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.

98. Mark Packard’s Empathic Mental Model for Predicting Future Customer Value

Empathy, properly employed, is a robust business tool that smart entrepreneurs use to design winning value propositions.

Download The Episode Resource Empathy As A Process Tool – Download

Key Takeaways & Actionable Insights

Here’s why empathy matters for entrepreneurs.

Entrepreneurs’ success depends on what others do — those others being customers. The entrepreneur has the goal of customers buying, as a result of listening to their preferences and meeting them.

But there’s a little more work to do than just listening. As we discovered in Dr. Mark Packard’s previous podcast episodes, the customer is engaged in a continuous, dynamic, and ever-changing value learning process: learning what they, subjectively, really want. So they can’t tell you what they prefer when they are still engaged in the learning process. So listening, while useful in gathering factual knowledge, isn’t quite enough for the entrepreneur to embark upon designing a solution.

The entrepreneur must develop a special kind of “needs understanding” for their chosen customer group.

As Dr. Packard stresses — and as is foundational to the application of Austrian economics to business — the customer determines value, and that value takes the form of an experience: how customers feel about the experienced benefit of an economic exchange like buying a car, driving it, getting it serviced, and sensing the esteem of others for the choice they made.

There are two kinds of knowledge, factual and tacit. Your customers can communicate factual knowledge to you. They can’t communicate tacit knowledge, because it is derived from experiences that only they can feel.

So entrepreneurs must find a tool to represent the tacit knowledge that’s locked in the customer’s mind — a tool for “needs understanding”. The tool Dr. Packard proposes is a mental model the entrepreneur can use in the empathic process.

Importantly, empathy is not emotional mirroring — feeling what another person feels. It’s an active implementation of the entrepreneurial imagination, a cognitive act that the entrepreneur can plan and perform.

The process of modeling “needs understanding” starts with factual knowledge, purposely gathered and organized.

What entrepreneurs must pursue is deep learning about why customers feel the way they do about their experiences The goal is to gain insight in order to be able to improve consumers’ future experience. This requires knowledge-based inference from your empathic imagination about the causes of the current experience.

To do that, entrepreneurs need substantial background information—especially the personal and situational context surrounding the experience: the specifics of who, what, when, why and how. It’s not about imagining the experience of random people; it’s about learning a lot about a specific person in order to be able to successfully empathize with them.

Factual knowledge can be run through the entrepreneur’s mental model.

Once factual knowledge of the customer, their context and their current experience is gathered, the entrepreneur makes two runs of this information through their mental model. Think of it as running a simulation — a mental simulation.

  • The first run of the mental model is based on the entrepreneur’s own experience. Pick an experience that you’ve had and can self-analyze, so that you have a model of what that experience feels like. Now run the information you’ve gathered about the customer through that model — what does it suggest that they might feel? For example, think of an experience that you’ve had where you bought a product you expected to enjoy, and it disappointed. What did that feel like?
  • The second run of the mental model is the empathic mental model based on the entrepreneur’s understanding of the customer’s current or recent experience as told during knowledge gathering. You can understand what you felt like when a product disappointed. Now you imagine what the customer feels like or felt like as a consequence of a comparable experience.

The final step is to project the empathic mental model into the future.

The ultimate goal is to imagine what the customer’s feeling would be like in the future, following an experience with a new product or service value proposition offered by the entrepreneur. This is a projection — one that can be carefully constructed from the two previous runs of the mental model.

  • Create a mental model from your own experiences.
  • Run that mental model for an experience that a customer has reported to you that they have felt in the past.
  • Then run a projection of that model for the new experience you are planning to offer.

The more developed this skill becomes, the more confidence you can develop in your empathic projection, and the better you will be able to evaluate the business opportunity you are imagining you will design and create, and the value the customer will experience.

Just as the customer learns what to value, the entrepreneur can learn to project future value.

Dr. Packard emphasizes that the customer is continuously engaged in a learning process — assessing value propositions, making decisions as to what to buy and what to try, then evaluating the resulting experience — was it better or worse than expected?

The entrepreneur must keep up with this learning process, monitoring the customer’s dynamic subjectivism, their ever-changing preferences amidst an ever-changing context.

By keeping up via continuous monitoring, the entrepreneur will be able to make multiple runs of the empathic mental model, and test the model results for increasing predicted value.

Free Downloads & Extras From The Episode

Empathy As A Process (PDF): Get It Here

“The Austrian Business Model” (video): https://e4epod.com/model

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97. John Boles: How Austrian Is Your Business? Continuous Value Perception Monitoring is One Measure.

With the development of the Austrian Business Paradigm and the Austrian Business Model, and tools such as the “Value Learning Process,” businesses of all kinds can utilize the deep insights of Austrian economics to further enhance how they facilitate value for their customers.

John Boles — an avid listener of the Economics for Entrepreneurs Podcast — provides an example of how he applies these insights at his accounting firm.

Download The Episode Resource Continuous Value Perception Monitoring Tool – Download

Key Takeaways & Actionable Insights

1) Improved customer understanding.

The Austrian business paradigm places the customer in first position. This contrasts with traditional business thinking that puts the firm or the product or service in first position and searches for ways (“strategies”) to sell or market that offering to a set of customers who are to be identified during the selling process.

The way to put the customer in first position is to make your top priority a deep and intimate understanding of the customer, demographically (who they are), functionally (what they do and how they do it) and emotionally (how they feel — about key issues and challenges, about vendors and service providers, about competition and every aspect of business).

The first question Austrian business practitioners ask themselves is: how deep and intimate is my customer knowledge, and can it be improved?

2) Calibrating the customer’s perception of value.

Value is a feeling that exists only in the mind of the customer. The entrepreneur’s task is to facilitate that feeling of value — ease the way for the customer to arrive at that happy state of mind. It’s imperative for entrepreneurs to try to feel what the customer feels — to sympathize with their perception of value, rather than to focus only what the firm is delivering. We must know what the customer is buying, not just what we are selling.

The tools to use are monitoring of customer behavior (what they do — for example, shopping around for alternatives — is more important than what they say); making sure you understand their rankings of features, attributes and benefits, that is, what’s most important to them; and conducting interviews about the value experience. Ask the question: is the customer’s perception of value experienced aligned with the firm’s perception of value delivered?

3) Are value adjustments indicated?

The Austrian view of the market as a process helps us think about continuous change. Customers are continuously interacting with other customers, competitors, ideas, new value propositions, environmental conditions, regulations and a plethora of marketplace changes. Consequently, their perceptions of value are in constant flux. It should not be a surprise that entrepreneurs need to make value adjustments. It may be necessary to change perceptions of absolute value (via an adjustment in the value proposition), of relative value (via an adjustment in comparison with alternative propositions), or of exchange value (via adjustment in pricing, bling terms, or discounts / rebates).

4) Communicating adjustments.

It’s easy to overlook a critical component of value adjustments: communication. The Austrian business model advocates frequent in-depth conversations with customers at every level. These conversations, while always two-way of course, can be primarily designed for outbound communication, describing the adjustments made, and why they were made and ensuring the customer understands the responsiveness of the firm; or for inbound data gathering, primarily listening in order to further increase understanding of the customer and their preferences.

Customer communication is a component of perceived value.

5) Ongoing evaluation.

The customer is always evaluating the service provider / vendor and their value proposition, through the lens of experience: did the value experience match the anticipated experience; and, if not, in what ways was it deficient? The service provider / vendor must also undertake continuous evaluation. Did the value adjustments succeed? Are more called for? What are the indicators of change?

Free Downloads & Extras From The Episode

Continuous Value Perception Monitoring + Adjustment (PDF): Get It Here

“The Austrian Business Model” (video): https://e4epod.com/model

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96. Vishal Gupta and the Nobel Prize For Entrepreneurship Research

Researchers into entrepreneurship have a powerful incentive to identify new insights about how businesses grow and thrive.

Download The Episode Resource What Entrepreneurship Is (and Isn’t) – Download

Key Takeaways & Actionable Insights

Happily for everyone involved in business and innovation, entrepreneurial research is thriving, blossoming, and flourishing.

Professor Vishal Gupta’s book, Great Minds In Entrepreneurship Research, surveys thirty or more years of research papers that were awarded what is colloquially known as the Nobel Prize in Entrepreneurship Research (formally known as the Global Award for Entrepreneurship Research: GAER). The research field is deep, rich, dynamic and expanding.

Research identifies and examines entrepreneurship in every business size and type as a fundamental economic activity.

In its earliest days, entrepreneurship research focused a lot on small business but, today, business size and stage are not the constraints. The research identifies entrepreneurship in corporations, non-profits, and many more business sectors.

Much of the research focus is on entrepreneurial contribution — to growth, to job creation, to innovation, to progress.

Entrepreneurship is identified as the great economic contributor to betterment and well-being, measured via GDP growth in countries large and small, the creation of new and better jobs for people worldwide, new innovations and new business directions, and individual progress in general. As Mises stated, entrepreneurship is the driving force of the market system.

New entry, properly understood, is one way to characterize entrepreneurship.

The search for a single characteristic of entrepreneurship risks missing critical insights. However, one that garners broad support is “new entry” — entering new markets, entering existing markets with new value propositions, entering established product fields with new innovations, or entering into existing customer mindsets with new ideas.

Economic productivity is another.

A rich vein of entrepreneurship research has measured the efficiency that entrepreneurs bring to the use of resources — producing more with less. For example, research has measured innovation efficiency as the number of innovations per employee, and has found that smaller, more nimble firms are far more efficient on this metric than big corporations, even if the latter launch more new products in total (and generate more PR).

The research has uncovered a new type of firm and business model, and new business ratios that result.

NTBF is the acronym for New Technology Based Firms, those that innovate with new business models and new ways to facilitate service experience via dematerialized delivery. One of the results of these new models is new sets of business ratios — for example, revenue per employees which, with software based companies on the internet, can now reach never-before realized levels. This evolution has forced researchers to re-think some of their models. For example, the biologically-derived product life cycle (PLC) model of business maturity — birth, life and death — has to be revised because dematerialized companies can easily be re-born, even after near-death experiences. Think Apple — the founder died and, at one time, it was thought that the company might, but it was reborn.

Research opens up entirely new ways to think about business.

New research fields such as complex adaptive systems (or complex creative systems as Professor Todd Chiles prefers to call them) represent a new way to think about business — focusing less on individual firms and more on the value networks and service systems of which they are a part.

New ways of evaluating business potential are also emerging from research.

Professor Gupta discussed characteristics of firms such as knowledge absorption and absorptive capacity. Extending the Hayekian concept of distributed specialized knowledge, researchers have identified the ability to quickly absorb and apply new knowledge as a critical capacity of successful adaptive firms, and have shed light on many of the internal constraints this absorptive capacity.

Research recognizes the role of entrepreneurial imagination and subjectivity, although it doesn’t always get it right.

Austrian economics highlights subjectivity and views entrepreneurial opportunity as a subjective phenomenon, based in the imagination of the entrepreneur. Not all entrepreneurship researchers have been able to become comfortable with this idea, continuing to see opportunity as objectively identifiable. Austrians seem to be in the ascendancy on this controversy.

Importantly, entrepreneurship research is becoming interdisciplinary.

Systems thinking requires an interdisciplinary approach. Researchers in sociology, psychology, finance and even anthropology are examining entrepreneurship via their own research lenses. This development can only help the advance of entrepreneurship across a broad front of society and culture, as well as economics.

Free Downloads & Extras From The Episode

“What Entrepreneurship Is (and Isn’t)” (PDF): Get It Here

“The Austrian Business Model” (video): https://e4epod.com/model

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95. Martin Lünendonk: How To Make The Customer Your Boss

Consumer sovereignty is a principle of Austrian economics. Here’s how entrepreneurs apply the principle in business, as told by Martin Lünendonk, co-founder of FounderJar.com, as well as Finance Club and Cleverism.com.

Download The Episode Resource How To Make The Customer Your Boss – Download

Key Takeaways & Actionable Insights

“There is only one boss. The customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.” —Sam Walton

Though they are several decades old, these words by Walmart founder Sam Walton are still very relevant, especially in today’s highly competitive world.

This is particularly true for those trying to make money online. You are already in competition with hundreds, perhaps thousands of other businesses, and if you do not put your customers first, they can easily move to the competition. It’s as easy as tapping a few buttons on their smartphone.

Great business leaders understand that businesses exist for one sole purpose — to serve the needs of their customers. If you want your business to not only survive, but to thrive in this hyper-competitive world, it’s time you started treating your customers like the boss.

Below, let’s take a look at the steps you need to take to place your customers in their rightful seat — the boss’s seat.

1. Identify the Key Problems Customers Want To Get Solved

To effectively serve your customers, you need to first identify what key problems the customer is trying to solve.

Very often, entrepreneurs set out to solve problems they think the customer has, without trying to look at things from the customers’ point of view and confirm whether the customer has this problem, and whether it is a problem they are trying to solve.

For instance, Blackberry assumed that what its customers wanted was a laptop that could fit on the palm, so they focused on improving the physical keyboard.

Apple, on the other hand, realized that what customers actually wanted was a device that was amazingly easy to use, and when they introduced a device with a touch screen and no physical buttons, they took Blackberry out of business.

So, how do you identify the problems that customers are trying to solve? There are two ways to do this:

Listen To Your Customers

The easiest way to identify the problems your customers are trying to solve is to actually listen to them. They know what they are struggling with and why they need this problem solved.

If you listen to your customers, you are unlikely to find yourself in a situation where you are solving a problem no one cares about.

There are two main approaches you can take to listen to your customers and identify the problems they are trying to solve. Here are a few…

  • Interview your customers: Your first option is to get proactive and ask the customers directly. You can do this using surveys on your website, by getting on the phone and talking to customers, through focus groups, and so on.
  • Look at customer reviews: Your customer reviews present another great opportunity for you to learn about the problems your customers are trying to solve. Here, you should place more focus on the negative comments, since these are the ones that highlight customer needs that are not being met. However, even positive comments can give insights into customer problems that you’re solving effectively.

Listen To Your Salespeople

The second approach to identifying the problems customers are trying to solve is to listen to your salespeople.

Your salespeople are in direct contact with your customers, and they, therefore, have better insights into your customers’ thought processes.

They know the pain points that drive customers to purchase your products and services, they know the things that customers like or dislike about your products, they know the reasons that keep some customers from purchasing, and so on.

By administering surveys to your sales teams, you can gain insights that will help you figure out your customers’ key problems, which will in turn help you to serve them better.

When trying to gain insights about customer problems, either from the customers themselves or from your salespeople, it’s good to try to get to the root cause of the problem. Sometimes, what you think is the problem might not actually be the problem.

For instance, at one point, Disney was experiencing lots of criticism because visitors felt the queues for the rides were too long. At first glance, the problem seems obvious – visitors spending too much time waiting for their rides.

The solutions to this problem are obvious as well. To shorten the queues, Disney would either have to invest in more rides, or reduce the number of visitors getting into their parks. Both of these solutions would cost Disney millions.

Disney hired a group of designers to help them solve this problem. After interviews with Disney visitors, the designers realized that the problem wasn’t the long queues. The problem was that visitors were getting bored because they had nothing to do while waiting in the queue.

To solve the problem, they had Disney add themed music and videos that visitors could listen to and watch while waiting for their rides. By getting to the root cause of the problem, they were able to come up with an effective solution that saved Disney millions.

Similarly, do not take your customers’ feedback at face value. Try to identify what the root problem is before you start developing a solution.

2. Make Sure Your Offering Solves Those Customer Problems

Now that you have identified the problems that your customers are trying to solve, it’s time to come up with solutions to solve those problems.

The best way to ensure that the solution you are developing solves the actual problems your customers are struggling with is to involve your customers in the development process.

One approach is to develop a minimum viable product (MVP) of your solution and show it to a group of customers with the problem you are trying to solve. You then collect their feedback, and use insights to improve your next iteration and ensure that your final solution solves the customer problem in the most effective way.

Minimum Viable Product

SOURCE: Clevertap.com/blog/minimum-viable-product

For instance, when creating DropBox, founder Drew Houston didn’t want to spend months, perhaps years, working on a product that no one was interested in, so he started with an MVP.

Drew’s MVP was a simple 3-minute video demonstrating how his product was meant to work. He shared the video on Digg, an online community of technology early adopters.

After sharing his video, over 70,000 people joined the DropBox beta waiting list within a single night, which was enough validation that his product was solving the right problem.

Another way to involve customers in the development of your solution is to form a small community of beta testers and give them access to your solution during the development process.

This works even if you are developing a service-based product. For instance, if you are a digital marketing consultant, you could create a package — say a content marketing package — and test it among a small group of customers before you launch it in full scale.

The aim here is to have a group of actual customers continually testing the solution you are developing to make sure that it addresses their key concerns in the best possible manner for them.

This way, you don’t have to worry about spending months or years coming up with a solution to your customers’ problems, only to discover that it is not the kind of solution they were looking for.

Another way to ensure that what you are offering solves your customers’ actual problems is to conduct A/B tests. This basically involves creating two versions of your offering, giving two small groups of customers access to each version, and then tracking the results to identify the version that solves customers’ most effectively.

3. Track Customer Satisfaction

Ultimately, what matters is keeping your customers satisfied. If your boss is unsatisfied with your work, you can bet that you will be out of work soon.

Similarly, if your customers are unsatisfied with your business, they will fire you – by spending their money on your competitors.

Actually, while 96% of unhappy customers will not voice their dissatisfaction, 91% of them will never make another purchase from you. This is definitely something you don’t want.

To know whether your customers are happy, you need a way to track and measure customer satisfaction. Here are five of the most effective ways of measuring customer satisfaction:

Customer Satisfaction Surveys

This is one of the easiest ways of tracking customer satisfaction. With this approach, you simply need to put up a survey asking your customers how satisfied they are with your services.

Depending on the medium you are using to administer the survey, you can add one to three open-ended questions to learn more about what they think of your services.

Customer satisfaction surveys can be served through email, through your website, or through your app.

Customer Satisfaction Score (CSAT)

The CSAT is the standard metric for measuring customer satisfaction. Here, you ask customers to rate how satisfied they are with your products or services on a scale. The scale could be 1 – 3, 1 – 5, or 1 – 10.

After receiving responses from various customers, you then find the average rating to determine your customer satisfaction score. The higher the score, the more satisfied customers are with your services.

Net Promoter Score (NPS)

This is another popular metric for measuring how happy customers are with your business and your services.

Unlike the other metrics covered here, however, NPS does not measure how satisfied customers are with your business. Instead, it measures how likely they are to refer someone to your business. This is especially useful for those in the freelance business, which depends heavily on referrals.

The NPS will ask a customer to rate on a scale of 1 – 10, how likely they are to recommend your business to their friends and acquaintances.

NPS Score Graphic

Source: Business2Community.com/strategy/using-customer-satisfaction-metrics-nps-best-practices-02261983

The NPS categorizes your customers into 3 groups:

  • Promoters: These are customers who give you a rating of 9 – 10. They are willing to spread the word about your business and recommend your products and services. These customers are already satisfied with your business.
  • Neutral/Passives: These are customers who give you a rating of 7 – 8. They are indifferent to your business. They aren’t disappointed with your business, but they aren’t satisfied either. They are unlikely to talk about your business to others.
  • Detractors: These are customers who give your business a rating of 6 and below. They are unhappy with your business, and will spread negative word about your business in a bid to discourage others from doing business with you.

The Net Promoter Score is a very useful metric. If someone is willing to recommend your business to others, then this means that your products or services are good enough that they would stake their reputation on them.

Customer Effort Score (CES)

This metric measures customer experience, particularly how hard it is for your customers to get what they want from your business. Customers are typically asked to rate their effort from 1 (very little effort) to 7 (very high effort).

A high score means that customers have to work very hard to get what they need from your business, which translates to poor customer experience.

Social Media Mentions

Keeping track of what people are saying about your business on social media can also help you figure out how satisfied your customers are with your business.

Satisfied customers will take to social media to praise your business, while unhappy customers will share their dissatisfaction with their social media followers.

Monitoring the conversations about your business happening on social media will allow you to step in and respond to comments in time and control your brand perception, especially when people are sharing negative comments.

Here are three tools that you can use to track social media mentions:

4. Put Customer Value First, Profits Will Follow

A lot of entrepreneurs believe that the core purpose of a business is to make profits.

Smart entrepreneurs, those with the right entrepreneurial mindset, on the other hand, know that the core purpose of a business is to serve its customers. Therefore, their core focus is on delivering customer value.

Of course, this does not mean that businesses that put customer value first don’t think about profits. They do. What differs is their approach.

These businesses understand that when you keep your customers happy (by delivering great value), these customers will bring more business, and spread positive word about your business, leading to more business, and ultimately, greater profits.

Actually, the findings of research by Deloitte and Touche show that companies that put customers first are 60% more profitable compared to those that don’t.

So, what exactly does it mean to put customer value first?

Putting customer value first means that every single business decision made within your organization should have a positive impact on customer experience.

For instance, when upgrading its systems, a customer-centric company will choose systems that allow it to deliver the best customer experience.

Similarly, when hiring, customer-centric companies go for employees who show a knack for putting customers first. Basically, every decision is evaluated based on its impact on customer experience.

Here are some tips on how to make your company customer-centric and put customer value first:

  • Understand your customers deeply. It is impossible to put customers first when you don’t even know who they are. To get a good understanding of who your customers are, you need to develop highly detailed buyer personas. Actually, gaining a good understanding of the customer segments you’re targeting is a key component of the business model canvas.
  • Make sure that all your team members are engaged and have a good idea of the impact of their work on customer experience.
  • Make it a habit to collect customer feedback, and then use this feedback to gain insights on how to improve the customer experience.
  • Don’t just focus on getting customers to make the purchase. Focus on building relationships that will turn them into loyal customers and brand ambassadors.
  • Be easily accessible. Make it easy for customers to get in touch with your business when they have an issue, or when they need any sort of help.

Ready To Put Your Customers In The Boss’s Seat?

As an entrepreneur, you are in business to serve your customers, which means that your customers are your boss. If you want your business to thrive, you need to start treating them as such, by putting their needs first.

In this article, we have gone over 4 key points on how to make the customer your boss. Here’s a recap:

  1. Identify the key problems customers want to get solved
  2. Make sure your offering solves those customer problems
  3. Track and measure customer satisfaction
  4. Put customer value first and profits will follow

Free Downloads & Extras From The Episode

“How To Make The Customer Your Boss” (PDF): Get It Here

“The Austrian Business Model” (video): https://e4epod.com/model

Start Your Own Entrepreneurial Journey

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94. Peter Klein on the Advantaged Business Insights of the Austrian School

Six ways — selected from many — that businesspeople can derive more insightful knowledge and perspective from Austrian economics than from traditional Business School teaching.

Download The Episode Resource A-School vs. B-School – Download

Key Takeaways & Actionable Insights

More Human

Austrians believe in business as an uplifting human endeavor, focused on how people as producers can best help people as customers to do well, feel better, and thrive. To do so, entrepreneurs cultivate their power of empathy: to understand others, feel what they feel, and understand their hopes and dreams. Entrepreneurs utilize this understanding to cultivate new ideas, design new solutions, and present new value propositions for customers’ consideration. It’s the human project.

When business schools approach business building as an engineering problem, to design and run an assembly of operating machinery — whether physical or digital – at maximum levels of efficiency, and to manage via mathematical models embedded in spreadsheets and software, they occlude the human factor.

More Subjective

Emotion and subjectivity are important elements of human decision-making, both for producers and customers. Data and so-called rationality are important, but how people feel, how they perceive, how they interact, and how they subjectively weigh up options are dominant in shaping decisions. Austrians understand this, especially in the subjective imagination entrepreneurs apply to future customers and their potential preferences. No data or predictive models can reproduce this capability.

More Individual

Austrian economics always starts analysis at the individual level. Every economic phenomenon can be traced back to one buyer exchanging with one seller. What are the motivations and incentives and processes that promote the completion of the exchange? What are the barriers that might prevent it? Can the resulting knowledge be applied in more instances, and even at scale?

Austrians are not atomists. We understand — more deeply, perhaps, than the minds behind the business school disciplines — interconnection, community, and the interaction of individual beliefs, values, and preferences. It is the study of these interactions that lies at the core of the Austrian approach to business. Groups and segments are abstractions — only individuals decide, choose, and act.

And today, technology is moving in our direction, enabling more fine-grained action to reach individual customers with tailored value propositions.

More Imaginative

Professor Peter Klein has been, and continues to be, a leader in unwrapping the role of entrepreneurial imagination in the dynamism of business. He emphasizes that humans are fundamentally creative actors, and that entrepreneurs apply imagination to create new possibilities, new solutions, and new combinations of resources the world has never before seen. Opportunities are not “out there” to be discovered. They’re imagined by the entrepreneur.

Yes, there can be planning, e.g. in the choices between alternative patterns of resource allocation. But even these are subjective, based on individual entrepreneurial assessments. There can be projection of trends, although empathy with future customers is a counterweight to projection. Overall, imagination dominates.

More Action-Oriented

As Peter Klein also teaches, entrepreneurship is characterized by acting to reap the rewards inherent in imagined possibility. This action orientation makes the Austrian approach to business much more realistic and straightforward than the business schools’ insistence on the mysteries and opacity of strategy.

Austrian entrepreneurs form their own beliefs, act on them, and gather the results. The results are a feedback mechanism, energizing the entrepreneur to make adjustments and try again. Business is very straightforward. The Austrian action-orientation to business is empowering and inspiring.

A Role for Theory

Professor Klein told the story of his first foray into executive education. He was nervous about presenting Austrian economic theory to experienced and successful business people. He quickly learned that theory is what business needs and what traditional business instruction lacks. Managers often know everything about their industry, but do not always have theoretical perspective, or frameworks to help them see the forest and not just the trees. Without a theory, all they have is a mess of data.

Theory provides a path to interpretation. That’s what’s so valuable about Austrian economics: it emphasizes theory. One example we discussed for business was pricing theory. Austrian economics provides a pathway for entrepreneurs to map out how pricing for specific goods and services emerges via the interplay of customer preferences and context with entrepreneurs’ value propositions. The price that is right for an exchange can be discovered by following this pathway.

But the entrepreneur still needs to combine the theory with action and experience: set the price for an offering, and test the customer’s willingness to pay in the context of all their alternatives and their previous experiences. Theory provides an invaluable generalized assistance with understanding of the customer’s ultimate decision, but can’t predict the contingencies of the moment and of the individual’s idiosyncratic personal situation. With Austrian theory, an entrepreneur is more likely to get pricing “right” (via theory) but not every time (that’s experience).

Free Downloads & Extras From The Episode

“Austrian School vs. Business School” (PDF): Get It Here

“The Austrian Business Model” (video): https://e4epod.com/model

Start Your Own Entrepreneurial Journey

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93. Ramon Ray’s Entrepreneurial Communities

“Small business” is just a government classification. Entrepreneurial businesses serving well-defined communities via creative specialization exhibit enormous economic productivity, energy and dynamism.

Such businesses can not be defined quantitatively as small, medium or large. They’re defined by their qualitative impact on their customers’ lives.

Download The Episode Resource Ramon Ray’s Entrepreneurial Communities – Download

Key Takeaways & Actionable Insights

Entrepreneurial businesses care differently, and care more.

Big businesses must pay attention to size and scale, to their huge revenue and profit streams, to their many, many shareholders, to journalists and bureaucrats and financial analysts. They are, typically, managing to maintain progress or status on a well-established pathway, and have limited time and resources to devote to customer care.

The triple-option of the entrepreneur.

Small businesses are designed and constructed to care for customers and communities. As Ramon Ray puts it, small business entrepreneurs choose to:

  • Create what we want;
  • Serve whom we want;
  • Collaborate with whom we want.

As a consequence, business owners care differently about their customers, their colleagues, and their collaborators and partners.

Small business entrepreneurs create communities of fans.

Ramon sees small business owners serving their chosen communities as Celebrity CEOs. This does not require millions of Twitter followers or a pack of paparazzi. It results from being known and trusted as the specialist supplier of a highly desired service personalized to a well-chosen, often local, customer base. It’s the deli owner with the best sandwiches, or the mechanic to whom to trust one’s 1958 Edsel.

Customers become fans, deeply emotionally bonded to the entrepreneur and the service. Business owners become more deeply intimate with customers-as-fans, and the synergy is complete and lasting. The entrepreneur and the firm come to fit the community perfectly, and become indispensable.

The well-served community is a qualitative measure of business success, not quantitative.

Ramon Ray aims to build a community of entrepreneurs along similar lines of helping and caring.

Entrepreneurs can thrive by serving well-chosen communities, and they can also thrive by being part of a community. His vehicle is a B-corp formed by fellow-entrepreneur Seth Godin, to support small business entrepreneurs. Akimbo provides knowledge, tools, and courses to help entrepreneurs run and grow a business. Ramon’s latest contribution is a series called Small Business Essentials, a workshop in 12 modules. The modules cover essentials including pricing, cash flow, and hiring, as well as entrepreneurial refinements such as properly defining what problem you are solving and who are you solving it for.

A special feature of the workshop is that participants are joined online by fellow entrepreneurs, so that there is a group experience, group knowledge sharing, and group Q&A. The community helps itself by helping each other. It’s a place to learn and a place to ask questions.

Free Downloads & Extras From The Episode

“Celebrity CEO Mindset” (PDF): Get It Here

Ramon Ray’s “Small Business Essentials” Workshop: Check It Out Here

Ramon Ray’s book, The Celebrity CEO: How Entrepreneurs Can Thrive by Building a Community and a Strong Personal Brand: Get It Here

“The Austrian Business Model” (video): https://e4epod.com/model

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