How To Think Like A Successful Entrepreneur.

Successful entrepreneurs think about their business in value terms, and they recognize that they do not themselves determine the value of their offering — the consumer of the final good does.

Entrepreneurship is about treading new ground. It is about taking a step no one has taken before, at least not in that same way or in the same place. So it should not be surprising that much of the scholarly literature on entrepreneurship, since Richard Cantillon in the early 1700s, has focused on entrepreneurship as uncertainty-bearing.

Although “bearing uncertainty” might be what entrepreneurs do in the economy from a theorist’s point of view, it is not — and should not be — the rationale for starting a business. After all, uncertainty means the outcome is unknown, which in turn means it could end up ugly. In other words, uncertainty is a cost — it is a burden on the entrepreneur’s shoulders. Entrepreneurs are right to attempt to avoid the uncertainty.

The fact is that theorists have it both right and wrong. Yes, entrepreneurs bear uncertainty because they are the ones getting the reward as profit and also the ones suffering the loss if things do not work out. But that uncertainty-bearing characterizes entrepreneurship does not make it the point of being an entrepreneur. Rather, it is a “necessary evil.”

What Successful Entrepreneurs Understand

Successful entrepreneurs, both in the past and present, understand the actual meaning of uncertainty. Those who already experienced success have often learned it the hard way, through experience. Those who are more likely than others to become successful have understood it in the abstract or have the right gut feeling. Regardless of which it is, past or present, they understand that uncertainty is “worth it.”

What this means is that they don’t focus on uncertainty, but accept it. Entrepreneurs choose to bear uncertainty much like someone putting in the hard work — perhaps 10,000 hours’ worth — knows that hard practice is the means to achieve success. How to endure those endless hours of seemingly never-ending tedious work? Eyes on the prize.

Successful entrepreneurs recognize the prize and what it takes to get there. They realize that the only way their business can convince customers to buy from them and to beat the competition is to provide value. To the extent they are not simply lucky, successful entrepreneurs rely on a value-dominant logic: they place the end value of their efforts first, and direct their efforts to maximize value.

There are three key components to the value-dominant logic that help you apply it in your business:

  1. Value is the entrepreneur’s super power.

Entrepreneurs bear uncertainty because it is the only way of doing something different, something new, and to bring about value greater than everybody else has. After all, doing what someone else is already doing is not a way to set yourself apart. It is also not a way of being truly successful. To be successful, you need to develop your super power: to figure out, focus on and deliver real value.

  1. Value is subjective.

It sounds strange, but it is true: Value is subjective. This does not mean value can be anything or that it is relative or that there is no such thing as real value. It just means value is in the eyes of the beholder. The important lesson here is that you, the entrepreneur, do not determine what value is. Your job is to figure out how what you offer can be of value to others. That is what you should be focusing on, not on what you think would make your offering “better.”

  1. The consumer is the ultimate valuer.

Any entrepreneur, whether in B2C or B2B, should recognize that, ultimately, the consumer is king. Or, as scholars put it, the consumer is sovereign. If you are selling directly to consumers, it is obvious enough. You cannot place a sale unless consumers value your offering. But even in B2B you cannot stay in business long unless what you contribute to the economy is of value to the final consumer. Even if your customers like what you are doing, unless the consumer of the final good likes it you’re not going to sustain profitability.

Another way of adopting the value-dominant logic is to adopt the “4 Vs” model developed by Hunter Hastings of the Economics 4 Business podcast. He summarizes these points for thinking like a successful entrepreneur using four value statements: Value potential, understanding and assessing potential consumer subjective value; Value facilitation, making it possible for them to consume; Value capture, how much the firm realizes of the value facilitated by a value ecosystem that the customer orchestrates; and Value agility, how well does the firm respond to changing consumer-preferences and competitive propositions and how well does the firm sustain a continuous delivery of innovation to the consumer.

The point is not the terminology or model, but the lesson: that value should come first. And when you place value first, and recognize that it is subjective and for the consumer, the burden of uncertainty becomes bearable. It is but a means for attaining the end. It is costly for sure, but it is a necessary cost in order to pioneer production and break new ground.

Importantly, the burden of uncertainty is justifiable because it makes it possible for you to bring about value. This point is key to being successful.

Fighting Poverty With Entrepreneurship.

My father, the late Reverend Gilbert H. Caldwell, Jr. was a Civil Rights Movement “foot soldier” who knew and marched with Dr. Martin Luther King, Jr. As a child of the “Movement,” I paid close attention to Dr. King’s strategic approach to transforming the United States. Most people are not aware that the official name of the march where he delivered his famous “I Have a Dream” speech was the “March on Washington for Jobs and Freedom.” In this historic speech, he states that it is tragic that some people live “on an island of poverty in the midst of a vast ocean of material prosperity.” Dr. King knew that racial equality would only be sustainable if residents of poor communities had jobs that enabled them to pay their monthly bills. I am convinced that if he were alive today, Dr.King would say that the economic stability of communities is the foundation of the social well-being of countries.

No country has sufficient funds to fight poverty in perpetuity. Current “top-down” poverty reduction programs providing a “safety net” have had little success reducing systemic poverty. The current safety net programs trap families in a net of economic instability that is difficult to untangle. It is time for a “people up” poverty reduction program designed to provide a “safety trampoline” that bounces people up from poverty to the middle class. Poverty reduction strategies must be based on the belief that if you give someone a fish you can feed them for a day. However, if you help them start a fishing business you can feed a community for a generation.

The United Nations made “Ending poverty in all its forms” its number one Sustainable Development Goal because the inability of people throughout the world to feed, house, clothe and educate their families is a“cancer” on society that can be cured if innovative new approaches are implemented at the community level.  The Grameen Bank microfinance program, created by the 2006 Nobel Peace Prize winner Mohammed Yunis, is an example of a successful innovative program that works very well in certain circumstances. Unfortunately, the community development bank approach has limited applicability in many locations. One of the most successful ways to reduce poverty in the Group of Twenty (G20) countries is to implement a place-based program called “Entrepreneur Zones” or “EZones.”

Specific words can be a powerful tool in generating support for a community revitalization program. The term “Entrepreneur” refers to a specific person committed to utilizing novel approaches to creating value. The term “Zone” is a specific location with clear boundaries. Historically, poverty reduction programs have been disconnected “social support” programs that exist as long as there is political support and government funding. The EZones are a“social investment” program designed to help entrepreneurs create jobs and generate greater income and tax revenue. One of the key components of the program is the provision of quality job training and placement for residents. By investing in EZones with public funding, private investment, grant funds, and tax credits, economically challenged communities can generate the revenue and jobs needed to reduce local poverty in a sustainable way (without the need for long-term government funding).

One of the best examples of an Entrepreneur Zone was the Greenwood Section of Tulsa, Oklahoma. Plessy v. Ferguson was a landmark Supreme Court decision in 1896 that upheld the constitutionality of racial segregation in the US. Black communities survived this racist ruling by developing, what we would consider today as, segregated EZones that succeeded economically because of thriving black-owned small businesses. These neighborhoods fought against discrimination by developing healthy communities rooted in entrepreneurship. The wealthiest of these communities was the Greenwood Section of Tulsa. This community was so strong economically that it was nicknamed “Black Wall Street.” White supremacists and the local government were so jealous of the economic success of this community that on June 1, 1921they bombed it by plane and attacked it by foot. Tragically, more than 300 people were killed and 200 businesses destroyed simply because the black community was living the “American Dream” of entrepreneurial success.

One positive lesson that we can learn from this embarrassing American history is that when economically challenged communities are given the opportunity to develop entrepreneurial businesses they can flourish and transform poor communities into middle-class communities. Government leaders committed to implementing sustainable solutions to chronic poverty should establish EZones in economically challenged communities around the world. Businesses in these locations should receive public funding, regulation relief, investment fueled by tax credits, grants, and entrepreneurship training. In addition, qualified nonprofit organizations should provide poverty-informed job training and placement programs helping the long-term unemployed find jobs. Government programs providing housing, education, and health services should be aligned and leveraged to provide more comprehensive and effective support to residents of the EZone community. By creating Entrepreneur Zones in economically challenged communities, we can move the world closer to Dr.King’s “Dream” of a society where all people live in an “ocean” of financial stability and social well-being.

 

This article by Dr. Dale G. Caldwell was first published at groupofnations.com

DR. DALE G. CALDWELL IS THE CREATOR OF THE ENTREPRENEUR ZONE PROGRAM AND A PROFESSOR AND EXECUTIVE DIRECTOR OF THE FAIRLEIGH DICKINSON UNIVERSITY ROTHMAN INSTITUTE OF INNOVATION AND ENTREPRENEURSHIP. HE IS THE FOUNDER OF THE DALE CALDWELL FOUNDATION (DALECALDWELL.ORG).

Empowerment Through Entrepreneurship.

[postintro]There are many reasons to elevate entrepreneurship as the institutionally-approved and institutionally-accelerated pathway to economic success for everyone. Community flourishing through self-help is one of them. I’m supporting the team behind Entrepreneur Zones, focused efforts for enhanced performance of small businesses in targeted locations in economically under-performing geographies  [/postintro]

2020 witnessed small businesses across the country struggling to adapt and survive during the government-imposed pandemic lockdowns. And while some were able to pivot their services and business model to serve an increasingly digital market, many were forced to shut down for good, leaving thousands jobless.

The closure of these businesses is one of this year’s biggest tragedies. The economic impact of these closures will continue to be felt for many years to come. If we have collectively learned anything this year, it’s that America relies on small business entrepreneurship to flourish and prosper. 

Entrepreneurship is empowerment

Nowhere is the empowering potential of small business entrepreneurship more prominent than in our small-town Main Streets and local communities. Even through the pandemic, we’ve seen small businesses all across the country step up and change the way they operate in order to help their communities. Via a quick search around the internet, you can find dozens of examples of small businesses doing their part: from local pharmacies doing Covid testing to distilleries manufacturing hand sanitizer and restaurants providing free meals.

These entrepreneurs and workers were faced with an existential crisis like they’ve never seen before. Their response? Do good for the community. There’s something about small businesses that is just so inspiring.

Ultimately, entrepreneurship is the backbone of these communities, and provides both residents and the local economy the opportunity to grow as these businesses grow. What’s more, entrepreneurship is not just for the rich, it is for everyone. Building a business from the ground up is no small feat, but it is something that’s achievable by anyone, regardless of background. Through entrepreneurship, people can pull themselves up and bring new economic value to their communities and to themselves.

The potential of Entrepreneur Zones

Heading into 2021, we need to place a renewed focus on encouraging entrepreneurship in our small towns and cities. The key to this could be Entrepreneur Zones –  targeted areas within economically-distressed communities where new entrepreneurship-focused initiatives can help local business get their start, and help those that have already started to thrive. Policy initiatives can include relaxed regulations, tax incentives to encourage investors, focused education and training, and the kinds of mentoring and interconnection that help businesses integrate into larger value-creation ecosystems. 

Dale G. Caldwell of Fairleigh Dickinson University’s Rothman Institute of Innovation and Entrepreneurship notes, “To accelerate small business employment, government could provide entrepreneur grants and issue small business bonds through the Small Business Administration specifically for the businesses in federally approved entrepreneur zones. These programs would not be a burden on taxpayers and potentially lead to an injection of billions of dollars into businesses…that desperately need a lifeline to survive.”

As more than 11 million people look for new opportunities, these small businesses could help provide the jobs needed to both keep food on the table for struggling families and spur economic growth at the national level. 

Further, many in the growing pool of unemployed Americans are skilled workers who have been through the training and education for their jobs. The talent is there, what is needed is the capital to invest in these businesses.

The future lies in small businesses

We’re dealing with a once-in-a-lifetime crisis, and we need to work to establish apolitical policies that support our nation’s small businesses. Nearly 50% of America’s GDP output and nearly 50% of all American workers are employed by small businesses. It’s time that we began to recognize and reciprocate the values and utility that small businesses provide to this country.

And it’s not just local, it’s global. For example, Scott Livengood of Arizona State University is part of a team offering Education For Humanity – a program of education, and entrepreneurial skill training for conflict-displaced refugees in countries like Uganda and Lebanon. Entrepreneurship provides a pathway out of not only America’s distressed inner cities, but out of distressed environments of all kinds, all over the world. Over the past half-century, we’ve seen that entrepreneurial and educational expansion into underdeveloped regions and markets is one of the best ways to raise people out of poverty and equip them with the skills and resources they need to prosper.

Across the world, we see just how important creating avenues for entrepreneurship is to keeping economics vibrant and resilient. In 2021, one of our top economic priorities should be to create more of these avenues.

 

Consuming Is Not Mindless Buying Of Stuff. It Is Social Co-Ordination Through The Exercise Of Choice In The Marketplace.

[postintro]This article continues the occasional series from Professor Raushan Gross on The Institutions Of Entrepreneurship. Entrepreneurship is a powerful pathway to innovation, growth, prosperity, and a better life for all. Its emergence and thriving are not automatic; it requires enabling institutions. Professor Gross will analyze and explain the institutional supports required for entrepreneurship to play its role in elevating society to the highest levels of achievement.[/postintro]

The writer of a recent Forbes article doesn’t want consumers making their own choices about what to buy and how much to buy. Instead, he provides a plan for consumers to avoid what he calls excess consumerism. In other words, what the writer suggests is essentially that “excessive consumption” is terrible for you and everyone else.

To put the matter mildly, the concept of “excessive consumption” has no basis in how flesh and blood people operate in the real world. This view of excessive consumption does not account for the fact that people’s goals are not focused on buying stuff. They are making individual choices using their own income and making their own decisions to fulfill their own needs and wants. They are not seeking the judgment or moral approval of Forbes writers.

One thing is for sure, and that is people prefer to obtain what they want now rather than later. Real people have time preferences – this statement is far from new. Each of us has time preferences, and we express these preferences in the market, where we make decisions on how we spend our time and income. For example, if I asked you to choose between taking $50.00 today or $50.00 in two years, which option would you choose? If you had the option to purchase bread for $1.50 today, would you buy the same loaf of bread tomorrow for $3.00? These examples clearly show that people make their choices to satisfy their want-satisfaction under personal time preferences. Unfortunately, the idea of consumerism, or excessive consumption, posed by the recent Forbes article clearly shows a widespread misunderstanding of how real people operate in the marketplace.

The Consumer Confidence Report finds consumer confidence has improved since December 2020, including a reported uptick in January 2021, and stated that “Consumers’ expectations for the economy and jobs ……..advanced further, suggesting that consumers foresee conditions improving in the not-too-distant future.” This is good news for consumers and producers. Consumers are confident in the market conditions for consumption, and guess what – the customer still rules!

Let us face it, the idea of excessive consumption in the aggregate is all wrong. Those who support the notion of excessive consumption do not see human behavior as it is but rather how they think it should be. What is essential for a functioning marketplace is not buying more than a Forbes writer believes that one may need, but how people choose to buy more or less of what they want. The market process is about consumers making personal choices using their own time and income to buy what makes them happy and is useful toward their goals. What is wrong with that? I love coffee, and I tend to buy coffee from different places, and I buy beans to make coffee at home. Should a coffee shop owner tell me that I can buy only one bag of coffee because three bags of coffee is excessive? This is true of most things like shoes, streaming movies, and exercise downloads. What may be more for one person can very well be less for someone else.

You see, when it comes to consumption, people tend to pick and choose for themselves what is excessive and what is not. The Forbes writer’s proposition is: what is excessive to me should be excessive to everyone else in the world. However, excessive consumption cannot go beyond what is produced—as we all know, there is scarcity.

Like most people, I want to buy what I deem useful, necessary, and has value. For one thing, consumers are not bumbling idiots – they have goals in mind as they shop for items. Consumers are attentive to prices, needs, timing, and market conditions related to their situation. As long as excessive buying does not harm others or is illegal, they should enjoy an economic system that produces material goods for consumers’ purposes and enjoyment. My enjoyment is a hot cup of joe, and you enjoy power tools or clothes. We can enjoy these things because we earn income to buy them, and they bring joy.

Let us get to the point; consumers who “buy excessively” are, in reality, exercising their freedom in the marketplace. Consumers can determine on their own to either buy fewer or more significant amounts of bread; however, if they buy fewer amounts of bread, they will cause the incomes of wheat producers to fall. On the other hand, consumers who purchase more video game downloads raise the incomes of people employed in that industry. Moreover, the opposite effect happens when consumers are told not to make their own choices in the marketplace. Do not buy more than two cups of coffee a day as that is excessive. Ha!

We must remember that production takes time. Rome was not built overnight, and neither were the items bought in-person or online by millions of people every day. That means if less is purchased, less will be produced in the future.

Producers and manufacturers determine what to make more or less of based on market demand. Demand begets production. The market provides for those willing to buy, and people who are not willing to buy do not stimulate production. Producers accommodate mass demand with scarce resources. Consumption is a balance of scarcity and abundance, and the outcome creates more choices for consumers. You see, economic thriving does not revolve around buying stuff, it is the outcome of consumer choice.

On the whole, excessive consumption may not fulfill a Forbes writer’s desires, but it may bring true happiness for some people. People who buy – whether excessively or not – fulfill their economic role of supporting business owners and their local community. To assert that consumers should stop “excessively” buying products assumes away the prospect that people do not change shopping patterns or increase family sizes over time. I was always told that you do not bite the hand that feeds you. The market is the only social place where the coordination between consumers and producers can facilitate goals and mutually beneficial choices for everyone involved via the buying process. These “excessive” purchases fuel the economy, which helps all people flourish and live their best lives.

Take A Job? No, Make A Job.

The institutional and cultural guidelines today for personal and family income tell us to take a job. The government publishes jobs data as a key indicator of the health of the economy. They publish the inverse set of data – unemployment statistics – for the opposite reason, an indicator of the unhealthy state of the economy. We are subject to reports and commentary on job creation and job destruction. There are blue-collar jobs and white-collar jobs, and there are “non-jobs” in the so-called gig economy (which is institutionally and culturally and frowned upon because it does not provide “stable” or “reliable” jobs, and doesn’t offer “job benefits”, thus exposing gig workers to some set of vagaries or injustices).

Jobs are a product of the industrial revolution. Serfs and peasants in the feudal economy didn’t have jobs. They were “tied to the land” as the history books tell us, either farming for the aristocratic landholders or scrambling for subsistence on land they didn’t own. As soon as factories appeared, so did “jobs”. Somehow, the term tended towards tasks that were “low” and menial.

A job is something the worker takes. It is given to him or her as a gift, a privilege, an act of generosity of an employer. We should be grateful for our jobs, and try hard to keep them, not lose them. 

Concepts such as the minimum wage level for a job are intricately entangled in the hierarchical job-granting schema. The power center determines for you how much value you are deemed to generate.

Our entire lives are constructed around jobs. We consume education in order to become qualified for a job. We plan to fund our pension income from the proceeds of a  job. We access the healthcare system via the benefits provided to us as a result of our job. We call a job held for a long time a career. Jobs overwhelm lives.

What if the institutional and cultural guidelines were different? What if the life-system we are plugged into from birth was not so dominated by the concept of jobs, of working for corporate employers?

Reframing how we think of the structure of the economy.

The picture we paint of the economy when we talk in terms of firms creating jobs for employees to take is hierarchical. We look up to “Big Business” and rank them on their number of employees. These companies make up the DJIA and S&P 500 indexes that we talk about every day. Smaller companies don’t get a mention. They sit lower down the hierarchy.

If we reframe this picture to think about a network rather than a hierarchy, we can assign a more equally important role to every node and every connection. We can see productive activity distributed across the network, with opportunities throughout. The economy is a collaborative system of production in which there are innumerable choices for each of us to decide how to contribute.

The gradual abandonment of hierarchy in organization is, in fact, quite well advanced in the digital age. Our thinking about jobs and employment needs to catch up.

A life of production versus a life of earning.

Our reward for working at a job is often expressed as earnings. Not only earning dollars, but earning a good living, earning our keep, earning a promotion. We earn by keeping in line, following orders, performing tasks. In the collaborative economic network, we can be producers rather than earners. We focus on how much our productivity in generating output to nearby nodes – team-mates, partners, customers, the next stage of the value chain – so that our connections are strong, and we are evaluated as a strong and reliable link.

Our time and effort is focused on how to be more productive, rather than how to fit in to an administrative harness. Our creativity is liberated and we evaluate our work-life for its stimulation rather than its weekly earnings.

Division of labor and division of knowledge.

Economists have identified a phenomenon they call division of labor as one of the great secret sources of job productivity. The more narrowly each individual worker specializes, the better the combined organizational outcome. This thinking has been pervasive since Adam Smith’s picture of the pin factory in The Wealth Of Nations.  

‘One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands’.

The division of labor reduces us all to pin head grinders. The goal is to make each of us so specialized in our function that we can only operate in a hierarchy, we can only perform one narrow task, and we are easily replaced by another individual who can be quickly trained in repetitive pin head grinding.

There’s another alternative, and that might be called division of knowledge. Knowledge is the source of economic production, increasingly valuable when we add to it, whereas labor is a cost, to be reduced and, if possible, eliminated. Every individual has unique knowledge; it’s experiential, subjective, an act of cognition. The most valuable knowledge is tacit, not subject to analysis and not easily shared, guiding individual activity in unique ways. 

Individuals can collect, curate, polish and adapt their own knowledge to make more of a contribution to collaborative economic production. They can aim to be best at something in their network based on unique, individual tacit knowledge. It might be welding metals together or writing code or detailing cars or growing vegetables or setting prices for hard-to-price items. They can easily find out what knowledge is required and valued in nearby parts of their network, and adapt appropriately, exhibiting their knowledge for the most eager buyers.

Division of knowledge is more empowering than division of labor.

Measure your own performance.

 One of the ways that the job-granting hierarchy exerts control over the job-taker is performance reviews. The employer makes rules about what constitutes desirable performance, and designs ways to measure how well the rules are internalized by employees. Those job-takers who conform best are those who are rewarded with pay increases, promotions and recognition. Performance attributes like “works well with others on teams” and “achieves departmental goals” are designed for the benefit of the hierarchy, and not as guides to self-realization for individuals.

Many of the corporate performance programs require the individual employee to undergo a personality evaluation, often using industrialized frameworks such as the Myers-Briggs Typology Indicator, literally assigning individuals to pre-determined boxes and using the classifications to evaluate their ability to fit in. They’re not examining your personality profile to enlighten you.

Such performance criteria and performance measures are intended to be tied to incentives, to be a medium of motivation. But the high-powered incentives that truly motivate are values such as purpose and meaning, and the sense of achievement that comes from an individual effort to attain a self-chosen goal of the highest order. In a large firm, individual effort can have only a trivial effect on company performance, or even team performance in a corporate context. And there is usually no place for truly individual performance. That would not constitute working well with others.

As an individual entrepreneur, or a founding team member, or a critical member of a small business, it is possible to maximize personal achievement, elevate personal incentives, and take a more direct route to purpose and meaning. Data indicate that small companies are better at attracting superior talent, better at rewarding individual performance, and better at nurturing the kinds of innovation that motivated individuals can contribute. Often, these innovations are better ways to work: new routines, new capabilities, new knowledge sharing. Better ways to work mean more achievement, and more fulfillment for those who participate in the new ways. People-led process innovation becomes a virtuous circle.

Treating Consumers As Means Not Ends Is A Fatal Business Model Flaw.

Recently, some of the Big Tech companies of Silicon Value have been caught in anti-market behavior. They have censored or even banned some of their own consumers. Since value lies in consumer experience, and since capital is the net present value of future claims to revenue streams from consumers, these firms are destroying value and consuming capital. Why? How can this happen?

Where Is the consumer? 

The goal of business – the end, to use means-ends language – is to facilitate an experience for the consumer that they value. Using Austrian economics as its foundation, the Economics For Business project has built an innovative business paradigm and a complete business model framework on the principle of consumer value. Entrepreneurs are those who create new value, and they submit to evaluation by the consumer to determine their success. They maintain a clear line of sight to the consumer at all times, from the very first step in imagining a new business, new product or service or any improvement in their offering, all the way to the consumer’s ultimate usage experience.

Technology-driven means not thinking about the consumer.

The histories of many Silicon Valley tech firms reveal that they don’t have this line of sight to the consumer. Many started out to build a technology, one that performs efficiently, automates effectively, and exhibits cool features. There’s a pride in engineering, as there should be. But even the most beautiful technology can’t succeed without consumers in mind. The technology-driven approach to innovation must not contravene the principles of the consumer-driven approach to value.

When consumer value is not the business model.

Facilitating consumer value is a business model. Value is a learning process for consumers, of which exchange value (paying in dollars for value anticipated) is a component part. The revenue model for the entrepreneurial firm consists in earning this exchange. It’s all integrated. Some Silicon Valley companies (Google, for one) accepted investor funds and began operations without a business model in place. When consumer value is not integral to the firm, it’s quite possible that they lose their grip on the concept. They don’t create value for consumers, or for the economy. Or for investors, for that matter – they’re using investor funds in ways the consumer does not value.

In many Silicon Valley models, consumers are creators of content for the technology company to control, analyze and re-sell as data to the advertiser. Consumers are creating value for the platform, not vice versa.

Monetization as an afterthought.

We often hear the word “monetization” in descriptions of Silicon Valley business models. The word itself is quite revealing. It certainly doesn’t connote a commitment to serving the consumer. Monetization is the search for a revenue model after the technology is launched. Many of the monetization schemes are advertising-based, which can be problematic. They are often value-destroying for consumers, especially in the “interrupt and annoy” formats that are common on the internet today. Advertising is certainly not innovative – it’s been around for a very long time, long before Silicon Valley came into existence. When firms are selling consumers to advertisers, their commitment to consumer value becomes secondary.

It’s not that B2B business models are any less valid than B2C. They key is to remember the Austrian principle that value in any stage of the production chain is made possible only if there is consumer value at the end of the chain. Microsoft, for example, is a technology company primarily focused on B2B value propositions in areas like business productivity. They always have an eye on the next stage in the value chain: improved business productivity and efficiency enables Microsoft’s customers to, in turn, produce lower cost consumer services and enhanced consumer experiences. Microsoft has its eye not only on the immediate B2B customer, but also the next stage of the value chain.

A cultural problem.

Ultimately, the kinds of Silicon Valley companies to which these observations apply face a cultural problem. Consumer value and consumer service are not a sufficient part of their DNA. They were founded and developed to nurture technology – in some cases, brilliant technology, in others more mundane; they found technical ways to reach mass distribution based on the new power laws of digital networks; they found bolt-on monetization schemes that responded to mass reach. Culturally, the idea of consumer value has never been central to them.

Perhaps that’s why, today, we see Twitter censoring its users and throwing them off the platform, angering many more.

Generative products versus central control.

The value promise of today’s digital products and digital markets is exciting for consumers. The term “generative” has been coined to describe the new characteristics of products that give consumers leverage – make their jobs easier; that provide adaptability so that consumers can change them to suit their own purposes; and that are easy to master and easy to access. The spirit of generativity lies in unleashing end-user creativity.

Some Big Tech companies don’t seem to believe in the generativity of their products and their consumer relationships. They prefer centralization and control. They want to collect and control consumer data and turn it into their own closed products. That’s why they need so many engineers to build the algorithms and the data banks. That’s why they need so many content monitors to project their control. They are centralizers in a world of decentralization. This leaves them open to disruption by the next generation of entrepreneurs who start their journey from the point of view of what consumers value.

Mike Masnick’s proposal: Protocols, Not Platforms.

Our Knowledge Graphic: Silicon Valley Is Bad At Entrepreneurship