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.

5. Peter Klein on Empathy for Entrepreneurs

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Today we talked with Peter Klein about empathy – a critical tool in the entrepreneur’s toolbox. It’s through empathy that entrepreneurs can get into the customer’s mind, understand and identify their needs and wants from their perspective and in their perception.

This is the skill that enables the design of new products, new services, new systems and new solutions. If the entrepreneur has exercised empathy well, the chances of success in the design process are high for the customer to say, “Yes! That’s what I need!” Is empathy a difficult skill to master? Not really. We all have it to some degree. It needs to be applied with a combination of subtlety and discipline.

Show Notes

Empathy is a skill we learn from childhood. We’re taught as kids, when we say or do something that might be unkind or upsetting to another person, to “think about how they must feel”. The vernacular is to “walk in their shoes”. It’s the same essential skill we apply as entrepreneurs.

Entrepreneurs need to master the skill for an audience that might not be in their social circle and with whom they may not be familiar. You may be selling to car buyers, or cooking enthusiasts, or sports fans, or the procurement officer at a client. This kind of empathy is a little bit less natural and a little bit more learned.

It is entirely possible to learn entrepreneurial empathy and to get better at it. You can develop a process of reading and gathering data about the category or market you’re operating in, talking to actual and potential customers, conducting quantitative or qualitative surveys (like focus groups), analyzing the sentiments in social media conversations, or just talking to folks with a viewpoint. You can hire a consultant or an employee with highly developed customer empathy skills. But always, it’s your interpretation of the data that’s the key. What is motivating the customer, what is driving them, what is the feeling that’s at work?

There are plenty of tools. There are market research tools, analytical tools, and all kinds of methods you can use. Learn them on YouTube or an online course. Or use our Entrepreneurial Diagnosis Tool: the Contextual In-Depth Interview. 

Think of yourself as a Doctor, performing a diagnosis. Often the patient can describe symptoms, but does not know the underlying cause, and certainly doesn’t know the cure. The doctor asks questions, performs some pattern recognition based on existing knowledge, and perhaps performs some tests to narrow down the possibilities. In the end, the doctor arrives at the diagnosis and the prescription based on skill.

The Doctor analogy extends even further to the cure you are trying to deliver to the customer. Your target customer is not so much looking for something new as they are seeking to solve some dissatisfaction. There is some feeling on their part – a little vague, perhaps, not too well articulated, but nevertheless genuinely felt – that something in their life could be better. Ludwig von Mises called it “felt uneasiness”, which is a wonderfully descriptive expression. As an entrepreneur, you are taking away an uneasiness. The result is a better feeling on the customer’s part – an end to that uneasiness.

This is what entrepreneurs do in a free market economy of mutually voluntary exchange. We persuade customers that they will feel better, be better off, experience more enjoyment, if they buy the product or service we are offering to them. They can be confident of that future feeling because of the empathy the entrepreneur has exercised in developing an understanding of them, their dissatisfactions and their unique individual preferences. The entrepreneurial system is best for everyone because it’s based on empathy.

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4. Bob Luddy on Entrepreneurial Specialization

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It’s a fallacy for an entrepreneur to believe in chasing the biggest possible audience or the largest possible market. Why? Because your business will get pulled in the direction of “all things to all people”, and you may end up pleasing none.

The opposite rule applies: identify and gather specialized knowledge, and apply it in a specialized market to a select group of customers. Aim to be the best in your specialization. To do so requires discipline, application, and—as we discovered when we talked to Bob Luddy—time.

Bob is the founder and CEO of CaptiveAire, a business specializing in commercial kitchen ventilation systems. It’s a fast growing business, now generating hundreds of millions of dollars in revenue and hailed by its customers as best-in-class. It didn’t get there overnight, and it didn’t get there without some difficult moments along the way. Bob shares his experience with us on Economics For Entrepreneurs.

Show Notes

Bob Luddy’s case history represents an approach to starting an entrepreneurial business that is sometimes called Effectuation, illustrated in this handout. See also Bob’s book, Entrepreneurial Life: The Path from Startup to Market Leader.

Your first business may not be your ultimate business. Bob started in the fire suppression business. He aimed to be the best in that niche, but realized that there was a better opportunity in kitchen ventilation, so he made the switch. The new business was a slower build, but in a more fruitful market.

He felt a positive tipping point in year 9. He obtained a commercial bank loan — prior to that he had been short on capital. Now he felt he could accelerate growth. That didn’t mean he had “made it”, but that he was on slightly firmer footing. Nine years is a long time to find firmer footing — be patient! It takes a long time to build a great business.

Patient specialization is a critical component of success. So-called “serial entrepreneurs” never spend enough time to be the best at the business they’re engaged in. By being patient, Bob was able to identify weaknesses in the market on which he could capitalize: long lead-times (shorten them!), high prices (lower them!), imperfect performance (improve!), and poor service levels (invest in service!). These were innovations a new entrant could bring.

Be the best in your specialization — not all things to all people. Bob’s specialization methodology has been to create the highest industry standards for the products and services he sells, and then don’t deviate. Don’t make “wild” sales promises that are not standard. Keep to a tight range of products so as to drive down costs, and shorten execution times. Competitors who try to be “All things to all people” go out of business. Specialization is a basic economic concept that is key to success.

Systems thinking brings growth to specialization. Thinking like a customer means systems thinking: what is the complete solution the customer is seeking? Specialization does not mean being a tiny piece of the solution. By integrating the entire system, you become more valuable to the customer. The future of entrepreneurship is in integrating systems, and defining integration is the job of the entrepreneur. A business can keep growing by advancing towards greater integration.

Innovation is ephemeral — you never stop. Innovation is important, but don’t think of it as an event. It’s an activity that is continuous. Every single innovation will be competed away. You’ve just got to keep on doing it, and always be alert to new ideas, new combinations of existing ideas, and changes in customers wants and needs.

All decisions are subject to re-evaluation. None of us gets it right every time. Most decisions are made with incomplete information. But that’s necessary — an entrepreneur needs to make high velocity decisions. If they are wrong, own up to it, fix the consequences and re-evaluate based on new information.

The purpose of a business is profit. With no profit, there is no business, no jobs for employees, and no innovation. Make profit in a fair and moral way. And make profit in the long term, not necessarily maximizing profit in the short term. Everyone — the whole society — benefits.

Entrepreneurs don’t plan: they execute a vision. Entrepreneurs have a vision they are working towards. They have aspirational goals for sales or revenues. But they know they can’t plan the future. It’s hard to plan a month or even a day, let alone five years. What they can do is execute with excellence. The key question is, did you get it done today? As the world of business closes in on real time, execution is primary.

The winning entrepreneurial trait is brute determination. Sometimes, all you have is your own determination to succeed. You define what are the things that MUST be done, and you execute with no exceptions. Vision is good, but execution is hard. Doing the hard things, correctly and consistently, is what makes an entrepreneur.

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3. Per Bylund on The Role of The Entrepreneur

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At Economics For Entrepreneurs, we are going to combine theory and thought leadership about how entrepreneurship works, with practical advice and shared experience from those who have achieved entrepreneurial success. This week we featured Per Bylund. He is an economist who observes what entrepreneurs actually do, rather than analyzing the statistics of GDP growth and macro-economic trends.  He’s a research fellow in entrepreneurship at Mises Institute, a teacher of entrepreneurship at Oklahoma State University, a writer of books about firm-level economics and of a regular series of articles in Entrepreneur magazine, and he himself has been a serial entrepreneur. He has a lot to share.

Show Notes

Below are some of the highlights from the show, and the corresponding Customer Journey Map tool is posted here and available for download in PDF form below.

Economics can’t help entrepreneurs much by talking in abstractions about economic growth and economic systems. That’s not what you as an individual entrepreneur are engaged in. You are trying to make a living, and you are trying to create value for others via new or different services. Economics can help with applications of sound principles that help entrepreneurs build better-performing businesses.

What you are doing as an entrepreneur is not for you. It’s for the customer. They decide what is value. It’s not enough to generate an idea. The entrepreneur must ask, with objective honesty, is this valuable? For whom? How is it valuable? Value is subjective in the customer’s mind, so you have to empathize, penetrate that mind and understand it in the customer’s terms.

So don’t start at the wrong end of the process. Don’t be thinking: I want to produce something. How much can I produce it for and sell it at a profit? Rather, you should be thinking: who is out there looking for a value; what is valuable to them?

Price is determined by the customer. You can only sell a product or service for a price that is lower than its value, and value is determined entirely by the customer.

Similarly, you don’t “make a sale” to the customer. You make it a no-brainer for the customer to buy because you offer a better product or service than they’ve got today, and one that is better value for them.

Customer centricity, or customer obsession is a good path. Listen to customers, and learn what they are looking for, and what represents value to them.

Always be thinking about how to meet the future. Customer wants and needs and circumstances and preferences are always changing. Anticipating the change is the stock-in-trade of the entrepreneur. That’s not necessarily the same as innovating. You can create new value by anticipating future needs. Listen to people and look for trends.

Everyone can be an entrepreneur and it’s a very fulfilling experience. Entrepreneurship is aspirational. It’s something you do for customers, and making people better off is very rewarding. They’ll buy your products and services only if they feel that it’s a benefit for them. If you are successful, you’ve helped them. And to be successful, you must be doing something you are good at, which is another source of reward.

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PDF icon Download the Customer Journey Mapping Tool (1 Page Version).pdf (2MB)

PDF icon Download the Customer Journey Mapping Tool (3 Page Version).pdf (2MB)

PDF icon Download How To Use the Customer Journey Mapping Tool.pdf (101KB)

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2. Trini Amador on the Role of Values in Business

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Values As A Basis For Business Building And Brand Building.

In Economics For Entrepreneurs, we will attempt to bring you some usable tools that represent a way to apply economic principles to your business to help you to greater success. Economists talk about individuals embracing values as a guidepost to the right behavior and the right choices. An example of such a value might be Family Security. An individual who holds this value in high esteem will make certain choices about their career, for example, perhaps emphasizing stability over frequent change. Another individual who prefers an exciting life might make the choice of more change, excited by the possibilities it brings. How can entrepreneurs diagnose and understand these idiosyncratic choices and take cognizance and advantage of them in business? This week we talked with Trini Amador, who is an entrepreneur who advises some of the biggest corporations in the world on these mysteries, and has built a highly successful values-based brand of his own. Here are some highlights.

Show Notes

People adopt values as a guide to their behavior and a signpost for prioritizing their preferences and choices. For example, a sense of achievement might be a value for one individual to pursue, and in as many circumstances as they feel are applicable, they’ll ask themselves, “Will this choice or action bring me a sense of accomplishment?

There are many possible values; individuals tend to be most motivated by their “highest values”. Entrepreneurs who can identify these highest values in their customers, and can develop an understanding of how to appeal to them, can be especially successful in designing value propositions and service offerings.

The way for entrepreneurs to understand how to appeal to consumers’ highest values is to think about climbing up the values ladder to reach the top. Their first encounter with your business will be at the bottom rung – the service or product you are offering. Their first question will be, what’s the benefit for me? If they see a functional benefit, they’ll ask themselves if it makes them feel good – proud, comfortable, energized, whatever feeling is relevant. If they experience an emotional benefit, they’ll ask if your offering fits with their highest value – that’s what makes them a devoted and loyal customer.

The tool to help your business climb the values ladder is the Mean-End Chain. We posted a simple example with Episode #1.

When you’ve constructed a Means-Ends chain for your target customer, you can begin to populate a brand framework. People are loyal to brands, and they often pay a premium price. A brand can be a person (you) or a business (yours) or a product or a service. Trini explains how to populate the brand framework to make your brand relevant to the target audience and differentiated by making a unique promise that you keep every time.

These are the brand building tools utilized by the world’s most successful brands. Trini delivers the insider’s knowledge.

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1. Peter Klein on Means and Ends

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There are some economic principles that can help entrepreneurs in their business-building endeavors. One is the understanding of ends and means. What ends (goals, objectives) are your customers pursuing, and how do they choose the means to achieve those ends? The customer is in charge of choosing ends, and the entrepreneur takes charge of offering the most attractive and valuable means. How do entrepreneurs solve that equation? We asked Peter Klein. Peter is Professor of Entrepreneurship at Baylor University’s Hankamer School of Business. He is also Senior Research Fellow at Baylor’s Baugh Center for Entrepreneurship and Free Enterprise and Adjunct Professor of Strategy and Management at the Norwegian School of Economics. He knows ends and means.

Show Notes

Economics helps entrepreneurs in a very practical sense by shining a very bright light on human motivation. In economic terms, people act. They do things. And when they do things, they always have purpose in mind. They are goal oriented. The entrepreneur’s job is to figure out how to help customers achieve a goal that they already have in mind.

Thinking about this principle in simple terms helps entrepreneurs develop a deep understanding of customer value chains. Why for example, do people choose to drink coffee? It doesn’t just happen. People raise a coffee cup to their lips because they want to enjoy the taste. Or maybe to give themselves a caffeine boost. Or perhaps they are drinking coffee in a social context and they want to enjoy the shared experience. Economists are always thinking about the customer’s goal in taking a certain action — and entrepreneurs can benefit from thinking the same way.

How and why do people decide on their ends? Economists — and entrepreneurs — don’t judge. We just want to find out what ends the customer is pursuing. And how behavior might change if circumstances change — for example, if prices rise, the customer might buy less or stop buying altogether.

How can entrepreneurs find out about what motivates customers to pursue certain ends and use certain means? By immersing themselves in a market — like the consumer market for coffee as a beverage — and thinking about it from all angles: psychology, economics, history, culture, fashion, supply chain, marketing. Like Howard Schultz observing coffee shop behavior in Milan as a precursor to launching Starbucks in the US. He deduced from his observations what Americans might derive from a similar experience if he provided it.

How do entrepreneurs develop the appropriate skills and knowledge? Not from reading books, that’s for sure. It’s instinct plus tools. The tool discussed in this episode is the Means-Ends Chain. It’s the tool that helps entrepreneurs understand that they are not selling — and the customer is not buying — coffee, but an experience.

The skillful entrepreneur links the proximate product — the coffee — to the desired experience — the “third place” experience as Starbucks calls it — in a convincing and persuasive manner. This requires exploration and experiment to get it right. It’s never obvious.

That’s why economists refer to uncertainty — it’s the situation all entrepreneurs face. You never know the future outcome until you try. The entrepreneur must be flexible in exploring the customer’s ends and means. Uncertainty rules.

Entrepreneurs exercise judgment, and try to develop insights, but can never achieve certainty. Data might help but it’s not infallible. Eventually, the entrepreneur must decide to “go for it” without certainty of being right. It’s the “plunge” decision. Learning, big data, and surveys are inputs, but they can’t make the decision; only a human can.

Experience can help. In the US, the average age of the first-time entrepreneur is mid to late 40s.Experience in an industry and lived experience are helpful. And intergenerational sharing of experience — like finding a mentor — can also contribute the experience you don’t have.

Entrepreneurship is not rocket science. Know your market, know your customers, and trust your judgment and your instincts.

Introducing Economics for Entrepreneurs

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The Mises Institute is launching a new podcast with the title Economics For Entrepreneurs. Why should you listen?

The entrepreneur is the central hero in the dynamic order of Austrian Economics. Mises referred to entrepreneurs as “the driving force of the whole market system”.1 Jesus Huerta de Soto points to the unique role the theory of entrepreneurship plays in Austrian Economics.

Neoclassical economists… overlook the co-ordinating force that Austrians attribute to entrepreneurship. The entrepreneurial process….is a dynamic, never-ending process which constantly spreads and furthers the advancement of civilization.2

Mises and de Soto were writing about economic roles. In Economics For Entrepreneurs, we are focused on the flesh-and-blood individuals who tackle the entrepreneurial task every day. The entrepreneurs who detect consumer and customer dissatisfactions and imagine — then produce — solutions for those dissatisfactions. The entrepreneurs who serve others by creating new value and, as a result, create the most just, moral and beneficent society for all, while creating a life of purpose and meaning for themselves.

We want to contribute knowledge and insight to that process. We want entrepreneurs to be successful. We’d like everyone to be an entrepreneur.

How is our podcast going to help? It’s a three step process. The first resource for successful entrepreneurs is understanding the laws of economics. If you have clear insight and a rigorous practical application of these laws, you have a competitive advantage over others. We’ll talk to the leading economic thinkers about the exactly how economic principles are best applied in business.

The second resource is the set of tools to apply these principles, and we’ll describe and, where possible, provide those tools for entrepreneurs to use. They can range from frameworks and processes to tools for planning and brand building. Some will make you better at specific tasks, others will augment your individual capacity, so you can be more effective.

The third resource is your imagination. We can’t provide that, but we can stimulate it. As you listen to both up-and-coming and established entrepreneurial practitioners, we think your imagination will be unleashed in multiple new directions.

The laws of economics, the tools for practical application, plus your imagination. We think that’s a winning formula.

Moreover, there is a world-changing innovation at work to which we can all contribute. If we are able to interconnect a worldwide group of entrepreneurs, the people who are the creators of new value in society, we will be able to unleash a wave of collaborative genius to change the world for the better. One entrepreneur can be smart, and one innovation can create value and one firm can grow revenues and profit. If they all share their learning and share the new information they create, and everyone acts on that learning at speed and scale, then we get to a new horizon of value creation. It’s what Austrians call spontaneous order, the driving dynamic of entrepreneurial human action, the never-ending process that constantly spreads and furthers the advancement of civilization.

We hope you will join us at Economics For Entrepreneurs. We’ll be on all of the usual podcasting platforms, plus Mises.org and HunterHastings.com.

  • 1.Human Action, Scholar’s Edition, LvMI, Ch XIV.
  • 2.Jesus Huerta de Soto, The Austrian School.