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The Value Creators Podcast: Episode #11. James Burstall On The Flexible Method

There’s a considerable debate among consultants and academics regarding the definition of management: what is it? Is it a science, is it a process, is it a set of tools that business schools teach us how to use? 

In this episode, James Burstall comes on to explain his perspective on management as a mindset (the interacting mindsets of many different people in many different circumstances in fact)  as proposed in his new book titled The Flexible Method: Prepare To Prosper In the Next Global Crisis.

Resources:

James Burstall’s Production Group – Argonon

James Burstall’s Book: The Flexible Method: Prepare To Prosper In The Next Global Crisis

Knowledge Capsule:

  1. Introduction to the Flexible Method:
  • “Flexible Method” is an approach tailored to managing uncertainties in business.
  • Central components include adaptability and radical determination, combined to form a powerful decision-making framework.
  • This method encourages an open-minded approach to research, teamwork, and resolute action for decision-making.

Action: Elevate responsiveness to change over planning.

  1. Radical Determination and Decision-Making:
  • Making and committing to decisions is crucial in the Flexible Method.
  • Teams need to reach a consensus and show unwavering determination.
  • Tough decisions are embraced and executed with full resolve.

Action: Don’t just make decisions, commit to them, and get team commitment.

  1. Adaptiveness and Scanning for Opportunities:
  • Radical determination is about executing decisions; adaptiveness involves identifying opportunities.
  • Scanning the horizon for changing circumstances is vital.
  • A case from the credit crunch illustrates the need to be open to new avenues.

Action: Where possible, anticipate change in the form of an opportunity space.

  1. Cash Flow as a Critical Metric:
  • Cash flow is the most critical business health metric, needing respect and management.
  • Managing finances during crises involves making tough decisions.
  • Strategies to retain relationships and sustain the business are discussed.

Action: Measure your business’s health with cash flow and cash availability.

  1. Entrepreneurial Mindset and Restlessness:
  • Organizations in crisis operate like startups.
  • Restlessness is essential for fostering an entrepreneurial mindset.
  • Embracing change, creativity, and innovation is emphasized.

Action: All business is entrepreneurial, not managerial.

  1.  Leadership, Care for People, and Reflection:
  • Leadership involves emotional intelligence, authenticity, and prioritizing people.
  • Values like diversity, inclusion, and environmental responsibility are retained.
  • Gratitude, rewards, and reflection play a role in the Flexible Method.

Action: Caring brings resilience to business.

The Value Creators Podcast Episode #10. John Tamny Entrepreneurs Don’t Meet Needs, They Lead Them

Entrepreneurs aren’t just about meeting needs; they’re all about setting trends and leading the way. Think of the big names like Elon Musk, Steve Jobs, Jeff Bezos, and Sam Altman. They don’t just follow the usual business rules; they rewrite them. So, how do they actually pull it off?

In his talk, John Tamny will take us on a journey to see how entrepreneurs, the minds that redefine industries, shake things up by tackling needs that haven’t been addressed yet. He’s all about those game-changers who see opportunities where others don’t.  

Show Notes:

0:00 | Introduction

1:22 | Entrepreneurs

2:00 | Entrepreneurial Thinking

3:36 | Entrepreneurs Leading the Future

5:06 | Mindset of an Entrepreneur

6:26 | Characteristics of Entrepreneurs

8:23 | Changes Lead Businesses

11:18 | Entrepreneurs Think Differently

14:06 | Hidden Entrepreneurs

15:55 | Big Companies are Not Entrepreneurial

18:42 | Institutional Entrepreneurship

22:54 | Creating New Knowledge for People

24:12 | The Idea of Capitalism

26:15 | Understanding Causation

32:31 | The Idea of Next-Generation Entrepreneurs

34:30 | Crypto Revolution

36:40 | Outro

Knowledge Capsule

  1. Entrepreneurship and Progress:
    • Entrepreneurship is that fundamental element of human nature that drives progress and innovation.
    • The United States has a history of entrepreneurial spirit, with individuals taking risks and pursuing their ideas.
    • Entrepreneurs challenge the status quo, create new value, and drive economic growth. In this sense, they’re oddballs.

Action item: Indulge your oddball entrepreneurial instincts.

  1. Education and Learning:
    • Education is a consequence of prosperity, not the other way around. People who want to learn will seek out knowledge regardless of formal education.
    • The next generation’s access to information and technology will lead to even more innovation and progress.
    • Learning is a choice, and the desire to acquire knowledge and skills is a key driver of success.

Action item:  Use A.I. and other tools as much as possible to accumulate knowledge.

  1. Causation and Expertise:
    • Causation is often misunderstood, with people misinterpreting relationships between events and outcomes.
    • Expertise can sometimes lead to tunnel vision, where experts become entrenched in their own data and assumptions.
    • The market and individual choices provide a more accurate gauge of trends and outcomes than expert opinions.

Action item:  Accept emergence, avoid false assumptions about causation.

  1. Innovation and Global Warming:
    • Innovation arises from individuals (oddballs!) challenging conventional wisdom and exploring unconventional ideas.
    • The assertion that experts are always right is challenged by examples like climate change and sea-level rise. The behavior of the market and individual choices contradict expert predictions.

Action item:  Rely on markets, not experts.

  1. The Next Generation and Private Money:
    • The younger generation is poised to be the richest in history, benefiting from technological advancements and abundance.
    • The rise of private money (perhaps, but not necessarily, in the form of cryptocurrencies could revolutionize the financial landscape by offering more trusted and efficient alternatives to government-issued currency.
    • The ability to circulate money that holds its value and the profit potential in private money creation are driving forces behind this potential shift.

Action item:  Pursue innovation in private money.

  1. Optimism and Capitalism:
    • Capitalism, rooted in individual initiative and free markets, has fueled prosperity and innovation throughout history.
    • While challenges arise, capitalism’s ability to adapt and outpace government intervention is a testament to its enduring strength.
    • Optimism about the future stems from the ongoing creative destruction that entrepreneurs bring to the market, constantly reshaping and improving it.

Action item:  Be an optimistic capitalist.

Business Is Not A Set Of Practices Or Strategic Methods Or Planning Techniques. It’s A Mindset

In the current business era, there’s a lot that seems mandatory: using quantitative methods of strategy and planning, following documented IT-enabled processes, organizing fixed structures that can be captured in org charts, and complying with government-mandated rules and regulations. Even the acts of creativity that contribute to innovation are specified, documented, and captured in software. There’s a bias towards fixed cause-and-effect thinking: if a business takes action X, it will result in outcome Y. We are told that case studies will reveal this cause-and-effect linkage in hindsight, to be re-applied in future planning.

There appears to be no room for individualism, spontaneity, unpredictable interactions, or rebellion. Those concepts are insufficiently objective for today’s business executives, consultants, professors and executives. The goal in business is primarily stability: to make a plan and achieve it, to set targets and hit them, to predict quarterly earnings with accuracy, to define processes in the knowledge that they will be followed unfailingly. The goal is to turn business into a science, with hard numbers, laws, and data-driven methods.

But in excess, this objective approach does not support the primary goal of business, which is value. 

The purpose of all firms is to generate value for customers and value is not objective or measurable or amenable to design or planning. Value is a feeling – a feeling of well-being or satisfaction experienced by customers. Different customers experience more value or less value than each other even when using the same product. Value occurs when the customer has used the product or service and compare the consumption experience with their going-in expectations. Value is subjective from beginning to end – from the search for potentially satisfying experiences to the realization in use to the evaluation after use. 

In fact, it is not the firm’s job to create value. It’s the customer’s role to find the most effective solution to their wants and needs. They can express some doubt or uncertainty that there’s anything available to them that exactly meets their need, although they might buy something that the best available option, even though their satisfaction is incomplete. They’re always looking for the discovery of something better. This is the role of the customer – the genius role of insisting on something better, thereby stimulating innovative action among producers to respond with new value propositions. Together, the producer and the customer imagine a new future value via a new or improved service or product; the producer can help the process along with product enhancements and advertising and PR and perhaps prototypes to help the customer’s imagination along.

If the customer’s imagination is piqued, the firm must commit resources to assemble the product capacity that will put an actual, purchasable offering into the marketplace for consumption. There’s no guarantee that this will be profitable or successful. The customer has the final decision. There’s no planning, predictive modeling, sales goal targeting or quantification of any kind that can eliminate or overcome this uncertainty. The customer will choose between all the alternatives available, including to buy nothing at all. It’s all contingent, and there are infinite possibilities. Firms choose their path towards facilitating the customer’s value experience, but there are no objective certainties.

So if business is not objective, quantifiable, or plannable, how would we describe it?

The philosophical word is subjectivism. Businesses would be better equipped for marketplace success if they followed subjective methods. They’re dealing with people and their emotions and their interactions with others in a complex social system. There’s no hard science, no spreadsheets, no data set that can predict the outcomes. 

That raises the question, what are the skills for business, if they’re not numeracy and hard science and mathematical economic. The answer is empathy. The skills of empathy – the ability to see inside customers’ minds and simulate a view of the world as they see it, to imagine what they are imagining, to reconstruct their mental model as opposed to imposing your own – are the most important in every business, and for every individual in every position and every function in business. Everyone must display customer empathy. What is the experience they are having? What’s imperfect about it from their point of view? What might result in a better experience for them, a potentially greater satisfaction for which they might be willing to pay. This empathy is best exercised at the level of the individual customer. If a business can get the empathic diagnosis right for one business, then they can investigate how it scales. Every customer is different, but there might be some patterns of response and interaction that spread out among a population of customers. 

Empathic diagnosis can reveal customers’ intent. What ends are they aiming for? What’s the highest value they seek? How can the firm’s proposition stimulate them to believe that it might contribute to that highest value? Uncovering the customer’s intent can indicate what experiments to run to find out whether any of the propositions a firm is able to get customers to imagine a future where new value is a possibility for them. Experiment is a key word: there’s no certainty in advance. Possibility is another key word: there is a wide range of possible outcomes. But by running the experiments and responding to feedback, the number of possibilities, the range of uncertainty, can be narrowed.

Once the results of experiments are in, then the firm can start unleashing its quants to do the economic calculation. How much will the customer pay based on these experimental results? How many customers might there be? How frequently will they buy. How much advertising budget should I spend to make the value proposition more widely known. Quantification is appropriate for these questions, once the empathic diagnosis is authenticated. 

Of course, the quantification can’t be accurate, and circumstances will change. It’s subjective calculation – the right method for an uncertain and subjective world.

The Value Creators Podcast Episode #9. Mark Packard on Subjectivism

At the Value Creators, we favor a much different business model than the one that’s traditionally taught in business school. Our model focuses on value, understanding that value is experienced by customers, and that it’s entirely subjective. You can’t put numbers on it, you can’t capture it in a plan, it’s not something that can be distributed to shareholders. It’s not a thing of any kind.

We build the Value Creators system on the firm foundation of economics. In this episode, we’re going to explore the basis of sound economic theory and a sound understanding of value. A key word is subjectivism, which may sound very wonky, but it’s the gateway to understanding value.

To talk about value and subjectivism, our guest today is Professor Mark Packard. He’s the Research Director at the Madden Center for Value Creation, part of the College Of Business Management at Florida Atlantic University. He’s the author  He’s the author of Entrepreneurial Valuation, An Entrepreneur’s Guide To Getting Into The Minds Of Customers.

Knowledge Capsule:

  1. Subjectivism and Value: The conversation starts with a focus on subjectivism in business, particularly in understanding value. From a subjectivist perspective, value is not intrinsic; it is determined by the consumers’ subjective evaluation of products or services. Businesses must focus on providing things of value that consumers appreciate and are willing to pay for. This understanding shifts the perspective of businesses from being value creators to value facilitators, aiming to deliver a better and more valued experience to their customers.
  1. Empathy and Understanding Customer Needs: To succeed in business, entrepreneurs must have empathy and gain a deep understanding of their customers’ needs and value experiences. This involves spending quality time with customers, observing their lives, and interacting with them to truly grasp their desires and preferences. The goal is to identify what customers would value the most and offer products or services that align with those preferences.
  1. Innovation and Technical Knowledge: Successful businesses combine customer needs knowledge and technical knowledge to innovate and create superior value propositions. Entrepreneurial success comes from finding solutions that customers value more than existing options. It requires constantly learning and refining the understanding of customer needs and leveraging technical knowledge to develop products or services that cater to those needs in novel and effective ways.
  1. Crossing the Chasm: Achieving scale in business involves crossing the chasm between early adopters and the early majority. This requires having a clearly superior value proposition that resonates with a broader audience. To succeed, businesses must focus on customer experience, as early adopters’ satisfaction and positive word-of-mouth play a pivotal role in convincing the broader market to adopt the product or service.
  1. Balancing Uncertainty and Adaptability: Business success is not solely reliant on luck, but rather on a combination of understanding customer needs, technical knowledge, and continuous adaptation. Uncertainty is inherent in entrepreneurial ventures, but businesses can mitigate this by fast-adaptive learning and a willingness to revise and refine their value propositions based on feedback and changing market conditions.
  1. The Role of Knowledge Building: To become better entrepreneurs and business leaders, individuals must focus on knowledge building. This involves running experiments, interacting with customers, and processing feedback rapidly to continually improve the understanding of customer needs and create innovative solutions that provide superior value.

The Value Creators Podcast Episode #8. Peter Lewin on Capital Value

In this episode, Peter Lewin, Professor of Economics in the Naveen Jindal School of Management at the University of Texas at Dallas, talks about capital, defining it, understanding it, optimizing it, identifying its role in business, and how it becomes valuable.

Show Notes:

0:00 | Introduction to capital value

0:45 | Introducing guest: Peter Lewin

2:46 | Capital and Flow of value

10:52 | Inbound & outbound flow thru time

14:28 | Net Present Value

15:52 | Free cash flow vs. EVA.

22:51 | Value drivers

25:43 | Advertising campaigns

27:20 | Interest elasticity of present value

31:24 | About business advice

33:16 | Connecting EVA. with value drivers

38:15 | Sports analogy

Knowledge Capsule

What is capital? Capital is value. And since all value is subjective, capital can be understood as the value subjectively attributed to any resources available to a business for production. That means it includes capital goods like machines and offices, intangibles like brands and lines of code, and people and their skills and their knowledge, both tacit and explicit, accumulated and evolving.

To put a number on this value (what we might call “market value”) requires an assessment that’s informed by subjective calculation. The business executive assesses the future cash flows attributable to the capital asset, discounted to the present period so that a number can be placed on capital value and it can be captured on the asset side of the balance sheet of the business. These future cash flows are an estimate of the experience value the customer will attribute to the goods and services the capital produces. Expected experience value lies behind the customer’s willingness to pay, which is where cash flow comes from. So capital value is a subjective estimate by the business of the subjective value the customer will experience in the future. It’s a tricky calculation, but one at which an entrepreneurial business must be skilled – and honest. Over-confidence about future cash flows resulting from value creation activities represents the entrepreneur’s greatest uncertainty.

Capital is the value attributed by the valuer at any moment in time to the combination of production goods and labor available for production. Capital is the result obtained by calculating the current value of a business unit or business project that employs resources over time. It is the result of a (subjective) entrepreneurial calculation process that relates the flow of consumptions goods to the value of the productive resources that will produce those consumptions goods. The entrepreneur is a ubiquitous calculating presence. In a review of the development of Austrian capital theory, by Carl Menger, Eugen von Böhm-Bawerk, Ludwig von Mises, Friedrich Hayek, Ludwig Lachmann as well as recent contributions, the Element incorporates the seminal contributions into the new framework in order to provide a more accessible perspective on Austrian capital theory.

In Business, Aim At Benefits Not Goals.

The beauty of Austrian economics is that it can understand the joy of an individual successfully making a sale as well as the computation of GDP, and the despair of losing a job as well as the calculation of the unemployment level in the economy. This is subjectivism: the understanding that the things that matter are subjectively determined by individuals and their interactions with others. The outcomes may be observed and aggregated but that doesn’t change what’s important to people.

Such an understanding should change how we think about the economy. The purpose of the economy is not to produce GDP, but to produce well-being. That’s a feeling, not a number. It can’t be quantified or expressed in dollars. The state of the economy is how people feel about their economic and personal well-being. It’s possible that some kind of a directional indicator could be produced by a survey – asking people how they feel and monitoring the trend (feeling better or feeling worse). The University Of Michigan Index of Consumer Sentiment attempts to do exactly that, and may be our best indicator of economic conditions.

There are broad implications of the subjective approach – let’s call it the people-first approach – to economics 

Mathematical economics is all wrong. In the twentieth century, the study of economics was hijacked by mathematics. The route to getting an economics Ph.D. or any kind of a degree, the route to formulating economic policy, and the route to managing businesses were all mathematicized. Mathematical laws of cause-and-effect were conceived as applying to human economic interactions. If an equation could be solved, then we could understand the underlying economic issue and take appropriate economic action. This whole approach omits the human element. There’s no equation for well-being.

Economic policy making is all wrong. Economic policy making aims at economic outcomes to be achieved through top-down planning. It’s government intervention in the economic interactions of individuals. Whether it’s taxation or tariffs on trade, or industrial policy (which industries government favors and those it restricts), or anti-trust, or money supply, or income redistribution, or government spending of any kind, it’s all directed at numerically-defined goals using input equations to predict numerical outcomes. That there is even a category of behavior designated as economic policy is a horrible distortion of the reality of the sources of economic well-being.

Our concepts of business management are all wrong. When commentators and the business media aim to assess companies’ performance, or their quality, or their merit, it’s always couched in mathematical terms, whether that’s stock price trends or revenue growth or profits. When CEO’s and executives and managers talk about their achievements, it’s also demonstrated through numbers. It’s rare to hear a CEO talk about the feelings of their customers. Yet it’s those feelings that should be the drivers of corporate behavior and the logic of corporate decision-making.

All of these errors involve goals. We set goals, we aim at goals, we measure whether we met, exceeded or fell short of goals, and by how much. These are all mathematical calculations, numerically enumerated. There’s no subjectiveness or well-being. This kind of calculation has its place in science, which has the extrinsic perspective of trying to understand and predict the material world we live in. We look for scientific laws to explain what has happened in the past and predict future happenings. But this kind of scientific method is inapplicable to the individual, personal, emotional, illogical interactions of humans in their economic dealings with each other. if a shopper feels that a store has an attractive price for potatoes but refuses to shop there again when the checkout clerk is rude, the outcome can’t be modeled. Will the shopper pay the price for potatoes and tolerate the rudeness? Or pay more for potatoes elsewhere, where the level of friendliness and politeness is higher? Will they tell all their friends about the rude service and aim to persuade many more people to change their shopping habits? Will they change their mind at a later date and return to the first store to shop because they eventually decide that low price overcomes rudeness at the checkout? None of this can be modeled and mathematicized.

The solution is to substitute benefits for goals, and to aim at delivering those benefits rather than numerical outcomes. Value is a subjective experience for users, and the idea of benefits is to facilitate that experience by describing the betterment available from accepting a value proposition – feel more chic in new fashions, enjoy speed and safety and green credentials driving a Tesla, make your business operations more efficient and effective using new software, take new confidence in your organizational design with this sound consulting advice. Businesses are better advised to aim at delivering the right benefits rather than aiming at revenue or unit sales goals or returns on investment. These results will be outcomes, but they shouldn’t be goals.

If businesses were benefit-focused, they’d concentrate on knowing their customers as well as possible, on understanding those customers’ needs and wants and preferences. They’d aim at facilitating well-being in individual lives and therefore in the economy.