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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.

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“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.

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

Apple Podcasts, Google Play, Stitcher, Spotify

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

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

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41. Stephen Denning: There’s A Revolution In Value – It’s Austrian And It’s Agile.

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Austrian economics emphasizes the delivery of value for consumers and customers. Only they can define value, because it’s their subjective experience that is valuable to them.

Listen to Stephen Denning using the example of Spotify to illustrate the agility of a modern firm – recognizing the unarticulated need of consumers for mobile on-demand music, delivering “1000 songs in your pocket” (and making consumers aware of new possibilities) and then further extending that product to include a weekly offering of new songs, another possibility the consumer couldn’t know about in advance but which quickly becomes a need. It’s the Austrian market process at speed: instant, intimate and frictionless.

Key Takeaways And Actionable Insights

The revolution in value:

  • In the manufacturing economy, value was seen as making goods and selling goods.
  • In the service economy, value was seen as service delivered to, and co-created by, customers.
  • In the digital economy, all value is realized in the customer’s domain, and even they can’t imagine the value they’ll experience when they start using new digital technologies and methods.

In Austrian economics, the theories of customer sovereignty and value in experience that sit behind this value revolution are well established. Now, entrepreneurs are finding ways to implement these Austrian principles. They call the new world of value “Agile”.

According to Stephen Denning, the agile value revolution is a mindset, with three guiding principles.

  1. Obsession with facilitating great customer outcomes.
  2. Deliver the great customer outcomes at speed (work in small teams with short cycles)
  3. Organize the firm as a network, not a hierarchical bureaucracy.

Entrepreneurs can exercise this mindset in these ways:

Facilitate new value outcomes for customers.

  • Entrepreneurs don’t create value – value occurs in the customer’s domain based on their consumption, and their context.
  • Entrepreneurs can’t plan the value outcome – it’s emergent.
  • Even customers can’t imagine what value they’ll experience from a new service or new technology.
  • Therefore, entrepreneurs can facilitate value – make it possible – but only customers can realize value.

To facilitate value, fit into the customer’s life.

  • Responsiveness is not enough – you’ll always be behind the twists and turns of customers’ changing preferences and experience.
  • The art is to keep up with customers in real-time as they change.
  • Practice customer anthropology – become part of their lives.

Time is value – use it well.

  • Customers prefer faster over slower.
  • Therefore, speed is value.
  • Use time as a strategic weapon: faster wins.

Eliminate all waste.

  • No value is created inside the firm.
  • Many internal activities are pure waste – reversing value outcomes (e.g. decreasing speed).
  • Estimates vary between 20%-50%+ of firm internal activities are waste.
  • Eliminate all the waste you can identify.
  • Export the savings to the customer.

Flexible, dynamic capital allocation.

  • Move resources and capital around quickly, to value-facilitating applications.
  • Be ruthless in eliminating non-value-facilitating projects.

Design and operate your firm as a network.

  • A flotilla of speedboats outperforms a big machine.
  • Change processes from linear to networked – from lean to flow.
  • Change organization from hierarchy to network – no reporting lines.
  • Change leadership thinking – place leadership in the teams that are close to the customer.

For more, check out Stephen Denning’s book The Age of Agile on Amazon.

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The Agile Value Revolution PDF: Our Free E4E Knowledge Graphic

Understanding The Mind of The Customer: Our Free E-Book

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38. Per Bylund on The Laws Of Agile: A welcome step towards the Austrian vision, but not quite all the way there.

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The management methods and practices that have been gathered under the term Agile claim the status of a Copernican Revolution. Agile reverses the traditional view of business revolving around the firm, instead placing the customer at the center and viewing all other elements as revolving around the customer.

This is a welcome development – but just a step towards the Austrian vision of consumer sovereignty and the concept of value as created by the consumer, not the producer.

Key Takeaways And Actionable Insights

The management methods and practices that have been gathered under the term Agile claim the status of a Copernican Revolution. Agile reverses the traditional view of business revolving around the firm, instead placing the customer at the center and viewing all other elements as revolving around the customer.

This is a welcome development – but just a step towards the Austrian vision of consumer sovereignty and the concept of value as created by the consumer, not the producer.

We examined the three Laws Of Agile proposed by Stephen Denning in his book The Age Of Agile, and Per Bylund noted the elements that are useful for entrepreneurs, and the extra insights provided by Austrian Economics that can help entrepreneurs to perform at a higher level in facilitating value experiences for their customers and consumers.

The Law Of The Customer

  • Agile recognizes that the one valid definition of business purpose is to create a customer.
  • The customer – with mercurial thoughts and feelings – is at the center, and demands to be delighted.
  • What the firm thinks it produces is less important than what the customer thinks he / she is buying – what they consider “value”.
  • Everyone in the firm must view the world from the customer’s perspective, and share the goal of delighting the customer.
  • The firm must have accurate and thorough knowledge of the customer.
  • Continuous innovation is a requirement to delight customers.
  • The firm’s structure changes with the marketplace.
  • Speed of response becomes crucial and time is a strategic weapon.

Austrian Enhancements

  • The Austrian concept of Customer Sovereignty is even more powerful for entrepreneurs  – customers create firms, in the sense that customers decide what is produced by buying / not buying, and therefore which firms are successful.
  • Value is subjective – and so customer preferences can change rapidly and frequently.
  • Responsiveness is not enough – the goal is to imagine the customer’s future needs, and involve them in the production of future value.

The Law Of Network

  • Collaborative network of competence replaces hierarchy of authority.
  • The network has no leader, but it does have a shared, compelling goal.
  • The network is the sum of the small groups (rather than individuals) it contains.
  • Each group has an action orientation.
  • The network’s administrative framework stays in the background. No bureaucratic reporting.

Austrian Enhancements 

  • Agile is based on too narrow a view of the economic network. It’s still producer-centric.
  • The true network is the market – which includes customers (of which there are many more than firms, and who exert more economic influence than firms).
  • Networking the production side of the firm is an incomplete act.
  • A fully-functioning network includes customers and consumers with equally valid connections to the firm, not just collaborative production partners.

The Law Of Small Teams

  • Big and difficult problems are disaggregated into small batches and performed by small cross functional teams – scaling down the problem.
  • 7 +/- 2 is a good rule of thumb for team size.
  • Each team is autonomous, and works in small batches and short cycles.
  • Each team aims to get to “done” – it’s binary: either done or not done, never almost done.
  • No interruption.
  • Radical transparency.
  • Customer feedback each cycle.
  • Retrospective reviews.

Austrian Enhancements

  • A pure focus on short term execution can divert attention away from longer-term considerations – especially, imagining the future, which is the core component of entrepreneurship.
  • Focus on creating value for the future, while ensuring no loss of current reputation and relationship.
  • Administration – and therefore “bureaucracy” –  can’t be eliminated entirely without a reduction in customer value.
  • Required services can be a component of value creation – such as compliance, operations management, etc.

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