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139. Fabrice Testa on Super Entrepreneurship

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Entrepreneurship is a method, and it’s also a mindset. Fabrice Testa has written a book that brilliantly integrates the two: he calls the integration “Super Entrepreneurship,” and his book title is therefore Super Entrepreneurship Decoded. He has the appropriate credentials as a proven super-entrepreneur who has created and nurtured numerous great companies (and successfully sold a couple of them).

Fabrice knows the true meaning of the phrase, “The day before something is a breakthrough, it’s a crazy idea”.

Entrepreneurs are animated by their purpose. Super entrepreneurs embrace a massive transformative purpose.

The motivation for entrepreneurs is to help others — to solve problems for others, as we sometimes phrase it. Super entrepreneurs, in Fabrice Testa’s language, are those who choose to dedicate their businesses to solving the biggest problems. By setting big goals, they attract many like-minded partners, collaborators, and employees. By targeting transformation, they aim to change the world in a significant way.

In making this choice, super entrepreneurs are delving deeply into their own personal story to understand their own drivers and their own passionate commitment. There’s a major self-discovery component.

Having set their MTP, super entrepreneurs develop a systematic approach to the pursuit of their goal.

Fabrice Testa recommends that super entrepreneurs combine what he calls CRAZY thinking with a relentless sense of purpose. CRAZY is an acronym for elements of entrepreneurship that Testa calls the Five Secrets. We agreed not to give them away, but they add up to a five-step method entrepreneurs can follow, and a checklist that they can use to assess the market power of their own concepts and business models.

The context for the 5-step method is the exponential rate of growth of available and applicable technologies for entrepreneurship, and the convergence of those technologies that results in a compounding of productivity. When, for example, sensor-based data collection can be combined with A.I. and robotics, whole new fields of automation open up, potentially helping billions of people.

A relentless sense of purpose is a major element in the super entrepreneurial mix.

Super entrepreneurs are highly motivated. They display high levels of ambition and drive, and they generate strong momentum. They seek change, and aim for breakthroughs. They love to set the bar high.

There is a spirit to super entrepreneurship, an intangible spark of super energy and boldness that sets the best entrepreneurs apart and powers them to unusual levels of achievement.

There’s a plan, but it’s not fixed.

Fabrice Testa identifies a master plan for the activities of high-achieving entrepreneurs, but it’s not the restrictive plan of the business school strategist. One term he used was Roadmap: there’s a goal to get from A to B, but it’s OK to visit C, D and E along the way, and to learn and double back and embrace recursive procedures to reach the targeted end-results. The key to success is keeping the goal in mind with flexibility on the route to get there.

Let the customer be the guide.

Testa subscribes to the protocol of involving the customer early and often in the process of designing and building a product or service or a company. Entrepreneurs are always working with assumptions, and, at minimum, must validate them with customers.

He introduced us to the “Starbucks method” of customer validation. Park yourself in Starbucks, order a beverage of your choice, then look around for likely-looking people who might be open to a brief conversation about your idea or proposal or even prototype. It’s easy to engage people, they’re willing to help, and you can offer to buy them a coffee to lubricate the relationship. A few hours investment of your time and a few dollars invested in coffee will result in a deep, broad and rich set of reactions and responses and a meaningful feedback loop.

Success is more about fitting in than it is about timing.

When writers and historians are trying to analyze the unusual success of a particular business, they often attribute a lot of the cause of the outcome to timing — the product or service or technology came along at just the right time. This is a misinterpretation. The happy correspondence of a new offering with a receptive context is not timing but fitting in.

According to Fabrice, to fit in in a big way is to fit in with the zeitgeist of the era. The dictionary definition of zeitgeist is the general intellectual, moral, and cultural climate of an era. What Fabrice is pointing towards is a heightened ability to sense the movement of the time, and the direction of its flow, and to step into that river at the right point.

Entrepreneurship is everywhere, and can be achieved at multiple scales.

Super entrepreneurship is not limited by the scale of resources, but it can certainly be augmented wherever resources are abundant. That’s why we seek to encourage entrepreneurship for individuals, teams, and firms of all size, including the largest corporations. Big companies under-perform at entrepreneurship for two reasons. First, they spawn bureaucracy, which is a form of organization that is counter-entrepreneurial. Second, they have existing businesses to defend and fear the consequences of self-disruption.

The solution is to change the purpose of big corporations so that they can become super-entrepreneurial. The purpose would be to create new businesses with no bureaucracy and separated from the defense mechanisms of existing business units or divisions.

Additional Resources

Super-Entrepreneurship Decoded: 5 Secret Keys to Create Breakthrough Businesses that Change the World by Fabrice Testa: Buy It On Amazon

“Super Entrepreneurship” (PDF): Download PDF

128. Matt McCaffrey: Austrian Business Strategy (Part 2): Principles

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Austrian economics helps entrepreneurs to develop and implement more effective business strategies, and to open up streams of continuous innovation. As Joe Matarese, CEO of Medicus Healthcare Solutions, said about Austrian economics in relation to business: It just works.

In episode #127, Matt McCaffrey outlined the Austrian strategy process of Explore and Expand, and its logic development. This week, he helps us dig deeper to identify the principles of Austrian economics that underpin our distinctive approach to business strategy.

Key Takeaways & Actionable Insights

Realism: real people, real markets, real entrepreneurs in real firms.

Mainstream economics has never been able to help business, because of its focus on math, models, and prediction. Real people and their decisions and interactions and motivations and emotions can not be captured in equations and mathematical functions.

Austrian economics has carved out a particular area of focus in the behavior of real people in its study of entrepreneurs and entrepreneurship. Austrians examine real entrepreneurial decision-making day-to-day; they highlight real people experiencing value and entrepreneurs’ role in generating that value. From this base, Austrian economics investigates how individual actions and choices and interactions lead to the formation of markets.

Dynamism: The market is a process.

Austrian realism sees the market as a dynamic process, continuously unfolding in interaction and innovation and change. Mainstream economics, with its preference for the greater mathematical tractability that comes with abstraction, has no capability of dealing with this real-world dynamism. The embrace and study of dynamic processes gives Austrian economics much of its applicability in business. The business world is never static. It can’t be understood in abstractions. It’s real and messy and changeable and unpredictable.

Uncertainty and complexity: embrace emergence.

Uncertainty is a keyword for Austrian economists. It’s a term that describes the real world in which entrepreneurial businesses operate. They can never know for sure what comes next; they can’t anticipate all of the interactions between competitors, changing customer preferences, technological advances and social and economic trends. There is no sure-footed way to plan for the future. Austrians recognize uncertainty and help businesses think about how to cope with it, how to narrow it, how to accumulate knowledge to lighten it, how to weigh decisions in the environment of uncertainty.

The new scientific term for uncertainty is complexity: in any system, the interactions are so many and their results are so unpredictable that modeling and forecasting are impossible, and outcomes are defined as emergent (i.e., outputs happen in a way that is not predicted by merely combining inputs). Austrian economics helps businesses deal with emergence.

Subjectivism: People are people, both as consumers and as providers.

One of the realistic principles of Austrian economics is to deal with people as people: we are all subjective in our valuations and judgments and emotions. We are not homo economicus: perfectly rational (in the mainstream economists’ definition of rational) in objectively weighing benefits and their opportunity costs. If all we are doing in producing goods and services for consumption is trashing the planet, then we can’t be rational, in their eyes.

In order to understand business and understand entrepreneurship, it is absolutely necessary to begin with subjectivism. Consumers’ subjective values ultimately determine what is produced; if consumers don’t value something, producers won’t make it. On the producer side, entrepreneurs’ subjective valuations of the resources they have available to them to assemble in a production process affect the value of their business.

It is entrepreneurs’ subjective evaluation that results in the identification of new uses for a resource, and the introduction of new innovations. Subjective values lie underneath every new business relationship with customers, from streaming movies to google searches to online travel booking. Subjectivism is everywhere in the economy and in business.

Time: How to plan in the present to satisfy customers in the future.

Austrians are unique in their understanding of the economic role of time in business. Entrepreneurs deal in future time. They imagine better futures in which customers enjoy greater satisfaction, and then they imagine how to bring it about and act on their imagination. Production — getting from imagination to consumption — takes time. Entrepreneurs are dealing with buying decisions in the present (such as hiring and buying inputs) for selling decisions in the future. They can’t know future prices or future customer preferences, so it’s a bet.

The consumption decisions customers make today reflect entrepreneurial decisions that were made weeks, months, years or decades in the past. Austrian economics helps entrepreneurs manage the contingencies of time.

Time makes the customer the boss.

Austrians utilize the concept of consumer sovereignty as an analytical tool. It means that consumers are the ultimate decision-makers in all economic systems, because what they buy or don’t buy determines what is produced. Their power is a result of the time it takes to produce. The value of resources that entrepreneurs assemble today depends on what consumers think and feel in the future.

Forecasting is tricky and best avoided, but patterns can be recognized.

A consequence of time and consumer sovereignty is the fragility and inaccuracy of forecasts. How is it possible to forecast consumer tastes in the future? There are some exceptional entrepreneurs who get it right. What’s their secret? Austrians’ understanding of dynamics and complexity can help point to the processes most likely to be associated with success, without attempting to forecast it.

One alternative to forecasting is pattern recognition. Jeff Bezos said that consumers are unlikely in the future to ask for higher prices, lower quality or slower delivery. That’s pattern recognition. It’s generalized and broad based and lacking in precision and specificity. But there is a consistency to some patterns that entrepreneurs can recognize and act upon, adding their own idiosyncratic insights and guesses to shape the actual value propositions they will make to consumers.

Out of all this emerges the Austrian entrepreneurial method.

We’ve all been educated in the scientific method. It’s utopian: experiments conducted with strict controls will yield the truth.

The entrepreneurial method is different, but with equal status, and greater applicability in open — i.e., human — systems where control is not an option.

It’s a bit messy and hard to characterize with precision, but it’s nonetheless real. It starts with imagination — imagining a future in which customer dissatisfactions are addressed and resolved. Their world is made better. This is proactive creativity on the entrepreneur’s part, triggered by existing highly dispersed knowledge, including tacit knowledge, held by the entrepreneur and others.

The entrepreneur designs a business model that might be able to resolve the identified customer dissatisfactions in the future and assembles resources that he or she believes, in the right combination, could accomplish the task. There’s no correct way; the entrepreneur draws on the realism of Austrian economics to best understand the challenges and how to address them.

The entrepreneur then advances with her or his own form of experiment. It’s not controlled in a closed environment. It’s a hard commitment of resources in a definite format to make a value proposition to customers. The experiment consists in ascertaining the customer’s response: like or dislike, buy or not buy, use and enjoy or use and reject? The experiment does not end there. It is continuous — receive the result, decide on how or whether to change the proposition, and try again.

Gut feeling or intuition or personal subjective heuristics all have roles to play in entrepreneurial decision making. Austrian economics captures these phenomena in the concept of judgment under conditions of uncertainty.

Organizing for the exercise of judgment.

Since judgment is the ultimate generative energy in producing value for customers, and since it’s personal and individual, how do firms grow? If judgement rests with a single entrepreneur, such as a founder, growth can’t scale, and will quickly reach its limits. Austrians have the organizational design solution: delegated judgment. Austrian leaders are able to design and implement non-hierarchical organizations in which every employee is empowered to exercise entrepreneurial judgment.

They do so by substituting value codes for authority. Value codes are the unwritten codes (although they might be found in the employee handbook) and conventions of “how we do things around here”, how we generate value for customers, the mission and purpose and internal methods of the firm.

Additional Resources

“Austrian Entrepreneurial Principles” (PDF): Download PDF

Austrian Perspectives on Entrepreneurship, Strategy, and Organization by Nicolai J. Foss, Peter G. Klein, and Matthew McCaffrey: But It On Amazon

127. Matt McCaffrey: Austrian Business Strategy (Part 1): Emergent, Not Planned

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Strategy is not the formulation of a plan. It is emergent from a process of exploration and discovery. Austrian economics is the best guide for entrepreneurial firms to put in place the methods and organization that unleash the power of emergence. Matt McCaffrey joins Economics For Business for a detailed exposition of the Austrian approach to Business Strategy.

Key Takeaways and Actionable Insights

A firm is a vehicle for entrepreneurial action to generate value.

All businesses and all firms are entrepreneurial. They start from — and continue with — an aspiration to generate value for both customers and the firm, and they act on this intention by assembling assets (resources, people, cash, machines, software, etc.) that are required to realize and deliver value. The goal is to bring a good or service to market that is valued by others. Value is the ultimate goal.

There are clear conditions for this action to take place.

There must be a decision-making authority for the firm, because someone (or some collaborative group) must decide how to select and assemble just the right combination of resources and make a specific product or service from the assembly. We call that decision-making authority the entrepreneur.

A second condition is that someone or some group must bear the uncertainty of the action. It may not turn out the way that was expected. It may not be profitable. Less value may be generated, or none at all. This bearing of uncertainty is also the role of the entrepreneur.

It’s hard to get the operations of the firm just right, because of complexity and change.

Why is all this so hard, and the outcome so uncertain? Two reasons: change and complexity. The subjective valuations of customers, who decide what is more valuable and what is less valuable, are changing and reshuffling continuously, depending on situation, mood, the choices of others, and a myriad of other influences. These changes can become trends, fads, segments, and competitive advantages and disadvantages.

Continuous change contributes to the complexity of the resource assembly puzzle: there are innumerable ways in which resources can be combined and recombined in a firm, and getting the assembly just right is a difficult challenge that is never perfectly resolved.

Therefore, the Austrian view of capital as a flow is a fundamental contribution to rethinking firm strategy.

The resources assembled in an entrepreneurial firm are not valuable in themselves, but because they produce a good or service that the customer values and is willing to pay for. This value — translated into revenue through the customer’s willingness to pay — flows back to the firm as income. The flow of income is affected by each element in the firm’s capital combination and by the degree to which the combination is well-integrated for the value generation task. Customers drive the capital formation task. The entrepreneur is engaged in a never-ending process of combining different capital goods to find the combination that is the most serviceable in generating value. Treating capital as a value-generating flow helps entrepreneurs in practice to manage the persistent process of applying resource combinations in the market to ascertain what value they generate. It’s dynamic process with no pauses.

There are four implications for firm strategy — and they all contrast starkly with the traditional business school view of strategy.

The business school view of strategy takes the form of sophisticated data-fueled top-down planning models. Only a few special minds can take on this intellectually and computationally difficult challenge. Historically, the list of models has included Michael Porter’s Five Forces Model (a model of industry structure and how to create barriers to entry and competition); SWOT analysis (a model of strengths, weaknesses, opportunities and threats from the firm’s point of view, with strategic implications for the management of each element); PESTEL analysis of the business environment (political, economic, social, technological, environmental, legal factors) and how they affect firm performance. The common thread for these models is that they are implemented top-down: the strategists apply the tools, draw conclusions, and instruct the rest of the organization how to act.

Matt McCaffrey’s contrasted this top-down strategy approach to the Austrian strategy approach across four dimensions.

Learning versus Rational Design

The top-down models attempt rationalization: they view strategy as a rational design problem, to shape a distinctive internal competence to seize an external opportunity and evade external threats.

This approach overlooks the crucial problem of learning. In circumstances of uncertainty, unpredictability, complexity and change, learning is the essential method of making progress. Changing conditions can never be known fully enough or fast enough by people at the center (in the strategic planning department) compared to front line employees. Firms must find a way to make use of this front line knowledge, through learning.

Dispersion versus Centralization

To enable the freedom to learn and to apply learning, decision-making must be dispersed through the organization. A single mind or single planning unit can not centralize all the knowledge and can’t centralize decision-making. A strategic plan is not feasible. Organizational design and decision-making processes must be decentralized and dispersed.

Implementation versus Formulation.

A comprehensive plan is impossible. Firms must seek a more adaptive framework. Processes and methods and forms of organization must be capable of adaptation to unforeseen events and new information. Continuous deliberate adjustments must be made in the light of new circumstances, which may arise every day. Therefore, Austrians see strategy as emergent not formulated via a planning process. Adaptive firms implement entrepreneurial actions, and then adapt to the learning, new knowledge and new circumstances that present themselves as a consequence.

Structure versus Strategy

The business school approach is that strategy must be fully formulated, and only then can it be used to shape the structure and processes of an organization. Austrians take the opposite approach: the structure of the firm (its organization, processes, and interfaces with the external environment) shapes strategy. Hayek used the term “structure of production”. This structure can be changed, but not instantly or seamlessly. Structure and strategy influence each other to some extent, but business schools tend to make strategy prior: that a firm is organized in response to the CEO’s vision. Austrians understand that this is not realistic because it’s not possible to restructure an existing organization every time a new vision comes along. There’s a high cost to structural change, and strategy must adjust.

Emergent strategy is based on business rules.

What, then, replaces top-down strategic planning? Austrians use the term “rules”. Rules are an internal device to help managers and employees make decisions on the spot in response to learning and new knowledge. Matt McCaffrey gave an example: whenever there is a break in the supply chain, repurpose old capital goods and bring them into the production process as a low-cost way to fill the gap. It’s a broad and simple rule, and it enables decision-making to go forward at the point of the supply chain break. People close to the action can use their local knowledge to solve the problem within the guideline of the rule.

Another example was given by Bob Luddy, CEO of CaptiveAire, who set the rule for his firm to always have the best price in the marketplace. It’s a simple rule that requires tremendous local knowledge about prices of systems and components, of competitive offerings, and about turnaround time (a cost element of price) among many others. Sales and marketing people as well as engineers can make decisions following this rule.

Rules sustain firm uniqueness.

Business school strategists often focus on competitive advantage as the goal of strategy. But the concept of competitive advantage comes from neoclassical economics and the depiction of markets as bounded cage-fights for market share between similarly-resourced rivals.

Austrian strategy focuses more on firm uniqueness. A firm’s distinctive rules can result in a unique mode of delivering value, and a unique perception in the eyes of customers. A brand is a set of rules that generates such a unique perception.

The ultimate distinction: strategy is exploration.

Strategy is emergent, not planned. Strategy is entrepreneurial. It’s a continuous process of learning through action and discovery. Sometimes, firms discover things they really wish they hadn’t. That’s part of the process through which, eventually, strategy evolves. It’s emergent. Over time, a firm can adopt some simple rules that seem to bring some order, but adaptation to new circumstances is always required. Profit is the signal that adaptation is successful.

We use the term explore and expand to capture the Austrian approach to strategy. Firms are always exploring, seeking ways to improve performance. When some experiments yield promising results, they can be expanded. Explore and expand is a trade-off: how much of the available resources should be allocated to each type of activity. Entrepreneurs manage the trade-off in order to succeed. There’s no strategic plan from on high to make the trade-off for them.

Additional Resources

“Emergent Strategy Process Map” (PDF): Download PDF

Austrian Perspectives on Entrepreneurship, Strategy, and Organization by Nicolai J. Foss, Peter G. Klein, and Matthew McCaffrey: But It On Amazon

“Entrepreneurship and Firm Strategy: Integrating Resources, Capabilities, and Judgment through an Austrian Framework” by Matthew McCaffrey and Ulrich Möller (PDF): Download PDF

“‘When Harry Met Fritz’: Rules as Organizational Frameworks for Emergent Strategy Process” by Nicolai J. Foss, Matthew C. McCaffrey, and Carmen Elena Dorobăț (PDF): Download PDF

108. Per Bylund and Mark Packard: Radically Reshaping Business Thinking via Subjective Value

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In a recently published paper titled “Subjective Value In Entrepreneurship,” Professors Bylund and Packard apply the principle of subjective value to generate significant new avenues of thinking for entrepreneurial businesses to pursue.

Download The Episode Resource10 Radical Shifts in Business Thinking – Download

Key Takeaways & Actionable Insights

Re-think value.

Business schools teach value creation. But their definition of value is faulty, based on a profound misunderstanding. Value is not objective and measurable, as in the business school paradigm of generating more of it. Value is subjectively understood and experienced. It’s a motivation for action (people have a desire to achieve experiences that they value) but it’s immeasurable. It is emergent from complex social systems and patterns of interaction between individuals, not something “created” by businesses.

Re-think the economics of value and value creation.

Value is created by consumers via their experiences. Producers are servants to consumers and their preferences; producers seek to convince consumers to allow them to provide for their wants. Since consumers have alternative courses of action, producers must scrutinize and revise their plans continuously to conform with consumers’ changing choices. This is consumer sovereignty, an essential element of a value-centric business model.

Re-think the role of the consumer in the economic system.

Consumers facilitate their own consumption. They pursue their own individual well-being, including by expressing their wants and needs to producers. The demanding of solutions is the task of the consumer, as is the choosing between available and expected alternatives. They experience value uncertainty (their preferences may end up dissatisfied) and they actively assess and learn about entrepreneurially produced alternatives that are available. They learn cumulatively as they amass consumer experience. Thus the role of value innovation and solution discovery is, actually, the consumer’s and not the producer’s. Innovations are generated by consumers in their never-ending pursuit of higher-valued satisfactions. Consumers’ own imagination and understanding shape their subjective experience.

Re-think the role of the firm.

The producer’s role can be divided into value proposition creation, value facilitation and value capture. Producers respond to consumers’ dissatisfactions with the status quo by devising and assembling new value propositions – features and benefits responsive to consumer wants, aiming to generate feelings of well-being and satisfaction. Producers become partners in the consumer’s value learning process, providing a comparatively better offering than others, so that the consumer prefers it.

The consumer generates a willingness-to-pay, when they feel that the use value of an entrepreneurial offering exceeds the price they are asked to pay. The offering now has exchange value to the consumer. This money magnitude does not indicate the actual subjective value to the parties, but it does generate profit (if it covers production costs) that can be used in the market.

Re-think business models.

A business model captures the fundamental idea of consumers and innovative businesses jointly navigating a shared experience of value uncertainty, in a never-ending quest for higher value states from which they can both profit. This co-navigation process must be built in to business model design, and business model innovation consists of new co-navigation pathways and new ways of sharing. For example, the concept of generative business models we explored in E4B episode #104 gives a greater role in co-navigation to consumers as a way of generating new value.

Management without measurement.

Subjective value represents a challenge to theories of business that adopt a “make the numbers” approach to performance. When value is immeasurable, business processes must be assessed via variables such as the quality of understanding of the consumer and their preferences, the quality and accuracy of empathic diagnosis, and the trust generated with consumers to adopt the business as a co-navigator of value uncertainty. It is possible that survey data can be helpful. More fundamentally, Austrian economics can provide a set of principles for management without measurement.

One approach is qualitative models, which can be designed and subsequently calibrated with marketplace activity. One form of such models is simulation, using agents that represent the emotions and uncertainty felt by consumers in markets. This is a direction that technologically-augmented entrepreneurship may take.

Re-think output metrics.

Similarly, in a world of subjective value and qualitative assessment, concepts such as KPI’s (key performance indicators) can’t realistically be applied. Concepts such as profit and free cash flow continue to apply, given full recognition that they are reflections of accounting conventions, because they indicate the sustainability of the firm and its business model. But new output metrics for subjectively-experienced consumer value and for satisfaction and well-being remain to be invented.

Re-think organizational design.

Subjective value applies not only to consumer activities but equally to entrepreneurial activities. Professors Bylund and Packard present entrepreneurship as an individual journey, one that is primarily mental. The journey is a series of imaginations, judgments and learning over time regarding what problems to solve, what resources are available, what those resources can do, what can and should be done with them (in combination), how to do it and why (i.e. what are the goals and ends the prospective entrepreneur aims for).

Entrepreneurship is chosen. In an entrepreneurial business, many individuals are engaged in — choose — entrepreneurship. Much of their motivation lies in unleashing their imagination, processing their own learning, and finding purpose and meaning. Organizational design becomes the search for the best structures to free the individual to make entrepreneurial choices, to apply their individual imagination and explore the co-navigation of uncertainty with consumers. The firms that do this best will be the ones that succeed in value facilitation and value capture.

Re-think motivation and incentives.

Why do individuals choose entrepreneurship? As Professors Bylund and Packard point out, money magnitudes do not express much of entrepreneurial motivation. Subjective values of purpose, meaning, achievement, personal fulfillment and others are primary. These can not be captured in salaries, bonuses, awards, promotions and titles. The firms that master subjectivist motivations will be able to attract the best talent.

Re-think the social contribution of business.

Entrepreneurial capitalism is under fire in America today. Profit is seen as exploitative, and employment is often viewed as restrictive and oppressive. The ends of business are sometimes portrayed as conflicting with those of society.

An understanding of subjective value would generate a perspective of business as the facilitator of satisfaction and well-being in society. Business creates jobs and incomes for consumers, enabling them to facilitate their own value both in the form of psychic reward in their work and user satisfaction in their consumption value experiences. Individuals, families and communities are all beneficiaries of this value generation.

Businesses provide consumers with continuously improved goods and services at ever-lower costs, providing the means for consumers to achieve their desired experiences and satisfactions. This provision of means is generated entirely in response to consumers’ expressed wants and preferences.

Contribution to societal well-being is therefore the sole end of entrepreneurial business.

Additional Resources

10 Radical Shifts in Business Thinking (PDF): Download Here

“Subjective Value In Entrepreneurship” by Mark Packard and Per Bylund (PDF): Download Here

“The Value Generation Business Model” (video): Watch Here

Corresponding PowerPoint (Download Here) and Keynote Slides (Download Here)

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

Start Your Own Entrepreneurial Journey

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

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“Subjective Value In Entrepreneurship” by Mark Packard and Per Bylund (PDF): Mises.org/E4B_108_Article

“The Value Generation Business Model” (video): Mises.org/E4B_108_Video

Corresponding PowerPoint (Mises.org/E4B_108_PPT) and Keynote Slides (Mises.org/E4B_108_Key)

“The Austrian Business Model” (video): Mises.org/E4B_108_ABM

104. Professor Mohammad Keyhani on Generativity, The New Digital Pathway to Business Growth

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Our metric for business is value generation. The scope of Economics For Business is not determined by business size or type — we don’t label firms as small, medium or large, or by the stage of their development, or by industry.

Download The Episode ResourceHow Generative Is Your Business? – Download

Key Takeaways & Actionable Insights

We see business through the lens of entrepreneurship, defined as the intentional pursuit of new economic value. A reasonable proxy metric we can use is growth. Business growth is consequence of generating new economic value. That value is determined by customers, and a growing company is creating more customers and/or adding to its share of customer dollars spent in value exchange.

The changing dimensions of business growth.

The economic route to growth is changing. In today’s markets, we often see speed of growth that goes beyond historical expectations. Business models can expand their reach and accelerate their performance over networks faster than ever before.

An Austrian perspective on business enables entrepreneurs to perform in a high-growth environment: Austrian entrepreneurs recognize the boundaryless-ness of markets, the flexibility of capital combinations, and re-combinations to respond to the rolling flow of value learning signals from consumers, and the benefits of shedding control in order to accept complexity and emergence. Austrian entrepreneurs are well-placed to enjoy success in today’s markets.

Professor Mohammad Keyhani sums up the Austrian entrepreneur’s advantage in the term Generativity.

The generativity of a system is the capacity to produce unprompted, unanticipated change through unfiltered contributions from a large, broad, and varied audience. The concept of generativity is closely aligned with the Austrian ideas of spontaneous order and emergence.

By way of an example, the concept has been applied to technologies, where the characteristics of generativity can be identified as the increase in participation as an input and the increase of innovation as an output. One of the results of this thinking has been open innovation: anyone can participate (e.g., when corporate research is not limited to a corporate R&D lab, ideas can come from anywhere outside the corporation), and more and better innovation is an outcome.

One of the potential effects of generativity is to overcome knowledge constraints. Open innovation is an example: even the biggest corporation with the best minds in its employment can not possibly have a majority of good ideas. They don’t even know what answers they should be looking for.

Detaching the search process from the searcher.

When we face knowledge constraints, we search for answers. But a searcher only knows to search in certain places. Generativity can separate the search from the searcher, unleashing the search process to look in places that would be blind spots for the searcher. Similarly, generative design can generate product ideas that the human designer could not.

The incentives of the market can take control of the search process. The demand side (via broad, unfiltered participation) defines the problem to be solved and the supply side (via equally broad and equally unfiltered participation) creates solutions.

Generative characteristics can be built-in to a product or service.

5 characteristics of generativity in products are:

Leverage: the product can be put to many uses, and users can do many things with it, including those that the product designer could never anticipate.

Adaptability: the product can be further modified to broaden its range of tasks even further; new code can be contributed by users, accessories can be added, and so on.

Ease Of Mastery: there are no or low barriers to broad usage and broad adoption due to unusual or hard-to-acquire skills.

Accessibility: the product is accessible to everyone and its usage is not limited to a specific set of users.

Transferability: The advances in and changes to the technology made by some users are transferable to all users; new users can build on what previous users have contributed.

Generative products are tools for entrepreneurs.

Generative products are a little hard to describe or categorize. They’re more like toolkits rather than specific use products. Professor Keyhani started a website to curate some of these kinds of tools / toolkits for entrepreneurs: Entrepreneur-Tools.Zeef.com/Keyhanimo

Some examples he mentions:

Zapier.com and Integromat.com link web apps and digital tools together via API’s to assemble automated workflows.

Airtable.com — flexible and powerful cloud-based relational database for regular users.

No-code software development tools like Adalo.com (build your own app), Voiceflow.com (build your own voice app) and Bubble.io (anyone can be a software developer).

There is a broad future growth path in generativity.

Let users generate innovations; let them accumulate (new users can build on the innovations of earlier users); focus on capturing as much of the value as is appropriate for the entrepreneur-as-orchestrator.

Additional Resources

Professor Keyhani’s website: MohammadKeyhani.com

How Generative Is Your Business? (PDF): Download Here

“A Theory of Digital Firm-Designed Markets: Defying Knowledge Constraints with Crowds and Marketplaces” by Mohammad Keyhani, et al  (PDF): Download Here

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

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103. Steven Phelan: Embrace Complexity, Pursue Continuous Innovation, Don’t Waste Time on Planning

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A rapidly advancing strand of theory has enabled great advances in the understanding of complex adaptive systems. Austrian economics is quintessential complexity theory; Austrians recognize that economic systems exhibit emergent outcomes as a result of the myriad interactions of consumers and businesses, value propositions and value perceptions, technologies and channels, and the innumerable transactions and exchanges that take place. The future is unknowable — we can’t know what will happen, and we don’t even know what can happen — and the system can sometimes feel turbulent and chaotic.

How should businesses manage complexity? They shouldn’t. It’s not manageable. No plan survives the first contact with customers is the way Steve Blank famously puts it.

What’s the answer? Don’t plan. Implement an Austrian Business Model and embrace the complexity of the marketplace.

Key Takeaways & Actionable Insights

How do you do that? Professor Steven Phelan uses the complexity theory metaphor of the dancing rugged landscape. Think of the market or business sector in which you are operating as a landscape of peaks and valleys. You can see some of them but not all of them. Your view may be improved if you have more knowledge about where you are and where you are trying to get to, but knowledge is never complete. And the landscape is not stable — new peaks form, old peaks move and crumble, valleys become deeper. The pursuit of new economic value is the search for peaks, locations of high value that your business can capture, if you can get there. A plan won’t get you there, because you can’t see a pathway and the destination is going to move and change anyway. And you might identify another, better peak as you explore, and you’ll make an unplanned change in your journey to switch destinations.

Professor Phelan sums up the many choices open to entrepreneurs in complex environments under two approaches.

Approach 1: I believe I can see a peak, and identify a pathway to reach it.

You will never be right. But there are smart actions:

  • Be humble: be conscious that you may be proven wring.
  • Act fast: test, test, test to prove the peak and the path.
  • Be agile: prepared to change or pivot when circumstances and data change.
  • Be aware of competition and fast followers and adjust accordingly.
    • Refine / redefine your niche to further differentiate.
  • Build fortifying uniqueness around any peak you find.
    • Culture
    • Brand
  • Build-in continuous change and innovation.
  • Assemble multiple peaks, reducing dependence on any single one.

Approach 2: I don’t know where the peak is, but I believe I am in an opportunity-rich landscape.

Don’t get trapped — and waste all your resources — in blind random searching.

  • Run multiple experiments — small, medium, and large.
  • High speed of sorting through outcomes.
    • Example: Big Pharma seeds multiple biotech startups, acquires winners.
  • Choose customers to serve first, rather than choose products or services to produce.
    • Customer need is the beacon to guide the search
    • The customer need is never fully understood
    • And it’s always changing
    • The work of identifying it is never complete
    • But it is the guiding light
  • There are no events (like product launches) only the continuous flow of searching, responding to customers, and changing in response.

As Professor Phelan states: the work is never done. No landscape is unchanging. No peak lasts forever.

Additional Resources

“The Entrepreneur In A Dancing Rugged Landscape” (on Twitter)

“The Complexity of Opportunity” by Steven Phelan (PDF): Download Here

“Austrian Theories of Entrepreneurship: Insights From Complexity Theory” by Steven Phelan (PDF): Download Here

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

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:

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