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149: Victor Chor: The Journey From Flipping to Global High-Tech Brand Building

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Entrepreneurship is fulfilling and exciting and inspiring. It’s fun. It’s learning. It’s a sense of achievement. It’s a journey. Economics For Business loves to spotlight individual journeys to illustrate what’s possible, provide learning about how to create and grow opportunities, and to inspire new entrepreneurship. This week, we are joined by Victor Chor, who leads us on a journey from a hobby of flipping on eBay to creating a brand and orchestrating a high-energy global value generation community.

Key Takeaways and Actionable Insights

The journey starts with action — develop your “doing skills”.

Victor Chor started his journey via “flipping” on eBay: sourcing items to offer for sale, and using sales feedback (what sells, what doesn’t) to determine future offerings. He developed the “doing skill” (as opposed to a “knowing skill” that comes from formal business education) as he made more and more sales. Flipping was a hobby that became a business.

What’s the benefit? Well, it’s fun. There’s money profit. There’s a sense of achievement. And there’s learning.

Experimentation is at the heart of entrepreneurial success.

How do you find out what works? You experiment. Try this, try that. Learning results. Victor learned the products that sell best. He learned scaling, as a repeatable process yielding increasing returns. He learned the best feedback loops for adaptiveness — in his case inventory management and how to keep it low through accelerated sales.

Experimentation is a learning loop: experiment, gather feedback, learn, improve, run more experiments.

Adopting customer centricity is a further advance on the journey.

To a large extent, Amazon, with its “customer obsession”, led the way in making customer centricity the norm for e-commerce and internet selling. They not only continuously raise the bar for customer service excellence in terms of quality, speed, convenience, availability, and range of choice, they also introduced wide ranging competition between 3rd party sellers on their platform. Competition is a virtuous circle for customer satisfaction: if one firm establishes an advantage or a superior offering to which customers flock, then competitors must improve their offering even more to re-qualify for customer acceptability.

In this environment, entrepreneurs learn about continuous improvement and the need to create a unique customer experience that can establish some sustainable advantage. The ability to grow in sales revenues morphs into the design of unique customer experiences.

A further advance in the mastery of customer centricity is to engage customers in product and service development — what we’ve been calling co-creation of value. Through surveys and e-mail marketing and just hanging out and talking with customers, Victor’s team has developed an acute understanding of customer wants, needs and preferences.

And the technology field lets us all think like customers. Victor points out that he and his team are all customers for the products they take to market. They’re all looking for quality and convenience and technological excellence, all experiencing what inconveniences customers, and therefore even better able to serve their market.

The next level of advance on the journey is brand building — imagining, designing, assembling, and marketing a differentiated branded offering.

There is a transition point where a project can become a brand. A project to develop and deliver a high-function technology product can cross into the branded perception and branded experience area. Branding is the ultimate power in delivering uniqueness. A brand can establish a sustainable and unassailable perception.

Victor Chor advanced into brand building through building his community. The people he hired into his growing business has ideas for establishing and growing a brand. Wholesaling and distribution and manufacturing partners contributed both ideas and capacity. Victor developed a very original concept of a brand as a representation of all the people involved together in the venture. His image for a brand is that “it’s a ballroom”: set it up and throw a party in which many can participate and all are welcome to help shape new products and the future of the brand.

Infinacore is the brand name around which Victor and his team have assembled their community. It’s focused on wireless charging and related high-tech convenience: the brand mission refers to “making the wonderful world we live in as simple as plug and play”. This is a brand platform with unlimited future potential, based on how customers define simplicity and plug-and-play in the future, and how they judge what they find to be wonderful.

Reaching out more and more widely expands opportunity and opens up new avenues.

Early in his journey, Victor utilized the services offered via Alibaba. He made contacts, built up a buddy list, engaged in chat on the platform, and used the network to source products. Many of his contacts in manufacturing and trading companies stayed in touch over time. Some of them started their own venture and their own factories. Long term relationships developed, and links to capability and capacity multiplied and grew stronger.

Everyone in this network is on their own journey, feeling what Victor called the “shared vibe” of connection and collaboration.

Alibaba proved to be a catalyst for learning — for example, learning a shared language, learning to negotiate, learning to communicate, and learning working practices like minimum order quantities — and an opening of new avenues, such as contacts with factories that could provide white labeling opportunities and technology improvements for original products.

Ultimately, Victor was able to develop a leadership skill in entrepreneurial orchestration: pulling together and integrating resources, people and processes in a value network dedicated to the shared pursuit of high-tech brand building.

The journey is arriving at a new peak, but never ends.

There’s a new product / wireless charging system launch coming up for Infinacore. It represents a new peak in both technology and brand, a unique original design with new benefits. The Infinacore community has advanced to a new higher level.

The company has refined its vision and mission, not simply as communication, but as a picture of the future around which everyone in the community can gather and in which all can invest their effort and emotional energy. It’s ingrained. There‘s shared passion and shared emotion.

This is the step that removes the anxiety of uncertainty. When the vision is shared and the mission — what the community does repeatedly every day to make progress towards the vision — is clear, then the future is not a scary unknown, but a goal towards which there is continuous advance. There’s no fear.

Additional Resources

“The Evolution Of A Global High-Tech Brand” (PDF): Download PDF

Visit Infinacore.com

Follow Infinacore on Instagram: @Infinacore

146. Luca Dellanna on the Power of Adaptation: Adapt or Die

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Ceaseless flux. Those are words Ludwig von Mises used to describe the perpetual change in business conditions that entrepreneurs experience. The consequent need, he told us, is for a process of constant adjustment. The current word for that process is adaptation. Economics For Business talks to Luca Dellanna, a leading business expert who advises companies of all sizes on managing the challenge of continuous adaptation.

Key Takeaways and Actionable Insights

Adaptation is a necessary capacity of all businesses.

Adaptation is a necessity. The marketplace changes, customers change, technology changes. Change is the norm. Firms that don’t adapt will suffer and potentially die, so adaptation must become the norm for business. In complex systems theory, adaptation is the selection of strategies or actions that enhance survival or any other measure of success (or fitness, as its sometimes called) amidst swirling change. In business, adaptation means choosing your degree and pace of change.

Change will be externally imposed if it is not internally embraced.

Businesses can influence the level of change impact. They can critically examine their mental models, and assess their products, processes, beliefs, and people, to evaluate their fitness for adapting to market change. To avoid change being imposed from outside the firm — to avoid negative natural selection, in the evolutionary metaphor – all layers of the firm must embrace change, and proactively adapt. Eliminate unfit products and processes, pursue the development of new ones that are better adapted, and upgrade people resources through thoughtful hiring and active learning.

Adaptation is different than responsiveness — it’s embracing harm.

We talk a lot about a business’s responsiveness to customer wants and preferences, especially when those preferences are fluid and incompletely articulated and require interpretation. Responsiveness is critical — but it’s different from adaptation. It’s response to an external signal. Adaptiveness is embracing change inside the firm.

Luca Dellanna has a striking way of communicating this: he advises his clients to deliberately expose themselves to what he calls “harm” — new problems never before encountered. The exposure must not be to a problem that could overwhelm the firm, but one that can be addressed at a subsidiary level or component level or via adjustment in a shared mental model. Luca calls this “small harm” — specific problems (e.g., the price of a product or service compared to the customer’s willingness to pay). Proactively probe the problem, e.g., in a high pricing test, generate feedback and actively use the learning to adapt. Another word for “small harm” is stressors: situations that put stress on the firm. Set up systems to seek out these stressors so that adaptation is deliberate, and can be enculturated, rather than wait for a crisis that requires an emergency response.

Lack of discomfort is a problem to avoid.

Identify the leading indicators that describe the conditions that will change the future.

Lagging indicators — such as revenue — are metrics that describe the past. There are leading indicators available such as number of customer contacts (describing what the pipeline might look like in the future), and satisfaction scores (describing future repeat sales). Luca recommends pairing one lagging indicator with one leading indicator to develop a metrics system.

This is not the same as popular consultant-proposed metrics systems such as OKR (Objectives and Key Results). Objectives are not leading indicators. The best leading indicators are behaviors, because these can be easily adjusted if observed to be in need of change. Falling behind on objectives does not yield an actionable response if not linked to a causal factor. Inadequate behaviors (e.g., conducting a sales call without following the proven process) can be addressed, especially if they are clearly linked to positive outcomes.

This is the same principle as Amazon’s focus on what they call controllable inputs, and Amazon knows a lot about driving business growth.

There are several strategies to pursue adaptation.

Redundancy (having more than needed): A focus on efficiency and “no waste” can be detrimental to adaptation if it leaves no resources for experimentation and exploration. Employees need time to work on new things, not just on current tasks and issues.

Bottom-up initiatives: Central command and control can’t run everything, anticipate every harm, or plan every experiment. Ensure entrepreneurial empowerment of front-line employees and functions so that they can initiate learning.

Avoid game-over: In experimenting, calibrate the risk to ensure that a negative result is not overwhelming, and, in regular operations, be aware of any possibility of a major crisis — a Black Swan event — and be sure that it will not destroy the firm or deliver a setback from which it will be hard to recover.

Never stop exploring, in a culture of anti-fragility.

Nassim Nicholas Taleb famously coined the term “anti-fragile”. The company that has the most well-developed capacity to learn from problems and harm is the most anti-fragile. The culture of anti-fragility is always to surface problems when they are encountered and address them at the source. Luca stresses that culture is built when everyone in the company can see a consistent set of actions in which the trade-offs of addressing problems are consistent with the stated vision. For example, a culture of safe operations will be reinforced when safety precautions are taken even when the cost, in time or money or both, is high.

The leading indicator is that every individual and every operation and sub-operation is following safe practices, and that the company readily commits resources when a new safety procedure or installation is proven to be effective. If the trade-off is made that the new procedure is effective but too expensive to install, the culture will be punctured because the company has acted contrary to its declared vision.

Additional Resources

“The Power Of Adaptation” (PDF): Download PDF

Read Luca Dellanna’s book, The Power Of Adaptation: Download PDF

Another application of adaptation, Teams Are Adaptive Systems: 12 Principles For Effective Management by Luca Dellanna: Download PDF

Visit Luca Dellanna’s website to find more resources: Luca-Dellanna.com

E-mail Luca at luca@luca-dellanna.com

143: Per Bylund: How Austrian Entrepreneurs Succeed

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Successful entrepreneurs are Austrians, they just don’t know it yet. This is a famous assertion from Dr. Per Bylund, and we dissect its meaning in the latest Economics For Business podcast.

Key Takeaways and Actionable Insights

Success starts from a deep understanding of subjective value (see Mises.org/E4B_143_PPT).

What’s the value of a successfully completed Google search? What’s the value of the feeling of satisfaction that results from having cooked an excellent meal enjoyed by your family? What’s the value of the PowerPoint template you utilized to make a well-received boardroom presentation that may boost your corporate career?

Austrian entrepreneurs know not to ask the question in that form. First, value is not measurable; it’s a feeling or experience in the mental domain. It may have great intensity, it may have long duration, but it can’t be measured in dollars or with any other number.

Yet the generation of customer value is the entrepreneur’s goal. How can the goal be achieved when the understanding of value is so challenging and its measurement is impossible? This is the brilliant advantage of the Austrian entrepreneur.

The customer learns what a value experience feels like.

A customer can’t describe the value they are seeking or what goods and services will deliver it. The value process is not one of demand and supply. As Ludwig von Mises understood, customers feel a sense of unease — “things could be better” — and begin to explore possible avenues to relieving their unease. Of course, this exploration takes place within a complex system of needs: individual and personal goals, family comfort and security, job success and economic status. Customers sort through possibilities with incomplete information and in the context of uncertainty. The gap between feeling unease and finding the best good or service to address it is large. They might try multiple potential solutions with varied cost/benefit profiles before they arrive at one that seems best, or better than alternatives. In other words, they learn: value is a learning process.

The entrepreneur helps their customers to learn.

The customer’s value thinking is constrained: in the present, they can’t imagine a solution that they haven’t yet tried or that has not been available to them. The entrepreneur innovates around the constraint, by providing and communicating new means that the customer could utilize in the future.

Entrepreneurs can’t directly shape the customer’s choice. It’s a fallacy to believe that advertising or promotions or presentation of features and benefits can accomplish that. The customer’s context is too complex for such a simple mechanism to work. The entrepreneur creates a tomorrow in which the customer will feel better off, and provides the means to facilitate the experience, a means for the customer to learn what a better tomorrow feels like. They meet customers in a market that doesn’t yet exist.

Austrian entrepreneurs have a unique value generation tool.

The complexity of the customer’s value system — all the components of value interacting and changing in time — can be simplified with the use of a key that Austrians call the hierarchy of values. Every individual has a set of goals or values they pursue in life. Some of these are more important than others — we call them the highest values. For example, people who engage in sport and athletic activities may have several values for doing so: for fitness and health, for social reasons, for self-improvement, and so on. One value may be the most important in their own individual hierarchy — for many people it is the sense of achievement. By improving their speed or time of running or bicycling, by winning a tournament or a league or playing on a winning team, the individual can experience a sense of personal achievement that is rare, valuable, and fulfilling.

It is a commercially strong behavior to appeal to this highest value among customers. Nike does this for example with its “Just do it” appeal. To simply undertake the athletic activity is achievement: you’ve done something. And, of course, Nike wearables help the process of experiencing the highest value.

All entrepreneurs can appeal to customers’ highest values, and the Austrian entrepreneur has deeper insight into this action.

Austrian humility is a success factor.

So much of business success is projected as heroic implementation of superior strategy. Austrian entrepreneurs do not suffer from such hubris. They take a humble approach to business, understanding that the customer is often engaged in searching and learning without a clear outcome in mind, and that, therefore, the entrepreneurial business cannot be certain of any future results. Entrepreneurs humbly follow, letting the searching customer take the lead, and accepting the customer’s terms of service.

This is how entrepreneurs learn how to facilitate value — often from the harms they suffer from getting their value proposition out of alignment with the customer’s preferences. If the value proposition is wrong, or the price is too high, or the convenience not to the customer’s liking, then no transaction is made, and the entrepreneur must — humbly — adjust. The most successful entrepreneurs are able to maintain their attitude of humility at all points in the value cycle.

Austrian entrepreneurs take the role of fitting in to the customer’s value system. It’s a flow, not a plan.

Conventional business planning is anathema to Austrian entrepreneurs. The linear process of producing and selling to generate transactions with the goal of meeting a targeted volume or revenue in a fixed period of time is not appropriate for the humble, learning, exploring business of entrepreneurship.

Entrepreneurial success stems not from good planning but from adaptively fitting in to the evolving value system we call the market — a system that is different for every individual customer, and into which many overlapping and competing entrepreneurial value propositions are also trying to fit.

Planning is not a good tool for this purpose. Creativity, imagination, and adaptiveness are called for. The dynamic of learning from the customer and adjusting to changing signals calls for responsiveness not plans. The entrepreneurial journey with the customer is a flow, sometimes through white water. In this context, the Silicon Valley concept of pivoting is appropriate, although not quite as the West Coast gurus see it. Their pivot is a one-time major shift in direction, perhaps to a new business model when the original one proves inadequate. The Austrian pivot is continuous and flowing, adjusting the boat to the subtle and frequent signals sent by customers.

Explore, Realize, Then Keep Exploring.

We’ve talked in the past about an “explore and expand” model for entrepreneurial value generation. The entrepreneur co-explores various paths to value with the customer, and when one emerges as productive of significant value, the entrepreneur can expand the allocation of resources to that path and drive revenue growth, through selling more to the same customers, or recruiting new customers or both.

Professor Bylund added some nuance to this: the entrepreneur never stops exploring. When an exploration results in substantial value realized, there remains a lot of further exploration to understand the value experience of the customer in greater depth and detail, and continuous monitoring of changes and adjustments in the customer’s system and value network. The entrepreneur is continuously tested.

The entrepreneurial ethic is an ethic of service; profit is a shared outcome of consumer and producer choices.

Entrepreneurial firms are in business to serve customers. This principle may be appropriately expressed via mission statements and expressions of purpose; it remains the core of all entrepreneurship. Profit is an outcome of two collaborative choices: the exchange price the consumer is willing to pay for the value they anticipate receiving, and the choice of costs the entrepreneur considers proportionate to the value he or she expects to generate for the customer. There are many entrepreneurs in the market for resources bidding on costs at the same time, and so the individual entrepreneur’s choices are conditioned by those made by others. Profits emerge from this system.

Cash flow is a better indicator of the capacity of the entrepreneur’s business model to convert resources into exchange value for customers (although not the artificial cash flows of engineered P&L’s — rather, the true cash flow of the customer’s eagerness to exchange for the newly produced offerings from the entrepreneur).

There’s a distinctly Austrian approach to entrepreneurial business.

In a famous paper called “Inversions of Service-Dominant Logic,” professors Stephen Vargo and Robert Lusch called for inverting “old enterprise economics or neoclassical economics” in favor of a new perspective. One of their proposals was an inversion of “entrepreneurship and the view that value creation is an unfolding, emergent process” to a position “superordinate to management”. Business schools, they stated, teach a management discipline rooted in the industrial revolution. There’s an emphasis on centralized control and planning. Vargo and Lusch sought to replace this approach with value creation as “an emergent process within an ever-changing context, including ever-changing resources; it is, by necessity, an entrepreneurial process”.

The distinctive Austrian entrepreneurship approach captures and expresses the emergent process, and provides entrepreneurs (and managers) with the tools and methods to help them shape thriving businesses as they discover new solutions to relieve customer unease.

Additional Resources

“Explore and Realize (and Keep Exploring): How Austrian Entrepreneurs Generate Value on the Path to Business Success” (PowerPoint): Download Slides

“Inversions of Service-Dominant Logic” by Stephen L. Vargo and Robert F. Lusch (PDF): Download_PDF

115. Bart Jackson on How to Be CEO

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Bart Jackson is a CEO, and has studied the job and the people in it via thousands of survey responses and hundreds of interviews and multiple collaborations all over the world over many years. He’s distilled his findings in two books, The Art Of The CEO and CEO Of Yourself, as well as his radio show The Art Of The CEO.

From all of this data, processed via his empathic diagnosis, Bart takes two perspectives: the job and the person in it.

Key Takeaways & Actionable Insights

The CEO job threatens to take more of one individual’s time than is available. The firm’s value proposition guides the CEO to the right priorities and allocation of personal resources.

How do CEOs organize their time among the multiple priorities of the job? The answer is: by embedding the value proposition of the firm into their mind. With a clear view of the customer and of the customer service mission of the firm, every competing priority can be ordered. The CEO can design a framework for every day, week, month and year. They can continuously review their mission and goals and assess their own contribution, and the stamp they are putting on the firm, through the value proposition lens.

The set of priorities importantly includes “time to think,” both on your own and with others.

Leadership style can be adapted to each individual’s strengths.

Bart asks, “Are you a king or a prime minister?” Are you the one who inspires your team to demanding feats of achievement, or the one who provides them with the tools to encourage the emergence of their own capacities? Or both? When the CEO is totally devoted to the firm’s mission, this devotion becomes the lens through which others’ efforts will be focused. No team member will withhold effort when the purpose and mission are clear and shared. Leadership style is devotion to mission.

Communication is a key CEO tool, and there are many ways to accomplish great communication.

Devotion to the mission requires clear communication of that mission to employees. There is no one way for the CEO to communicate. Bart told the story of one CEO who committed to travel to meet every one of his employees in small and large groups, armed with a whiteboard and a personal presentation. Communication is inclusive — address by name all the people who are going to be involved in the mission, approach all the departments, inventory all the internal strengths available as resources, and describe all the innovations that will open up new ways to leverage those strengths.

CEOs make communication a four-dimensional flow.

Communication does not just flow in one direction to the employees. It must travel in two directions, so that the CEO can receive a continuous flow of ideas and information from the frontiers of the company. Bart talked about 4 dimensions: horizontal across the company from the center to the edge and back, through every department; vertical from top management to front line employee and back; then the third dimension of reaching outside the company box to vendors and suppliers and other external knowledgeable sources; and the time dimension of identifying ideas early, evaluating them, giving them a chance to bloom and thrive and the enthusiastic energy to move them along quickly.

CEOs press knowledge into action.

In Austrian theory, entrepreneurship is a knowledge process. Bart calls it “pressing knowledge into action”. The information flow can be overwhelming, and the CEO manages it by taking action more than by analyzing. The entrepreneurial instinct to “just do it” is valid for CEOs of any size undertaking. Once there is enough information to support an action, take that action. Then all new information can be channeled into furthering the action, adjusting or correcting, or even terminating it in favor of a new and more preferred action. Knowledge is not for its own sake, it’s for the sake of action.

The CEO is an incessant questioner and interviewer, ascertaining the knowledge that is available for action.

CEOs don’t create a company culture. It emerges.

Bart defines culture as how individuals feel when they are at work for the firm, and how they behave as a consequence. CEOs can try to create an atmosphere in which more desired feelings and behavior are nurtured, but they can’t control or guarantee it.

The best tool for the creation of such an atmosphere is concern for each individual. Respect is not enough. Genuine concern will motivate people to put their shoulder to the wheel at all times.

Hiring becomes a core CEO skill.

Assembling the best team is a most difficult challenge. It’s hard to hire the right individual for every position, but hiring is a skill that a CEO can actively cultivate in order to develop greater mastery over time. CEOs train themselves to hire well.

One key to success, according to Bart, is not to fill a slot but to look for a person. Identify character, look for intellectual curiosity, look for people of high merit who can potentially fill many slots on the organization chart. Utilize the pursuit of diversity to investigate a broader pool of human resources from which to draw.

Great CEOs build their personal brand in order to achieve company goals. They make individuality the whole point.

Bart approaches the process of building a personal brand in the same way as he would approach building a product or service or corporate brand. Start with the customer. A corporate brand, he says, is built in the production and service departments, not in the PR and marketing departments.

For personal branding, therefore, look to the resources you have for production. What’s in your personal “warehouse”? Great CEOs inventory their personal strengths and interests. They listen to what people praise them for and thank them for and find their strengths in that data.

Then they examine their own principles. What do they truly believe in? Bart recommends we write down our own inventory of strengths and interests and principles

In the end, he says, individuality is the whole point. Each of us is a marvelous person. We’ve got to be able to see that. Being the CEO of yourself opens up the pathway to doing the best possible job of CEO of your firm.

Additional Resources

“CEO: The Position and the Person” (PDF): Download PDF

The Art Of The CEO: Buy On Amazon

CEO Of Yourself: Buy on Amazon

The Art Of The CEO Radio: View Site

114. Pete Farner on Investable Businesses and Investable Entrepreneurs

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Veteran venture capital investor Pete Farner distills experience from four decades of entrepreneurship and investing on the Economics For Business Podcast #114. Passion, perseverance and intelligence are the three critical attributes he looks for in investable entrepreneurs, an insight drawn from a broad survey that we summarize here.

Key Takeaways & Actionable Insights

Download The Episode Resource 10 Attributes of Investable Entrepreneurs and Businesses – Download

1. The entrepreneurial mindset develops in youth. It is averse to the restrictions experienced on the subordinate levels of the corporate hierarchy.

In an early experience that several E4B podcast guests have shared, Pete grew up in an entrepreneurial household and absorbed the approach. He created several independent job opportunities in high school and college, including house painting and taxi driving and trading classic cars. When he joined a corporation, he quickly understood that a life in the hierarchy requires you to do as exactly as ordered by superiors, an experience incompatible with the entrepreneurial mindset.

In that brief corporate experience, Pete was able to observe that even the highest levels of the executive ladder are occupied by mere humans, with all their quirks and flaws, and not by superhumans. This observation can translate into the self-confidence of being able to tackle any business undertaking oneself.

2. Taking the entrepreneurial route is not risk-taking. In fact it’s the opposite.

Pete suggested that entrepreneurs are not risk-takers. They are, in fact, risk-averse. They typically do not take great personal risk or financial risk. If their business does not achieve the success they imagined, they seldom “lose all”, and their financial risk is often shared with others or syndicated in some way.

Entrepreneurs deal with business uncertainty. They embrace it. They are comfortable with what Pete called the ambiguity of entrepreneurship. That’s not risk.

3. Develop a knowledge space from which to begin your entrepreneurial journey.

Pete’s corporate experience was in the beer industry. That knowledge space included the use of neon signs for advertising and display purposes. He was also able to observe the use of etched mirrors in bars along with other forms of decoration and display such as sports memorabilia.

He launched his first entrepreneurial venture with a technological improvement on the conventional (and also expensive and fragile) neon sign. He merged this venture with a mirror and sports memorabilia company to give it greater breadth and market penetration. His first investor was a beer company.

We all curate a knowledge space as we go through life, and that space can provide the foundation for entrepreneurial initiative.

4. Entrepreneurial success lies on a time-and-place continuum.

What are the determinants of success for an entrepreneurial business? For a venture capitalist who is financing the business, the appropriate metric is a sale to an acquirer, who validates the worth of the entrepreneurial initiative. Surveying his experience of such acquisitions, Pete emphasized the relevance of time and place: being in the right place at the right time. Acquirers are ready for their own reasons at their own time. He discussed the sale of Minute Clinic, a walk-in in-store clinic staffed by nurse practitioners, to the CVS drug store chain. Minute Clinics were under-developed and unprofitable on their own, but a great marketing device to drive traffic to CVS’s highly profitable pharmacies.

On the other hand, Webvan, one of the most spectacular venture-financed startup bankruptcies, was ahead of its time in 2001, but could have been a standout success in 2021.

Business brilliance has a role to play in entrepreneurial success, but so do luck and timing.

5. Entrepreneurs widen and deepen their own knowledge space by making far and wide knowledge connections.

Entrepreneurship is a knowledge process. One entrepreneur, one team, one firm can have only partial knowledge. There might be a surrounding network of investors and partners to supplement the available knowledge. Successful entrepreneurs reach further, making connections in as many directions and to as many knowledge sources as possible. Syndicated investments with a wide range of partners can yield a lot of knowledge sources.

6. Specialization must be balanced with a broad-based understanding of business.

Differentiation can come from a specialized body of knowledge that the entrepreneur and partners bring to bear. In addition to this deep specialization, there must be a broad interest in starting, running, growing and managing a business. Entrepreneurs are T-shaped people — able to combine their specialist knowledge with boundary-crossing interest and capabilities in everything from accounting to HR to marketing, and especially the development of motivational purpose.

7. Personal qualities — and especially integrity — play an important role in success.

In Pete’s summary of success factors, “People are the real key”. As an investor, given the choice between a great business plan, a great idea, and a great person, “I’d choose the great person”. Integrity is a core attribute: the strength to go through growing pains, pivots, disappointments and adverse situations, and maintain belief.

Certainly these personal qualities can be more important to success than what Pete called “pedigree” — the degree from the right school, or the resume with the right corporations, or the well-credentialed board of directors.

8. Different personal qualities are appropriate for different stages of the entrepreneurial journey.

Pete observed that it is rare that the same individual who launches a business or manages it in its earliest formative stages is the same one to manage it to and through maturity. From start up to 8- or 9-figure revenues is a difficult transition for most people to make. It requires both decentralization of decision making and rigorous, detailed and disciplined operational management that are not always the strengths of originating entrepreneurs.

Nevertheless, the founder’s continued presence — in a significant role, not just a symbolic one — is a very important factor in the maintenance of mission and purpose for a young firm.

9. Revenue is king, especially when efficiently generated.

Revenue is the most important indicator of marketplace acceptance for an entrepreneurial service — proof that customers will buy what the business is selling. It’s a harbinger for the future: if there is a revenue stream, it can be grown.

Revenue — assuming cash flow is well managed — is the guarantor against the worst sin of entrepreneurial businesses, which is running out of cash.

Austrians know that the value of capital is the NPV of the flow of customer revenue it generates. Venture capitalists respect capital efficiency — a high ratio of revenue to capital.

10. Empathic customer understanding underpins revenue generation and capital efficiency.

It is the deep understanding of the customer and market that ultimately is the key to revenue generation. Pete talked about the medical device market where a misunderstanding of the incentives for surgeons — that they might not adopt a superior-performing device if they don’t make as much money using it as they do with the incumbent device — as an example of the battles that have to be fought and won for market acceptance, and might be lost with poor customer understanding.

Revenue generation is the primary indicator of customer understanding at work.

Additional Resources

“10 Attributes of Investable Entrepreneurs and Businesses” (PDF): Download Here

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

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107. Ivan Jankovic: The Special Understanding of Entrepreneurship by Americans of the Austrian School

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Austrian economics has always been on the leading edge of innovative thinking applicable to business. Back in the last century, there was a group of American economists of the Austrian school who greatly advanced theories related to subjectivism; that is, the role of human beliefs and preferences, and of the market as a process. Here are some of the insights they gave us about entrepreneurial business.

Download The Episode ResourceEntrepreneurship Drives Markets, Innovation, and Value Generation – Download

Key Takeaways & Actionable Insights

The function of entrepreneurship is the generation of new subjectively perceived value.

These economists got the name The Psychological School, because they understood that value is a function of human feelings, preferences and beliefs. The secrets to the successful pursuit of new value are not found in data and mathematics, but in human motivation.

The activity of entrepreneurs is the development and implementation of value-generation business models.

The twentieth-century economists we talk about on the podcast this week would probably never use the term business model. But their concept of the market as a process governed by subjectivism would embrace this modern term. A business model is a recipe for identifying value potential — an analytical outcome of understanding customer preferences — assembling a value proposition — a creative act of the entrepreneur — and enabling the customer to experience value, some of which can be captured by the entrepreneur via exchange if the business model is well-constructed.

Who are entrepreneurs?

Historically, some economists have debated whether entrepreneurs play the role of managers of the assets and activities of firms, or the role of owners establishing the asset base and purpose of the firm, or the role of capitalists providing the enabling financial capital. From the subjectivist point of view, it’s not a difficult question. Entrepreneurs are those engaged in the business of pursuing and generating new value. They might play one or more roles (manager, owner, capitalist) at different times in the pursuit.

Those in business firms who do not have an entrepreneurial role are the bureaucrats engaged in governance actions with no customer value, imposed by external influencers, usually government.

How do entrepreneurs generate value?

These economists understood the market as a process of individuals interacting to exchange. Therefore, they were able to establish that entrepreneurial value generation is a process and that it can be systematized (which is the essence of our Economics For Business project). A process has a beginning — in this case the identification of value potential, which requires a deep understanding of subjective value) and an end — the facilitation of value to the point where the customer can easily exchange for it, activate it, and experience it. It’s not necessarily linear, rather it’s recursive and dynamic, a continuous creative flow of knowledge gathering and learning and responding via innovation.

How are entrepreneurs compensated?

These economists realized that it represents a poor reflection of real life to identify the compensation of entrepreneurs solely with profit. On the monetary axis, they can just as well be paid in wages or dividends or other forms of monetary compensation. On the non-monetary axis, these subjectivists fully understood the concept of psychic profit: that entrepreneurs can do what they do for their own individually-perceived motivations, including achievement, fulfillment, the reward of serving others, and the purpose and meaning found via the entrepreneurial journey.

 

Additional Resources

Entrepreneurship Drives Markets, Innovation, and Value Generation (PDF): Download Here

Professor Jankovic’s Book, Mengerian Microeconomics: The Forgotten Anglo-American Contribution to the Austrian School – Buy on Amazon

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

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