A podcast based on the winning principle that entrepreneurs need only know the laws of economics plus the minds of customers. After that, apply your imagination.

14. C Jay Engel on The Entrepreneurial Life

Hunter breaks down the life of an entrepreneur with C Jay Engel, a successful digital technologist and author.

Show Notes

The entrepreneurial life is good for the individual, the family, society and civilization. Whether your entrepreneurial undertaking is something small or something huge, or somewhere in between, doing something entrepreneurial, utilizing your own resources, benefits others and is therefore heroic.

Successful entrepreneurs should not be called upon to “give back” to society. The entrepreneurs’ role itself is socially beneficial. They make money by producing goods and services that consumers value more than the money they pay to acquire them. Society – in the form of the market – has its own feedback loop to tell the entrepreneur whether or not value is being created for others: profit is the signal that society is experiencing value, and loss is the signal that the entrepreneur got it wrong and is not creating value. There is no need for a bureaucrat to tell us.

But you don’t need a social purpose or a change-the-world idea, or even a monetary goal to be an entrepreneur. Just get started.

C Jay Engel started straight out of school. Entrepreneurship was stability; bread and butter. He had skills in project management and found that people needed those skills, and he developed a consulting business. He was able to try to expand in other areas, which took him into technology; successes and failures were part of the recipe, as was fun. He enjoyed himself and was able to develop as a person.

The pursuit of higher values can come later, when your entrepreneurial business matures and stabilizes.

Initially, C Jay focused on what was immediately in front of him. Plans shift quickly and new directions open up, and agility is required. You can’t plan your entire entrepreneurial life at the outset. Now – still in his thirties – he is able to reflect on what he calls “grander things”, like the legacy he will leave to his kids. Not the financial one, but the kind of world he can contribute to, that they will live in. He likes to think that there are hundreds and thousands of entrepreneurs all over the world doing the same thing to help bring about that good world. It’s an exciting and inspiring spontaneous order: entrepreneurs making a better world by helping individuals.

Is entrepreneurship especially arduous?

It can be. Think of Elon Musk. The task of getting people to Mars to establish a colony is pretty arduous. It’s less so if you’re setting up a consulting shop. But there is uncertainty to grapple with, and doing so requires a certain mindset. It’s a learning process, and trying different ways to handle uncertainty in the multiple different ways you’ll encounter it makes you a better, more developed person. Constant self-awareness helps you realize what you need to do to handle conditions of uncertainty.

Does that mean that a special set of personal attributes is required to be an entrepreneur? Is there a personality test?

We’ve had a number of guests talk about elements of entrepreneurship, like a bias for action, risk mitigation, and brutal determination. But these are patterns of behavior more than they are personality traits. C Jay’s advice is: just do it. Examine yourself along the way and you’ll find out your strengths. And when you find that there are places where you can strengthen yourself (or your team), that’s what other people are for. You can’t be highly successful without engaging other people, so focus on that rather than on any so-called “weaknesses” you may be told you have.

Technology helps you assemble not only your team, but also a full set of entrepreneurial resources. The entrepreneurial economy is highly collaborative.

Whether it is Upwork or LinkedIn or Alibaba or Amazon, technology can help you assemble a team, a full set of resources and a supply chain. You can find marketers and accountants and engineers and interconnect them all over the globe or locally, in a team. Team building and team motivation are core skills (and can be a limiting factor). Self-reliance does not mean the same thing as it did in the past. The rugged individual is not the driver of the market economy. In fact, the entrepreneurial economy is highly collaborative – self-supporting rather than self-reliant. Any capital you acquire depends on the entrepreneurs in the earlier stage who produced it for you, in anticipation of your needs. Price signals from other entrepreneurs guide you. No entrepreneur is alone. The invisible hand is actually visible – it’s the price mechanism connecting you to all the people and all the resources in the world.

How do we communicate this narrative to the world? The socialists are better at marketing than the entrepreneurs.

Such harsh words are used about profit, and yet it is the social signal of approval. People who are benefiting from capitalism, like Hollywood celebrities and Silicon Valley billionaires, do not understand capitalism and decry it. What should entrepreneurs do? Just keep working at entrepreneurship. Keep making life better for customers and everyone else. It’s also healthy to reflect on how you are benefiting people around you. If you have a chance to say something or write something and share an idea then take it. Doing so is itself an act of entrepreneurship. Our message will emerge from the communication efforts of individuals.

C Jay Engel himself has started Austro Libertarian magazine.

It’s a new publication located somewhere between the academic rigor of QJAE and the shorter articles of Mises Daily. Original content in longer form articles, in your choice of digital or a beautifully designed and printed physical magazine. For C Jay, starting a magazine is another example of economic action rather than political action.

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13. Per Bylund on Subjective Value

Per Bylund talks to Hunter Hastings about the value-centric model for successful entrepreneurship, and we provide an infographic to help you apply the model to your own business.

Show Notes

Subjective value is an important subject in economics — and even more so in entrepreneurship, where it is fundamental to what entrepreneurs do. It’s the critical factor in entrepreneurial success. Business schools talk about “creating value” and “value added” as if value creation were an objective process. But it’s not. And businesses can fail if they misunderstand value, because they can easily produce something for which there is no market.

Value is a felt experience, 100% inside the consumer’s head. Value is a satisfaction that consumers feel. It’s the result of an escape from or a relief from a felt uneasiness, or felt dissatisfaction. That’s often called a “consumer need” in business language, but unease or dissatisfaction are better words to describe what the consumer feels before the entrepreneur’s new solution is offered. Unease and dissatisfaction are hard to articulate, they are emotional conditions, they are affected by context and circumstance, and they can be inconsistent and idiosyncratic. The consumer feels, perhaps vaguely, that life could be better, or their current circumstances could be improved. Value is the feeling the consumer experiences in the period after having consumed the entrepreneur’s offering that relieves this vague feeling. They feel better – perhaps in a way that the entrepreneur never expected.

The consumer’s perception of value can change, in unanticipated ways, and very quickly. Take food as an example. Consumer needs are changing rapidly. There’s a new unease about ingredients and methods of production. It’s not exactly clear what the consumer “wants”, but their preferences are changing to include notions of holistic health and wellness, so that taste and calories and other attributes of food are less important to them. We can’t rely on consumers wanting today what they wanted yesterday. Just look at the problems big companies like Kraft-Heinz are experiencing as they try to keep up with this rapid and broad-based change in consumer preferences. And it is even harder to predict where the consumer is going next on this journey of change.

So, if value is perceived by the consumer, what do entrepreneurs really do? Do they create value, or add value, or something else? Per Bylund thinks of entrepreneurship as facilitating value. Entrepreneurs can’t create it and can’t add it. They design a value proposition based on their empathic understanding of what the consumer wants and of their sense of unease about their current circumstances, and they present this value proposition to the consumer. Then they must listen for and measure the consumer’s response to find out if the consumer is experiencing value.

Production must be designed with the consumer in mind. The consumer is the boss, and the production chain must reflect the consumer’s preferences and change with their evolving tastes. The economists refer to consumer sovereignty — the consumer determines what is value, and therefore which entrepreneurial initiatives are successful and which are not. The successful entrepreneur designs a production chain that can deliver value. In a very real sense, the physical and financial and human capital in the production process must be a reflection of the consumer’s preferences and desires. The consumer’s preferences determine the capital structure.

And since the consumer’s preferences are continuously changing, the successful entrepreneur practices a kind of capital dynamism that follows these changes and, to the extent possible, imagines where the consumer is headed, because production takes time and entrepreneurs are always concentrating on facilitating future value.

Advertising, marketing and communications are a fundamental part of the value proposition and not a supplemental part. The entrepreneur must tell a persuasive story about the value the consumer will experience. Advertising and marketing are ways of communicating to the consumer that there are new alternatives available to them — new ways to improve their circumstances and feel like life is better. Often, the entrepreneur is a pioneer, creatively interpreting the consumer’s need and developing a solution that the consumer might not have thought of on their own, but which they’ll embrace when they find out about it. Sort of like the Model T the consumers got in place of the “faster horses” they asked for in the (probably apocryphal) store about Henry Ford. Advertising and marketing tell the entrepreneur’s story, and they’re an important and integral part of the value proposition.

This consumer-first (or customer-first) process works in B2B businesses as well. When selling to or supplying a B2B customer, it’s important to know the customer’s individual preferences and needs, which are subjective — the need to feel satisfaction — in just the same way that the consumer’s needs are subjective. In fact, since the ultimate consumer determines what is valuable throughout the production chain, an entrepreneur who is knowledgeable about the B2B customer’s end consumer can establish an advantage. Being able to demonstrate (1) a deep knowledge of the end-consumer’s needs (especially when they are changing), and (2) how to bring the B2B customer’s position into greater alignment with those needs, makes the vendor-entrepreneur an especially important partner. The B2B customer will experience their own sense of satisfaction and value in the exchange.

The entrepreneur who adheres to a value-centric process has the greatest chance of success. The entrepreneur’s process of thinking must start at the consumer and work “backwards” to production. The entrepreneur must live inside the consumer’s mind, and employ empathy to understand the consumer’s subjective needs and wants. From an empathic diagnosis, the entrepreneur designs a product or service and a value proposition and takes it to the consumer when it is ready. By this time, the consumer may have changed, and so speed and agility are mandatory. It’s easier said than done. But it is critically important, especially for a new business or initiative. For established businesses, when the consumer changes, it’s extremely hard to change with them.

Use our free download of the value-centric process for entrepreneurs to help you think about the stages of value facilitation.

12. Lisa Stevenson on Organizational Psychology And The Entrepreneurial Personality

In our ongoing project to build a solid bridge between the theory and practice of entrepreneurship, we explored the connection between organizational psychology and the entrepreneurial personality.

Lisa Stevenson studied I/O Psych as an undergrad, in connection with business courses, and became fascinated with it. I/O Psych is shorthand for Industrial and Organizational Psychology – the application of psychology in the workplace. Lisa went on to post-graduate studies and a Masters Degree in I/O Psych. She applied it in consulting companies, first as a recruiter and then as an organizational development consultant.

The application of I/O Psych is aimed at improving people outcomes and people performance within firms.

The discipline embraces talent and fit – does an organization have the right talent to get jobs and projects done now and in the future, and do the people with the right talents “fit” the firm’s values. Often, firms use I/O Psych to develop pro forma profiles and compare individual assessments to those profiles, looking to emphasize the most desired characteristics and avoid those that are unwanted.

One of the methods of I/O Psych is the application of self-assessment tools.

There exists a wide range of psychology-based or psychology-inspired self-assessment questionnaires and surveys that are focused on assisting firms and their HR departments to evaluate and optimize their employee base. One particular application is the combination of different personality types in teams in an attempt to balance strengths and maximize collaborative output and productivity. One of the prominent self-assessment tools Lisa mentioned is MBTI (Myers Briggs Typology Indicator) – a popular free version of which is available at 16personalities.com. Another is Business Chemistry, the internal tool used at the global consulting firm Deloitte, where Lisa works in Talent And Development. You can take this self-assessment yourself at businesschemistry.deloitte.com, and find the explanations and implications of their personality classifications. A third widely used self-assessment tool is StrengthsFinder from Gallup.

Can self-assessment help entrepreneurs to succeed?

Lisa says yes – but not in the same way that corporations use self-assessment. The entrepreneurial role – whether (co-)founder / CEO or team member – is different. It requires adaptability, being able to do lots of things well, not just one thing; to earn new jobs and skills, including “dirty work”; to be deeply involved in all aspects of operations to understand and master how the entire business functions, not just one aspect of it. When she is hiring for entrepreneurial roles she looks for (1) a bias for action and (2) a willingness to take risk (such as learning a new skill or taking on a new task) combined with a skill at mitigating risk (learning fast, narrowing options quickly, reversing bad choices when new information requires it, without self-criticism). Entrepreneurial self-assessment is not concerned with strengths and weaknesses, but with knowing oneself candidly and acting on that information. There is an entrepreneurial personality based in bias for action and risk mitigation, but it’s not the same for every entrepreneur. It’s best to find your own balance. (At Economics For Entrepreneurs, we are developing a self-assessment that assesses behavioral traits rather than personality traits – you can take the first iteration here.)

As an entrepreneur, Lisa applied the lessons of self-assessment both to herself and to her brand.

Lisa started a growing jewelry brand called Rise Hawaii. Initially, it was based on her hobby of free diving and scuba diving. She would collect shells and sea glass and sell them to jewelers. She discovered that there were no jewelers making exactly the kind of jewelry she preferred personally – a combination of delicate elements with high-end precious metals. She started designing, then manufacturing – learning skills like dipping shells in molten gold – then selling online and distributing to retail stores. Rise Hawaii is now a fast-growing international brand selling online and through more than 20 retailers.

Personality analysis helped her in two ways. She understood her own personality from the self-assessments she had taken, and could observe her own behavior in stretching herself too thin in her business by trying to please every potential customer and meet every demand. By understanding the underlying personality traits, she was able to change behavior for the good of both her business and her best customers. She also applied a similar assessment technique to the personality of her brand. Lisa realized that, initially, she was trying too hard to emulate established “Hawaiian jewelry” branding adopted by others, but this did not reflect her authentic self. She consciously realigned her brand’s personality with her own. The result is a unique and sustainable brand positioning and a happy owner.

And self-assessment helps Lisa imagine her entrepreneurial future: growth through alignment with companies and causes exhibiting values she shares, including worthwhile purposes such as ocean conservation.

There’s a way for all entrepreneurs to benefit from self-assessment and self-awareness.

Take one or more of the self-assessments accessible via the links provided here. Absorb the background information that’s provided. Use it to be self-aware: what do the results tell you about yourself? Did you learn anything new? Can you observe your own behavior and see personality traits at work? Are there any ways in which you are being inauthentic – behaving in ways that others want you to, rather than being true to yourself? What do the results tell you about your personal balance? Where does your profile need shoring up with new practices, new learning, or someone’s help? The key is to be aware, to understand yourself.

16personalities.com

businesschemistry.deloitte.com

Entrepreneurial StrengthsFinder

E4E Behavioral Self-Assessment

Find Rise Hawaii on Etsy at RiseHawaii and on Instagram at @rise.hawaii

 

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11. Per Bylund – What Is Competition?

How should entrepreneurs think about the economic concept of competition? Is there anything to learn? Is thinking about the concept useful for entrepreneurs running businesses? We asked Per Bylund to steer us through this thicket.

Show Notes

In mainstream economic theory, competition occurs between producers or suppliers of commodities. The good is pre-defined and undifferentiated, and competition is a matter of price and the production function. If this theory were looking for an example, it might find it in the gasoline market, where there are lots of gas stations with identical product, everyone has the same information, and price is the main means of competition. Economic theory calls this “perfect competition”, which is an ideal compared to “imperfect competition” (monopoly, duopoly, oligopoly, etc). It’s all pretty unrealistic and there’s nothing for an entrepreneur to learn.

Austrian economics sees competition as entrepreneurs competing for the customer’s dollar. The starting point is consumer sovereignty – the idea that the consumer (or the customer in B2B exchanges) is the one to exercise choice, and therefore determine what is purchased and, consequently, which brands, products and services are successful. An entrepreneur is competing with all the other ways a consumer could spend their dollar: by not buying at all, by buying a direct substitute, or by spending it in another category, or by deferring their purchase to a later time.

To succeed in this competitive environment, the entrepreneur should seek to create unique value. The Austrian logic of competition is value-centric. Value is subjective – it’s a perception of the consumer or customer. The entrepreneur competes for the consumer’s dollar by creating a value that the consumer can not realize from any other source – including non-consumption. The entrepreneur searches for uniqueness, to find a niche where he or she can serve the consumer in a way that no-one else has done before. This is what Peter Thiel calls a “monopoly” in his book Zero To One: a unique offering in a precise niche.

The way to compete is to develop a better empathic understanding of consumers’ needs. Every entrepreneur has the opportunity to be the best at developing an understanding of a target customer’s needs. In many cases, the competitive edge will be in choosing the right audience to serve – narrow enough that the empathic diagnosis is specific and precise and therefore more likely to yield an opportunity to serve the segment in a unique way. Generalizations and common denominators may not be precise enough and may cause the entrepreneur to miss precisely what it is about an audience’s needs that provides an opening for differentiation. Differentiation means a higher level of perceived value for that audience.

Positioning and telling a uniquely persuasive story are a big part of competitive value delivery. In so-called “perfect competition”, all players, producer and consumers, have the same information. Of course, the opposite is true in real life. One of the important differences in information lies in how value is positioned to the consumer, how the value story is told. Entrepreneurs compete to tell the best stories and communicate in the most persuasive ways.

In this way of thinking about competition, so-called “business strategy” is not particularly useful. Five-year plans and specific organizational goals (like doubling sales) are not useful and there’s a high likelihood of failure. They represent the wrong focus. The right focus is “how can we increase value for the consumer” or “how can we be unique?” How can we satisfy consumers in ways that no-one else does? Dynamism means that all players are changing all the time, including consumers, and so entrepreneurs must be learning and adjusting all the time, and always trying to create new value.

Can strategy tools be useful? Strategy tools can be useful to help structure thinking and help you to be sure not to have overlooked some element you should have considered. The VRIO method helps you to think about assembling a unique set of resources to support a unique value delivery to customers. Modern entrepreneurship education offers a number of frameworks to help entrepreneurs in starting a business, like the Disciplined Entrepreneurship Canvas and the Lean Startup Canvas. They are both pretty good at starting with consumers and the value the entrepreneur can create for those consumers. We’ve re-created a few versions of the Lean Startup Canvas for you to download here:

  • a version with explanatory notes, to help you better understand what each section represents and how it should be used (download);
  • an annotated canvas that can be printed on regular letter-sized (8.5×11) printer paper (download);
  • and a blank one that can also be printed, for you to complete yourself (download).

Bottom line: Austrian Economics’ value-dominant approach provides better guidance for entrepreneurs than the formulas for strategic thinking that come from business school. Start with the customer. Understand their needs, create value for them, and keep refreshing that value. In fact, this is a collaborative view of the market. Entrepreneurs share the desire to find a unique niche and establish a unique service, and they’re happy to compare notes and methods in order to help each other, which is one of our aims at Economics For Entrepreneurs.

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10. Ed Pletner Applies Alertness, Discovery, and Capabilities-Based Strategy to Start, Manage, and Grow His Firm

Ed Pletner talks with Hunter Hastings about applying these economic concepts to start, grow, and manage a thriving and highly differentiated business.

Show Notes

Entrepreneurial theory in Austrian Economics employs several terms to describe the entrepreneurial process and the exercise of entrepreneurial skills. 

  • Alertness refers to the ability of some entrepreneurs to identify, and quickly gain profit from, marketplace opportunities to buy from one resource and sell to another in a way that benefits both and allows for a profit.
  • Discovery refers to the process of applying empathic diagnosis to accurately identify unmet needs of potential customers and to rearrange resources to meet that need, enabling customer value and generating entrepreneurial profit.
  • Capabilities-based strategy is the idea of identifying certain key resources — tangible or intangible — that enable a firm to establish a strong and potentially lasting competitive advantage in the marketplace. This approach to strategy is often packaged up in textbooks as the Resource Based View (RBV) of the firm.

Ed Pletner started his entrepreneurial journey with a straightforward application of alertness. 

Ed began as an eBay “trading assistant”, buying from one source (individuals or businesses that had something to sell) and selling to other individuals who wanted to buy, and taking a commission on the trade. With effort, energy and hard work, Ed quickly established that he could sell to large audience and develop a revenue-generating business without the need for a large overhead or expensive technology.

As his trading business expanded, Ed discovered ways in which to serve many large customers with a new service of electronics recycling. 

Ed began buying his own electronic equipment for resale from garage sales and local swap meets. He describes this as a “great experience” of discovering both sides of the service equation – who wants to sell and why; who wants to buy and why; and what are the specific conditions necessary to complete the trade.

It all started with buying and selling technology hardware. At the beginning, Ed was moving it from garage to garage — a seller’s garage to his own, in order to store it before reselling it. Then the business became engaged with bigger quantities — warehouse to warehouse.

He couldn’t sell everything — some items had to be recycled or destroyed. It was at this point that the discovery process yielded the business opportunity of data destruction and electronics recycling.

From dynamic marketplace change, there emerged the customer need for secure and compliant data destruction as an integral element of electronics recycling. The problem to be solved was called E-waste.

We always encourage entrepreneurs to find a problem that customers want solved. Ed discovered e-waste. When hardware is recycled, there is always an associated amount of data: customer records, company data, financial records, health records, memos, emails etc., on hard drives, thumb drives, and all kinds of digital media. It has to be destroyed. And the customer needs to feel confident and assured that there is no failure or leakage in the destruction process, and that they can prove to regulators or auditors that they did the right thing and hired the right experts to avert any potential issues or claims.

Ed was able quickly to recognize the opportunity to become a trusted service provider in data destruction.

Ed invested in capabilities to enhance and strengthen his credentials in this emerging market that had a strong need for standards. 

Ed understands subjective value. Value is, as he puts it, “in the eyes of the beholder”. And in this case, the beholders were the clients who had stringent guidelines to follow — HIPAA guidelines, or financial industry guidelines or contractual customer requirements — regarding how data is destroyed. It was most important to these clients to be able to retain a service that is compliant — that can provide proper certification of destruction and a third party audit. They are looking to avoid both legal and financial penalties and any reputational risk.

Ed invested in establishing his company, avritek, as a properly certified vendor. R2 Responsible Recycling is the industry environmental standard for electronics recycling. ISO 14001 and OHSAS 18001 are environmental and worker safety and health certifications. NAID (National Association of Information Destruction) is a location-based certification with onsite auditing for both paper and digital data destruction standards. Avritek has them all.

Ed has embraced the capabilities-based strategy approach wholeheartedly, always asking how he can expand his capabilities to serve clients better. How do we install a larger shredder to better serve large scale clients? Which ERP system shall we install to tie in all our processes and partner services? This is a lot different than spreadsheet based planning and budgeting. It’s all about delivering more value to clients via better capabilities.

Customer segmentation follows from commitment to capabilities. Avritek does not have to target customers. It aligns with them and synchronizes with them by understanding what they care about and providing the capabilities to enable them to exercise that care. In San Diego, where avritek is based, there are many biotech firms. They care deeply about data security, not only for compliance reasons but also because “they are in a caring industry”, as Ed puts it.

Interconnectivity opens up an international business footprint for the capable, service-oriented firm. Avritek is San Diego based. Many of its clients have offices and locations in multiple states and multiple countries. By partnering with similarly-credentialed electronics recycling companies, Avritek can provide a complete service to clients, along with a single point of invoicing, administration and relationship management. In this way, capabilities-based strategy is an excellent route to organic growth with high levels of capital efficiency.

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9. Peter Klein on Entrepreneurial Decision Making

Decision-making can feel particularly challenging for entrepreneurs. Entrepreneurs face the unpredictability of the future with a limited set of resources, limited information, very little history of what works and what doesn’t, and few, if any, people to help. There’s no corporate research department and not much big data. Decision-making can be daunting. How can economics help? Today we discussed this topic with Peter Klein.

Show Notes

Economics helps us understand the process of decision-making, and how to enhance it with human creativity and wisdom rather than spreadsheets and analytics. The first step is to recognize and embrace what economists call uncertainty. Entrepreneurs face it all the time. We can’t know the future, or even the number of possibilities. The world is organic and human, and future outcomes depend on the interactions of millions of humans. No-one can predict them. Don’t try. But don’t be intimidated by uncertainty.

Understand the difference between risk and uncertainty. Risk is a mathematically definable probability. When we roll a 6-sided die, we don’t know which number will come up but we can calculate the probabilities for each one of 6 possible outcomes. That’s a highly defined situation with a mathematical probability, as is insurance risk. Uncertainty is different – we can’t list the possible future outcomes or attach a probability to each one.

In uncertainty, think of decision-making as a continuous process, not a fork in the road. There is no need to fear decision making. It’s not a back-and-white choice, X or Y, right or wrong. Think of decisions as continuous; we decide, we try something out, we experiment, we get results, we adjust, we try again. Every piece of new information we obtain from experiments helps us make a more informed decision next time. Entrepreneurs are good at dealing with this continuous flow of decisions, and making adjustments as they go – like a basketball coach on the sideline. The system of decision making is far more important than any one single decision.

Peter Klein calls this process entrepreneurial judgement. Entrepreneurial judgement is reasoned, purposeful action regarding feasible outcomes. It’s not formal or mechanistic or mathematical, but nor is it blind guessing. The key is that it is the entrepreneur who makes the final decision. He or she is not executing decisions that others make. Entrepreneurs make their own reasoned judgement in a middle ground between guessing and mathematical certainty.

There is a face it all the time. to mitigate uncertainty. Dr. Klein defines the process as (1) defining what type of uncertainty you are facing (2) taking appropriate steps to narrow the scope of the particular type of uncertainty you are facing; (3) exercising judgement – i.e. making a decision and taking action – in a timely manner when uncertainty is reduced but not eliminated; (4) gathering feedback for your action and continuously repeating this process.

Environmental uncertainty is external to the entrepreneur and means that many possible outcomes could result from a decision. You plan to launch a new product. You don’t know how the competition will react, or how the consumer might change or what will happen to regulation. In this situation, entrepreneurs try to narrow the range of possible outcomes, using experience, history, testing and other means. For example, you could run a test of different price levels to ascertain which one generates the most purchases, and use the test results to narrow the possible outcomes.

Creative uncertainty is internal to the entrepreneur with a defined goal but many possible options of means to reach it. You want to sell a million units at $5, but don’t know which combination of messaging, media, and promotion is best to help achieve the goal. You narrow the range of possible options by hiring an expert marketing agency, instructing them to develop 6 alternatives, and choosing between the options based on consumer reactions.

Absolute uncertainty occurs when there is a wide range of possible outcomes, and a large set of possible options for action, in a dynamic environment of change. You want to start a company but you are not sure which consumer needs you are best placed to meet, or which of many options you would select to meet them. You have to find a way to narrow both the possible outcomes (which needs will I serve) and the possible options for action (what kind of a company will I launch). Dr. Klein used the example of Netflix. Reed Hastings wanted to start a tech company but wasn’t sure what kind – absolute uncertainty. He settled on direct delivery of VHS tapes, with moderate success, but at least he established a consumer need to fill. But then the technology environment changed, first to DVD’s (easier to ship) and then to streaming (better consumer solution but technologically very challenging). Netflix thought and re-thought the environmental uncertainty (changing technologies and consumer tastes) and the creative uncertainty (how would pricing, subscriptions, packaging etc affect outcomes?) in a continuous process of experimentation and recursion.

Entrepreneurial decision-making is evaluating and mitigating uncertainty. Narrow the range of your options and possible outcomes. Decide and act, and don’t be afraid to do so. Think of decision-making as a continuous process, one at which you can get better over time and with experience.

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