Inspired By Capitalism, Not By Inspirational CEO Speeches.

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There are many conversations going on about the purpose of firms. Should it be the single-minded pursuit of shareholder value, as Milton Friedman is adjudged to have advised? Is it to create value for all stakeholders, including employees, neighbors, and lobbyists for the natural environment? Or is it solely to create customers by bringing them value, especially through innovation, as Peter Drucker famously proposed?

There is another entirely different point of view, and it comes from environmental economics, looking at business as a component of the great ecosystem we call the economy. The purpose of a firm is to survive, just as the purpose of any species in the great ecosystem we call nature is to survive. Survival can sound like a mundane and unambitious goal when we evaluate it in the hyperbolic language of business literature. Business should be about achieving great and altruistic things to change the world or save the world, eliminate poverty, reverse climate change and elevate the quality of life.

In fact, survival in any ecosystem is brilliant and rare. When we look at species over the long time frames employed in anthropology, we find that very few survive. To do so, they must evolve better. They must innovate and improve continuously to achieve greater fitness to operate and thrive in a rapidly changing ecosystem in which many competing species are also aiming to survive and thrive. Competition generates greater fitness. Some succeed, most fail. Those who survive contribute more to the overall good of the ecosystem as well as finding sustainable niches for themselves. It’s a great achievement to survive, and it requires making a great contribution.

We can confirm that survival is rare for firms, too. In the original Forbes Top 50 corporations from 1917, only 2 have survived under their own name or largely their own name: American Telephone And Telegraph, and General Electric. No-one would argue that these two companies, now better known as AT&T and GE, look anything like they did in 2017. But they survived. The other 96% did not.

Survival, therefore, is a great achievement, especially over an extended period of time. Why is it so disdained? Because it does not fit the modern business mold of the inspirational CEO. Modern business literature does not contemplate survival and all the adaptations and innovations and systematic explorations of possibilities and competitive fitness trials it entails. Today’s commentators prefer the metaphor of the inspirational talk of the sports coach at half-time to the losing team that has fallen behind but is eager to turn things around. They don’t know how, but the coach knows: it’s about emotion, not content. The team must be inspired. He or she gives the inspirational talk. Reach for the stars! Now is your time! You can do it if only you recognize your own powers!

Systems thinking, it is said, can’t achieve this emotional inspiration. Mere survival can’t compete with the inspirational comeback against all odds. It lacks spirit. It’s not elevating enough.

Survival in evolution is an algorithm: differentiate, select, amplify. Different species emerge through genetic mutation and development, they are selected by their environment via their greater or lesser fitness, the less fit ones die off and the more fit ones learn from the outcome and replicate and innovate. It’s the same for corporations: they differentiate via their business models, products and services and brands; the selection process of consumer selection (buying or not buying) and competitive striving weeds out those that are less fit, and the strong ones find ways to grow and improve and earn profits.

Uninspiring? I think not. In fact, a CEO could even turn the evolutionary algorithm into an inspiring speech at the annual conference.

Friends, colleagues,

I believe deeply in capitalism, and I believe you do, too. Capitalism is the human system that has proven to improve all lives, to deliver prosperity, comfort, and peace; to enable individual and shared achievement; to produce great industries and great art, great and sustaining infrastructures of transportation and production and supply; to facilitate great art; to advance great technologies and produce great cultures; to elevate families, communities and civilizations.

Corporations play a vital contributive role in this system. They make it work, by transforming human knowledge and research and curiosity and drive into outputs of goods and services and innovations that are the substance of capitalism and of civilization. The great buildings, the great cities, the great networks, the great machines, the great discoveries of healthcare, the great institutions of learning, the great books, the great scientific achievements are all – directly and indirectly, and mostly directly – the outputs of corporations. The human mind developed corporations to do the job of production.

To earn a lasting position in the system of capitalism, a corporation must meet great demands and sustain high – indeed increasingly high – standards. First, it must be different and better in serving its customers. In the system of capitalism, customers are given the privilege and the power of choice. They have many products and services to choose from, and many corporations to choose as providers. They choose those that serve them best, and a corporation must meet that standard. And it must meet the standard not just today, but tomorrow and far into the future. Because of the nature of competition – where many corporations strive to meet the customer’s standard better – every corporation must improve its service every day. To sustain a shared future, it must improve continuously not just day after day, but year after year, and decade after decade.

Your corporation – and therefore, you, since you are this corporation – chooses to meet this ever-rising standard. We choose to compete by being better at serving customers in our chosen field, a field that they originally designate for us by expressing their desires, and in which we co-create a better future together.

It is the nature of things that we can’t perfectly forecast this future. So, in collaboration with our customers, we employ your creativity in devising and running experiments in improving lives even further than they have been improved to date. The purpose of these experiments is discovery, to find out new paths to prosperity and, in the spirit of differentiation, to go where no corporation has gone before. How will we know if we have cut a worthwhile path – customers will tell us, they will celebrate and reward our creativity, and they will enjoy the new place we have discovered together. We in the corporation will feel fulfilled when they do.

When we  – jointly with our customers – identify that rewarding new place, we will enhance it, build further, strengthen it and adorn it and develop it and make it even more attractive. The genius of our customers is that they point the way, always encouraging us to be better, to do more, to find new creativity. We will never cease in our efforts to live up to their genius.

I am delighted that all of us in this corporation are united and aligned in this great journey to the future and I believe that, if we continue to meet the customers’ highest standards, we can continue the journey for decades, and for generations.

Uninspiring? I think not. Capitalism is the ecosystem. The corporation is a species. Meeting great demands and raising standards is survival. Differentiating and innovating and improving is the strategy. Customers are the judge. Creativity is exploration. Multi-generational success is the goal. It’s systems thinking. Survival is the rare and brilliant outcome, cheered on by customers and continuously stimulated by competition.

Seven Business Secrets Of Austrian Economics.

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There’s a brand of economics that goes by the name, in academic circles, of Austrian economics. If I was the brand manager, I would re-brand it, in much the same way that Chrysler (now part of Stellantis) rebranded their truck line from Dodge To RAM. The RAM name is far more communicative of important core attributes like sturdy engineering, power, reliability, and assertiveness than is Dodge. RAM sales have been robust, and so, while we wouldn’t claim to know cause and effect, we might assume that the brand name did not hurt and may have helped.

Austrian economics got its name way back in economic history when the rival, incumbent brand of German economics got annoyed at the disruptive thinking of some young economists from the University of Vienna, and dismissed their ideas as merely “Austrian”. To the Germans, Austrian meant a smaller, subsidiary, irrelevant group that had no place on the world stage.

The disruptive body of thought stuck, however, and made great strides, because it’s more useful to real people than conventional academic economics. It provides better mental models to work with. For producers, Austrian economics is the economics of entrepreneurship and value generation. For consumers, Austrian economics is the economics of individual satisfaction.

From the point of view of entrepreneurial business, of any size from single practitioner to start-up to mid-size to mega-size, here are seven secrets of Austrian economics that can be usefully applied for the achievement of business success.

Understanding Subjective Value

The purpose of business is to generate value. Austrian economics enables businesses to understand value in a new way, and, consequently to generate more of it. Curt Carlson, the authority on value creation, weaves wonderful value stories. in one of them, he imagines the iPack, a wheeled robotic suitcase that will follow you through the airport without effort on your part, via its electronic tether to your iPhone. He goes further, to imagine the iPack understanding your calendar well enough to ship itself to Singapore to your hotel to await your arrival. 

Where is the value? It’s not the physical case, and it’s not even its functionality, beneficial though it will undoubtedly be. The value is the feeling that’s created in the mind of the customer, both in the form of anticipation of relief of a travel hassle (“What a great value that will be! I’ll gladly pay for it”) and in the after-evaluation of the experience (“That was the most convenient trip ever!). Curt writes:

It is the space in the minds of potential customers. It is important to them because they have an imagination and an expectation for continuous betterment. The white space for iPack is future travel, which customers can imagine (going to Singapore through Hong Kong – what a hassle) and they have expectations for betterment (wouldn’t it be great if somehow I didn’t have to carry my bag).

Understanding value as a feeling, as the expectation of delight and the evaluation of that delight, unleashes the value generation process. 

Customer Sovereignty

In the value generation process, the customer is the boss. What the customer says, goes. If a business is unable to conjure the anticipation of delight, new products and services will not be adopted; they’ll never get off the ground. If the business does conjure the anticipation of delight but does not deliver, resulting in disappointment, the customer will not only walk away, they might even destroy the business’s reputation with negative word of mouth. The customer truly decides what is produced, and what succeeds in the marketplace. They decide on prices by establishing their willingness to pay – there’s no point in setting a price that’s higher than this level.

The full acceptance of customer sovereignty changes completely the traditional way of thinking about business. It is typical to think of business as production, as a sequence of steps from conceptualizing a future value, through designing a way of delivering that value, to realize it through exchange in the marketplace. It’s a forward-facing sequence of producer-driven action. 

But the opposite mindset is the right one. The true nature of business is working backwards from the customer experience, which is where value originates. If there were no customer experience, there’d be no value.

Entrepreneurship

Who creates value and how do they do it? Obviously, customers are key to value, because they are the ones who experience it. They need a partner because they can’t conjure up value by themselves. They need a producer. That’s the role of the entrepreneur. The entrepreneur – or the entrepreneurial process when it takes place in companies and corporations – performs the function of sensing what consumers and customers want, doing the hard work of designing and producing it, and presenting it to the customer as an option for them, a new choice, a better alternative. There’s uncertainty on both sides. The customer doesn’t know what to want (they couldn’t have designed an iPhone before Apple made one, they just knew they wanted a better phone experience). And the entrepreneur doesn’t know for certain that what they design will align perfectly with what the customer wants. This coming together in eventual alignment is the beauty of entrepreneurship and also its risk.

Entrepreneurship requires a very special empathy between producer and customer, and when this empathy results in what economists call exchange – willing buyer, willing seller, both happy – there is progress, and the world is a better place.

The entrepreneur doesn’t exist in conventional economic textbooks or theory. Entrepreneurship is at the very heart of Austrian economics. Austrians see that entrepreneurship creates betterment, economic growth, happiness, and satisfaction.

Action

Entrepreneurship is difficult, sheathed in multiple challenges. It has typically been portrayed as high-risk. Entrepreneurship might result in failure. Look at all the projects that are started and don’t succeed.

An entire tradition in business schools has been developed to purport to eliminate these risks. Business school professors sell their courses and lectures and books and presentations to present and future business managers on the promise of control and prediction. You can control the future with good planning and strategy, according to the professors, and predict the future outcomes.

Austrian entrepreneurship takes an opposite approach. The future is unpredictable, so the task is to find out what it will be, not to control and predict it. The axiom of entrepreneurship is action. Act, don’t strategize, and don’t plan. Action takes the form of experiments and explorations: try this, what about that? The entrepreneur reads the feedback data from the experiments (did the customer react positively or not?) and adapts to it, making changes and adjustments, or abandoning that experiment and trying another. This is the culture of the start-up as well as that of the agile management method. Fast, tight feedback loops replace the strategic planning process and the 100-page business plan.

Imagination / expectation

Conventional economics favors numbers and mathematical models. At the core of Austrian economics are imagination and expectation. Customers imagine a future that’s better in some way than today, but they’re not sure how it will come about. All they can communicate is their expectations. Entrepreneurs sense this, and imagine the kinds of new solutions and new services, and new products they can offer to meet consumer expectations.

Imagination is a robustly powerful business tool. Entrepreneurs can imagine new services that don’t exist, new processes that have never been used, new lines of code that might unlock some new functionality, and new organizations and structures that might unleash creativity. Their expectation is that, if they act, they’ll learn something positive and identify a future benefit.

Imagination is human, creative, and expansive. It’s about possibilities. Conventional economics tend to focus on scarcity, but entrepreneurial economics is much more focused on abundant possibilities.

Co-generation / value learning

Who produces value and who consumes it? That’s the kind of bi-valent logic that leads to restrictive thinking. Value generation is a collaboration. Customers need to be creative enough to imagine a better future, and to seek improvements in the status quo. Entrepreneurs need to be alert enough to understand customers’ yearnings and creative enough to think of new ideas that can potentially fulfill them.

There is a learning process for both customers and entrepreneurs. Customers are learning what to want, and entrepreneurs are learning what to offer them. They both learn by experience. The customer tries something new, experiences the usage of it, then stands back and evaluates that experience. That’s where value arises: in the customer’s evaluation. The entrepreneur observes and monitors that evaluation, seeking feedback from which to learn. Co-generation of value and shared value learning are the characteristics of Austrian economics at the level of the individual and the firm.

The Flow

An important underpinning to Austrian economic thought is to view markets and value and customer relationships as flows. The world, the economy, life, and business are in constant flux. There are so many actions and interactions that they can never be understood or captured in snapshots, such as today’s price or today’s market share, or today’s sales, or this month’s GDP figures. Snapshot thinking is static. Austrian entrepreneurs see the market and their business and the mind of the customer as flows. Always changing, never still. Perhaps a trend or a pattern can be detected, but these tend to be imagined by looking backwards then projecting the past into the future and this is dangerous. The flow is not predictable or projectable. The best entrepreneurs embrace the flow, keep the pace of their experiments high, make continuous adjustments and adaptations and revel in the unrestricted wonders of adaptation to complexity.

These are just seven of the ways in which Austrian economics is applied in creative and innovative businesses. More and more entrepreneurs – both inside and outside corporations – are adopting the principles of Austrian economics.

The Coming Dominance Of Small Business.

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Anyone can create value with anyone else from anywhere: value is freely created. That’s the new feature of the emerging digital age of business. Digital technologies have been around for a while, but the digital business economy is just getting going.

More significantly, tomorrow’s structure of business promises to be much different than today’s. The path forward to a new, high-productivity future in the digital age is more likely to be paved by micro-startups than tech giants.

But the new structural patterns in business are not confined to technology industries. One example that comes to mind is the craft beer industry. Growing from a minuscule level of commercial significance in its industry in the last century, craft beer now represents about 25% of beer revenues in the US. Moreover, this new segment has introduced dynamic innovation in recipes, flavors, label design, bottle style, and usage occasions (like beer flights on brewery visits). Craft beers command higher unit prices and higher unit dollar profits. The big brewers are scrambling to keep up.

Size and scale are not the economic variables that matter for craft brewing. And industry dominance by a few mega brewers turns out not to be the natural structure for the beer industry. Creativity and innovation are what count, rather than manufacturing scale. In fact, according to Beverage Daily, “small is the new big” in brewing. 

Recipes are free – they come from the imagination. Raw materials are low cost. Brewing equipment can be purchased at low cost, borrowed, rented or made. There’s a flourishing online community of enthusiasts and experts and mentors to help with everything from P&L structure to sourcing. Entry to the industry is open. It’s easy to be a micro startup in brewing.

The trend in favor of micro startups is even more marked, of course, in digital technology industries. When production capital is code, which, like beer recipes, is a creative product that can be made from the imagination, then the “manufacture” of digital products is open to all.

More broadly, there is a raft of reasons for a surge in small business in the economy, in all industries.

A new relationship between people and capital.

In the traditional left-leaning depictions of capitalism, there are two separate groups: capitalists and the rest of us. Capitalists are privileged and endowed owners of production capital and financial capital, and the rest of us work for them. We can’t cross the divide from worker to capitalist. Nothing is further from the truth in 2022. Capital is now highly distributed and available and accessible for all. What used to be fixed capital is now rentable via the cloud – Amazon Web Services being the most notable example. No need to own servers and infrastructure. Entrepreneurs don’t need real estate or a storefront. Nor do they need a factory when they can 3D-print products, or rent factory time. Product designers are available for projects or by-the-hour through high-trust apps and services. 

It’s a similar world in financial capital. Lending platforms, angel investor networks, fintech apps and crowdsourcing are all available to channel investor money to promising startup ideas. The new relationship between people and capital operates in financial capital equally as well as it does in production capital, distribution capital and human capital.

Tho power of networks.

One of the great breakthroughs of the digital age is that anyone can connect to anyone else, and to any other resource. There’s no need to build a big firm; just assemble all the components required for one via digital interconnection. Entire supply webs from component manufacture to assembly to shipping to retailing and home delivery, plus the requisite financial services such as insurance, can be woven together digitally without any requirement for infrastructure ownership. There are expert, experienced organizers and integrators and managers for hire. Digital reporting facilitates real-time monitoring and control. 

Micro-specialization. 

Because all the support services are available and on-call, the startup entrepreneur is able to focus tightly and entirely on their one unique value-creation contribution. Peter Thiel in the book Zero To One, a foundational text for high tech startups, recommended that every business seek to be a monopoly, i.e. so highly differentiated that no competitor could match or replicate or under-price their product or service. 

Ever since 1776, when Adam Smith wrote about the division of labor in a pin factory that raised output by 1000%, business has understood that specialization can drive local productivity. Now, in the digitally networked economy, micro specializations can be interconnected for unprecedented multiples of global productive capacity. The individual nodes in this network, entrepreneurial businesses, seek more and more highly focused specializations to maintain and reinforce their differentiation, their pricing power, and their brand uniqueness.

What kind of businesses can sustain such productive specialization? Small businesses.

Knowledge availability.

Peter Drucker famously stated that business is knowledge applied to knowledge by knowledge workers. In the digital world, knowledge is freely available and shared at speed, and as new knowledge is created by A.I. or machine learning or experimentation, it is instantly distributed. Entrepreneurs who need knowledge can find it, or can locate someone with the requisite knowledge who knows how to apply it and how to combine it with others’ knowledge in some new combination that represents an innovation. 

Knowledge becomes a universal resource and less easy for big corporations to claim for their own.

Technologies 

Technologies are evolving at speed. Small business entrepreneurs don’t need to invent technology or even originate new uses; they just need to keep up with the evolution. The cloud, IoT, data science and advanced analytics, and robotics are just a few examples of a broad array of evolving technologies. Participation in the technology ecosystem keeps entrepreneurs on a leading edge of innovation without needing to be inventors. Entrepreneurial firms can move quickly and compete effectively by treating technology as a flow that carries them along rather than an investment that locks them in.

This, then, is the future for small business: get smaller, all the way to micro. Integrate with evolving tech ecosystems for momentum. Network with other specialists to form powerful business systems. Get infrastructure capital from the cloud and the internet, and financial capital from the fintech universe. The future structure of business is small and networked, not big and dominant.

Creativity Is Protest.

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Where does creativity come from? Ex nihilo – from nothing. Neurons in your brain somehow reassemble themselves into a new pattern, following a new path to a different arrangement. You recognize the pattern as different than those that have gone before. Presto! You are creative! Everyone can be creative. Everyone is creative.

Next up is the way in which you apply your creativity. In business, we usually associate it with newness and novelty: invention, innovation, improved products and services, better communications, greater efficiency, emergent ways to generate value, grow business and widen margins and make customers feel better. Creativity is a pathway forward, a way to open new doors, see new vistas, and open up new possibilities.

Creativity also does the opposite. It reveals how the old ways of doing things were inadequate, or at minimum how they can be improved or replaced. The opening of new doors is the closure of old ones. Creativity abandons error and leaves it behind. Creativity is the history of civilization, continuous movement in the direction of betterment. Sure, there are times when we can observe steps backwards, but creativity always makes us aware of them and relentlessly pushes in the other direction.

Creativity, therefore, is a form of non-compliance – non-compliance with erroneous beliefs, with bad policies, with lies and misinformation, with science that is non-scientific, with statistical analysis that draws the wrong conclusions and finds causation where there is none, and with bureaucratic regulations that limit choices. It’s non-compliance with the refusal to change, with the failure to adopt, with the reluctance to explore.

Creativity, then, is protest. It criticizes, not by pointing out the weakness and error of the status quo, but by imagining the future where the status quo is replaced. Imagination is the superpower of creativity. With imagination, we are able to conjure up future possibilities – counter-factual by definition, since they don’t currently exist – and examine them in our mind, size them and add shape and structure and color. We can connect and integrate our imagined possibilities with others, or with existing structures and institutions and contexts, and ascertain how the interface and interconnections might work. We can build a new machine in our imaginations and rotate it and view it from different angles and under different conditions. If we decide it’s better than what we’ve got now, then we are protesting the present, saying it’s not good enough, it won’t do.

In business, this is innovation. In research, it’s discovery. In the arts, it’s expression. Creativity is exciting and energizing. Creativity is the way forward.

But in politics and government, it’s unacceptable protest. The revelation that there can be a better way is not permitted. Creative people are to be suspected. They may even be terrorists, unleashing the terror of novelty and expanded boundaries and new frontiers. In politics, creativity is terrible knowledge: the knowledge that the current state of things is inadequate, moving in the wrong direction and condemned to inevitable ongoing decay.

What is bitcoin? Pure creativity – ex nihilo – and a protest against the institutional abuse of money and against central bank policies of continuous debasement of fiat currencies. What is e-commerce? Creativity – and a protest against inefficient brick-and-mortar retailing, poor in-store service, out of stocks, and mis-sizing. What is free entrepreneurial software? Creativity, and a protest against expensive, uncustomized, enterprise technology. What is cloud computing? Creativity, and a protest against inflexible server tech. Creativity is always a protest.

When we are faced with the rigidity of bureaucracy and government regulation, the answer is creativity. Not rioting in the street or burning down buildings or invading the Capitol. Not even voting – that doesn’t change anything. The right approach is creativity – asking what could be different, exploring how things can be different, trying out new ideas locally or in your community or in your church or your YouTube discussion group. Look at parallels in other industries and institutions. What rigidities did people face and what were the creative ideas that got around them? How did they grow and flourish? What did it take? What experiments were conducted?

A beautiful aspect of protest in the form of creativity is that it’s not a lonely fight against the majority. Because every creative protest is an exchange. Bitcoin is an exchange, otherwise it’s not an alternative money. E-commerce is exchange, otherwise it dies or never takes off. Free software is a valid alternative only if someone produces and someone else uses. Cloud computing needs a server bank in place and someone with a device to interact with it. Exchange requires two mutually aligned parties, the willing seller and the willing buyer. If you view your own creativity as protest, you’ll test your own validity and the validity of your ideas through exchange – who agrees, who understands, who supports, who adds new value by building more upon your foundation?

Please be creative. Make the world better. Protest what’s unacceptable by imagining what’s better. Share with others. When you find some that agree, you have a movement. Let’s get to it.

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

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

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

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

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

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

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

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

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

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

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

Do We Need The Contra-Capitalist Big Corporations?

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

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

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

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

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

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

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

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

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

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

Bureaucracy

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

Loss of speed

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

Regulation

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

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

Financial engineering

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

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

Defensiveness

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

Contra-capitalist

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

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