Posts

190. Peter Klein: Why Managers Still Matter:

Entrepreneurial businesses embrace adaptiveness and change, and continuous innovation enabled by flexible and responsive organizations, empowered at every level. That doesn’t mean there’s no role for managers. Inside the corporation, entrepreneurial management co-ordinates the business flow of responding to changing customer wants and preferences, so that resources are allocated and reallocated to the production activities that customers value the most. In fact, management is becoming more important, not less. Professors Peter Klein and Nicolai Foss explain entrepreneurial management in their latest book, Why Managers Matter: The Perils of the Bossless Company (Mises.org/E4B_190_Book), and Peter Klein visits Economics For Business to highlight the key points.

Key Takeaways and Actionable Insights

Management co-ordinates the constant flux of entrepreneurial business.

The essence of the adaptive entrepreneurial organization model is responsive change. Entrepreneurial businesses don’t lock themselves in to 5-year strategies and annual plans. They recognize that markets are in constant flux as a result of changing customer preferences, changing competitive activity, changing technologies, and changing conditions in business channels and in the economy. Change is the normal condition. It’s what Ludwig von Mises termed constant flux.

Management is required inside the firm to adapt and respond to change outside the firm. It’s not possible to manage the change in markets, but it is a necessity to manage resource allocation and productive activities inside the firm.

Management is co-ordination and orchestration, not authority and hierarchy.

We might think of the concept of management in its industrial age guise of authority and hierarchy: some people “higher up” in the organization telling others “lower down” what to do. This kind of hierarchical authority can’t work in the digital network age; it’s too slow to process incoming data from the marketplace and too rigid to quickly or effectively implement newly imagined responses to those incoming data.

But in Professor Klein and Professor Foss’s analysis, management no longer equates to old-fashioned authority and hierarchy. Management is co-ordination: assembling the right resources — both human capital and complementary capital assets such as supportive technologies — in the right combinations (often referred to as “teams” in today’s management language) for the right shared task with the right shared goals. Professor Klein likened this to orchestration — there’s a conductor who guides the orchestra in playing the same symphony together, without telling the individual players how to play their instrument, and leaving the details of implementation to the individuals and their specialized skills.

Some orchestras may have better results than others because their teams have been well-recruited and well assembled and they respond better to management co-ordination. All firms and teams are complex adaptive systems, with emergent outcomes influenced by internal forces, one of which is management.

Management is culture more than authority.

How do managers achieve a better outcome as a result of managing their teams? Professor Klein believes that they institute a successful culture, as opposed to designing an organizational structure. He defines culture in terms of norms, customs and practices — the accepted way (or simple rules) of “how we do things around here”. More specifically, in the customer-centric entrepreneurial firm, “here’s how we plan to facilitate value for our customers around here”. Skilled managers paint the pictures — the “vision”, if you will — in the minds of employees of the customer value standards the firm will achieve, and the customer experiences that the firm will facilitate.

Modern managers are comfortable with and quite expert at adaptation.

The modern managerial culture is a far cry from traditional hierarchical managerial authority. It has the built-in flexibility for adaptiveness to the rapid rate of change in today’s digital business world. A well-functioning management process in a loosely structured organization can change internal production processes, teams and resource allocations in response to external changes in customer demand and marketplace conditions.

In fact, Professor Klein points out, through relevant case studies, such a management structure can be better at adaptation than, for example, a network of independent contractors and suppliers that would be challenged to orchestrate responsive changes to an external change, since each would have a different experience and process it through a different cultural orientation. They wouldn’t co-ordinate as well or as quickly as internally managed teams.

In certain cases, management authority can sometimes be a relevant organizational tool, so long as it is applied in a contingent fashion.

The relevance and usefulness of authority varies by circumstance and business situations. Its usefulness is contingent, and managers must be sensitive as to when to apply authority and in what style.

Why Managers Matter identifies two distinct styles of managerial authority, Mark 1 authority and Mark 2 authority. Mark 1 authority is traditional command-and-control, exerted top down — superiors telling subordinates what to do.

Mark 2 authority is exercised through design rather than command: finding the right person for the task, combining the best-qualified people in teams, and giving them a goal with a wide latitude in their process and implementation in achieving the goal.

An important element of the contingent approach is to empathically identify the subjective preferences of employees. Some will respond well to flexible, open-ended direction that enables them to exercise their own initiative. Others might prefer the certainty of clear direction. One type of salesperson might be highly motivated by a 100% commission remuneration plan, another might feel more secure with a base salary with the potential for an achievement bonus upon exceeding quota.

Professor Klein identifies two broad sets of conditions for the exercise of Mark 1 and Mark 2 authority. When there is a high degree of interdependence between people, teams and tasks, such that it is critical that tasks are highly coordinated, completed at the same time and combined in a highly specific fashion, then management intervention is required and it will include Mark 1 elements. When production is more modular, when tasks and projects can be completed interdependently, then Mark 2 management can be exercised through a decentralized, flat and culturally aligned organization. (Professor Klein cited the example of the type of higher education institution where he works; all the professors can design and teach their classes, do their research, and publish their papers and books with a high degree of autonomy.)

Management is becoming more important, not less.

In a rapidly changing world, where employee attitudes and experiences are very different than in the pre-digital world, and where global markets and their interconnected structures are more uncertain and cyclically unreliable, and where the pace of disruptive technological innovation is accelerating, good management is more important than ever for the success of our economy and our society. Smart managers are needed to find the right balance between operational excellence through established processes and adaptive change through adjustment and experimentation, a balance that business scholars call the ambidextrous organization. It can’t happen without management, and without managers.

Additional Resources

Peter Klein’s book page: Mises.org/E4B_190_Klein

Why Managers Matter: The Perils of the Bossless Company by Peter Klein and Nicolai Foss: Mises.org/E4B_190_Book

Public Affairs book page: Mises.org/E4B_190_PA

189. James Kent: Carving A Differentiated Growth Space In A Well-Established Market

Entrepreneurs always generate new value for customers; that’s what they get paid for. It’s not always necessary to create a new market; there are many creative ways to expand the value potential of established markets and carve out a territory in the new expanded space.

James Kent, founder of the innovative apparel brand Rogue, White and Blue, talks to E4B about the entrepreneurial value creation method he pursues in growing a distinctive and differentiated brand in what might look to outsiders like a crowded market, but which to him looks like unbounded opportunity.

Key Takeaways and Actionable Insights

Entrepreneurs start with what they love — it’s the first source of differentiation.

James is a lover of open-air experiences — of walking and hiking and exploring trails and off-road lands, of snowboarding in the mountains, and enjoying all the freedoms of exploration and everything to do with the great American outdoors. “What do I love?” is one of the first questions an entrepreneur asks of themselves, and James is certain of his answer.

Adding knowledge and experience fortifies the entrepreneurial recipe.

All experience and most knowledge are individual. What we pay attention to, and how we learn is always unique to us personally. James picked up some valuable experience by working in sporting goods retail stores, both interacting with customers in stores and working his way up the corporate ladder into management positions. This commercial experience in sporting goods was highly complementary to his love of the outdoors, and the two became a productive combination in James’ entrepreneurial approach.

James was able to gain some even more fine-tuned experience by working as the first employee of a start-up, running an office in a location removed from the head office. This provided exposure to the entrepreneurial experiences of risk-taking, autonomy, maximizing the use of limited resources and using business development tools like Google AdWords — all directly useful for a future business journey.

A third layer of relevant experience came from joining the National Guard in a patriotic spirit of service. The service ethic is fundamental to all entrepreneurial endeavors.

The stage is set: what kind of business to launch?

James asked the entrepreneurial questions. What do I love? The outdoors and outdoor recreation. What do I know? Apparel and apparel retail. What are my resources? Passion, the genuineness and clarity of commitment, design ideas, and a small amount of savings. Who are my customers? People who share the same passions.

Where will differentiation come from? It came from a reservoir of genuine feeling and the combination of two streams of thought: recreational love of the outdoors and patriotic love of country. The combination became the brand Rogue, White and Blue, described by customers as “the patriotic version of Patagonia”. It’s wild and unexpected like the American landscape, and it embodies patriotic design ideas, both in visual look-and-feel and in functional attributes such as Made In America.

The commitment to a differentiated brand platform creates a differentiated supply chain, differentiated production, and differentiated presentation.
Entrepreneurs design their production infrastructure and supply network backwards, starting with the brand and then identifying the system components that will bring it to life.

James had design ideas in his mind. He self-taught himself Adobe Illustrator to get them from his mind into digital documentation, occasionally hiring outside designers on Fiverr at low variable cost for some specific refinement tasks. Modern technologies ranging from design software (and the training videos and additional user content available online for new adopters) to digital printing to internet-enabled collaboration sites like Fiverr can be combined to create a complete value network with limited fixed cost investment.

The next step down the supply chain was to find screen printers and James tested alternatives until he identified the best craftspeople in that specialized profession. He made them his business partners, which enabled him to benefit from their expertise in identifying the right Made-In-America apparel manufacturers and the right high-quality fabrics. By ordering garments through the printers, he was able to give the printers a more profitable business model while offloading some risk (e.g., of misprinting) onto them. The shared value space was big enough for everyone in the network.

The integrated platform of a differentiated brand and a differentiated supply chain is the result of entrepreneurial commitment: to brand integrity, quality, style, and consistency.

Finding customers through entrepreneurial action.

At the outset, there wasn’t any marketing budget for Rogue, White and Blue. How does a brand get customers in those circumstances? Not by advertising but by entrepreneurial action: by meeting customers personally. James had a good instinct for who his customers would be based on input from like-minded friends and family. So, he went out to meet similar people by setting up a sales table at selected events where they might congregate. The first one was a gun show, and then more broadly outdoors-themed events. James vividly remembers the excitement of show attendees stopping by his booth, immediately bonding with the “patriotic version of Patagonia” brand feel — they didn’t need to be told, they understood it without prompting — and paying cash for the products. Rogue, White and Blue started with a batch of 96 T-shirts which quickly sold out.

Growth is funded by cash flow and there is no shortage of growth drivers and growth ideas.

Cash flow is the most important financial indicator of business performance and it’s the most important source of growth capital. Profit is an accounting notion, and debt-financed development has its own set of risks. Cash flow is a pure indication of customer approval and customer value. Therefore, it provides the best funding source for both working capital and investment capital — turning the value experienced by consumers into the funds that enable expanded and enhanced value experiences in the future.

Rogue, White and Blue has expanded into more designs, new apparel items, a strong website to drive sales, and a reinforced brand presence.

Customer feedback loops ensure continuous improvement and progress.

Meeting customers face-to-face or getting their feedback via the internet — these are feedback loops that help entrepreneurs refine their offering. The feedback may concern product quality, design, or brand imagery; it’s all positive input for an entrepreneurial business that is open and not defensive whenever there is criticism.

The entrepreneurial life is exciting.

How are we all going to share in the productivity of the economy? The old way was to take a job and participate as an employee, hopefully ascending the hierarchical ladder of a firm or translating increased experience and skill in a profession for higher wages.

As the digital economy unfolds, and more of the work is being performed through algorithms and A.I. and machine learning that’s translated into process automation, the traditional ways of sharing in economic production will be blocked.

The better alternative is economic participation and reward through entrepreneurship. James Kent describes the entrepreneurial life as exciting and fulfilling. It requires a thorough commitment and it’s hard work — he described the long nights he’s devoted to the Rogue, White and Blue brand — which he finds energizing and motivating. There’s a commitment and a service ethic, and a consequent freedom.

Additional Resource

Check out James Kent’s website: Rogue, White and Blue.

188. Jordan Lams on Finding and Patiently Developing Your Entrepreneurial Focus

We define entrepreneurship in terms of people working creatively to make others’ lives better. That’s a very broad statement, of course, so it’s instructive to observe how individual entrepreneurs choose to make some customers’ lives better in some specific ways by applying special skills and knowledge. Let’s call it finding an entrepreneurial focus.

Economics For Business talks to Jordan Lams, founder and CEO of Moxie, an industry pioneer in manufacturing, branding, and distributing cannabis products.

Key Takeaways and Actionable Insights.

Entrepreneurs find their focus — or, sometimes, it finds them.

Bruce Lee is reported to have said that the successful warrior is the average man, with laser-like focus. Entrepreneurs develop focus on particular customers, in order to understand them better, empathize with their wants, and deliver them the experiences that they value. Developing this focus may take time, or it may come early in the journey, but empathy always provides the pathway.

Jordan Lams observed the pain of a family member during a time of illness, and how cannabis products could bring some relief and comfort. From that time, he became focused on the health and medical benefits of cannabis in a broad range of personal circumstances.

From a position of focus, entrepreneurs develop the deep knowledge that becomes their marketplace advantage.

Entrepreneurial focus directs research and knowledge gathering. In Jordan’s case, he gathered academic research, medical literature, and clinical studies, and he talked with medical practitioners about cannabinoid therapies. Networking brought him into contact with researchers and doctors and clinicians and product developers. He established a uniquely robust knowledge platform.

Focus plus knowledge leads to opportunity tension.

Some entrepreneurial theorists have coined the term opportunity tension — that period when an entrepreneur’s focus and knowledge point to a market opportunity, but there remains unresolved risk in the process of seizing it. The entrepreneurial solution, of course, is to take the risk. Jordan executed his commitment by taking a job in the retail sector of his chosen industry — a place to meet customers one-on-one, and look backwards at the supply chain.

Customer orientation is refined by direct contact, conversation, and experience.

Working in retail enabled direct customer contact and unfiltered conversations about customers’ preferences and wants, the benefits they sought compared to the benefits they experienced, and a general deepening of customer knowledge.

In addition, Jordan was able to observe the supply chain, including the interruptions and inconsistencies that detracted from customers’ experiences. Product quality was inconsistent and supply was unreliable. To an entrepreneur, this looks like opportunity.

Knowledge, experience, and customer contact provided the ingredient for a new firm and a new value proposition.

Jordan sums up the firm he founded, Moxie, as knowledge + infrastructure. A status quo of incomplete knowledge, inferior and inconsistent products in unreliable supply chains can be replaced by a new market of shared and distilled knowledge delivered via consistent and trustworthy quality. Customers are able to develop trust and confidence in a brand based on knowledge (“we know what we are doing”) that brings new maturity in the form of scale and process control and quality assurance to an emerging market category.

The company’s knowledge base enables vertical integration because the knowledge is broad and not narrow, the recruitment of strong partners because shared knowledge makes for robust collaboration, and new standards of quality, adherence to which strengthens customer expectations.

The firm’s foundation supports both R&D and open innovation.

All markets are changing at high rates of speed at all times. That’s why innovation is the essence of entrepreneurship. Standing still is a losing option. Jordan invests I R&D in the form of lab research (in pharmaceutical quality labs) exploring new product forms and new combinations, while also participating in the open innovation of knowledge sharing that goes on throughout the industry. R&D supports both specialization (making current offerings even better) and market expansion (new products, new forms).

Brand building will be the patient route to long term growth.

While business environments change fast, one way to invest with patience in a consistent direction is to build a brand. A brand can reflect customer values — the things that matter to them — in a way that creates lasting bonds. On its website, Moxie positions its brand as a force of character: courage, grit, determination, nerve. It provides an emotional connection to customers who value self-realization and self-actualization.

Patient entrepreneurs can see the regulatory maze as a locus of opportunity, too.

Moxie was the first licensed cannabis brand in California, and sees itself as a pioneer in leading institutional and regulatory progress. Instead of viewing regulators as business obstacles, Jordan employs his empathy skills to understand their position, their role, and their needs. He provides them with resources of information, industry knowledge and collaboration, and contributes where he can and where it’s appropriate to help them arrive at decisions and translate them into subsequent implementations.

As in building a company and building a brand, patience can pay off in future strength.

Additional Resources

EnjoyMoxie.com

Jordan Lams on LinkedIn: Mises.org/E4B_188_LinkedIn

186. Jared Wall: How a Courageous Entrepreneur Enters a Formative Market

How do new markets form? When consumers change their tastes and preferences and behaviors, how are the markets to serve them activated? The markets don’t yet exist — entrepreneurial action is required to create them. The answer to the question, of course, is that entrepreneurs — real people taking the real business risk to initiate new business experiments — provide the new energy and new initiative to create markets where previously they didn’t exist.

Jared Wall is one of these creative entrepreneurs, and thchempspot.com is his creation.

Key Takeaways and Actionable Insights.

Courageous entrepreneurs lead the way into new markets as they are still forming.

Entrepreneurs bring the energy that opens new markets and new pathways to economic value. New markets can emerge as the result of changing consumer tastes and preferences, new channels or platforms, new forms of delivery, new technologies or a combination of several catalysts — but the energy, initiative and drive of the entrepreneur is always the necessary ingredient for the ultimate emergence of new value and new market arrangements.

New discoveries and new innovations often provide the entrepreneur with market-opening mechanisms.

Serving customers in new and different ways doesn’t always require new products and services, but it is often the case that the discovery or invention of novel combinations can lead to innovation — that is, new and better experiences for customers that were previously unknown or unavailable or narrowly distributed. In the market for consumable cannabis products, there emerged a new THC variant called Delta 8 THC, a cannabinoid that offered both different product performance and different accessibility. The emergent new ingredient provided the pathway to a whole new market opportunity.

Legislation and regulation are complications and barriers in formative markets, but often their ambiguity provides an opening for innovative entry.

The courageous entrepreneurs who lead the way into formative markets often encounter legislative and regulatory barriers, since these are static drags on progress and innovation and never keep up with the changes in markets. At the same time, the regulatory thicket can sometimes be useful to the entrepreneur who can cut a new opening others can’t imagine.

In the market for consumable cannabis products, Delta 8 THC became such a new opening, which was cut when some content in a comprehensive congressional Farm Bill encouraged the commercialization of certain kinds of hemp, of which Delta 8 THC was one of the by-products. Legislators and policy authors can’t think about the future the way entrepreneurs can, and they did not envision the future world of innovation they were unlocking.

The regulatory maze is an aspect of legislation and regulation — but every maze has an exit path.

Innovation in formative markets combines and compounds.

Jared Wall launched thchempspot.com to offer Delta 8 THC experiences to consumers. Those who shop at the site find a lot more innovation than just this ingredient. There are multiple new consumable forms for varied experience delivery — gummies, chocolate bars, chewing gum, soft gels, and peanut brittle, among others.

Where do these innovations come from? Not from the R&D labs of major corporations, that’s for certain. They originate in the creative minds of imaginative entrepreneurs, and they take shape in their experiments and prototypes and willingness to try new things. Will they all be big successes? Of course not. But they will all generate feedback loops of acceptance or non-acceptance, reviews and ratings and experience sharing; they’ll contribute to innovation as an ongoing cycle of learning. Society enjoys better choices because entrepreneurs unleash their creativity and don’t hold back from experimental designs.

Market infrastructure and market institutions can’t always keep up with entrepreneurial change, but new supportive services quickly appear to lubricate frictions and provide institutional arbitrage.

All commerce needs infrastructure such as payment systems and institutions such as banks, and market formation can sometimes move faster than infrastructure and institutions can adapt. Jared Wall had this experience — PayPal and major banks cut off services because thchempsot.com, while serving legitimate customers with legal products, was deemed a “high risk” business, outside their terms and conditions.

Yet, in a quite inspirational way, business services emerge in these situations to navigate around the barriers of poorly adapted institutions. Jared found consultants who offer the service of connecting so-called “high risk” businesses with value-network partners willing to collaborate with them. Jared was quickly able to replace his payment system and banking infrastructure. There was a service interruption, but it was temporary. A new network of mediating services quickly formed to bypass institutional barriers.

The creation and sharing of new information is a big part of the innovation equation.

Jesus Huerta De Soto1 identifies the creation and sharing of new information as the central activity of entrepreneurs – informing customers of new products and services and new offerings and prices. Entrepreneurs are constantly creating, updating, and improving the information resources they make available to customers. High quality information enhances value.

On thchempspot.com, Jared provides information in Q&A form, pull-down menus, and product descriptions. He’s self-published an informative e-book that’s free on the site, and he publishes an informative newsletter. We can sometimes feel unclear about the value of information, but in formative markets its importance is primary not secondary.

185. Jessica Fialkovich On The Business Of Selling Businesses

Every business should have an exit plan in mind from Day 1. Why? Because it’s impossible to control the timing of an exit or the changes in circumstances that might precipitate it. Venture capitalists know this, and build in their exit formulas at the time of their initial funding. Entrepreneurs should think the same way. And, like any business process, selling a business is a knowledge-based process that repays an investment in learning its techniques and critical success factors. Economics For Business talked to Jessica Fialkovich, a successful business builder in her own right, who founded Exit Factor, an advisory firm that helps entrepreneurs get the most from selling their businesses.

Key Takeaways and Actionable Insights

Entrepreneurship provides better career control and security than corporate life.

Jessica climbed the corporate ladder, investing effort and skill into being a great employee. But she was just a name on a list when the GFC came along – a list of those to be let go when Lehman Brothers (her employer’s funder) collapsed.

She realized that entrepreneurship provided her with great security. There’s uncertainty, but the entrepreneur decides what their future is, takes responsibility for those decisions, and accepts the accountability.

She built a successful business through hard work and the discovery process of identifying target customers and finding new and better ways to bring them value. Her chosen business was in wine sales to wine-loving customers, many of whom were connoisseurs. She developed many specialized services including finding rare wines for collectors, and her clientele spanned the globe. She incorporated the latest technologies and innovated in marketing techniques. She worked long hours, talking to customers across 16 time zones from Japan to California.

Then she decided to sell.

Entrepreneurs experience a lot less support when selling a business than when building it.

When you’re successfully growing a business, everyone wants to help, providing you with business services and supplies, and advice and ideas. What Jessica found when she came to sell was that she was on her own. It was hard to find expert help, or the requisite resources, or pretty much any kind of support infrastructure for a transaction of the size she was planning. For big business, there’s investment banking. For the 99.9% of businesses outside the Fortune 500, there was nothing similar. There were some so-called business brokers, but they were not dedicated specialists, not professionals in the specific process of selling, unreliable and poor at client service.

As an alert entrepreneur, Jessica understood that this finding signaled a market need.

The first step to design for an under-served market is to draw on relevant experience from parallel markets.

Business development always starts with first principles: is there a market to be served, in that some potential customers feel an unmet need or have a meaningful problem to be solved? Jessica had first-hand knowledge of the problem, and talking to entrepreneurs in similar situations reinforced her confidence in the market’s potential.

The comparison market Jessica chose was investment banking, which can be thought of as selling businesses of a larger scale. There’s an established investment banking process and a timeline of steps and milestones from preparing an evaluation, to developing the pitch deck, to the identification of the best buyers and the tailoring of a marketing plan for them. Jessica’s husband had some relevant investment banking experience which enhanced the knowledge transfer from one field to another, and provided a reality check for the process design.

Business-to-business services development and execution has its own set of rules; the most important one is the nurturing of relationships.

A business brokerage is a high-intensity B2B service bundle requiring a lot of in-person customized relationship management. There’s pitching the potential customers in the first place, customizing the service tom their particular business and to meet their specific needs, with a big need for staff training to deliver these specialized services. B2B service providers must be both sales experts and process experts. That requires a lot of human capital.

Jessica’s answer was to design and build a system-based model that, once in place, could be repeated and reproduced via well-trained staff with the right IT support.

She has found B2B services to be even more demanding than sourcing rare wines for connoisseurs. Selling a business is somehow more personal and individual. A client’s perception of what their business is worth may be quite different than the market’s perception. It’s the nurturing of relationships that smooths out the potential jagged edges in these transactions.

Some insights for entrepreneurs selling their business.

  • Identify your exit options from Day 1 of your business. Since it’s impossible to control exit timing – which may be due to unforeseen changes in circumstances – it’s best to lay the runway from the start. Plan to run a salable business, as well as one that’s profitable and growing. Don’t have a fire sale or panic sale or be unprepared.
  • Tailoring your selling process to the size and type of your business is important. There are different influences on what moves valuations up or down depending on business size, but, in all cases, it’s a process with a beginning, a middle and an end to be planned for in advance. You’ve got to know how to find buyers, how to source offers, and how to keep your business in good shape for due diligence.
  • Conduct regular health checks for evaluation. Always know what your business is worth. Find out how businesses are valued in your industry or sector. Make sure your business shows well on the criteria that are applied in your field.
  • EBITDA multiples are the dominant valuation metric. You may read in the Wall Street Journal about businesses being acquired for brand value, or for technology integration, or for other reasons of corporate M&A strategy. For small and medium size businesses, EBITDA multiples remain the dominant metric. There’s some art regarding what the precise multiple may turn out to be, but it’d within a range and is not going to vary wildly.
  • There is some room for qualitative factors and subjective valuation. Jessica listed subjective factors ranging from the degree of business involvement of the owner (and the worry that their future absence might be detrimental) to the perceived quality of the brand and its imagery and reputation.
  • The ultimate asset is a proven and scalable business model. If you can demonstrate that your business model returns increases in revenue and profit growth for additional investments in capital or people or marketing, then you are most likely to find an eager buyer. Make sure you can model your business in this way and that the data are clean and credible.

Additional Resources

Getting The Most For Selling Your Business by Jessica Fialkovich: Mises.org/E4B_185_Book

ExitFactor.com

Jessica on LinkedIn: Mises.org/E4B_185_LinkedIn

184. Rick West: When B2B Goes Click-To-Cart

Do the principles of customer value generation that we espouse in our Economics For Business program apply equally for both B2C and B2B businesses? The answer is emphatically yes. B2B customers are seeking subjective value and a value experience just as B2C customers are. They have a clear sense of the things that matter to them, and those include emotional and personal values as well as price and functionality and performance.

In fact, trends that begin in the B2C domain often quickly begin to influence the B2B domain, and the alert entrepreneur can track those trends in B2C and establish an early advantage by exploring them for their business customers. Rick West has done exactly that with his business services company, Field Agent.

Key Takeaways and Actionable Insights

In addition to identifying a meaningful problem, and providing an effective innovative solution, entrepreneurs in today’s B2B market must offer the right service delivery platform.

Rick West created a company called Field Agent to provide B2B customers with a meaningful service: monitoring their retail stores and shopper behavior and collecting in-store data about the interactions of shoppers, stores, shelves, displays and products. This kind of information is high value for both the retail operators (like Walmart) and the companies that sell products through retail stores (such as Procter and Gamble or The Coca-Cola Company). The set of services often goes by the terminology of “shopper marketing”.

Typically, such business service offerings have a long and cumbersome sales cycle. The service provider and the service client get in contact, there are meetings, prices are negotiated, and contracts are prepared and signed. Then, once the service is executed, there are more steps in analytics and preparation of presentations of findings, and another big meeting to discuss the findings and recommendations. Lots of meetings, lots of travel, lots of time, lots of lawyers.

Is this the right service delivery platform? It’s been virtually institutionalized over time. But it’s not a good fit with modern business models and the modern technology-shaped environment.

The Amazon effect.

Think about purchasing on a shopping platform like amazon.com. The customer first self-educates. If there’s a complex product to buy – such as an expensive flat screen HDTV with internet connectivity and interaction with all the latest entertainment ecosystem devices like Roku and streaming services like Apple TV – the customer might search for information via google, might visit some ratings sites, do some comparison shopping, and generally collect information to get to the point where they are confident of making a purchase. They don’t need to speak to an HDTV salesperson or a “customer success manager” or to sign a paper contract.

Or think of a slightly more complex transaction such as buying a car on Vroom. There are some contracts to be signed via DocuSign, but confident shoppers are comfortable with self-educating, making their decision, committing, and experiencing the delivery of the car to their home, perhaps with the added service of taking away their old one.

This is the world of services and service delivery we live in today. Your B2B customer also has a life as a consumer and an internet shopper, and is fully aware of the efficiency, convenience, and safety of these kinds of transactions. Call it the amazon effect: customers becoming comfortable with the “click-to-cart” experience, without interpersonal interaction with a salesperson or other service personnel.

Why not in B2B services?

Click-to-cart has arrived in B2B services.

Rick West’s customers for Field Agent services can purchase them on plumshop.com. A full array of shopper marketing services is offered via pull-down menus in categories such as Audits, Marketing, and Insights. Under these headings are Display Photography, Price Check, Shelf Management, Price Sensitivity Study, and dozens more, all in the language of shopper marketing that’s well understood by the knowledgeable B2B service buyer.

Clicking on any one of these takes the client to a price list and a detailed description of the service and its output, all in the colorful and engaging presentation style of an e-commerce site (like amazon.com!) The client can create an account online and make a transaction just as easily as buying a TV on amazon (and probably easier than buying a car on Vroom).

Self-educated buyers know exactly what they want, and the description and designation of the services are crisp and clear. Clients can check out testimonials, comparison shop, and take all the steps any smart B2B service purchaser would take to get themselves to the point of confidence and trust.

Some customized services will always be a client requirement, but there will be a rapid shift to more and more self-service.

Some clients and some projects will always require a custom, tailored response, and Rick’s company has both custom service and automated service capabilities. One point he makes is that a first project might be customized and accompanied by in-person client service, while for the second or repeat purchase, the client will be comfortable with the click-to-cart process.

Rick’s guessing a 70:30 split for automated versus customer services over time in his field, especially as the interface software learns and becomes better and better at responding to client needs and preferences.

B2B entrepreneurs are trend-spotters in the B2C domain.

People are people. Economic behaviors that we can observe in consumer shopping and buying are bound eventually to show up in business-to-business markets. They’re the same people – your B2B client is a consumer when not at work. Smart B2B entrepreneurs keep an eye open for B2C trends that can be expected to transfer to B2B and jump on them early.

Additional Resources

Field Agent: FieldAgent.net

Plum: PlumShop.com/fa/shop

Rick West on LinkedIn: Mises.org/E4B_184_LinkedIn