How Entrepreneurs Build Beautiful Businesses.

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In his book, Narrative Economics, Robert Schiller, Nobel Prize-winning economist, tells us that the greatest influences on the nation’s economy come from the stories we tell ourselves about it.

A depression lasts longer when people tell themselves and each other that it’s going to be a long time before things turn around. Recoveries accelerate when people turn optimistic and tell each other that the good times are just over the horizon and will be back soon. Currencies lose their purchasing power when people tell each other prices are going up and its best to exchange cash for products now and not wait for the higher prices. Trade unions are vilified when people start talking about excessively high wages pushing up inflation. Schiller has a lot of stories, or narratives, as he calls them.

These are macroeconomic tales, about trends in GDP, and the price level. But the same is true at the microeconomics level. The reason why there is so much negativism about business, capitalism and free markets is that people are telling each other negative stories about business aggressiveness, unsustainability, lack of sympathy and general coldness. We’re angry at business, it seems.

One source of this anger are the business school instructors, and their textbooks and business biographies and histories that portray businesspeople as a warrior class and business competition as warfare. Invading industries, taking beachheads, fighting for market share. The Art Of War by Sun Tzu is often cited as the most popular business book, and a source of business strategies.

Another military metaphor is defensive – protecting your castle. “You need a “moat” — essentially, a barrier that can protect your business from potential encroaching forces”, says one writer in Medium.

The military narrative is a horrible metaphor for business. The blood and gore and destruction and operational chaos that war metaphors bring to mind have no place in our image of what businesses do and the service they provide. Customers buy products and services only if they believe that, by so doing, they’ll make their lives better in some way. Otherwise they wouldn’t buy. Businesses exist to generate this sense of betterment, of satisfaction, of well-being among their customers. If they are not good at it, they’ll lose the patronage of that customer to a business that pleases them better. Consequently, businesses are always trying harder to understand what will make their customers happy, and to perfect their own knowledge of how to deliver that happiness.

We need a new narrative of business formation and business action that is an alternative to the military metaphor, especially so that we can teach our kids in school that business is a channel for their aspirations, not a regimen to which they are to be subjected. We need a business-is-beautiful metaphor. That its purpose is to serve and to please and to make life better. That it’s the source of what’s good: income to nurture families, products and services to nurture life.

One business guru who is leading us in this direction is Per Bylund, a professor at Oklahoma State University’s Spears School Of Business. He writes about business owners and executives and managers building an island – an island that is inviting enough to attract visitors who will enjoy their time there, and perhaps become residents. An island that’s separate but well connected by bridges and ferries and transportation to bring people comfortably to and fro. Like any island, it’s unique. No two are the same.

Professor Bylund calls them “islands of specialization”, designed by entrepreneurs and their management teams to serve customers in a specialized way that will merit their patronage, keep them visiting, and make them loyal. His strategic advice to businesses has no military overtones.

“Aim to please” is his first principle of beautiful business. To attract people – customers – to the island is simply a matter of understanding what will please them. This requires empathy – understanding people, their hopes and dreams and desires and preferences, and catering to them. It’s a matter of discovery and translation. Business strategy, in this vision, is not aggression but deference: seeking to please others.

“Don’t copy – move beyond” is the next principle. The military metaphor sees competition as conducting wars over business territory, or fighting for customer attention. That’s a misconception of the economic concept of competition. In the economic way of thinking, there is no new value for customers when a firm merely copies what is already offered by others. Value emerges from what’s new and better and different. Smart entrepreneurial island builders assess the current landscape, predict where the customer will be in the future, and navigate to that place to build a new island.

Once they establish the new location, entrepreneurs build from strength. They distinguish what is unique about their resources that can be of benefit to customers. Much of the uniqueness is subjective – the owners’ or the business’s identity, their unique knowledge and expertise, their relationships and interconnections that can co-ordinate the assembly of specific solutions. It’s not about arraying more destroyers on the battle lines than the opponent; it’s arraying a set of uniquely desirable and attractive brand features and attributes that are attractive to the customer.

And the island builder keeps on building. Not for scale or market share or maximizing output. The direction of growth is to maximize value. Value is a feeling of satisfaction in the customer’s mind. Maximization, in this view, refers to higher levels of satisfaction, over a wider range of experiences, for more customers on more occasions. Maximization is not a quantitative or mathematical concept, to be compared with rivals to ascertain who is “winning”. It’s a qualitative concept – what quality of value has been experienced, and how can it be improved.

The four guiding principles – aim to please, in unique ways, based on your own identity and strengths, always thinking about the value that’s experienced by customers – lead to beautiful businesses. If you are developing visual island imagery in your mind’s eye as you read this, think of a balmy climate, vibrant flowers and trees, bubbling streams and distinctive animals and birds. Perhaps there’s an attractive resort hotel welcoming and catering to customer-guests. Let your imagination run free in conjuring up beauty – that’s what entrepreneurs do as the start, grow and sustain their businesses.

Per Bylund, PhD, is assistant professor of entrepreneurship and Records-Johnston professor of free enterprise in the School of Entrepreneurship at Oklahoma State University. His areas of research are entrepreneurship, management and economic organization. He is author and editor of four books.

John Tamny On How The Entrepreneurial System Maintains Its Energy And Momentum.

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Hunter: John, welcome to Economics for Entrepreneurs.

John: Hey Hunter. Thanks for having me on.

Hunter: You make economics relevant and interesting and you’ve been doing it for a long time. You’ve written lots of articles, and several books. You have a very distinctive style, and so we’re going to talk about economics today and maybe get your help in making it palatable to people.

Economics Is More Interesting Than Charts And Graphs.

John: You know, I make it relevant and interesting simply because it is. I think it was Ludwig von Mises in Liberalism, his brilliant book, who made exactly that argument. That he said it’s not a dismal science, it’s a beautiful study of people and he put it better than I did. I never understood why economists have the need to turn into charts and graphs what is so easily described by the world around us. It’s as though they’re striving to make something unintelligible so they can avoid revealing how little they understand.

Hunter: Well, you coined the phrase, in the title of one of your books, Popular Economics, and that talked about LeBron James and Downtown Abbey, and I think Taylor Swift and I think you also mentioned Michigan State football at the same time. You found a way to talk entertainingly about popular economics. How did you come by that title?

John: I think, I think my initial title was “Economics Is Easy”. It’s the one time in the history of my writing career, at least of books, that the publisher I thought came up with a better title. At one point they had water cooler economics, and I said you’ve got to be kidding me. They finally happened on popular economics which I kind of liked. Again, my view is that economics is 1st grade material. The only people that really don’t understand economics are economists who try to make, who make confusing what is easy to understand, what can be explained by athletes and TV shows, movies and famous people. I just don’t get their use of charts and graphs and so on. In many ways Popular Economics and all my books are subtle middle finger to economic profession that’s made boring what’s endlessly interesting.

Hunter: You chose to keep the term economics, I was talking to a marketing guru this morning about marketing Austrian economics, and he said there’s no place for the word Austrian and no place for the word economics, which was a bit discouraging. But do you think you’ve been able to make progress towards a popular realization towards the benefits of thinking economically?

John: I’d be lying if I thought I made huge inroads. Clearly I haven’t. I haven’t changed the way so many people continue to see things. I long ago said it’s going to be my life’s work is discrediting the laughable notion that economic growth causes inflation. Yet to pick up a Wall Street Journal, New York Times or an Economist magazine or anything you constantly see economists say, well you know, if we get the economy moving fast it’s going to cause inflation. And so, clearly there’s a lot of work left to be done, but it’s very heartening to come across people, and I do with great regularity, people who say, you know, you’re book changed how, or your books changed how I view the world, how I saw, you made clear what would have been confusing So that’s an uplifting thing.

Why Are Economists So Negative?

Hunter: Yes, I was reading the Wall Street Journal this morning, and I just came across the phrase at the end of a sentence that said, “economists warned”, and it struck me that that’s what economists do. They’re all negative and warning and it’s going to be bad.

John: Yes, isn’t that true? They are always looking for some awful scenario and if we do this and this, we’ll get to this. What frustrates me is, they are never right. Okay, so it’s easy to pick on the Fed. The Fed employs more economists than any other entity and they’ve always been incorrect. And of course they always have been; and let’s add that, when I was at Goldman’s Sachs, the economist there were so notoriously incorrect that the clients of the firm would know it was a profitable endeavor for them to just bet against whatever the Goldman’s economist thought was going to happen. Just take the opposite position and it really is shooting fish in a barrel based on the opposite of what the economist thinks about something. Okay, so some individual thinks he or she can model the infinite decisions taking place every second among hundreds and millions and billions of people around the world, of course they’re wrong. What fascinates me is that any people ever took them seriously to begin with. The pretense is just remarkable.

Hunter: Yes, in fact the whole premise is wrong, that the goal is to predict. We understand from our Austrian view of economics you can’t predict, the future is uncertain, and you can’t predict the future.

The Economy Is Just Individuals – And Freedom Works.

John: That’s right. We just know that freedom works. That free people with barriers to their productivity removed from them tend to do very well. That’s not to say that there’s not some extraordinarily productive people who do very well with more barriers put in front of them. Look at New York, and California, two heavily regulated, heavily taxed states and that have got the most innovative brilliant people on earth populating both. But generally speaking, if you remove barriers you get more productivity and this shouldn’t be a mystery; yet economists try to model behavior, which is just an obnoxious waste of time.

Hunter: We’ve tried to go through that other door John, the individual door – specifically entrepreneurship. Academically, that’s called microeconomics, but I don’t think that’s a useful differentiation. You said in one of your books, the economy is just a collection of individuals, and you also talked about an intense entrepreneurialism that defines the American economy. So paint that picture for American entrepreneurialism, I hear you linking individualism and entrepreneurship in one system.

John: Oh, what a great question. Okay, so let’s start with the economy is just individuals. The person who most vivified that for me was Henty Hazlitt. I think that the most important sentence ever written in the economics book ever written was Hazlitt’s in Economics in One Lesson. He wrote, quote, what is harmful or disaster to an individual must be equally harmful or disastrous to the collection of individuals that make a nation, end quote. And so what was Hazlitt saying, it was so brilliant, of course probably most people glossed over it, it’s not a knock, but Hazlitt was saying the economy is not some living, breathing blob that you can touch. It’s just a collection of individuals. Break the economy down to the individual you can then see why economic growth is so simple. You can also see why, why you’ll never lose an argument, an economics argument ever again because I don’t care what someone’s ideology is on an individual level you can’t say an individual’s improved economically if he’s taxed more. No individual’s improved economically if he spends more time complying with regulations rather than creating something. No individual’s improved by money that’s constantly being devalued by the US Treasury. No individual is improved if talented people from around the world are barred from moving to and living in another country by putting tariffs on these other people. And so when you break the economy down to the individual everything becomes clear. What improves the individual improves the economy. Why are Americans so entrepreneurially focused? To me it’s fairly obvious. We descend from the crazies. We descend from the other thinkers from around the world who said this isn’t good enough for me, I’m going to risk my life crossing oceans and borders, in order to get to a place that offers me no security but offers me freedom. We got all the nut jobs. How could Steve Jobs, he’s of Syrian decent, could he have started Apple in Syria? No. in the United States people who think differently can very often be funded and so they keep doing amazing things. It’s no mistake that our entrepreneurs are known around the world. We descend from the people who took the ultimate entrepreneurial leap. They left what was in some sense, comfortable, in search of just freedom. So I love the American story and I, one of the reasons I’m so for open borders is I want more and more people to come and participate.

Hunter: We’re aligned about improving individuals economically and one of the themes that we use in thinking about entrepreneurship is the ethic of entrepreneurship which might be a bad word to use. It sounds a bit serious, but that the purpose of entrepreneurship is to improve other people’s lives and that’s a benefit. It rolls up to a better society and we should think of entrepreneurship as a service to others. Is that a useful theme do you think?

Entrepreneurs Lead Us To A Better Place.

John: I would say maybe, turn a phrase a little bit differently. I would say entrepreneurs lead. They lead us to a better place because, never forget , to me the definition of an entrepreneur is someone who’s got a vision that everyone else thinks is ridiculous, yet they do it anyway. Because they think the way things are being done now: nah. So they quite literally lead us to a better place. I’ve heard it’s apocryphal, but Henry Ford’s genius was realizing that the, you know, horse drawn carriages weren’t enough. So he would give people something different. Steve Jobs looked at the Blackberry phone and he thought, “Oh! Come on!”. Yet that’s what everyone wanted at the time. He thought, oh we can improve on that, and let’s never forget he was ridiculed at the time the iPhone was coming out. Most people thought it would be a niche product that most people wouldn’t buy. I’m fascinated to look at Elon Musk right now, his new SUV, the design of it came out and he said something along the same lines that this is something in the future and that’s what Mises said in liberalism. He said entrepreneurs, every entrepreneurial act is speculation. You’re doing something you’re not sure people are going to want and that’s what’s so important about entrepreneurs. They take us somewhere else. They don’t just meet our needs, they exceed them. They take us to a new place.

Hunter: Jobs had another phrase, which is a real challenge when you think about what it takes to be an entrepreneur. We’ve got to read what’s not on the page, and you know, it hasn’t been written down yet. We’ve got to be able to read it. That’s why he rejected consumer research and that kind of thing. So they lead but they also imagine things that other people don’t imagine. Is that how you see it?

John: Oh, without question. They are the outside thinkers. They envision things that only become obvious after the fact. Let’s never forget that Silicon Valley is littered with VC’s that turned down Facebook, that turned down Amazon. I remember in the year 2000, 2001, if you owned Amazon shares you were ridiculed. Remember Amazon was Amazon dot org. These are people that think so differently and have a vision that is so outside the norm and it’s one reason, I don’t want to get, I promise I won’t take us to much off subject, but I’ve, one of the people I think who’s needlessly facing trouble right now is Elizabeth Holmes. She had a vision for something different, and it attracted a lot of attention and now because it didn’t work on time they’re thinking about, they want, some people want her imprisoned. What these creative types who want to do something differently, I want them out creating. Michael Milken, decade ago, because he did something so differently and upended the norm of investment banking, put him in prison and you think about what did we lose? Here was the guy who said MCI is a nothing company, I’m going to find funding for it so that it can take on A T and T, which at the time employed 1 in 500 Americans. And then he saw the future of mobile phones. Mobile phones cost 4,000 dollars. No one could afford, it was seen as this weird luxury bauble for the rich and he thought, there’s a way to get that funded. How could we live without it? I not only think entrepreneurs are important in taking us to new places. I also elevate investment bankers and the Wall Street types that so many people keep criticizing. They figure out a way to get financing to these brilliant people.

Hunter: Yeah, so socially we should be encouraging all of that craziness, that imagination and getting them capital as you say. The barriers are often governmental; you write a lot about barriers and regulation and how the government is taking away our production. I love that term that you use. It makes things very clear. Is that the only barrier in society to the entrepreneurs?

Failure Of Imagination Is As Damaging As Regulation.

John: They’re broadly governmental. I also think that there can be a failure of imagination on the part of people. Let’s be clear, it’s hard enough, there’s no reason investment bankers are paid so well. They are because it’s enormously difficult to track capital to one’s venture, and so it’s hard enough for a business and so investment bankers are paid enormous fees, rightly, for getting capital. Imagine if you’re someone who has an idea that totally upends how things have been done in the past. Let’s be clear, there’s someone out there right now whose going up in Amazon, but imagine trying to get funding for that. So there are nongovernmental barriers for sure. One of them is failure to imagine what could be, entrepreneurs see that. But generally I think there governmental.

Hunter: You’ve written that it’s actually a good thing because it forces the capital to find the best ideas, it forces the best ideas to find the capital. I like the chapter about Hollywood. All the lights are always red in Hollywood. It’s hard to get financing. That’s why the movie industry’s so great.

The Scarcity Of Capital.

John: Of course capital is scarce. There’s this idea out there, and I think sometimes modern Austrians promote it, that there’s such a thing as zero interest rates. There never has been, never will be. The idea is that capital is always scarce. It always has been because when you borrow money, you’re borrowing what money can be exchanged for. You’re borrowing access trust, tractors, computers, desks, chairs, movie scripts, movie cameras, movie directors, and so it’s always going to be difficult to get access to these kinds of resources. And so what I usually say with that in mind is: how dangerous is government spending? Government spending shrinks the availability of what’s going on, what’s accessible out there. But I think this is important, I’m so glad you his on this because I think too often modern Austrians, once again, I don’t think Mises ever would have really fallen for this, from what I’ve read of him and I’ve read the vast majority of books, this idea of easy money, I find that so insulting and stupid. Easy money? Really? No such thing. Implicit in easy money that oh, yeah, here, line up, zero percent rate, one percent and you can get access to the economy’s resources. I’ve never met an entrepreneur who’s ever had an experience like that. I’ve never met a businessperson, who’s had an experience like it. In Hollywood as I wrote in my Who Needs The Fed book  – credit is incredibly expensive. In Silicon Valley it’s so expensive that, if you want to fund a business, you’re going to give up a big percentage of it to a venture capitalist. Michael Milken got rich precisely because the availability of credit and capital of businesses is exceedingly hard to get. So he found it for businesses that, in past times could never really get it. So I think our side does so much damage to itself when it talks, oh yea, you know the fed went to zero and money’s easy. No such thing. Let’s not insult the entrepreneurial function by pretending that the fed, just by printing dollars can make access to resources easy. That insults the entrepreneur.

Hunter: Yes. I’m with you and you would have enjoyed a recent episode we had on the FinTech industry. Financial technology I guess its short for. The point we made is that it’s all these new emerging online lenders like Kabbage and GoFundMe and those kinds of apps are a brilliant way to match capital to entrepreneur sand entrepreneurial projects, and in fact, because there’s so much competition there, we’re probably approaching on those platforms what Mises would have called the originary interest rate – the right interest rate for society in respect to regulation. So actually, FinTech embodies entrepreneurs helping entrepreneurs in getting to the right understanding of interest and the cost of capital.

John: Yeah, but, I think Mises would also agree that the interest rate is different for everyone. And of course it is. If I go into a bank and want to borrow money for a business there’s probably no rate at which they’d lend to me. Jeff Bezos can give away all his worldly possessions today, but he can still walk into banks in any city in the US and he can walk out with billions. Credit is what you bring. Or I think JP Morgan said that. This idea that I think too many Austrians promote, “oh yeah, the fed went to zero and suddenly it was easy money” is so divorced from reality. Everyone’s got a different rate, as I keep arguing based, you talk about Fintech, is just a reminder that the feds influence on the economy is theoretical. The fed projects its influence through a banking system that is antiquated and yesterday. It represents, what, 10 to 15 percent of total lending. It’s the least intrepid of lending of all. Most intrepid lending takes place well away from the banking system and for obvious reasons. There’s this view that the fed is why banks pay so little for deposits. Banks pay so little for deposits simply because they’re not taking any risks. If they were taking risks they would pay more and so you see through these fintech functions. That’s where you can get a higher interest rate simply because the capital allocations that they’re making are more risk focused. Banks are in business to not lose money. Other non-banks are in the business of doing different things and so the rates they pay for those who put money with them reflect that reality.

Hunter: Our expert on that show, Dusty Wunderlich, said it’s the best priced capital market for entrepreneurs.

John: I believe it because, let’s not forget, an entrepreneur can never go to a bank. And again, it just, this is not, I love the Austrian school, but I’ve never understood the modern focus for the fed. The fed deals with banks which are so unimportant. Does anyone seriously think that banks have anything to do with what happened in Silicon Valley? Banks can’t touch innovation and they can’t because as you and I know entrepreneurs fail over 90 percent of the time. Banks have to make loans to entities that are going to pay back. Entrepreneurs are in the business of experimenting, failing and trying again. What the fed and banks do has nothing to do with economic progress. So the focus on it has always been a mystery.

Entrepreneurs Are The Driving Force.

Hunter: Yes, we focus much more on the parts of human action that talk about the entrepreneurs being the driving force of the system. And that’s the other genius of Mises is having identify that and described it and understood how it works.

John: Yeah, without question. Entrepreneurs lead, they take the risks to move us forward and that’s why I make such energetic arguments in favor of reduced government spending, reduced taxation, ideally no taxation on capital gains. I do want it to make it as easy as possible for those with unspent wealth, those with unspent wealth arguably being the most crucial people in the economy to match their unspent wealth with entrepreneurial, and what’s important about this is the less we take away their unspent wealth the more they can be intrepid with it. They can try new things. If I ‘ve got a billion dollars I can take a lot of risks. If I got one million, I’m probably not going to take many risks at all. So when we tax away the wealth of the richest, we tax away the most important wealth of all. That which has the highest odds of being directed towards new ideas, that while they look promising sometimes have very high odds of failure.

Hunter: You said in one of your books, I don’t have the quote with me, John. Maybe it was an article, entrepreneurs will always be able to innovate around politicians and it reminds me of another book that just came out Cato Institute called Evasive Entrepreneurs. I’m not sure I like the title but was the same sentiment. That the entrepreneur is smarter, faster and more agile than the politician. Do you have anything specific in mind when you wrote that?

John: Oh yeah. Thank you. I love that. Thank you for bringing that up. It was an April 13th column I wrote where I said that despite this political disaster that we’re enduring, whereby politicians apply command and control, we will nevertheless roar back. And my point is and the point I made in it is you, the entrepreneurs are just, this goes back to 2009 I asked a rich entrepreneur in Houston, hey what’s going to happen? Things are looking pretty bleak. And he said oh, come one. I am way too smart for Obama and I was way too smart for George W. too. These guys mean nothing to me. I can innovate or around them and I always have. And never forget with entrepreneurs they stare death in the face every day. Phil Knight, one of the greatest entrepreneurs who ever lived spent the first 18 years of Nike’s existence kind of gently telling his wife each night, oh no, we’re going to make it. And his line, his wonderful memoir Shoe Dog, I was telling her something I didn’t necessarily believe. Nike nearly died so many times. And that’s true entrepreneurs. All they know is near death, or they built a company that died, and so the idea these clowns in Washington and around the country just tragically shut down the economy. This is nothing to these guys. They’ll innovate around them. It’s what they’ve always done.

Hunter: So let me switch there and talk about your entrepreneurial journey, John. I read chapter 7 of The End Of Work. You could say your path was uncharted. In the end a little bit you talk about some painful experiences like downsizing, but you found your way to success doing something that you love. You said writing elevates your spirit. We use the journey metaphor, the entrepreneurial journey, is that a good way to think about it from your experience?

John’s Entrepreneurial Journey.

John: Thank you very much. I’m so flattered you read that chapter. I had such high hopes and still have high hopes for The End Of Work. I think the, one of the most unsung, brilliant, beautiful aspects of economic growth that it frees more and more people to specialize and do something that they can’t get enough of that doesn’t feel like work and pays them. Because entrepreneurs work for their work, and certainly I will never put myself in the same realm as, I can’t claim that what I did was Phil Knight Esq. or Jeff Bezos Esq. I’ve always been employed by someone else. I’ve never had the courage to go fully out on my own, but I have had lots of failure. I was laid off by Goldman’s Sachs during the market downturn in 2001. It was devastating. I was, it didn’t make it into the book. It was supposed to because I put it into it, and it didn’t make into the edits, but I was demoted at Forbes back in 2014. I’ve been opinions editor and got on the wrong sides of people and was put out of that job and it was just, it ripped my heart out. But each time it forced me to get better at what I did. I’ve been kicked down, nothing like what Phil Knight did or some of these other entrepreneurs but I’ve been kicked around too, and it does make you better. It’s agonizing but thank goodness we live and we get to operate in an economy where yes, precisely they can fire you and demote you. There’s also lots of opportunities to get to dust yourself off as it were and get back to work and so I’d like to think I keep learning from what I’ve done wrong and I can’t believe how lucky I am to get to write about economics. Every day, and that’s probably why I write so much. Not only do I have so much to say but I feel like I’ve been given the ultimate opportunity to say: wait, someone, people pay me to write what’s on my mind. You better believe I’m not going to skip a day then if they’re going to give me an opportunity.

Hunter: You’ve created some businesses inside of a company – you helped to create Real Clear Markets inside the Forbes empire. So there’s, entrepreneurship can occur inside big companies, in fact it’s important for it to occur inside big companies. So, you’re an entrepreneur of great fame, I think.

John: Oh, thank you.

Hunter: But you’ve also done something else which I saw as entrepreneurial, you created a very distinctive style in your writing. Now let’s try to find some adjectives that would help me describe it. Its contrarian, you say to people, yeah, get real when you talk about the fed, for example. But you also achieve a stylistic individuality with some of your sentences structures and the way you use words. So how did you develop distinctive style and become good at writing. It seems like a pretty hard thing to do.

John: Thank you. Some would say and I would agree with them, I’ve got an angry writing style. I think sometimes people think I write things funny, but I don’t think I’m a particularly funny writer. Some people have that skill. Probably the most distinctive quality to my writing is I’ve got a major chip on my shoulder. I won’t hide from it. I came into this field via fundraising, as you know from my book, for a Think Tank that didn’t think I was worthy of being a scholar there. I must admit there’s, I probably shouldn’t admit, there’s a part of me that wants to prove the people wrong that never took me seriously. So yes, I’m contrarian as can be. I think the generalized assumptions by both sides are frequently incorrect, but there’s also probably, within me there’s a need, there’s a lot of “I’ll show you” – all the people that wouldn’t give me a chance to write, who wouldn’t take me seriously. I’m going to show you.

Hunter: And that seems to me like a perfectly valid motivation within other motivations. One of the things we get mad at to follow in your footsteps there is entrepreneur bashing. I mean at the high level its envy: how can anybody be so rich despite the fact they provided great service to a fantastic number of people all over the world. Generally the pursuit of profit, profit is the devil and we get mad about that, so we try to be contrary about that attitude that seems to be out there in society.

Entrepreneurs Are Heroes.

John: Yeah, it’s a great question. I always say to people if Jeff Bezos had reached the top of his game in 1970 and became the richest man in America and maybe the world – what would have his net worth have been then? $500 million a billion? I don’t know what would qualify as richest back then, but not much more than a billion. So to that I say what a tragedy. That someone so talented can reach so few people relatively. And so now today he’s worth what, $150 billion, and that’s after the divorce. The reason he is, is because he’s touching exponentially more people with his genius around the world thanks to technological advances. Jeff Bezos is in Seattle,  but it can be as though he’s next door to people around the world. And so to me, the greater inequality the greater the progress. Because it’s just the sign that the individuals that you and I elevate are able to attach themselves to capital on the way to meeting the means of people in ways that past entrepreneurs weren’t able to come close to. So I think this needs to be discussed over and over again. I think so often free market types argue that, actually ,if you look at the gini co-efficient, they revert to their graphs and their charts and their numbers, we’re not that unequal. Oh no, we’re very unequal, and in fact we free market types, if we get our way, low taxes and zero out all the regulations, stable money all those things, inequality is going to soar. And it will be a beautiful thing. And why do we run from it? Why do we run from the process whereby brilliant minds innovate for us and transforms our living conditions for the better on the way to becoming really rich? Why that’s perceived as a bad thing is a mystery to me, and again I want to stress so much of what I say goes back to things I’ve learned from Mises. What did he say? Luxury is a historical concept. So much of this was obvious to him long ago that what the rich enjoy is just a preview of what we’ll all enjoy if the economy remains free, because what the rich enjoy they establish as venture buyers. They buy something that’s beyond the reach of everyone. They establish a market use for it at which point entrepreneurs mass produce and I just think for too long our sides run away from this. Inequality is a wonderful thing. The tragedy is when inequality is not increasing.

Hunter: Yes, yeah, and in fact another praise from Mises is that entrepreneurs are people who allocate capital to best serve the most urgent needs of consumers and they should be viewed as heroes for that.

John: As heroes and lets all, I’ve used this quote from Mises in at least 2 of my books, maybe 3, he always said that when a business goes out of business it can no longer bring damage in many instances to customers, much more particularly than I have just now. We seem to, Americans, as much as they rate the entrepreneur there’s this need within people say, the small business, oh my God, noble and great and everything. No, I think the big businesses are most noble. Do all businesses start small? Yeah, that’s a given, but there’s this view out there that somehow inequality is bad. No, no. inequality is good. It’s when people aren’t becoming unequal that they’re probably not meeting the needs of very many people.

Hunter: Yeah, in fact you wrote that the best way to help entrepreneurs in small business is to unleash the big businesses because often the big businesses are the customers and they also generate the economic ripples entrepreneurs can feed on.

John: Yeah, and to be clear there are generally no small businesses without big businesses. In a shopping mall, is there any mystery why there are anchor tenants? Yeah, the anchored tenants, the big businesses, the big global brands are what attract people to them on the way to creating a market for the small businesses next to them. Again, conservatives get all mainstream on us occasionally in weird ways and they say small businesses create all the jobs. Even if you believe that, even if you believe job creation is the purpose of the business, they’re able to create jobs precisely because for the most part they cluster around big businesses. So this need within society to noble the small, to noble the average I find very odd. I think I like the big ones. They make the small entrepreneur possible.

Hunter: Let’s pick your brain as chief marketing officer, John. We both favor a movement that would be pro economics, pro entrepreneurs, and pro innovation. We want everybody to be an entrepreneur whether working for a big corporation or a small corporation. We want to have them do that as oppose to be bureaucrats. If you were the chief marketing officer for that movement where would you start tomorrow?

Happy Things.

John: I would start with happy things. I’ve never understood why some in the conservative libertarian movement, they begin with well, if we don’t cut spending we’re going to hit, we’re going to be the Titanic hitting the iceberg. And if we don’t do this, if we don’t get those deficits under control this is going to happen, and Americans aren’t…..the birth rate is not high enough. Talk about the good things. My problem with government spending isn’t deficit. I don’t care about deficits. Let’s ask ourselves the basic question, in the next ten years, which scenario is better? $50 trillion in total government federal spending where all, quote, balance, or $25 trillion in total federal spending after it’s borrowed. I’ll take the deficit scenario any day of the week. The problem is all the money being spent by politicians. Because every dollar that gets to congress means it’s an extra dollar of control Nancy Pelosi and Mitch McConnell and Chuck Schumer and Kevin McCarthy and Barack Obama and Donald Trump have over the economy. So the focus should be on limiting on how much they spend. Don’t worry about how they get it. Limiting how much they spend. And the idea with that is every dollar that remains in the private sector has better odds for entrepreneurs. Less government spending, more Jeff Bezos and more Steve Jobs, because these guys are the odd bods. And so we have to ask the question, we ask it positively. How many great entrepreneurial concepts that will give us new innovations and new forms of transportation –  make flight seem yesteryear. How many will miss out on if government consumes so much of the precious resources it starves the private sector? So I think the focus should always be: do you love Amazon, do you love your Apple iPhone, do you like your Nike shoes? Yes, we all do, and so wouldn’t we like multiples of Steve Jobs, multiples of Jeff Bezos]? Yes, I think we all would. Imagine our standards. Although the only way to get to that point is to match more and more talented driven people with capital. The only way to get to that is to shrink the burden of government. To shrink the taxation. All those things that limit the ability of wealth producers to direct their wealth to future wealth creators.

Hunter: Good, well happy is a good, a good method, good theme for marketing of economics. John, I wanted to thank you for joining us today and I wanted to thank you for your immense productivity in getting this happy message out. You’re incredibly high output when you look at all the articles and the book the podcasts and the webinars and so on like that. You’re getting involved and we thank you very much for who you are.

John: Well, thank you, Hunter, so much. Honestly it was so flattering, getting an email from you. It’s a great show. How lucky am I to have people who are actually interested in what I have to say? So I’ve been thrilled to come on and again, I just feel really lucky to be able to do what I do and so it’s, there’s immense joy in what I do, and that’s, if I can leave it there as I argue in the End Of Work, my 3rd book, the greatest gift of economic growth is freedom from work we despise. I’m so lucky to do what I do. I couldn’t not do it. It would cost a lot of money to get me to not do it because I enjoy it so much and maybe this is the greatest argument for the things we believe, again, freedom from work we hate. So I’ll leave it there. Thank you so much.

Hunter: Thank you, John. See you soon I hope.

John: Yes, please.

What’s A Good Entrepreneur To Do? Make A Profit, Thereby Serving Society In The Best Possible Way.

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A January 2020 Forbes Magazine article titled “Why Doing Good Is Good For Business” clearly left out critical information: who is the good or bad entrepreneur? According to the author, good entrepreneurs are doing good if their primary objective is not to make a profit. And bad entrepreneurs are doing bad if their primary objective is to make a profit.

Basically, the author suggested that, to be good, a business should not pursue profit and, along with it, customer satisfaction. Ignoring the profit motive is deemed more important than the entrepreneurial reward of profit that comes from providing a service or product to customers who demand value. The bad entrepreneur is only concerned with making money, surviving in the market, and serving consumers. The bad entrepreneur pursues charitable deeds but not at the cost of what consumers demand. You see, being the good entrepreneur only helps a few concentrated groups but ignores the diffuse effects of many consumers, profit rewards, and potential failure. What is the good entrepreneur to do?

Let’s be honest. If the entrepreneur is not primarily motivated by profit, what happens if the business fails or can no longer service its customers due to profits invested in nonmarket activities that do not serve them? Unfortunately, there is a public perception that does not allow entrepreneurs to pursue a profit motive only, because others must choose for them—they call them good entrepreneurs. They call them good if they subordinate the profit motive to lofty, nonmarket, eleemosynary endeavors outside the scope of producing consumer value.

Professor Walter Williams wisely advised: “Profit guides resources to their highest valued uses as determined by people’s wants and desires.”1 Should entrepreneurs disregard the profit motive, making it secondary, and replace it with nonmarket motives? What would the effect of nonmarket motives be on the entrepreneur and the customer? When Coca-Cola changed its formula, said Williams, it was because of customer preference. Consumer preference was a warning sign to the potential loss of profit which brought back the original formula! Actually, good entrepreneurs focus on nonmarket motives—endeavors that are outside their division of labor in the first place. Ludwig von Mises once asked, “What is the good entrepreneur to do?”2

Shouldn’t the primary goal of entrepreneurs be to remain profitable so that, at a minimum, they are able to run their businesses and continue production, which then serves customers who choose to buy their products and services? Don’t entrepreneurs deserve to earn a reward for taking risks and putting their livelihoods in jeopardy to procure materials and goods to bring to the market? To eliminate the profit motive is to ask entrepreneurs to provide their vital service to consumers perhaps at a higher cost than they would otherwise. Profit is not only the reward given by satisfied customers, but is also a market signal of what to do more of and what to do less of. You see, the good entrepreneur, not having a profit motive, primarily focuses on motives that do not serve customer needs.

Market Customers Are Ignored

For example, your local pizzeria owners generally do not know you personally, but they know that you want hot delicious pizza. That’s their motive. Fortunately for pizzeria owners, there’s a reward for preparing that pizza for you. But if your local pizzeria owners do not make a profit, they will no longer exist in your community to serve pizza. End of story.

Therefore, we must ask: are good entrepreneurs, motivated not by profit but by nonmarket issues, likely to be successful and stay in business? Why is there an expectation that entrepreneurs run a business without a profit motive? They can’t. The good entrepreneurs are nonmarket oriented and put profits into nonmarket endeavors aside from producing value for their customer; these nonmarket motives are placed before the profitability of the business and a value-added process for customers.

Having a motive other than profit poses a critical problem. Mises asked, “How can a conscientious entrepreneur persuade a banker or a capitalist to lend him money if he himself cannot see any prospect of a profitable return on his investment?”3 The good entrepreneur, in fact, must ignore customers and forgo profit for nonmarket activity, in which the entrepreneur has a great chance of failing due to financial instability and loss of customers.

What Is the Good Entrepreneur to Do?

When the profit motive is taken off the table as a primary objective, there are several consequences. There ceases to be a way to reward the entrepreneur over and above the costs of doing business. Someone must bear the consequence if the business isn’t profitable and struggles financially. Customers leave.

Good or bad entrepreneurs, if they wish, can be motivated by other things than profit. But the question remains: what cost are they willing to pay to keep the business from failing? Surely, there are other motives that can come into play, but does the entrepreneur who decides not to do what’s in vogue become a bad entrepreneur? Survival of the business comes first; serving consumers comes next. If good entrepreneurs fail, who subsidizes them? If bad entrepreneurs survive and continue to provide value, are they not doing what they are rewarded to do? Bad entrepreneurs can choose what they want to do with their profits, as long as it does not interfere with market exchanges and customer satisfaction.

There is nothing better than to support one’s community and do good deeds for others. However, we must examine a simple fact. If an entrepreneur is not driven by profit first, then a profit-driven entrepreneur will come along, do things better at a better price, and obtain a greater market share. This is a fact of the market process. The problem comes when the good entrepreneur is asked to be guided by nonmarket activities, as Mises stated. He said that entrepreneurs are viewed as “hard and selfish” if they are guided by a market position instead of a nonmarket position and asked, “What is the good entrepreneur supposed to do?”4

Market Consequences

How soon we forget that, as Mises noted, it is “consumers and not the entrepreneurs that determine the direction and scope of production”? In order to serve customers, entrepreneurs must maintain a profitable operation—this is what a good entrepreneur does. If the entrepreneur chooses to disregard the profit motive, customers will not be served. If they are served, at what cost?

Some expect to interfere with an entrepreneur’s business endeavor to pressure them to provide nonmarket outcomes. Basically, they expect the entrepreneur to run a business without a profit. But the same people demand products and services from the entrepreneur. The nonmarket profit motive does not work.

The entrepreneur operates in a market economy, where consumer signals regulate the production or service offerings of businesses. Is it feasible to ask that entrepreneurs use their privately-held resources for nonmarket endeavors notwithstanding the profit motive? Should I ask my favorite pizzeria owner to not be motivated by profit, yet demand he keep making those hot, yummy pizzas? Whatever motive the entrepreneur decides to assume, there surely will be a market consequence.

Nonmarket pressure groups demand that good entrepreneurs only be motivated by what they think is important or the latest nonmarket trend. The fact is, as individuals, entrepreneurs can decide what motivates them and pursue the means to that end. The main concern should not be whether the entrepreneur is primarily motivated by profit or not, but the diffuse effects on customers. Further examination is needed as to the costs in the market.

How do motives that are not based on profits bring results in a market economy? Does a secondary motivation other than profit negatively affect the survival of the good entrepreneur and/or consumers? If so, then we can assume that “the wishes of customers can be safely ignored because there’s no bottom-line discipline of profits.”5

Are you the good entrepreneur?

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  • 1.Walter E. Williams, More Liberty Means Less Government: Our Founders Knew This Well (Stanford, CA: Hoover Institution Press, 1999).
  • 2.Ludwig von Mises, Interventionism: An Economic Analysis, ed. Bettina Bien Greaves (Irving-on-Hudson, NY: Foundation for Economic Education, 1940).
  • 3.Mises, Interventionism.
  • 4.Mises, Interventionism.
  • 5.Williams, More Liberty Means Less Government.

Photo by Brooke Cagle on Unsplash

We Need More Entrepreneurs To Encourage More Entrepreneurship And A More Dynamic Economy.

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Most of the market activities in which entrepreneurs are engaged are readily seen. People buy and sell things or provide services at locations to paying customers. But if we examine the unseen activities, we will learn how entrepreneurship is a perpetuating market process. More entrepreneurs tend to create more entrepreneurship, both among themselves and by setting the stage for the creation of new entrepreneurs. That is, a population with few entrepreneurs produces few entrepreneurs. A population with more entrepreneurs produces even more entrepreneurs.

Real-world experience matters. Becoming an entrepreneur requires the knowledge and insight that come from being aware of previous market errors—the errors made in the trial and error of entrepreneurs who came before. Errors and missed opportunities generate market knowledge and information for future entrepreneurs. This is good news! If past entrepreneurs had not served their customers, made mistakes, combined inventions, transformed innovations into usable products, and finally become a success, then others would probably not consider pursuing entrepreneurship. There would be no such path to self-ownership.

It takes entrepreneurs to produce entrepreneurs. We cannot imagine a world without them. Therefore, it is not just the immediate consequences of hampering markets which makes self-ownership difficult for entrepreneurs. We must also examine the secondary effects on potential entrepreneurs of eliminating paths to entrepreneurship in the long run. Up-and-coming entrepreneurs must do three things: (a) choose an entrepreneurial path that already exists, (b) be mindful that there are market errors waiting to be made, and (c) find insights made by previous entrepreneurs.

Choose an Entrepreneurial Path That Already Exists

Where there is an economic climate for entrepreneurship, where one can “hit the ground running,” entrepreneurship naturally flourishes and prospers. A rise in propensity for entrepreneurship and self-ownership results in more business model imitation and makes the market ripe for one to follow in others’ footsteps. The saying “the greatest form of flattery is imitation” rings true for aspiring entrepreneurs who may hesitate in pursuing profitable market opportunities due to a lack of insight.

In a recent article, Alexander Hammonds discussed this topic. In many cases entrepreneurship has been suppressed or smothered by interventionist and antimarket policies, which makes it extremely difficult for many would-be entrepreneurs to identify a starting point to enter the market. This creates disincentives for new entrepreneurs to enter the market and pick up where others have left off. Thus, innovation and self-ownership are more likely to prosper in an environment where there is a history of entrepreneurship.

The market economy will always possess one relationship—the one between entrepreneurs and consumers. One will serve the other—the entrepreneur will serve the customer. The consumer will look for the entrepreneur who does it better. Just because it’s been done before does not mean you can’t do it over again or imitate it. Don’t just think outside the box, make the box bigger! The pizza restaurant has been replicated for centuries, but because of previous entrepreneurs’ mistakes, others have started pizza restaurants with their own spin. The restaurants down the street from you saw someone else do it and decided to do it differently.

Be Mindful That There Are Market Errors Waiting to Be Made

Randall Holcombe said, “The connection between entrepreneurship and economic growth is that these previously unnoticed profit opportunities must come from somewhere.” There will always be entrepreneurs who make errors in the market that produce insights for others to discover. The beauty of a free market system is that it creates opportunity for others. When a business misses an opportunity, another one can close the gap by making the product or service better. The critical question is: will there ever be a time when the market produces no errors? No.

Find Insights Made By Previous Entrepreneurs

Holcombe explained the critical role of entrepreneurial insights—insights that manifest themselves in the actions and thoughts of future entrepreneurs. F.A. Hayek advised that entrepreneurs must be able to act on these insights to continue in entrepreneurship. Entrepreneurs pick up market insights and pursue improvement through awareness, discovery, and knowledge. Future entrepreneurs must understand that even though it has been done before, it can be done again. I hear it all the time from people who say, “I had a good business idea. But it’s already been done.” Don’t let this stop you. Market insights provide other entrepreneurs the opportunity to close the market gap by creating a product or performing a service better than the entrepreneur before them. Insights are learned and market gaps are closed because of a favorable economic climate and a long history of entrepreneurial insights scattered like bits of pieces across populations.

If you are thinking about becoming an entrepreneur, know that your entrepreneurial predecessors have left behind insights that are waiting for you to notice and grasp them. Glean from the errors, mistakes, and missed market opportunities of others to create a better product or service for the consumer.

The Entrepreneurial Advantages of Building Human Capital While Young.

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While you were young, did you gain knowledge and learn skills that gave you the human capital necessary to become an entrepreneur or a small business owner? Human capital consists of the knowledge and habits developed as a youngster that form skillsets that later in life can be used in the business world. These skills are developed either through the family unit, culture, or regional location and determine the success or failure of entrepreneurial pursuits and performance. In the young, the development of skills and knowledge are applicable to future ventures in entrepreneurship or small business ownership.

Everything you learned from family dinner conversations and your culture served to build your human capital. Across the globe, the people of various regions cultivate certain skills that enable individuals to consider entrepreneurship as a viable choice of work. Some of you never had the social or family setting that gave you entrepreneurial insights. Some people get this while they are young, and some do not. Acquiring human capital at a certain age bolsters the chance of entering entrepreneurship or small business ownership. If human capital or business insights are not embedded culturally or acquired at a certain point, some individuals will never consider entrepreneurship or be successful at it.

We cannot all become successful entrepreneurs, especially if only a few of us come from a cultural background that rewards an ethic of hard work and related values versus a cultural background in which achieving entrepreneurial success is never even thought of.1 What is valued in the family unit and what is rewarded or praised contributes to our future entrepreneurial skills. Ludwig von Mises noted, “the inequality of men, which is due to differences both in their inborn qualities and in the vicissitudes of their lives, manifests itself.”2 The region of the world in which one lives and the context of the acquired human capital skills are equally vital to having an entrepreneurial skillset.

We hear from many entrepreneurs, and those who are not entrepreneurs per se, that much of their education occurred around the family dinner table, or that they lived in a place where small business activity was plentiful.3 Human capital that is based on family, culture, and regional differences has consequential effects for many considering entrepreneurship.

Cultural factors are critical in developing entrepreneurship. Often these cultural factors are overshadowed by the technical aspects of operating a business—the seen versus the unseen. Parents and the elderly pass on their values to their children, values such as taking risks, being independent, challenging uncertainty, etc. Children who are rewarded or not rewarded will either be encouraged or discouraged to pursue entrepreneurial activities in the marketplace. If a child is never taught to be independent, how is he or she able to systemically think of and identify potential profit opportunities and bring opportunities to fruition?

Habits form over time, and many are culturally based. In some cultures, some children spend up to twelve hours a day playing videogames and entertaining themselves on social media. In other cultures, children are expected to work long hours helping mom and dad with their business or studying to earn the best grade. These youths may work at an uncle’s garage learning all about vehicles or attend college to gain business knowledge. In either situation, these youths are learning about private property, e-commerce, revenues, profit and loss, bookkeeping, and so on—gaining skillsets and knowledge in order to run a business of their own in the future.

Generally, whatever is cultivated in the family unit and culture will manifest and have consequences in the marketplace. Children who acquire a work ethic and values related to entrepreneurial success will have an advantage over their peers who have not had the same experience. The children who have not learned these things will have a much later start or never acquire the skills and the know-how needed to pursue entrepreneurship or small business ownership.

Not everyone has an equal opportunity to become an entrepreneur, as some must acquire a collection of basic skills, knowledge, and habits that may take decades to develop. Taking risks, working longer hours, and making critical decisions require a certain upbringing. Entrepreneurs are not created overnight but over time. However, ten years of working with mom, dad, or an uncle as a youth, gaining practical knowledge, surely provides advantages later in life.

We cannot disregard the location and region in which we lived during the time of our early human capital acquisition. Being located in one region of the earth versus another can surely impact our ability to develop a predisposition or entrepreneurial insights needed for entrepreneurial behavior. Perhaps we live in an area where several industries exist. Being surrounded by these industries allows us to either work for or start a business in a vein that is familiar to us.

As with any location or local market, our human capital can be stymied in a region or location where a product or service is not valued or not supported although it might be highly valued in another market (i.e., if one has to take their product knowledge to another region where the consumers have higher subjective valuations of their productive goods or services).

Unfortunately, the opportunity to attain the same human capital at the same time and place that leads to entrepreneurship is not equally available to everyone. Without the requisite human capital, one can only dream of becoming a successful entrepreneur or business owner. Families and family cultures vary among peoples across the globe, and so does the dissemination of knowledge at the family dinner table. We all come from backgrounds that either reward or punish certain behaviors that later transform into predispositions and values that underpin our ability to, at a minimum, think like and be an entrepreneur. Ludwig von Mises said that entrepreneurs “owe their position exclusively to the fact that they are a better fit for the performance of the functions incumbent upon them than other people are.”4 An interpretation of Mises on this point is that the skills and knowledge develop over time that enable entrepreneurs to uniquely perform the production of products and services for the consumer.

  • 1.See Thomas Sowell’s The Quest for Cosmic Justice. In the section titled “Freedom versus Equality,” he discusses equal performance and social barriers.
  • 2.See Ludwig von Mises’ Planning for Freedom.
  • 3.See Ryan McMaken’s article “Three Economics Lessons I Learned from My Dad.” For example, three lessons that he learned were: lower the cost of doing business, politicians drive up the cost, and the world is always changing.
  • 4.See Ludwig von Mises’s Human Action on the Entrepreneurial Function.
Author:

Raushan Gross

Raushan Gross is an Associate Professor of Business Management at Pfeiffer University

Why Do Entrepreneurs Miss Market Opportunities?

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In his salient book, Capitalism, Socialism and Democracy, Joseph A. Schumpeter explained that introducing new methods of production and new commodities to the market is inconceivable under perfect competition. But the reality of real-world competition is that some individuals capture opportunity and others miss it. Some entrepreneurs have more knowledge about market conditions, and others have less knowledge. Some react and move quickly, and others react slowly. Businesses do not just fail—they miss entrepreneurial opportunities in the market, failing to react just in time to consumer changes.

Because Austrians conceive of the market as a process and competition as inspired by market participants, entrepreneurial innovation is the only way for a firm to survive. The notion of missed opportunities is rooted in Friedrich Hayek’s focus on knowledge and Israel Kirzner’s interaction between the nature of the market and discovery. The fact is, you don’t know what you don’t know, until you do know. Then what do you do with the new knowledge?

In an era of constant change in consumer preferences —from conventional retail to omnichannel retail, for example -many firms will undoubtedly miss entrepreneurial market opportunities because they are not learning from market signals. The question is: What did you learn, and when did you learn it,  after conventional consumers turned into omnichannel consumers and you realized what they want most?

Many businesses do not just fizzle out—they do not learn the Austrian view of market, competition, and knowledge and, therefore, miss market opportunities. Chains and established firms used old methods in a new competitive market and disregarded the metamorphosis of consumers from conventional to omnichannel—from ones who go to a brick and mortar to ones who access multiple sites (i.e., website, social media, your brick and mortar via phone, desktop, etc.) to purchase what they want. These businesses did not learn from past experience how to improve their market position. They did not heed the market signals the consumer gave them to cater to their newly emerging preferences.

We are now living in the Schumpeterian era of innovation and quick-to-market activity, which is the consequence of omnichannel consumerism. For entrepreneurs who are not on this innovation wave, providing goods and services at the time and in the manner the consumer wants them, it is an era of missed opportunities.

What is the real function of the entrepreneur in a market economy? Schumpeter raised a significant point in this context that needs revisiting. The function of the entrepreneur is to be the disruptor–innovator. When has this been forgotten or misconstrued? Schumpeter made it very clear that entrepreneurs have a vital function in the market economy. Their market actions are to find new methods and novel ways of combining and recombining resources to meet the subjective valuation of the consumer—omnichannel or otherwise. Schumpeter said,

…the function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on.

Ludwig von Mises, Kirzner, and Schumpeter agreed that market adjustments are based on consumers’ perceptions, taste, and preferences. These changes might account for why many firms close their doors and discontinue their services. What does this mean for existing market players who may otherwise miss opportunities during these rapid market adjustments? The panacea for many is to follow the market changes so that you do not miss entrepreneurial market opportunities.

Market distortions and economic interventionist policies made by the government can make these market opportunity signals foggy and unclear, which is why you must consider following the adjustments created by consumer valuations. To receive the right signal and eliminate the fog, consider the following reasons why entrepreneurial leaders miss market opportunities:

  1. Entrepreneurs fail to see what consumers want.
  2. Entrepreneurs do not co-create with their consumers.
  3. Entrepreneurs do not foresee the consumer transition (from conventional to omnichannel).
  4. Entrepreneurs have not developed feedback loops between themselves and their customers (i.e., business to consumer or business to business).
  5. Entrepreneurs have not learned from previous experience new ways of product/service bundling in new market conditions.
  6. Entrepreneurs do not combine and recombine resources just in time.
  7. Entrepreneurs cease searching for discoveries within and between new or existing markets.
  8. Entrepreneurs have not acknowledged that entrepreneurs and consumers have incomplete and sometimes error-prone knowledge.
  9. Entrepreneurs remain sticky about what works and neglect consumer-oriented just-in-time opportunities.
  10. Entrepreneurs miss relationships with consumers; they do not ask questions, learn, and respond appropriately.

The correct timing of innovation is never clearly signaled. Entrepreneurs do not know the future of the market  so they can’t act  “just-in-time”. Why? Because, according to Kirzner, other entrepreneurs are consistently making entrepreneurial errors as they pursuevarious ends, consequently changing others’ plans. That is, every market participant has error-prone knowledge and is subject to missed innovations and opportunities.

How can entrepreneurs rid themselves of knowledge that contains errors and avoid foggy market signals? Little bits of knowledge are scattered everywhere, making it possible for some entrepreneurs to get it right and adjust. Successful entrepreneurs judge the market correctly, as Kirzner reminded us. But numerous others judge the market wrong. They do not correctly or clearly anticipate what was going on through the fog. It is errors in judgment, fogginess, and inability to see what is ahead that leads to missed entrepreneurial market opportunity.

That knowledge is prone to error and that market sends distorted signals to entrepreneurs (through no fault of their own) are not the result of market failure but a result of market adjustments that result in missed market opportunities. The idea of missed market opportunities in not the same as opportunity costs. Missed market opportunities occur after learning something new, adjusting to consumer valuations and applying the new knowledge. The omnichannel consumer is changing the market. Entrepreneurs—the disruptors/innovators—must alter their market approach. Those who lag behind market changes will miss market opportunities. Remember, the consumer is entrepreneurial, too!

Entrepreneurs, in the Austrian sense of the term, must find the innovative wave and jump in just in time to reap the benefits of market activity from missed market opportunities based on previous consumer interactions. Market–oriented entrepreneurs realize that they have a small window to adjust, employ innovations, and capture conventional consumer valuation while simultaneously reaching the omnichannel consumer—just in time.