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78. Per Bylund Introduces the Austrian Business Model

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Every business needs a business model, a recipe for generating profitable and sustainable revenues that result from bringing the customer an experience on which they place a high value.

How do entrepreneurs design successful and profitable business models? They combine theory and experience — theory provides the foundational starting point, and experience refines the model based on action-based learning and real-life feedback.

The best theory — the meta-theory — for business models comes from Austrian economics. This is a proposition we intend to demonstrate rigorously and completely in our Economics For Business platform. Dr. Per Bylund joined us on the Economics For Entrepreneurs podcast to provide an exposition and explanation of the core structure of the Austrian Business Model (ABM).

Key Takeaways and Actionable Insights

The model can be expressed as 4 core components for the entrepreneur:

  • Understanding and defining subjective value.
  • Facilitating value for specific customers.
  • Exchanging value with customers in the market.
  • Value dynamics — agility in continuously refining the value proposition.

1. Understanding Value

The foundation of the Austrian Business Model is a deep understanding of subjective value. This understanding changes everything: its implications ripple through the entire model from the beginning and throughout all phases.

Value is created only in consumption. The customer (in both B2C and B2B models) creates value. Value is in the customer’s domain. It’s an experience that customers evaluate after the fact against their expectations. The entrepreneur isn’t even present when value is created.

This is a very different premise than we are traditionally taught at business school or even in the everyday language of business discussion. For example, a popular book on business modelsi makes this statement: there is something about some firms that makes them more profitable than their rivals. In the framework of the ABM, we would say: there is something about some customers’ desired experiences that makes facilitating them more profitable than other customers’ desired experiences.

It’s hard to get one’s head around just how different this approach is. It requires some new behaviors:

  • Obsessive and total focus on the customer — identifying them, understanding them, letting them lead the process of value creation.
  • Selection of a precisely defined group or cohort of customers as your audience, with continuous development of ever deeper and more detailed understanding of their subjective preferences.
  • Development of a value proposition — a hypothesis about how you will help the customer to an experience that they will value. It’s simply that — a hypothesis that you will test as much as possible for verification, but which is never proven until the cycle of market exchange, experience and evaluation is completed.

Phase 1 is an understanding phase for the entrepreneur.

2. Facilitating Value for Specific Customers

Starting from the hypothetical value proposition, the entrepreneur advances to the phase of designing a value experience for the chosen target audience of customers, based on as deep an understanding of their subjective values as it is has been possible to develop so far. The entrepreneur is continually adding to that understanding — creating new knowledge as much and as frequently as they can.

Design consists of imagining every element of the customer’s experience, based on their value learning cycle. What is it about your value proposition that will make them anticipate a valuable experience? What will make them feel that this experience is preferable to any alternative they have, direct or indirect. What will cause them to exchange value — give their dollars for your offering — and what is the price they will be willing to pay? What ensures that they will assess the experience positively after the event?

The key to design is (1) to imagine every possible element of the subjective experience, empathically embracing the customer’s individual context; (2) to understand that every little detail counts and that small differences in delivery can make a huge difference to the perceived experience. In fact, since customer service is so highly developed in modern economies, it is the small details that generate differentiation and uniqueness for your brand.

Then the entrepreneur turns to value assembly, assembling the resources to deliver the desired features and attributes of the experience to market. What is the right organization for market delivery? Since it is impossible to know exactly the costs and quality you will be able to achieve in your firm, Austrian theory advises entrepreneurs to obtain as much of the required capability on the market at market prices — via outsourcing, partnerships, alliances, and external supply chains — and to limit internal capabilities only to those that cannot be obtained on the market, those that are genuinely unique and advantaged for you.

Use a value alignment approach to check for each element that your value delivery is aligned with the customer value preference — that you know what they want and you can deliver it in the way that they want it.

And include communications design and delivery as part of your experience design. It’s not an add-on or a supplement or a marketing budget item to dial up or dial down depending on cash availability. It’s part of the customer experience that you are designing and delivering.

Finally, make measurement part of the experience design. Once in the marketplace, your value proposition goes “wild”. You no longer control it. The customer is creating the value and you are not. The best you can do is to be available if they want to invite you into their process, and to be observant of their behavior. Measurement is observation. Don’t presuppose, but do collect data, preferably qualitative data at the individual customer level. This is your raw input for continuous improvement.

Phase 2 is a customer-led design and assembly phase for the entrepreneur.

3. Exchanging Value

Does the customer perceive sufficient value to enter into exchange? It’s the ultimate market test. The customer is weighing the benefits they subjectively perceive against the costs, which include money but also any other difficulties or barriers they perceive to making the exchange. Is participating in your offering totally convenient (which is the general standard today) or is there anything in the experience that makes it less convenient and less compelling?

The best way to solve this challenge is to experiment with as many offer bundles as you can in order to observe market results. Does your service sell better online or direct-to-customer? Do customers prefer to subscribe to buy by the unit? If they try, do they convert? Test as many bundles as you can.

Once you have established the right bundle and willingness to pay, calculate your cash flow and choose your costs in order to generate the margins and profits you require. This is the opposite of the margin math taught in business school, where firms calculate their costs and then add a margin. Austrians discover the price the customer is willing to pay, and then chooses the costs compatible with that willingness to pay. The customer determines the price of the exchange, not the entrepreneur.

Cash flow is your most important financial metric. Make sure you monitor it closely and make sure your accounting methods are the right ones to serve your individual ends. Accounting is a tool like any other — use it subjectively to help you meet your goals.

Phase 3 is an experimenting and testing phase for the entrepreneur.

4. Value Agility

You’ve achieved some marketplace results. You’ve established that the customer perceives value in your offering and they’re willing to pay a price that generates positive cash flow and profit.

That same marketplace is incessantly changing. Your approach to the 4th stage of the Austrian business model is dynamic. You make sure that you have all the feedback loops required to receive marketplace data about the acceptance of your offering, and any changes in customer preferences and competitive behaviors. You manage 360 degree monitoring of the customer experience and you anticipate and expect that your experience design, however excellent, will erode over time. The customer will demand something even better, and competitors will aim to match or improve on your delivery. It’s important to keep your model of customer value preferences fresh, and to be planning and preparing new and improved value facilitations. Agile entrepreneurs continually test and evaluate innovations, and introduce them to the marketplace. Value improvement and value innovation are your goals. The process never stops. The journey never comes to an end.

Your business model must yield sufficient cash flow for substantial amounts of new capital investment each year. Your organizational design must facilitate the addition of new capabilities and the discontinuation or de-emphasis of existing capabilities that no longer are perceived as unique or compelling by the changing customer. Agile entrepreneurs monitor their dynamic capability — how much is being added, how much is being changed or updated. Are you keeping up with the customer, the ecosystem in which you engage, and your competitors?

Phase 4 is a phase of continuous dynamic change for the entrepreneur.

Over the next few months, we’ll be building out the tools and knowledge entrepreneurs need for every one of the four phases of the model and the steps within. Keep up with us at E4EPod.com/signup.

Free Downloads & Extras From The Episode

Dr. Bylund’s Mises University Lecture, “Austrian Economics in Business”: Mises.org/E4E_78_Lecture1

Dr. Bylund’s Mises University Lecture, “How Entrepreneurs Built the World”: Mises.org/E4E_78_Lecture2

“Means-Ends Chain Tool” (PDF): Mises.org/E4E_01_PDF

“Tools for the Value Learning Process” (PDF): Mises.org/E4E_62_PDF

“Identifying Dissatisfaction Interview Guide” (PDF): Mises.org/E4E_Interview

“Insights Generation Tool” (PDF): Mises.org/E4E_67_PDF_A

“ACT! Austrian Capital Theory at Work” (PDF): Mises.org/E4E_19_PDF

“The Austrian Business Model” (video): Mises.org/E4E_ABM

Start Your Own Entrepreneurial Journey

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66. John Tamny On America’s Uniquely Productive Entrepreneurial Flywheel

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The flywheel is a robust and powerful mechanism so long as restrictive regulation by government and failures of imagination by capitalists do not slow it down.

John Tamny speaks articulately with Hunter Hastings about the uniquely American entrepreneurial flywheel in Economics For Entrepreneurs podcast #66.

Key Takeaways and Actionable Insights

A growth business is what John Rossman, in episode #50, termed a flywheel. Using amazon.com as an example, he gave us this simple image.

Flywheel Economy Diagram

The flywheel looks simple, but in reality it’s quite nuanced. Lower prices and a great customer experience will bring customers in, Bezos reasoned. High traffic will lead to higher sales numbers, which will draw in more third-party, commission-paying sellers. Each additional seller will allow Amazon to get more out of fixed costs like fulfillment centers and the servers needed to run the website. This greater efficiency will then enable it to lower prices further. More sellers will also lead to better selection. All of these effects will come full circle back to a better customer experience.

John Tamny sees the American entrepreneurial economy as a beautiful and productive flywheel.

Why are Americans so entrepreneurially focused? We descend from “the crazies” – the other thinkers who came from around the world, dissatisfied with their lives, and willing to cross oceans and borders to get to a place that offers no security but offers freedom. They took the ultimate entrepreneurial leap. We got the nut cases. Steve Jobs, for example, was of Syrian descent. Could he have started Apple in Syria? No.

John Tamny's Entrepreneurial Flywheel

Click on the image to Download the PDF

Entrepreneurs lead us to a better place.

John’s definition of an entrepreneur is someone who has a vision that everyone else thinks is ridiculous, yet they follow it anyway. They have no time for the way things are done today. They want something different. And to win consumer acceptance, what’s different must also be better. So they quite literally lead us to a better place. Horse-drawn carriages weren’t enough, so Henry Ford gave people something different. Everyone wanted Blackberry phones when Steve Jobs brought out the iPhone, and he quickly demonstrated its superiority. Every entrepreneurial act is speculation – there is never certainty that people are going to want the new product. That’s what is so important about entrepreneurs.

Entrepreneurs need to attract intrepid finance and intrepid financiers.

Silicon Valley is littered with VC’s who turned down Facebook, and turned down Amazon. Founding entrepreneurs think differently and have a vision that is far out of the norm, and they need to be matched with financiers who can be strong supporters and collaborators on the path to a better place. Irrespective of whether it is from Wall Street or Sand Hill Road, or from visionary friends and family, it’s critically important that we figure out a way to get financing to brilliant people. Government restrictions on entrepreneurial activity are certainly barriers to growth, but so is failure of imagination on the part of capitalists.

Intrepid lending takes place far away from banks. Unspent wealth is the source, and the more unspent wealth one person has, the more risks they can take.

We tend to complain about the antiquated and sclerotic banking system, but it has nothing to do with entrepreneurs and innovation. Banks make loans to entities they know will pay them back. Entrepreneurs fail 90% of the time. Banks want nothing to do with innovation.

Those with unspent wealth are the most crucial people in the economy when they match their unspent wealth with entrepreneurial talent and vision. The more unspent wealth they have – and the less the government takes away from them in taxes – the more intrepid they can be in investing it. When we tax away the wealth if the richest, we tax away the most important wealth of all. – that which has the highest odds of being directed towards new ideas that, while they look promising, have high odds of failure.

More and more of us have the opportunity to become entrepreneurs, if we harness the flywheel of original ideas that attract intrepid capital.

One of John’s many books, The End Of Work, describes how we are all now so enabled with interconnectivity to resources that we have the chance to make money by doing what we love. Our passion can become our job. If we are able to imagine a future place that is better – that improves the lives of individuals – we can create a growing business. The more of us who can do this, the more we grow the whole economy – which, after all, is made up of individuals. If we can also attract that intrepid capital that John refers to, growth becomes faster and higher.

Besides The End Of Work: Why Your Passion Can Become Your Job, John’s books include Popular Economics: What The Rolling Stones, Downton Abbey and LeBron James Can Teach You About Economics, and Who Needs The Fed: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America’s Central Bank.

Free Downloads & Extras

“John Tamny’s Entrepreneurial Flywheel”: 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.

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64. Per Bylund: Avoid The Errors of UNtrepreneurship.

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Per Bylund warns us that there is some entrepreneurial advice and some proposed business models that are misleading. They amount to what he calls UNtrepreneurship – a bad business direction to take. He defines the standard of the Austrian entrepreneurial business model and highlights the business risks that lurk on some other pathways in Economics For Entrepreneurs podcast #64.

Key Takeaways and Actionable Insights

Follow the guidance of the Austrian Business Model.

The entrepreneurial business model is built on a set of important economic principles. Wandering away from the entrepreneurial pathway can lead to errors that Per Bylund christened UNtrepreneurship.

Focus on serving consumers and customers.

The purpose of a business is to create and keep a customer. It’s a demanding task, because customer needs are continuously evolving and changing, and competing entrepreneurs are vying for their dollars. It is critical to maintain intense focus on service to customers.

There is a lot of distracting entrepreneurial advice. You might encounter instructions to “identify and exploit market gaps” or to “seize opportunities”, for example. But there are no such things as gaps to fill or opportunities to grab. The language makes it sound like these are objective phenomena, unmasked by analytics. They’re not. The right strategic platform for entrepreneurs is to focus on serving customers by identifying their preferences and meeting them.

Every hour you spend, every strategic thought you develop, should be focused on the customer.

Productivity lies in returns on customer satisfaction.

You’ll hear a lot of talk of generating returns, especially on funds invested by lenders or VC’s. These returns are emergent outcomes of other activities. Even profit is an indirect outcome more than it is a goal.

Ludwig von Mises wrote in Human Action that the task of the entrepreneur is to use capital “to the best possible satisfaction of consumers”. Anything else “hurts people’s well-being”. Customer sovereignty, in the language of economics, means that the customer decides, by buying or not buying, what will be the return to the entrepreneur on their investments of time, effort and money. Productivity results from the most efficient assembly and combination of resources to produce customer satisfaction.

Sometimes, business literature and business practice can deviate from this standard. Often, for example, the pursuit of “scaling” – making a firm big, in numbers of employees, say, or number of transactions, as fast as possible – can divert resources from serving customers to serving the needs of infrastructure growth and bureaucracy. Customer satisfaction should be the only focus.

Understand subjective value.

The economic concept of value is challenging to master for entrepreneurs. Value is an experience in the customer’s mind. We’ve also identified that it’s a process – a learning process customers initiate and actively conduct to make a decision as to whether an offering has potential value (“I might like it”), relative value (“I think I might feel better about buying X versus Y”), exchange value (“I am willing to pay Z dollars at this point in time to acquire X”), experience value (“my satisfaction was more / less / the same as I expected”) and assessed value (“looking back on it, my value experience was worthwhile and worth repeating unless something with more potential value is offered to me”). All through this cycle, the customer is active in the marketplace, learning about alternative offers, changing their consumption preferences, interacting with other people with different experiences and preferences that might be influential, receiving advertising messages, and generally rearranging their personal value recipe.

It’s a challenge to understand and a challenge to keep up. An entrepreneur’s understanding of subjective value is a critical business success component. Importantly, the business school concept of “creating value” can be unhelpful. Value is created by the customer. The role of the entrepreneur is to understand how to fit in to the customer’s life and contribute to it, making possible (“facilitating”) the mental experience we call value.

View pricing as a discovery process, not as an expression of market power.

Another challenge of the economic way of thinking to conventional business writing is the understanding of prices. Prices are emergent market signals, ultimately determined by the consumer’s willingness to pay. Prices can’t be “set” by the entrepreneur. There is no “pricing power”. Margins can not be calculated by determining the price you want to sell at and then subtracting the costs you have imposed on yourself.

Entrepreneurs discover prices – the market reveals them. Attempts to use pricing as leverage to grow market share irrespective of costs and profits are doomed to failure if it is later discovered that customers become conditioned to the artificially low prices and resist returning to a higher price.

Follow the entrepreneurial ethic.

Per Bylund has emphasized that there is an entrepreneurial ethic that applies. Entrepreneurship is the service of meeting customer needs. Profit emerges as a result of successfully accomplishing this task. Profit is necessary to maintain the service, but it’s not necessarily the primary goal. In some ways, entrepreneurship is a calling. There are social and emotional benefits for taking on the role of the entrepreneur – we can classify them as psychic profit. There is purpose and meaning in the entrepreneurial life.

This should not be confused with the misguided economics of so-called social entrepreneurship or impact entrepreneurship: attempting to rearrange and redistribute resources in society through the active application of the entrepreneur’s personal preferences. Only the customer’s preferences in the marketplace can direct the best allocation of resources. The entrepreneurial ethic is to follow and serve.

Our Free E4E Knowledge Graphic summarizes these precepts – keep it on your device for reference.

Free Downloads & Extras

“Avoiding The Errors of UN-trepreneurship”: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

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62. Mark Packard: The Customer’s Value Learning Process

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Innovation and marketing are the two most important functions of entrepreneurial business: bringing innovative new goods and services to market, and convincing customers of their value. On the E4E podcast, we are providing a detailed exposition of Professor Mark Packard’s deep analysis of exactly how customers arrive at, and act upon, their assessment of value.

Key Takeaways and Actionable Insights

Mark’s insights provide entrepreneurs with a powerful tool to fine-tune value propositions for maximum marketplace results.

Value is a process.

Value is a feeling that the consumer experiences. To arrive at that experience, consumers actually follow a process — a learning process. This process is actively conducted by the customer — it’s conscious, subjective, sequential, and continuously fine-tuned. There are 5 process steps:

  1. Predicted value (what will the experience be like?)
  2. Relative value (comparing that predicted value to existing solutions)
  3. Exchange value (putting a price on willingness to pay for the solution)
  4. Experienced value (what was it actually like?)
  5. Value assessment (comparing experienced value to predicted value).

In other words, it’s a cycle.

The first overview of the cycle was presented in E4E episode #44. Next, in Episode #55, Mark provided two tools for entrepreneurs to manage the process: the High Knowledge Customer Tool and the Mindfulness Tool. The first one ensure entrepreneurs talk to the right customers to gather knowledge, and the second helps them focus on the right things.

In the current episode, Mark helps entrepreneurs to identify and gather the right data for the management of the Value Learning Process.

Value Ethnography

Ethnography can sound a bit like it’s the activity of explorers in safari suits. But it’s actually the most modern data collection method for the new digital economy. The term is used to describe the process of embedding oneself in the situation that is being studied — in this case, the actions the customer is taking, and the decisions and choices they are making, regarding your value proposition and your business. Why do they do what they do? Why do they choose how they choose? Can they even explain it to themselves? In many cases, the answer is no. Ethnography doesn’t attempt to ask for an explanation or accept the one that’s given. Ethnography observes — it’s a journal record of behavior. And today, ethnography can be conducted via video and clickstreams as well as physical presence. The data streams are rich and deep.

Mark’s lesson to entrepreneurs is to be constantly observant, to watch and monitor what customers do, how they act, what they choose. At every step, ask them why they did what they did. But they might not be able to explain. Some actions may be made without too much thinking. Some may be habit. But, Mark explains, “The reasons are embedded in the behavior.” The reasons people do the things that they do and make the choices they make are embedded in the behavior itself and the observant entrepreneur is able to dig out those embedded reasons.

Therefore, there’s a next step after ethnographic observation: interpretation. And Mark offers us another tool to help us.

City Of From / City Of To

Customers are engaged in a continuing journey. Where they start from is their current experience. Call this starting point “the City of From”. And they are always dissatisfied, always seeking something better, aiming at some improvement in their experience. Call this new experience “the City of To”, the destination they want to reach.

The tool Mark calls “City of From / City of To” maps the customer’s journey. To understand where they are now, the entrepreneur as observer collects data or deduces findings about the customer’s current place — current experience – and their reason for being there. Then the entrepreneur as analyst projects the customer’s desired future experience in the City Of To. Why would they move there? Why do they like it better? What was wrong with the City of From and how is it fixed in the City of To?

Download the CITY OF FROM / CITY OF TO Toolkit at Mises.org/E4E_62_PDF.

CITY OF FROM CITY OF TO
Attraction Why am I here? Why did I move?
Doubts What am I unsure about here? How are my doubts overcome?
What Changes Why is this better than before? What will be even better in the future?
Dissatisfactions What is missing here? What is better here?
Motivations to change Why should I move? Why did I move?
What would I say? The case for moving. The justification for having moved.

Empathy and The Customer Knowledge Generation framework.

The core skill for entrepreneurs in the analysis of the customer’s experience in the value learning process is empathy — being able to feel what they feel. In fact, as Mark points out, that’s literally impossible. You can’t feel another’s feelings. But the brain is capable of amazing feats of imagination and projection — what Mark calls counterfactuals. You can imagine what another person feels and project that feeling onto your own experience so it’s as if you are experiencing it yourself. You create a mental model in your own mind of the feelings in theirs. It’s a skill you can practice and one that is crucial to unraveling the customer’s value learning experience — to experience it the way they do.

Mark provided a framework that helps you with sharpening your empathic diagnosis capability: Customer Knowledge Generation. There are 5 components, which are actually 5 pitfalls to avoid:

  1. Talk to the right customer — “high knowledge” customers who can truly help you understand value experiences that are most relevant to your business success. We discussed these high knowledge customers and how to identify them in episode #55.
  2. Make sure these customers are intrinsically motivated to share the right information. Don’t pay them to participate in your ethnography, but make sure they know there’s something in it for them – a better experience in their future.
  3. Assess your own motivation to learn — you must be sincerely committed to the learning process. Don’t “just ask”. Don’t just go through the motions.
  4. Be conscious of and actively seek to identify distortions in the information you are receiving from the customer — misstatements, inexact vocabulary, information loss, inattentiveness, looseness in communication. Interpret with rigor.
  5. Be aware of your mental model — the experience that you are imagining the customer is having — at all times to make sure it remains congruent, and that the information you are receiving is important and fits the model.

Next: changing the customer’s mental model.

If you practice ethnography and Customer Knowledge Generation, you’ll allocate a lot of time and effort to construct a model in your own mind of what the customer is experiencing in theirs. The next step is to flip the switch. You are going to adjust their mental model. You want them to consider your value proposition. That’s new for them. They don’t yet have a model of what it feels like to choose your service, or what it might feel like to experience it in the future. They haven’t formed a picture of relative value versus other options. You must provide them with that new model. We’ll talk about that in the next episode with Mark.

Free Downloads & Extras

“City of From — City of To”: 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.

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52. Mark Schaefer: The Future of Marketing Is Austrian – How Human-Centered Marketing Can Fix A Business Function That Has Lost Its Way.

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This week I spoke with Mark Schaefer about his iconoclastic and deeply insightful book Marketing Rebellion, in which he expounds the solution to modern marketing’s failures, via an approach he calls Human-Centered Marketing.

Listeners to Economics For Entrepreneurs and aficionados of Austrian Economics will recognize the close overlap between Austrian Economics and Human-Centered Marketing.

Key Takeaways & Actionable Insights

Marketing has lost its way – in its current state, it’s no longer a useful business growth tool for entrepreneurs.

  • An obsession with technology has eclipsed the focus on people and human values.
  • A mania for measurement has obscured emotional connections with customers.
  • “Marketers hide behind their dashboards” and are not conducting conversations with customers.

The solution, says Mark Schaefer, lies in the principles of Human-Centered Marketing. Austrians can easily recognize these principles as our own.

Austrian Principles vs Human-Centered Marketing Principles

Click on the image to download the full PDF

The customer-sovereignty perspective yields actionable truths.

  • Customers don’t need ads – they don’t see them, they don’t hear them, they block them.
  • Customers are rebelling against the interrupt-and-annoy approach of marketers.
  • The customer is in charge.

What do customers want from marketers? The answer for Mark Schaefer lies in Core Human Truths – what Austrians call Highest Values.

  • They want to feel loved.
  • They want to be respected
  • They want to belong
  • They want you to advance their self-interest
  • They want proof that a firm or brand is contributing to their community

These are deep human needs that don’t change. Whatever the speed of change in market, these values are constant. Humanism lets marketers hold on to what is not changing, rather than being overwhelmed by change.

Marketing mantras like “loyalty” and “engagement” are false.

  • Customers don’t want to be loyal; they want freedom and choice – they like shopping around.
  • Engagement does not result from clicking on an e-mail and downloading a white paper or a coupon.
  • These are dashboard measurements, not human values.

Mark’s recommendations are grounded in humanism.

Customers respond to shared meaning and shared values – so long as the sharing is authentic. Businesses must be loyal to consumers, never let them down, always be consistent. Live on their island.

Seek trust. Marketers have burned through trust. The Edelman Trust Barometer shows trust in business and brands and advertising going down for 11 straight years. Now brands must transcend the public’s mistrust.

Flip your branding. A brand is not what you tell customers. A brand today is what customers say about you to their friends and peers. People trust other people.

Let customers create their own value. This is pure Austrian Economics: customer value is an experience that takes place entirely in their domain. Brands and businesses facilitate – but can’t create – the customer’s value experience. Customers hire your brand or business or product or service to help them create value.

Marketing is promise management.

  • Choose the promise you make to customers carefully – is it one they really want from you and will they trust you when you make it?
  • Ensure that you have the capabilities to deliver on the promise. Don’t over-promise.
  • Keep your promise every time, with no exceptions ever.

BONUS: Small and medium businesses have an advantage in human-centered marketing.

The larger the business, the harder it is to connect to customers on an individual, emotional level. Small business has an advantage in showing its face, demonstrating its personality and exhibiting trustworthiness.

Items Mentioned In This Episode

Mark Schaefer’s Human-Centered Marketing Manifesto is here. 
For comparison, our Menger’s Manifesto, from Principles Of Economics, is here. 
Find Mark’s book, Marketing Rebellion, here.
Mark’s website is https://businessesgrow.com 

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.

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46. 8 Austrian Actions for 2020

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Entrepreneurship is action. It’s a process in which the actions of the entrepreneur are decisive. In the final podcast of 2019, we suggest 8 action steps you can take for the betterment of your business in 2020 and beyond.

Key Takeaways & Actionable Insights

Below are the 8 actions you can immediately take to make your business more Austrian in 2020.

1. Conduct an Empathic Diagnosis.

The entrepreneur’s first job is to understand the customer, their hopes and fears, their goals and wants, and their feelings. There’s a skill for that, and a method. The skill is empathy – the ability to feel what the customer feels.

The method is empathic diagnosis. The secret is not to ask the customer what they want or what they need, but to ask them how they feel. They can tell you that, but they can’t tell you why. That comes in step 2.

To ask them how they feel, use the Contextual Interview tool.

Think of it as a conversation with a customer whose feelings you are aiming to identify via a discussion in context. Look for responses that have “feeling” words – painful, frustrating, boring, annoying. Success! You’ve hit an emotional seam you can mine. Now dig in to understand their goals, and the means they choose to achieve those goals.

After the interview, you can collate the dissatisfactions, the emotional pain points and the functional failures. Then you can curate these inputs into functional, cognitive and emotional components of a potential new solution – i.e. new features (functional), new beliefs about what’s possible (cognitive) and better feelings about the experience (emotional). You now have a first building block for the design of a service or innovation that has high potential for facilitating new and higher value for the customer.

2. Construct a Means-End Chain to generate insights about hidden customer Motivations.

The output of your empathic diagnosis provides the basis for your next step. The goal is to generate an understanding about the motivations of the customer that they can’t quite explain themselves. People do not have introspective access to their motivations. Motivations are unconscious. People don’t know what Rory Sutherland calls the real why that explains their actions.

Smart entrepreneurs can find out this real why, using our means-end chain tool. 

Take an easel pad or a wall, mark out the links as different levels, starting at the contact point at the bottom and advancing one by one to the highest value at the top. Use sticky notes to populate each level with the appropriate customer responses from the empathic diagnosis. Then join the most pertinent items together that link each level – at this contact point, they perceive these features and attributes, that generate this functional benefit and this emotional benefit all of which are logically land causally linked to the pursuit of the highest value. Recalculate this sequence a few times until you are confident you’ve identified the strongest route to the highest value the customer is seeking when he or she is in your space. You now have an insight into the customer’s hidden motivations, and you can use it to build a strong brand.

3. Build a strong brand with our Brand Uniqueness Blueprint.

Building a strong brand provides you with a financial machine – a capital asset that can generate customer revenues reliably over time, because it meets customer needs and solves customer problems better than any alternative.

You can download our Brand Uniqueness Blueprint here.

The brand uniqueness blueprint helps you identify the two parts of your brand foundation: who is it for – i.e. whose problem are you solving, whose needs are you meeting. The term for this is Relevance. And how are you solving that problem in a superior fashion – that’s Differentiation.

Use our brand uniqueness blueprint by clicking the link. You’ll find an instructions template, an example using a real brand, and a blank template you can use for your own brand. If you want to send us a completed blueprint for your own brand via our Mises For Business LinkedIn page, we’ll be glad to give your comments.

4. Complete a Resource Uniqueness Inventory.

Our first three action items have been directed at your customer understanding and embedding that understanding in your brand blueprint.

Let us turn to your firm’s capabilities. You want these to be unique to your purpose, just as your brand is. Austrian Economics focuses you on individualism, and that includes your own individual experience, knowledge and skills. Our fault often lies in underestimating our own unique resources. One answer to this fault is to conduct an inventory or an audit.

In 2019, Dr Stephen Phelan gave us a resource-based theory of entrepreneurship, under the acronym: PROFIT, standing for Physical Resources, Reputational Resources, Organizational Resources, Financial Resources, Intellectual and Human Resources and Technological Resources. Here’s a link to Steve’s list. You can use it to organize your understanding of your own resources.

5. Imagine a Future Value Experience that your resources can deliver.

Whom shall I serve?

One way to answer this question is to imagine a future experience that customers will value. Mark Packard showed us how to do this by activating customer value as a learning experience in 5 steps.

  • Predicted value – it’s a picture you generate in the customer’s mind with your value proposition.
  • Relative value – it’s a calculation the customer makes compared with alternatives.
  • Exchange value – getting the customer to actually exchange dollars for your offering.
  • Experience value – the act of consumption in which the customer actually experiences value.
  • Value assessment – the customer conducts an assessment of value retrospectively. Looking back on the cycle, was the experienced value greater or less than the predicted value. Was it better or worse than the alternative, perhaps a brand that the customer abandoned in favor of yours? Does it feel that the experience was worth the dollars given in exchange? This is a place to identify a measurement of the value you have generated – but be careful: it must be a measurement of feelings and perception, which is a tricky measurement proposition.

When imagining the new value experience you are trying to facilitate, make sure to imagine every stage in sequence and how you can best stimulate each one. Download the Value Learning Process Knowledge Map to help your understanding.

6. Initiate an innovation project to deliver on the imagined value experience.

Innovation is the indispensable fuel of entrepreneurial success. The customer is continuously changing – rebalancing their preferences, seeking improvement in their circumstances, looking to feel better about their current situation. Dynamism on the part of the entrepreneur is mandatory.

Curt Carlson gave entrepreneurs the formula for managing innovation systematically. He uses the formula he calls N-A-B-C.

N stands for identifying the customer need.

The A is your approach. Your business model, your uniqueness, your capability of delivering, your technology, your logistics, the complete package of commercially fulfilling the need.

The B is benefits per costs in Curt’s language – what Mark Packard identified as relative value to the customer.

The C in the N-A-B-C formula represents competition and alternatives. It’s imperative for entrepreneurs always to understand the alternatives the customer has available to them.

Click here for our Knowledge Map of the N-A-B-C formulation.

7. Conduct a time inventory then cut it.

One of the most important ways Austrian Economics helps entrepreneurs is with a strategic appreciation of the role of time. Production, the process of delivering a value proposition to the customer, takes time. The entrepreneur assumes the cost of time, while the customer values time in their own subjective way and may seek alternatives that offer better time value. We are just beginning to understand how valuable time is to the customer – look at the success of just-in-time restocking systems, same-day delivery and overnight global distribution.

Steve Denning told us that time is now a strategic weapon of the entrepreneur – and a strategic dimension on which competition takes place. The customer wants speed, so the entrepreneur must manufacture speed.

A good step for the entrepreneur is to conduct a time audit. Examine all your processes that take time. Then imagine ways to reduce that time. Look at time from the viewpoint of the customer – where in the service experience would they welcome time reductions or time savings? How could you deliver them? Make time part of your innovation program. Give time back to your customers.

8. Identify your next innovation that makes life easier for the customer.

Austrian Economics always looks at business from the customer’s viewpoint. It sees that the overarching strategy that defines the digital era from a customer perspective is making things easy. Easier by a factor of 10X or 100X. Online purchasing is easier. Overnight delivery is easier. Cloud computing is easier. Subscription models are easier.

Customers today are permanently dissatisfied with the degree of difficulty of getting things done. Because they’ve seen how much easier things can be in so many areas, so many parts of the landscape. Entrepreneurs are competing to make things easier for them.

So here’s an exercise you can conduct. Imagine a way in which you can make things easier for your customers. Your empathic diagnosis might reveal several ways. Then imagine how your system could deliver the increase in ease – by a 10 or 100X factor. Then imagine a piece of digital intelligence or AI that might be able to implement the improvement for you. Then search for it on Github or elsewhere. You don’t have to develop the technology – you just need to imagine what it can deliver in increased ease for your customer.

Summary

In summary: these are 8 action items that are suggested by Austrian analysis for improving your business by improving your understanding of your customer and your delivery of new and better solutions for them. All 8 are practical and depend mainly on imagination. They cover empathic understanding, branding, resource assembly, value learning, innovation, costs, convenience, and time. We hope that we have provided valuable content for you to think about as you make your business more Austrian in 2020. Let us know.

Free Downloads & Extras

8 Austrian Actions Checklist PDF: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

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