be able to regulate entrepreneurs out of business, because they won’t be able to move fast enough. A similar fate will befall bureaucratic crony capitalist corporations, whose mania for defense of what they’ve got will be overwhelmed. The result will be a sweeping away of entrenched elite power structures, and greater economic freedom for all.

A non-political society.

The greatest benefit of the entrepreneurial society, and the biggest positive change versus what we experience today, will be depoliticization. Politics is divisive. Its goal is to get us to hate each other. Entrepreneurship is unifying. Its aim is mutual satisfaction, a happy seller and a happy buyer. 

Let’s teach everyone the entrepreneurial method. Let everyone start companies, grow companies, invest in companies, all with no thought of prediction. A middle class of business will emerge, defined not by income but by venturing. This middle class will produce more jobs and more enduring, more stable companies, embedded in strong communities, with greater well-being and less churn. The fruits of creativity take root in endurance and durability, and contribute to stability and the taking on of bigger challenges. Decade after decade, the middle class of business will generate value and produce wealth, employing lots of people and educating successive generations to take the entrepreneurial method with them into a better future.

Why The Entrepreneurial Solution Is Always Better.

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On the Economics For Business podcast over the recent weeks, we’ve explored entrepreneurial solutions to wicked problems in comparison to the corporatist and/or statist solutions that customers and consumers often have to deal with. For example, Murray Sabrin and Christopher Habig both talked about entrepreneurial solutions to the current medical care crisis, and Joe Matarese specifically compared his private sector solutions in the same field to the bureaucratic reflexes of CMS (the Centers For Medicare and Medicare Services, i.e. the statist solution). We’ve covered entrepreneurial solutions in money (bitcoin and cryptocurrency), privacy (blockchain), and corporate organization (Valve and the boss-less approach to organization).

Why are entrepreneurial solutions always superior? Here are 4 reasons.

Entrepreneurial solutions are the most human.

Entrepreneurs design experiences that people seek and enjoy. They put the individual human experience first. Amazon, to its credit, calls this “working backwards”: in designing solutions, start from the desired customer experience. This is the essence of the entrepreneurial solution, which is the design and delivery of desired customer experiences. To get there, entrepreneurs understand the current customer experience, and what they find missing or dissatisfying or not quite right. Customers probably can’t design the new solution for you, but they provide all the experiential assessment data to inform the design of something better. And, to continue with the Amazon approach, the design process of working backwards is fueled by customer obsession – the undiluted commitment to put the customer first, understand their needs and wants, and make their lives better by delivering the experience they seek, and to do so with higher quality, greater speed, superior convenience, and, when applicable and available, lower prices.

Amazon demonstrates that entrepreneurial solutions can emerge from large companies if their internal teams and resources are appropriately arranged and motivated.

Contrast this with a statist or corporatist solution, where the customer is not placed first. Take home energy consumption as an example. A customer may wish for the experience of being able to switch providers whenever they feel like it, just as they can with online e-commerce providers. They may wish to switch between electricity and gas, or, within electricity sources, between solar and wind and natural gas and coal, based on price and availability, and preference. They may want a price and monthly cost optimization tool they can use to manage home energy consumption and expenditures, perhaps to allocate more dollars this week to entertainment and fewer to home heating (or cooling) and lighting. Could a regulated utility design or provide this experience? No. Could an entrepreneur design it and, in a free market, deliver it. Probably. Think Elon Musk.

In a wonderful book called Marketing Rebellion, Mark Schaefer tells us that the most human solution wins. The entrepreneurial solution is the most human.

Entrepreneurs are best at understanding and generating value.

The goal of the customer-first solution design process is for the customer to experience value. What is that? The answer isn’t all that straightforward, and entrepreneurs think about it deeply in striving to get it right. There are two elements of value that entrepreneurs understand that many big businesses don’t, and certainly that bureaucrats can’t.

First, value is a feeling. It’s in the customer’s mind. An experience is valuable if they feel it’s valuable after (or sometimes during) consumption of the good or service that produces it. In Austrian economics, this is referred to as subjective value. It emerges for customers from interactions within complex social systems – far more complex than one company or brand serving one customer in one exchange. Customers experience value uncertainty – will they experience the value they desire and expect – and perceptive empathic entrepreneurs continuously monitor, assess, and try to relieve the feelings of uncertainty.

Second, customers experience value within a system. Think of the household for example. It’s a system with the purpose of nurturing and protecting the family, and it includes everything from health and cleanliness, to nutrition, to clothing and fashion, and decor and comfort, and education and entertainment, and much more. The homemaker operates and manages this system and keeps it in balance. The entrepreneur knows that, to contribute to the system, the right stance is to humbly fit in. To be part of a value network that meshes with the home-as-a-system, and helps it to run better. Humble fitting in is a role that the entrepreneur typically plays far better than the global mega-corporation.

Listening, learning, and adapting.

Entrepreneurs understand, and are sympathetic to and supportive of, the customer’s continuously changing preferences. For the entrepreneur, the business environment is in constant flux. Entrepreneurs embrace change, and the speed of change. They are comfortable in a world of C-UVA: complexity as the norm, characterized by uncertainty, volatility and ambiguity. As a result of embracing change, they can be more responsive to customers.

How do adaptive entrepreneurs operate? First, they listen, actively establishing listening posts wherever they can, whether it’s consumer comments and ratings, research, or just random walking about in the same places the customer goes, and asking questions and joining conversations. Rich qualitative data, the kind that comes from one conversation with one customer, is far more valuable than a survey of 1,000 mechanized responses.

Via listening and monitoring changes in customer behavior (e.g. when they buy less, or buy more, or switch to a competitor, or leave the category entirely), the entrepreneur is able to learn. Learning is changing the mental model, the lens through which the entrepreneur sees the relationship with the customer. Changing mental models, recognizing that the existing one is not the best or not right or no longer appropriate and fit for purpose, is emotionally difficult for some. It can feel like defeat or an admission of error. Not for entrepreneurs. Learning and adapting are their best tools for keeping up with and succeeding in a changing market. Entrepreneurs love learning and love to take their adapted and adjusted solution, which proudly exhibits the mark of listening and learning, back to market to regain approval.

Emergence

What’s the best solution for all these interacting customers with continuously changing preferences embedded in swirling systems of change and adaptation? No-one knows and no-one possibly can know. The future in a C-UVA system of constant flux is perfectly unknowable. What will customers want tomorrow or next week or next year? They certainly don’t know, and nor can entrepreneurs, even the most empathic and prescient of them. How do entrepreneurs cope? They let emergence happen. Emergence is that property of complex systems whereby new popular and effective solutions happen without a tight design process to guide them. In emergence, entrepreneurs don’t know what’s going to work or fail, but they launch experiments to see what happens and adaptively respond to the results data, whatever they may be.

There’s an example in the book Working Backwards by Colin Bryar and Bill Carr, two ex-Amazon executives who describe the inner workings of that firm. AWS (Amazon Web Services) became a huge and very profitable business, but not by design. The authors tell a story about launching a new feature at the very beginning of AWS’s business life. Instead of providing merchants with a templated display design for their online offerings, AWS offered the display information in XML code. The merchants would have to write some code of their own to use it. How would they react? They might hate the new feature, or not have the resources to utilize it. They might be resentful that Amazon took something away from them. Amazon didn’t know what the response would be, but they ran the experiment anyway. It was a huge success. Customers proudly displayed the new pages they had created with this new web service. The reaction encouraged AWS to roll out more features and a richer customer experience, and they benefited enormously from the creativity and feature suggestions from their enthusiastic customers. AWS emerged and went from success to success.

The salient point regarding emergence of entrepreneurial solutions is the role of the customer. They’ll choose which experimental features they prefer, they’ll find new uses for them, they’ll request better and faster versions, they’ll tell their friends and colleagues, they’ll form user co-operatives and share best practices. Emergence is co-created. Naturally, and automatically, the emergent entrepreneurial solution is loved and valued.