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

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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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51. David Rapp on Harnessing Accounting To Your Purpose

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Accounting is a tool for entrepreneurs to achieve their business goals. There are plenty of options for you in how you use it to serve your purpose. In this episode, Dr. David Rapp, who teaches Accounting and Management Control in the elite Grandes Ecoles system in France, takes us inside the “purpose orientation” approach to accounting.

Key Takeaways & Actionable Insights

When we asked international technology entrepreneur Paul Tenney (episode #49) about the pre-requisites to entrepreneurial business success, he said, “Learn accounting”.

Accounting – or economic calculation – is one of the four pillars of entrepreneurship. And when it’s viewed through Austrian eyes, it becomes a more powerful business tool than, perhaps, you might have realized.

Whether we are talking about retrospective accounting (P&L accounting and financial reporting) or commercial pre-calculation to plan future actions (management accounting or cost accounting), how you use the tool makes a difference to the results you get.

Dr. David Rapp is an international leader in the field of Accounting And Management Control, a subject he teaches at one of Europe’s top business schools. Below are some key takeaways from the podcast, and we’ve also compiled a Free PDF Download of Dr. David Rapp’s technical analysis of accounting from an Austrian Economics viewpoint.

Accounting is a means to help you achieve your desired ends – apply judgment when using the tool.

Austrian economics teaches us to subjectively choose goals and then select the best means to achieve those goals. Accounting is just another tool to help the entrepreneur. There are plenty of explicit and implicit options in how to use it. David calls this attitude “purpose orientation” – one of the most important aspects in the field of accounting. Any computation should be shaped by its underlying purpose.

Financial reporting is subject to local rules – but there are always options in applying them.

If the purpose is to pay as little tax as possible, for example, a firm may apply depreciation or amortization rules in such a way as to reduce taxable profits. If the purpose is to present the firm in the best possible light to secure external funding, the same rules might be applied in a different way to display a different calculation of profit. There are options available for valuation of assets and of inventory that can materially affect the balance sheet.

Entrepreneurs should be rigorous in ensuring that their own managerial accounting does not mislead them.

Some modern finance theories and models are unrealistic – such as the standardized Capital Asset Pricing Model and the Weighted Average Cost Of Capital approach. The entrepreneur’s task is to apply real world judgement in deciding on future actions. Austrian Economics guides us towards realism not models, and the insights from Austrian Economics are the best ones to integrate into managerial accounting.

Entrepreneurs should bear in mind core Austrian Economics principles to guide their options in accounting.

Dr. Rapp mentioned these principles:

  • Subjective value
  • The importance of opportunity costs
  • Distinguishing between value and price
  • Understanding that prices determine costs rather than vice versa,
  • Differentiating between uncertainty and risk

Does accounting send reliable signals of business health to the entrepreneur? Not necessarily. Entrepreneurs should be on their guard.

Dr. Rapp advises us that general guidance to the firm’s owners and management is not possible via accounting. Accounting is not neutral and not a perfect tool for measurement or reporting.  Again, the choice of reports comes down to the goal the entrepreneur is pursuing.

If the goal is a sale to an external buyer, then an accounting focus on EBIT might be the best channel for the most relevant business health monitoring. If the goal is external financing from a bank, a more appropriate signal might be found in a solvency measure such as debt-to-equity ratio.

Can accounting accommodate the Austrian Economics mandate for dynamic flexibility – continuous adjustment to changing customer preferences in the marketplace?

Yes says Dr Rapp: by emphasizing the P&L to reflect the profit-and-loss outcomes of entrepreneurial actions and to reflect how well changing allocation of resources serves customers. Sub-dividing accounts into shorter time periods and different lines of business can more accurately reflect the dynamism of a business. And extensive use of notes to accounts in reports can provide a qualitative flexibility in reporting.

Accounting plays a primary and noble role in the advance of civilization.

Our complex market economy could not have evolved without accounting. It’s an important part of the system that allocated capital to its highest and most profitable use. Accounting is not boring, dry or dispensable. Rather, it’s a mainstay of human progress.

Free Downloads & Extras

Accounting From An Austrian (Misesian) Perspective: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

Ready to put Austrian Economics knowledge from the podcast to work for your business? Start your own entrepreneurial journey.

Enjoying The Podcast? Review, Subscribe & Listen On Your Favorite Platform:

Apple Podcasts, Google Play, Stitcher, Spotify