What Is A Business Model? It’s Not What You’ve Been Told.

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What is a business model? It’s a question asked frequently on Google Search, so there must be doubt in businesspeople’s minds.

The reason for the uncertainty is clear. The term business model sounds like a thing – a completed canvas, a written document, a spreadsheet with macros. But it’s not a thing, it’s a lived experience, for both business executives and their customers.

The Austrian Business Model

In a recent edition of the Economics For Entrepreneurs podcast with Dr. Per Bylund of Oklahoma State University, we described a very different kind of business model framework we called the Austrian Business Model, based on principles of Austrian economics. It’s a recipe for business success. We chose the term “recipe” purposefully, to communicate these features:

  • A recipe is a non-linear process: there are inputs and outputs, there are many different sub-processes progressing at different rates designed to integrate at critical points, and subject to adjustment by the operator as new information is revealed (“the oven’s on fire!”; or, “this tastes like it needs more salt”).
  • A recipe is dynamic. All parts of it are in motion all the time – assembling, combining, mixing, cooking.
  • A recipe is adaptive. If the chef does not have all the ingredients at hand, he or she may substitute or leave out some elements. If a guest does not like some ingredient, the chef might work around it. New methods of cooking may lead to a better outcome with the same ingredients. There is learning from experience about what techniques work best.

Like a recipe, a business model is also a non-linear process, dynamic, always in motion, adaptive and improved with experience and learning. And, like a recipe, it unites multiple lived experiences. There is the chef’s lived experience, operating the recipe this time, as well as applying accumulated experience from previous times, and perhaps the inherited experience of family members from past time. And there is the lived experience of the recipient who tastes the output, in the context of a dinner party or a family meal. An experience is always shared.

In fact, the focus on experience is critical in a business model. Its end result is a value experience – value perceived by a customer, sufficient to justify the price they’re willing to pay for anticipated value, sufficient to deliver value in the use experience, and sufficient to support an assessment of value after the fact, looking back on whether the experience met expectations.

The experience-centric business model

An experience-centric business model traverses four phases of value learning for the entrepreneur.

Understanding Value

The foundation of a business model is an understanding of value for a specific set of customers. There are conventional business models that talk of “creating value” – whether that is the economic value of returns on capital that are higher than the cost of that capital, or shareholder value in the form of higher stock prices, or even brand value and product/service value. But all of these routes to “value creation” are misdirections. Firms can’t create value. It is customers who create value through their experiences. Value is something customers experience after they have made the economic calculation to buy a product or service, used it, and then stepped back after usage and assessed the experience compare to their going-in expectation. Value is formed in the customer’s domain, and not by the producer.

That’s why economists refer to value as subjective. It’s a perception that varies with each individual customer, with changes in context, and with changes in time and circumstances. The task of the business model developer is to understand the subjective value preferences of a specific set of customers in a specific context at a specific time.

Value Facilitation

Producers can suggest to customers that they can help them bring about the value experience they seek. The word “help” is important. Operating a business model is not an exercise in “making things happen”, it’s the art of helping them to happen.

In the business literature, there is talk of the design process – designing experiences for customers based on listening to their feedback. That is all very  well-intentioned, but it doesn’t quite capture the art of value facilitation. Customers form value through cognitive, mental and emotional processes, consciously or unconsciously, interpreting interactions and information and constructing an interpreted and experienced reality within which their feelings of value are embedded. Value is formed in people’s life experiences and it’s not the role of the producer to act as designer.

Producers and marketers must ask, how does the customer live their life? What is the life context? What are the challenges the customer faces? These and many more questions prepare the producer to humbly request to fit in and contribute to the customer’s life. If invited in, there is the possibility of value facilitation.

Value Exchange

Your customer is going to undertake a complex subjective balancing of the value they perceive based on your proposition and their own willingness to pay, in the context of all their alternative choices and any historical experiences they have had, either with your proposition or others. You can try to understand their process, but you can’t direct it. For example, you can’t set pricing. The customer determines the price they are willing to pay, and the producer’s job is to discover that price, through testing. Therefore your revenue model must balance the price the customer decides upon, with the costs you choose to include in assembling your offering. Costs are never forced upon businesses – they are always chosen. In the Austrian business model, entrepreneurs buy as many inputs as possible on the market, where costs are known and are rendered efficient through competition, as opposed to keeping costs internal, where they can’t be known exactly and may be unstable or hard to control. Your margins are emergent from this equation of customer-chosen pricing minus entrepreneurially-chosen costs. Don’t try to set margins in advance.

The best metric to monitor is not margin or profit, but cash flow. Keep it positive, monitor it weekly, and adjust to its signals.

Value Agility

Once invited into the customer’s experience, the producer has an opening to act as the value facilitator-on-the-spot for the customer. As the customer lives the experience – operates the recipe – there will be questions, unexpected occurrences, errors to fix, context changes, and many more unanticipated twists and turns.

The entrepreneur’s business model secret at this stage is agility. Business models that talk about strategic pillars and similar unchanging elements risk failure in the light of customer volatility and change.

A key to success lies in good feedback loops. Your business model must prepare your firm to be dynamic in response to customer preference changes and all the new information coming to you from the market every second, minute and hour. If you don’t maintain dynamism, your business model will weaken and your grip on competitive advantage will loosen. Your value proposition must strengthen and improve continuously. Your model of customer preferences must be kept fresh. Your value facilitation must demonstrate continuous improvement at a faster rate than the customer’s value experience erodes.

Empathy, humility, adaptability, and agility. These are the components of the contemporary business model. There’s a framework you can use to shape these components for your own unique application of the model, in The Austrian Business Model video.

Entrepreneurship Brings Us Optimism For The Future, Despite The Depredations Of Government.

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Jeff Deist recently argued the case for economics over politics in his talk “Markets vs. Mobs.” I believe markets will prevail, and here’s why.

Our resource is not “science” but knowledge. It accumulates, perhaps at an exponential rate. Mises.org is one of the great consolidators of knowledge, attracting many more people than ever before (620,000 unique visitors per month, 1.5 million page views per month). If we can multiply those numbers by ten times we might start to make a dent in the universe.

Austrian or classical liberal knowledge has been associated with great advances in economics, higher average standards of living, and civilization, including enlightened government (Gladstone). But we don’t need to look backward; rather we need to market our ideas in a better fashion for the future. Jeff Deist talks about successful “2 percent movements.” With 6 million mises.org visitors per month, we’d be in 2 percent territory. We don’t need great men, just a great knowledge repository with great communication and sharing.

Mises and Huerta de Soto say that socialism is an intellectual error. That means it is correctable, via superior ideas and the right knowledge. So far, we have spent most of our efforts fighting in the wrong channels—academia and politics—where we have already lost. Business is a new channel to try. Technology may be another—blockchain is one area of technology associated with liberty and individual sovereignty, and complex systems theory is a modern update of spontaneous order. Gaming could be another (so-called agent-based simulations rely on individual freedom of action for their “agents”). All of these fields have quite well-developed libertarian groups embedded in them.

And I will continue to believe that Austrian entrepreneurship can be one of our best vehicles. Professor Per Bylund and others have established the idea of the ethic of entrepreneurship. Contemporary researchers indicate that a belief in free markets and entrepreneurship is associated with meaning in life. De Soto calls entrepreneurship the most intimate and essential characteristic of man: his ability to act creatively. Society thrives when individuals pursue entrepreneurial creativity. Entrepreneurs resolve social maladjustment.

The changes required in institutions can be created entrepreneurially. Connor Boyack provides examples in the institution of education, and Robert Luddy pursues the same goal with his private academies. Kartik Gada of ATOM sees a future where technology rather than people is the source of tax revenues, which will change the relationship between people and government.

Government (or what we call the state) is the great problem. But perhaps even that is vulnerable. In Eastern philosophy there is the concept of the eternal cycle, in which, when systems become overly bureaucratic or otherwise sclerotic, any crisis that comes along can result in a creative renewal that overturns the bureaucratic managers responsible for the sclerosis. Fund manager Mark Spitznagel refers to this in The Dao of Capital, using the analogy of the forest. When the forest floor becomes overgrown, and the wrong species have become dominant in the wrong parts of the forest, strangling new and creative growth, a crisis like a fire comes along, destroying the maladjusted species and the dead undergrowth, and releases the creativity of new growth among agile and adaptive species. In his analogy, the conifers wait patiently in the acid, rocky soils to which they have been pushed by the aggressive angiosperms, waiting patiently and adaptively for the fires that are sure to come:

For the conifers, their roundabout strategy allows them to withdraw to inhospitable places, all the while producing innumerable pine cones loaded with seeds that can be expediently dispersed by the wind to other remote areas, giving rise to a phalanx of patient, long-living warriors awaiting the next rout in the ongoing battle between conifers and angiosperms. While conifers growing on the rocks may appear to be nature’s outcasts, theirs is truly the false humility of the Daoist manipulator-sage. They withdraw to where others cannot go and then act when conditions suddenly shift and an opportune moment arises, such as after a wildfire….fire is friend, not foe, to the patient conifer.

Spitznagel’s analogy should give us confidence in the economic future of the West, despite the depredations of the state.

This article first appeared at mises.org.

How Murray Rothbard’s Theory of Entrepreneur-Driven Progress Can Be Applied to Modern Businesses

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Recently, on the Human Action Podcast, Jeff Deist and I discussed the Rothbardian theory of the entrepreneurial economy in chapter 8 of Man, Economy, and State, titled “Production, Entrepreneurship, and Change.” In this article I will illustrate just how this Austrian theory is applied effectively in the business world.

In chapter 8, Rothbard establishes the principles of what he calls the progressing economy, one in which gross investment in capital goods is increasing, productivity is growing, and firms are making profits, indicating social affirmation that they are deploying resources in the ways best adjusted to the most urgent and evolving consumer needs. Specifically, firms are making an economic profit—returns higher than the going rate of interest derived from social time preference.

Importantly, economic profits (returns higher than the cost of capital) are hard to achieve and even harder to maintain. Rothbard points out that, to succeed in this challenge, entrepreneurs must demonstrate superior foresight and judgment, and practice continuous dynamic improvement in their assembly and reassembly of assets to serve the consumer. This urgency is sharpened by the competition of new entrepreneurs who see the high returns that the pioneering entrepreneur has achieved and are willing to enter the same space for lower margins so long as returns remain higher than the going interest rate. Eventually, all the superior returns will be competed away—unless the first entrepreneur keeps changing and advancing to serve more and higher-valued consumer needs.

More specifically, Rothbard’s construct is that economic profit is the result of entrepreneurs identifying discrepancies in the capital structure where capital is overdeployed in the service of less acutely felt consumer wants and underdeployed in the service of some more acutely felt consumer wants. The function of entrepreneurship is to make the adjustment that consumers are demanding. Entrepreneurs buy factors that are underpriced because of the discrepancy and recombine them to serve currently underserved needs. The adjustments are always in the direction of higher and higher productivity. The prices of the new consumer goods and services generate a profit and a return that is higher in the new, adjusted arrangement of factors than in the prior arrangements.

Rothbard also deduces that the economic profit margin will erode over time because more entrepreneurs, seeing the high return for the new arrangement, will enter the economic space and compete away the high returns, pulling them down toward the going interest rate. Entrepreneurs must continue to find more new urgent consumer needs to address, rearrange their capital structure even further, and maintain a continuous dynamism both in their capital structure and in their consumer offerings.

Man, Economy, and State is a treatise of Austrian economic theory. To what extent is it translatable to and applicable to the realities of business in 2020? The answer is that Rothbard’s acute theoretical insights can be applied directly in business strategy to great effect.

A recent McKinsey Insights article confirms every one of Rothbard’s theoretical points in real-world analysis.

First, the McKinsey consultants confirm the challenges inherent in the effort to achieve economic profit. Their S-curve distribution (they call it a “power curve” for marketing purposes) illustrates how very few firms make high economic returns and most hover close to, or in some cases below, the break-even (i.e., zero economic profit) line.

 

Exhibit 2

The McKinsey consultants conclude that:

  • Market forces are pretty efficient. The average company in our sample generates returns that exceed the cost of capital by almost two percentage points, but the market is chipping away at those profits. That brutal competition is why you struggle just to stay in place. For companies in the middle of the power curve, the market takes a heavy toll. Companies in those three quintiles delivered economic profits averaging just $47 million a year.
  • The curve is extremely steep at the bookends. Companies in the top quintile capture nearly 90 percent of the economic profit created, averaging $1.4 billion annually. In fact, those in the top quintile average some 30 times as much economic profit as those in the middle three quintiles, while the bottom 20 percent suffer deep economic losses. That unevenness exists within the top quintile, too. The top 2 percent together earn about as much as the next 8 percent combined. At the other end of the curve, the undersea canyon of negative economic profit is deep—though not quite as deep as the mountain is high.

With further data analysis, the McKinsey consultants identify the strategic actions that need to be taken to place a firm in the highest echelons of economic returns in their industry—and they confirm all the implications of Rothbardian theory. They propose five strategies of adjustment that effectively derive directly from Austrian theory.

First, they confirm the importance of continuous dynamic reallocation of resources by firms in order to achieve high returns.

Winning companies reallocate capital expenditures at a healthy clip, feeding the units that could produce a major move up the power curve while starving those unlikely to surge. The threshold here is reallocating at least 50 percent of capital expenditure among business units over a decade. When Frans van Houten became Philips’ CEO in 2011, the company began divesting itself of legacy assets, including its TV and audio businesses. After this portfolio restructuring, Philips succeeded at reinvigorating its growth engine by reallocating resources to more promising businesses (oral care and healthcare were two priorities) and geographies. Philips started, for example, managing performance and resource allocations at the level of more than 340 business-market combinations, such as power toothbrushes in China and respiratory care in Germany. That led to an acceleration of growth, with the consumer business moving from the company’s worst-performing segment to its best-performing one within five years.

They also identify an accompanying strategy for dynamic allocation of resources in the form of frequent M&A (mergers and acquisitions) activity—buying new assets and selling old ones. They call this strategy programmatic M&A: continuously buying and selling capital assets and turning over factors to dynamically manage capabilities.

You need a steady stream of deals every year, each amounting to no more than 30 percent of your market cap but adding over ten years to at least 30 percent of your market cap. Corning, which over the course of a decade moved from the bottom to the top quintile of the power curve, shows the value of disciplined M&A. Corning understands that doing three deals a year means it must maintain a steady pipeline of potential targets, conduct due diligence on 20 companies, and submit about five bids.

Beyond reallocation and M&A, strong capital expenditure is required to maintain profits.

You meet the bar on this lever (strong capital expenditures) if you are among the top 20 percent in your industry in your ratio of capital spending to sales. That typically means spending 1.7 times the industry median. Taiwanese semiconductor manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) pulled this lever when the Internet bubble burst and demand for semiconductors dropped sharply. The company bought mission-critical equipment at the trough and was ready to meet the demand as soon as it came back. TSMC had been in a head-to-head race before the downturn but pulled clear of the competition after it ended because of its investment strategy. That laid the foundation for TSMC to become one of the largest and most successful semiconductor manufacturing pure plays in the world.

In addition, it is critical to maintain a strong productivity program.

This means improving productivity at a rate sufficient to put you at least in the top 30 percent of your industry. Global toy and entertainment company Hasbro successfully achieved the top quintile of the power curve with a big move in productivity. Following a series of performance shortfalls, Hasbro consolidated business units and locations, invested in automated processing and customer self-service, reduced head count, and exited loss-making business units. The company’s selling, general, and administrative expenses as a proportion of sales fell from an average of 42 percent to 29 percent within ten years. Sales productivity lifted, too—by a lot. Over the decade, Hasbro shed more than a quarter of its workforce yet still grew revenue by 33 percent.

The fifth strategic lever is improvements in differentiation. Modern Austrian economics identifies the importance of differentiation in Per Bylund’s islands of specialization theory and our focus on brand uniqueness as a source of superior profits. McKinsey uses gross margin as a proxy for differentiation, and their consultants say:

For business-model innovation and pricing advantages to raise your chances of moving up the power curve, your gross margin needs to reach the top 30 percent in your industry. German broadcaster ProSieben moved to the top quintile of the power curve by shifting its model for a new era of media. For example, it expanded its addressable client base by using a “media for equity” offering for customers whose business would significantly benefit from mass media but who couldn’t afford to pay with cash. Some of ProSieben’s innovations were costly, sometimes even cannibalizing existing businesses. But, believing the industry would move anyway, the company decided that experimenting with change was a matter of survival first and profitability second. ProSieben’s gross margin expanded from 16 percent to 53 percent during our research period.

Each one of these Rothbard-derived strategies can be effective in driving superior returns. Even more effective is to combine them, a recommendation with which Rothbard would concur.

Big moves are most effective when done in combination—and the worse your endowment or trends, the more moves you need to make. For companies in the middle quintiles, pulling one or two of the five levers more than doubles their odds of rising into the top quintile, from 8 percent to 17 percent. Three big moves boost these odds to 47 percent. To understand the cumulative power of big moves, consider the experience of Precision Castparts Corp. (PCC). In 2004, the manufacturer of complex metal components and products for the aerospace, power, and industrial markets was lumbering along. Its endowment was unimpressive, with revenues and debt levels in the middle of the pack, and the company had not invested heavily in R&D [research and development]. PCC’s geographic exposure was also limited, though the aerospace industry experienced enormous tailwinds over the following ten years, which helped a lot.

Most important, however, PCC made big moves that collectively shifted its odds of reaching the top quintile significantly. The company did so by surpassing the high-performance thresholds on four of the five levers. For mergers, acquisitions, and divestments, it combined a high value and large volume of deals between 2004 and 2014 through a deliberate and regular program of transactions in the aerospace and power markets.

PCC also reallocated 61 percent of its capital spending among its three major divisions, while managing the rare double feat of both productivity and margin improvements—the only aerospace and defense company in our sample to do so. While nearly doubling its labor productivity, PCC managed to reduce its overhead ratio by three percentage points. It lifted its gross profit-to-sales ratio from 27 to 35 percent.

The combination of a positive industry trend and successful execution of multiple moves makes PCC a showcase of a “high odds” strategy and perhaps explains why Berkshire Hathaway agreed in 2015 to buy PCC for $37.2 billion. Could our model have predicted this outcome? Based on the moves PCC made, its odds of rising to the top were 76 percent.

McKinsey’s reputation in business strategy consulting is second to none. To see these consultants apply Austrian economic theory so directly in their recommendations is a strong confirmation of its value.

This article was originally published by Hunter Hastings on Mises Wire

The Genius Of The Consumer

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Entrepreneurship is the intentional pursuit of value. This pursuit fuels the engine of economic growth. The entrepreneurs who achieve the realization of value become folk heroes, and the great firms that create value at scale – Apple, Microsoft, Amazon, Facebook, Google – are stock market heroes.

All of this is acceptable wisdom. However, it’s the wisdom of outcomes, of recording the score after the play has been completed. Who drew up the play? Don’t we concede some genius to the coach and the offensive co-ordinator as well as the quarterback and the wide receiver?

Who Is Pursuing Value?

In order to understand cause and effect, we have to start at the input, not the outcome. Who is actually pursuing value? How did the entrepreneur – or Apple – know that something new was needed? That some improvement was required to retain the role of stock market hero?

Henry Ford is often quoted as saying (although he probably didn’t), “If I had asked people what they wanted, they would have said faster horses.” The implication is that he placed no faith in the identification of consumer needs. His preferred method was invention (coming up with something new through his own genius) followed by innovation (translating the invention into something that could be produced, and then sold on the market).

In fact, Ford’s attitude, according to Harvard Business Review, “had a very costly and negative impact on the Ford Motor Company’s investors, employees, and customers”. Because it turned out that, once consumers had Model T’s, they quickly decided that what they wanted was better cars. General Motors developed a response in the form of their “A Car for Every Purse and Purpose,” strategy which aimed to produce cars for distinct market segments aided by installment selling, used car trade-ins, closed car models, and annual model changes. The Ford Motor Company was quickly relegated to a minor, small-share role in the American automobile market.

Think of this as the genius of the consumer. One minute, they don’t have cars. Next minute they are demanding not only better cars, but also better ways to buy them, better aesthetics, greater variety and frequent upgrades. Such boldness, such expansive thinking, such imagination! Edison brought them lightbulbs, and they imagined a world of devices attached to an electricity grid providing on-call productivity services of all kinds. Steve Jobs brought them the iPhone and they interconnected themselves to each other and to sources of knowledge and to global supply chains.

The double genius of the consumer.

What is this genius? It is twofold. 

First, it is consumers who actually create value. How so? Because they are the ones pursuing it.  Entrepreneurs and the innovators put resources – such as cars and refined gasoline and silicon chips and touchscreens and internet connections – into consumers’ hands, and then the consumers roar into action, their creativity unleashed by new affordances. They try to create as much value as they can with the new resources. They drive to work and drive to school and drive across America and put grocery and tools in the backs of their cars (Hey, Henry! Make me a pick-up truck!), and maybe sleep in the car (Hey, Henry! Make me an RV!) and maybe make music in the car by singing and whistling to themselves or to their kids in the back seat (Hey, Henry! Where is the radio?), and maybe find themselves wishing they could call home to say when they’ll be home for dinner (Hey, Henry! How about a carphone?). Value occurs entirely in the consumer’s domain (or the customer’s if you are in B2B). Value is a feeling of satisfaction in the consumer’s mind.

Which brings us to the second aspect of the consumer’s genius. It’s their dissatisfaction. Henry Ford wanted to accuse them of lacking imagination. He got it all wrong. Anyone can imagine the future (flying cars for example). Not many can get it right. Consumers don’t waste their time on such high error rate activities. They concentrate on a subject where they are always right: their own feelings of dissatisfaction. “Henry, we get wet driving your car in the rain!” “Henry, it’s really hard to change the tires.” “Henry, I can’t afford to pay you that amount of money all at once. Give me some time, won’t you?” “You said it only comes in black, but blue is my favorite color.”  “Henry, your Model T looks the same this year as it did last year.” “Henry, can you speed this thing up?” “Henry, I need to work remotely. Can you make my F150 like a mobile office?”

The consumer has big dreams.

How genius is this? Dissatisfaction indicates that the consumer is able to dream bigger than the producer. Every new invention that becomes an innovation and is introduced to the market is immediately scrutinized under the lens of dissatisfaction, critiqued and criticized. No matter how many millions or billions of development dollars went into it, no matter how many Ph.D. engineers and Harvard MBA’s brought it to market, it can not survive the consumer’s examination unimproved. Because the consumer has big dreams.

The genius of the consumer outstrips that of the entrepreneur. Economists see the entrepreneurial process as one of trial and error, with the emphasis on error – a lot of mistakes before arriving (with the help of consumer feedback, of course) at a salable proposition, which is defined as one that generates less dissatisfaction than some alternative on which the consumer could spend their money.

Entrepreneurs are still heroes of course. If they weren’t willing to invest time, money and ego into the process of trying to please consumers, despite all the rejections, then there would be no progress. We might still be driving Model T’s, because no entrepreneur was willing to suffer the wrath of dissatisfied customers. We love our entrepreneurs. And we especially love those with more empathy – more ability to listen to consumers’ complaints to stimulate their imaginations for future betterment.

But let’s not err in identifying the locus of genius in this market process. Let’s help consumers achieve their dreams (before those of the entrepreneur).

A Values-Driven Entrepreneur Shares Ten Principles For Success In The Highly Competitive World Of Sports Content.

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There are many kinds of entrepreneurs. They are all instigators of win-win arrangements in which customers are served in innovative ways by enterprising individuals and firms. Lives are improved for consumers and producers.

Recently, I was able to learn the path to success of an individual who chose the crowded and highly contested field of sports content production, navigated a way to the top, and then broke out in a new entrepreneurial distribution initiative. Jason Whitlock, the famed sports journalist and occasionally outspoken opinion commentator, shared many principles of his success;  here is a summary.

 Choose a field that fits your personality and interests.

Entrepreneurs talk about assembling a unique and competitively advantaged set of resources. Jason’s unique resources are a love of sports, some original thinking, and a distinctive personality that he was able to express in writing. He wasn’t deeply technically trained for his first profession (journalism) beyond writing for his college newspaper. That wasn’t the point. His commitment to the pathway – starting at the very lowest point in the climb – was the point. This is what the textbooks and white papers call effectual entrepreneurship.

Choose your path based on vocation, and not purely for financial reasons.

Don’t choose entrepreneurship to “get rich” or “make a killing”. Choose it because it’s your vocation. Jason wanted to stay in the world of sports, one he’d joined by playing football in college. If he could spend the rest of his life writing about and talking about sports, he felt he’d be happy – he’d have life licked, as he put it. Would he make money? An adequate salary probably, but money was not his goal.

Credentials are nice but hard work and experience advance you.

Jason has won a number of prestigious awards over his time on the path to success. He was delighted to receive them. But he stressed that advancement comes not from the credentials but from the hard work and experience-gathering of which they are a reflection. Experience is the most important: learning from others, learning from circumstances and events, learning from setbacks, learning from observing industry trends and what happens to others. Experienced entrepreneurs are the most successful in business even if they have made mistakes along the way – because they are able to glean from their experiences what is most important for the success of a business and what is merely incidental or actually detrimental.

Let your values guide you the whole way – define them, write them down, adhere to them.

Jason has thought deeply about – and codified – his own values. He includes them in his personal profile on his entrepreneurial distribution platform, Outkick. He cites Booker T. Washington as one of his guides. The entrepreneurial life is a values-driven life.

Study your field – know its history and role models.

It dawned on Jason why they teach you history in school – in order to learn about trends and the consequences of actions and the role of change and the nature of competition in ideas, institutions, nations and firms. Having chosen sports journalism as his field, he studied it deeply, to get a sense of how it changed over time, with technology, and in the culture. He tried to imagine – even though no-one can forecast – how it might evolve over time, and to equip himself for a new and different future.

Your intuition and innate ability to read people are your best tools for managing the future.

We discussed the entrepreneurial act of embracing change and trying to “stay ahead of it”, in Jason’s words. How do you do that? He elevates the role of intuition and empathy over data gathering and predictive analytics. At Mises University 2020, Professor Peter Klein spoke of the elevated role Austrian economics allocates to those two cognitive skills, and even cited academic studies about the entrepreneurial advantages of intuition (“smart intuitors”) among cognitive skills.

Be yourself! Emphasize your own uniqueness, personality and talents.

 Many of the assets Jason brings to the business of sports are personal and individual – a sense of humor, a jaunty outspokenness, a willingness to delve below the surface in defiance of conventional wisdom. In a corporate world, these traits can be viewed through a clouded lens; in the entrepreneurial world, they can be great strengths and differentiators if applied for customer benefit, information, and entertainment. Be yourself, and on your vocational path, your individual attributes will support you in your journey.

Always keep building a bigger and bigger platform for yourself and your content.

Jason started his career at the bottom of the ladder, covering minor college sports for a local newspaper as a part-time reporter. That’s a platform – a small one. He kept ascending on to bigger platforms – a major city newspaper, then a national reporting and opinion platform (ESPN), and now an independent internet platform (Outkick). There is always the opportunity to expand and grow.

Embrace change; try to stay ahead of it by always reinventing yourself.

By studying change in his industry and attempting to understand it and chart it, or at least acknowledge it, Jason was able to avoid being caught out by unexpected disruption, and to embrace the wave. If it is impossible to predict and master change, it is feasible to be the kind of economic actor who can self-reinvent, whether that is by learning, moving from platform to platform, adding new skills and capabilities, or finding new audiences. Never get locked in to one persona or set of capabilities.

Your intuition and innate ability to read people are your best tools for managing the future.

 I asked Jason how he predicts the future. Of course, he acknowledged, you can’t do that. But you do have tools, and intuition and what he called an “innate ability to read people and situations” are the most important. This is consistent with scientific research into the cognitive attributes of successful entrepreneurs. They have highly developed intuitive skills as well as more formal cognitive abilities, and it is a highly developed intuition that gives them the confidence to make quick decisions without waiting for all the data.

Always, always put your customer first. Be honest with them, be objective, and serve them distinctively.

It is the first principle of economics for business that the consumer is sovereign and that a successful business puts the customer in first role in everything that they do. Jason Whitlock confirmed the same principle. For a sports content producer, the customer is the reader, viewer or listener. Jason characterizes his audience as the intelligent sports fan who can appreciate an original take and distinctive reporting on subjects that many other content producers are covering in a more conventional fashion.

He commented on how athletes today don’t understand the principle. The customers are fans who attend the events and enjoy the performance. Athletes sometimes misunderstand and think that “their twitter feeds are their fans” and often go to the point of ridiculing or rejecting or offending their customers. We’d call that a failure to demonstrate empathy, and disrespecting consumer sovereignty. Successful entrepreneurs don’t make that mistake.

 

You can listen to Jason on the Economics For Entrepreneurs podcast #75.

 

 

Entrepreneurship Is The One Institution We Can Rely Upon To Maintain A Prosperous And Civil Society.

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In this time of social unrest, Americans’ confidence in our institutions is in decline. A sample from Gallup’s frequent annual poll  includes these selected comparisons between 2019 (latest available data) and 2000.

% Confidence in Institutions (Great Deal + Quite a lot)
2019 2000
Congress 11 24
Big business 23 29
Newspapers 23 37
Banks 30 46
Small Business 68 57

Relatively few Americans declare confidence in political institutions, as represented by Congress. Roughly twice as many – but still less than a quarter of Americans – express more confidence in big business and banks. Newspapers, similarly, command only low levels of confidence. All the poll data from 2019 are lower than those from 2000, indicating across-the-board declines of confidence in institutions in general.

The Institution Of Entrepreneurship

Except for small business. Two thirds of Americans declare confidence in this institution, and that number is higher than in 2000. We can easily look beyond the structural definition of small business – which is, after all, defined by government statisticians gathering employment data – into the institution of entrepreneurship.

Entrepreneurs are those individuals who shoulder the task of making things better for the rest of society. They are society’s optimists. They recognize current conditions for what they are – and then imagine a future in which conditions are better. Then they sacrifice themselves to bring that future about, expending capital and labor now for the prospects of revenue in the future. That future is uncertain –  entrepreneurs do not know if their initiative will be as well-received by customers as they hope it will. They press on anyway, their goals being discovery and achievement and making a difference, more than profit.

In this sense, entrepreneurs perform the kind of social function that is badly needed in a time of lost confidence in institutions. Having little time for the rear view mirror and gazing intently through the windshield at the road ahead, they substitute sanguine imagination for everyone else’s dissatisfaction and disappointment with the status quo. They don’t dwell on past injustices, as so many young people seem inclined to do today; they’d rather concentrate on what is possible in the future. When they see barriers they dismantle them.

Solving The Problems Of Others

Entrepreneurs are problem solvers – and the problems they solve are those that their fellow citizens (all potential customers) deem most pressing. If you’re looking for a solution to a problem, seek out an entrepreneur rather than an elected official or bureaucrat.

Entrepreneurs’ problem-solving technique combines empathy with rigorous cause-and-effect thinking. Empathy is the entrepreneur’s tool to understand why people – why society – feels a certain way. What does dissatisfaction stem from? Why do people feel uneasy the way they do? Entrepreneurs take society’s pulse  and measure society’s level of pain. From this input, which is largely emotional, they try, as rigorously and logically as they can, to reverse-engineer a cause-and-effect chain. If dissatisfaction and pain are the outcomes, what are the causes? Entrepreneurs are not policy-makers like politicians, whose aim is to appease. They are obliging and accommodating collaborators whose aim is to please.

Entrepreneurial Creativity

Entrepreneurship is a profoundly human, social and creative activity that changes our world for the better. In contrast to the destruction that our current social justice warriors seek to impose, entrepreneurs create new economic value via a transformative act of human imagination. Their ingenuity is limitless.

What are the entrepreneurial actions that result from this creative societal problem-solving disposition? Entrepreneurs start firms, grow businesses, research and introduce innovations, lower customers’ costs and increase customers’ convenience. Their guiding principle is that whatever customers want, customers can have. The responsibility to improve life is given to the customer, in that they are tasked with communicating, as clearly as possible, what needs to be done and what needs to be provided and what needs to be changed to make them feel better. Entrepreneurs put their own private property at risk to create customer benefits that add up to social benefits for all. The customer is sovereign in this exchange – what they want is what is produced. If they stop wanting it, entrepreneurial production ceases.

Contrast this with political action. Politicians put none of their own private property at risk. In fact, they steal property from some citizens, through taxation and debt (which is a tax on future citizens), in order to redistribute it in some new form to a different set of citizens. They appease one group of citizens with the property of another group. Where the entrepreneur’s collaborative deal with customers is win-win (entrepreneurs make profits when customers approve their initiatives), the politicians’ deal always involves loss. The politician achieves office when an opponent loses an election, and makes policy that imposes loss on some part of the population. Politicians deal in losses, entrepreneurs deal in benefits.

Individual Action, Social Benefits

Society would be happier and healthier if we turned to entrepreneurs for all our solutions, and to politicians solely to protect the system of private property and freedom of contract that makes entrepreneurship possible. It would be healthier still if we were to encourage the spirit of entrepreneurship in a larger group: the spirit of service to fellow-citizens through innovative technological problem-solving. The measure of success for this system is what historian and economist Deirdre McCloskey calls “trade-tested betterment”. What she means by that is the customer-determined improvement in the quality of life (i.e., betterment) validated by customers buying or not buying what entrepreneurs offer as potential solutions to their problems and their pain (i.e. trade-tested).

If those who protest and complain today were themselves to adopt the entrepreneurial spirit in their own lives, they would find that they could not only build better platforms for progress, but also introduce more purpose, meaning and autonomy into their own lives. The entrepreneurial life is purpose-driven (solving others’ problems), a source of meaning (solving problems is more meaningful than carrying protest signs or throwing rocks) and the ultimate autonomous lifestyle (discarding dependency on employment wages or welfare payments).

Entrepreneurship is an American institution. Every immigrant who ever came here brought an entrepreneurial spirit: life will be better for me and others if I escape from the limitations of my current situation and join this open, betterment-demanding, property-protecting, innovation-welcoming country and see what I can do. The institutions that grew up with our innovating immigrants and their offspring are now largely decayed and decrepit. But entrepreneurship is one institution that there is no need to abandon. In fact, it’s necessary that we revive it.