1. Subjective value.
What is the purpose of business? It is to create value for customers, defined as the experience of a feeling of satisfaction, well-being, or even delight. Austrian economics cuts through the debates about maximizing shareholder value or stakeholder value, and about the cold and calculating pursuit of profit. Profit is an emergent result of creating subjective value, one that’s required to keep the value creation system in motion. A deep understanding of subjective value is a prerequisite for business success, and it results in a broader value perspective for businesses and firms than narrow concepts such as profit maximization or shareholder value maximization. The value-dominant logic of Austrian economics ensures that business is a benevolent force for society, as well as for all business participants on both the producer and customer sides.
Source: Ubiquitous. Subjective value in entrepreneurship, Per L. Bylund, Mark D. Packard
2. Customer sovereignty.
How does any economic system – a firm, a project, or a marketing campaign – work and succeed? The customer determines the outcome. By buying or not buying, by paying the manufacturer-recommended price or effectively demanding a lower one, by judging the quality of the experience and rating it and describing it to others, customers are the sole determinants of what succeeds and what fails for producers. By acknowledging this sovereignty, businesses channel themselves into the right business approach: humble, responsive, agile.
Source: Ludwig von Mises Human Action Scholars Edition Ch XV Section 4 The Sovereignty of the Consumers
The engine of economic growth is the individual consumer’s drive for betterment. Each individual is eternally dissatisfied with the status quo and seeks constructive ways to improve it through acquisition and use of products and services that they judge might help them in their quest. This dissatisfaction is the universal resource for entrepreneurs and innovators. Those who succeed in utilizing this resource effectively thrive.
Source: Ludwig von Mises: Human Action, Scholars Edition Part 1 Chapter 1 Section 2, The Prerequisites of Human Action
Entrepreneurship is the economic function that senses the dissatisfaction of end-users, translates that sensing into innovative economic projects, and proposes new choices and alternatives to them. Entrepreneurs accept the uncertainty that they might not succeed in securing the acceptance of the customer (see 2 above), and they utilize methods of co-creation of value with customers to increase their probabilities for marketplace success.
Source: Murray N. Rothbard, Man Economy and State Ch 8 Production, Entrepreneurship and Change, Section 5 The Entrepreneur and Innovation
5. Empathy as a business skill.
The tool to match entrepreneurial sensing to the customer’s drive for betterment is empathy – the skill of identifying and understanding the customer’s mental model and seeing the world from that perspective. Being able to identify the feeling a customer would prefer to experience is empathic skill, and being able to get the identification right is empathic accuracy. Translating these inputs into potential new marketplace offerings is entrepreneurial imagination. All of these require a human connection that is the essence of the entrepreneurial society.
Source: Peter G. Klein Empathy For Entrepreneurs
6. Business as a flow.
Traditional business management approaches do not deal well with the dynamics of markets. There’s an effort to control – e.g. by making annual plans or compiling 5-year strategy documents that are somehow intended to frame resource allocation and employee activities – and to predict – e.g. by making sales forecasts and driving internal activities to “hit the numbers”. No control and no prediction are possible. Business is better viewed as a flow, a river of activity that is never the same twice and always different depending on the location of the observer. Ludwig von Mises called this situation “constant flux”. In this sense, value is a flow and capital is a flow – the capacity to think in terms of flow and manage in view of continuous flow is a desirable skill.
Sources: Peter Lewin and Nicolas Cachanosky: Austrian Capital Theory; Ch 2 Carl Menger and the Structure of Production
Ludwig M. Lachmann; The Market as an Economic Process
7. Orientation and Intent.
Strategy and planning are replaced by Orientation and Intent. In a business firm, orientation is a shared alertness among all employees and partners to new information coming from the marketplace and the business environment, and a shared way of filtering it and processing it quickly to inform new decisions. Intent is the framing of those decisions in the context of shared goals – no commands and orders but common guidelines for action. Orientation and intent are dynamic alternatives to command-and-control.
8. The end of structure.
In a world of flow, traditional organizational structures and the transmission of hierarchical authority can prove to be constraining, impeding vital information flow, and resulting in waste and inefficiency. The most constraining organizational form is bureaucracy. Leadership becomes an emergent situational tool, not a consequence of authority. It is fluid not structural, operating vertically and horizontally from bottom to top and top to bottom, in small teams and grand challenge projects as needed, based on knowledge specialties as they pertain to the situation at hand.
Sources: Ludwig von Mises: Bureaucracy
9. Shared mental models.
We all see the world indirectly, through mental models. As a consequence of subjective understanding, each individual in a firm constructs their own mental model. Management and leadership in this context come down to aligning all these mental models so that they become one, cohesive, shared model. The shared model becomes the binding force that takes a business forward with growth momentum.
10. Simple rules.
Austrian economics understands that markets and firms and industries are “spontaneous orders” – what today we call complex adaptive systems (CAS). Such systems are guided not by plans and policy manuals but by simple shared rules that apply to all and are followed by all. Such rules as the creation of subjective value, practicing empathy, and acting entrepreneurially are among the rules that bind firms together.
Sources: Economics For Business: Systems Thinking For Business
F.A. Hayek; Law, Legislation and Liberty, volume 2, Chapter 7