For any size and any type of business, the generation of value requires more than strategy, planning, and executional excellence.
It calls for the establishment, communication, and internalization of value-generation principles, solidly founded and consistently applied. This concept of the long-term, dynamic application of unchanging principles is the essence of the Austrian approach to business.
Download The Episode ResourceLong Term Value Generation As A Science Of Business Success – Download
Key Takeaways & Actionable Insights
In a podcast conversation, Professor Per Bylund reviewed and critiqued the popular business book The Science Of Success, and focused on these principles or guidelines.
A Vision For Long Term Value
Vision in this context is not the transcendental futurism of a CEO-with-superpowers often envisaged in business school texts. This is Austrian vision: a deep understanding of what constitutes value and how to act to realize value over time, rejecting short-term opportunism.
Value, of course, is subjective, determined by consumers, and so businesses that generate long term value can be seen as creating value for society, a laudable ethical contribution to social well-being.
Virtue and Talents
It’s unusual to encounter the word virtue in a discussion of business. In this context, it applies to the selection and hiring of a team that will collaborate on the long term creative task. This requires dynamically melding people with the right values, skills and capabilities, and the capacity to develop skills and capabilities even further. Hiring becomes one of the most important and most value-generating business functions.
Knowledge Processes
Entrepreneurial value creation is a knowledge-based and knowledge-intensive process. Knowledge is actively pursued, curated, combined, and processed. Knowledge advantages may be available, where firms are able to craft uniquely superior processes, methods and technologies. Crucially, these are never permanent. They can always be competed away, and rendered redundant by changing markets and evolving consumer preferences, although some forms of knowledge advantage, such as brands and culture, can be more long-lasting. Knowledge processes must include not only knowledge management but also the creation of new knowledge.
Decision Rights
Business books often talk about organizational design, but less often about the details of the processes of decision making. Whether the organization is hierarchical or flat and networked, it must still be able to make decisions and have them accepted and supported and implemented. Putting people in the right roles with the right degree of authority and accountability is the business challenge. This is different from the mythical business school idea of “leadership”; it’s a more a matter of productive collaboration among multiple individuals and teams, all of whom have some authority. The concept of decision rights breaks the ties and the logjams and enables corporate dynamism.
Incentives
The idea that behavior is responsive to incentives is core to the science of economics, of course. The same is true in business, and it’s important to use economic reasoning to get incentives right and avoid adverse incentives. The proposition given in the Science Of Success is that people are rewarded according to the value they create. Thus, we come full circle, back to the vision of value that constitutes the first of these 5 principles. If a business is clear on its definition and understanding of value, then it can be successful in incentivizing its people to generate that value.
Additional Resources
Long Term Value Generation As A Science Of Business Success (PDF): Download Here
QJAE Special Double Edition on Entrepreneurship (PDF): Download Here
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In our project to make a useful link between Austrian economic theory and business practice, we earlier introduced the Austrian Business Model. This is a recipe to make a profit – a template adaptable to any individual firm.
Download The Episode Resource The Austrian Business Paradigm – Download
Key Takeaways and Actionable Insights
What exactly do we mean by paradigm?
A paradigm is precedent to a business model. It’s the underlying way of thinking – a set of values, beliefs, concepts and practices that combine to constitute a distinctive entrepreneurial approach to business.
Per Bylund’s exposition of the principle of Facilitation Of Value leads to a new – Austrian – paradigm for business. Here is the framework:
The Purpose Of Business is to facilitate value for customers.
In today’s interconnected, fast-changing world, businesses are formed and managed with the intention of ensuring value experiences for customers. This challenge is fraught with uncertainty, because value is an emergent – and therefore unpredictable – property of the interaction of people, artifacts and behaviors in complex systems.
Customers, whether consumers or businesses, operate in their own system. They must fit everything they consume into their existing system – their life or their business processes and organization.
Customers experience value in their own systemic context. If they own a car, for example, they experience ownership value within a system of taking kids to school, commuting to work, and shopping, as well as in an intersecting system of service, maintenance, fueling, accessorizing and replacing worn parts.
Businesses interface with the customer’s systems from their own system of design, procurement, resource management, partnering, warehousing, distribution, payments, technological enablement, regulatory compliance, communications and many more elements. A business system facilitates value to realize the customer’s experience within their own system.
The value of any offering is positively perceived by customers when the fit into their system is felt to be a good one and the offering contributes to system improvement or enhancement in some dimension. Uncertainty is always present because the system improvement can not be predicted with certainty in advance.
Austrian economics provides the principles for entrepreneurs, managers and strategists to establish a unique, sustainable, profitable and scalable process to facilitate value for customers.
The end-user / consumer takes the primary role.
A business can not be an assembly of resources or an expression of core competencies or the implementation of innovation in isolation. It can’t be the result of a strategy to penetrate a market or disrupt a competitive set without first understanding the hopes and dreams and aspirations of customers. It can’t be a simplistic choice from a set of business models on the business school shelf.
A business must stem from giving the customer the primary role. The very purpose of a business is to please customers by serving their needs, and so their perception and preferences must define the business design. Since the needs of customers are subjective, idiosyncratic, changeable and context-dependent, methodological individualism – making the individual the unit of analysis, rather than groups or segments or markets or industries – is the indicated approach.
This approach is a lot different than ideas of shareholder value or stakeholder value. It is sometimes acknowledged in terms such as consumer-centricity or consumer-first. But those commitments tend to be tactical and implementational. Relentlessly and unfailingly taking the point of view of the customer is fundamental to the new business paradigm. It’s what make business purposeful and ethical, sustainable and responsible.
Value is determined by the end-user or consumer.
What consumers seek from business is value. Value is hard to define and challenging to quantify because it is a subjective experience of the consumer, within that consumer’s own individual context. What’s perceived as valuable by one individual consumer will not be the same as another individual, and any individual can change their perceptions or their ranking of what’s more valuable at any time.
Value, therefore, can not be created by a firm or a brand, despite the traditional use of that language. Value is formed in the consumer domain, as an emergent property of the consumer’s choices, behaviors and context. Take a laptop PC for example. The value experience changes depending on whether the user is a gamer, an executive in the financial system, or a video editor. It varies based on the software the user installs, the usage advice he or she receives from peers and experts, the quality of the user’s network, their preferences for in-use performance, and many more variables. You can examine the same value experience thought experiment for any good or service of your choice, e.g. the value of an Audi A8 to a family of 6 living in rural South Dakota compared to a family of two in Manhattan with a one-bedroom apartment and a single parking space. Value emerges in lived experiences within these varied contexts.
For a business to business enterprise, it is sometimes expedient to limit the value analysis to the final purchaser / end user. There are sometimes some special value considerations in these contexts. For example, business customers tend to evaluate every economic choice in money terms – does it lower costs or contribute to higher revenues? But it is also the case that a business customer is often, in fact, multiple users (whether a procurement committee or a department all using the same item), and so a group rather than individual assessment of value is appropriate. Nevertheless, value remains a subjective, idiosyncratic, changeable phenomenon.
Empathy for customer dissatisfaction is the starting point for business development.
Dissatisfaction with the status quo – Austrian economists sometimes call it unease – is the raw material for business development. The genius of consumers is to always sense that their experience could be better than it is.
Empathy is the diagnostic skill of observing and analyzing behavioral data and deducing emotional drivers for change and innovation. A customer searching online for more efficient home heating solutions may be dissatisfied with the ambient conditions in the home, or with the level of his or her gas bills. An individual interview can determine which of these – or other alternatives – applies and point the way to a desired solution. The entrepreneurial practice is to focus empathetic attention on the inner drivers which are manifested in observable behavior.
There is no shortage of customer dissatisfactions to be addressed by businesses. The skill of empathy is to advance beyond taking the point of view of the consumer and to feel the experience that the consumer feels, and to identify the feelings that really matter. This is counter-factual – it’s not actually possible to feel what another human being feels – and is therefore an act of imagination. Imagination provides the energy for consumers’ dissatisfaction (they imagine a better future) and for entrepreneurs’ creativity (they imagine what dissatisfaction feels like for the consumer, and they imagine solutions to that dissatisfaction).
Empathic design
To advance from imagination to a business plan is an act of design. Design can be captured as a process in which an innovating business creates a blueprint for a good or service or technology or other artifact that presents a practical solution to a customer. There are many design process alternatives. The shared design principle is to start with an identifiable customer with a problem to be solved, and progress towards a solution with which the customer can interact and can evaluate.
Early prototype solutions should be adequate to share a resonant imagination between entrepreneur and customer, and to stimulate realistic responses from customers regarding features and attributes they do or do not find valuable, and flexible enough to accommodate frequent iterative adjustments based on those responses.
Uncertainty exists as a barrier to be overcome in the delivery of new solutions to customer dissatisfaction. Adaptiveness is the entrepreneurial response to uncertainty.
Uncertainty is integral to the business paradigm. Uncertainty can be experienced as the impossibility of predicting the future because of the extreme complexity of the interactions of customers, entrepreneurial offerings and potential solutions, opportunity costs, transaction costs, environmental factors and other system elements. The response to uncertainty is adaptation: making a change in a business offering and monitoring the resulting change in customer acceptance, customer behavior, customer interactions or other consequential results. Favorable changes are preserved, unfavorable ones discarded.
Continuous dynamic change then becomes the norm for businesses in an adaptive system. There is no equilibrium, no stasis, no predictive planning, no stable combination of assets or resources. There are no system-imposed or structural boundaries to a firm’s activities, just the subjective entrepreneurial judgment about interaction with customers to facilitate customer value. In complexity theory terminology, customer value is the constraint to the system that can shape change and emergent outcomes (think of Steve Jobs constraining his designers to “no buttons” on Apple devices).
Businesses accumulate capital as a result of the flows of income from customers.
The measure of business effectiveness is the flow of income from customers. Insofar as entrepreneurial actions set in motion a flow which is projectable into the future, a business is in a position to make capital investments both to expand its capacity to generate income flows and to create new innovations to stimulate new flows.
Current flows are subject to change at any time when customer preferences change, or their environment changes or there are shocks to the customer’s system. Entrepreneurs must develop accurate appraisals of which of their assets – in what specific combination – are most responsible for generating income flows, and establish them in such a way as to be flexible in rearranging them and recombining them in response to (or in anticipation of) market change.
Future flows from investments in innovation are uncertain and unpredictable. Entrepreneurial skill in identifying productive investments (foresight) differentiates more successful from less successful firms.
https://hunterhastings.com/wp-content/uploads/2020/11/e4e-cover-90.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-11-03 11:18:132020-11-03 11:18:1390. Per Bylund On A New Austrian Business Paradigm: Facilitation Of Value
These are interesting times for sure, with many small and large companies making hasty decisions to cut back and, in many cases, to cut out of their budget, the most competitive market tool – advertising.
Companies that are in survival mode should not decrease their advertising spend in the short run. It is an error to assume that customers are not searching for information about a product or service that you can provide. While on the surface, it might seem clear-headed to eliminate marketing activities to protect your firm’s assets, but might we not forget that marketing in general and advertising, in particular, are, in the end, informational devices that drive revenues for the long-run? Everything has a cost, even information, which increases customers’ knowledge of what you offer, location, and price. Advertising identifies sellers to customers and reminds infrequent customers about changes in the state of the market. Companies change what they offer and at what price, along with the changes in customer consumption patterns. Therefore, marketing is an investment, not an expense – this especially rings true for a down economy.
Some say companies that consistently advertise reap significant market benefits more often than competing companies, even during a down economy. Marketing – as far as advertising is concerned – offers firms a market advantage when it comes to customer search costs and brand awareness in the long run. Decreasing marketing and advertising during a down economy comes at a cost to the company and the customer. Cutting advertising diminishes the amount of information in circulation, thereby cutting brand awareness, customer conversions, and unit sales. Essentially, in a COVID economic landscape, firms that do not produce information, i.e., do not advertise and promote their products and services, increase customers’ search costs. In a post-COVID landscape, those firms that decided to decrease marketing and advertising will have created an uphill battle for themselves, making it extremely difficult to break through the noise! If you want to be a market leader, understand that it costs to be the boss!
Marketing is information dissemination, and the firms that do not provide customers with useful information promptly are sure to lose market share, awareness, and customer commitment. Even more costly to the firms that do not advertise during this COVID economy will be the loss of permanence and significance, especially for nascent companies. Newer companies will suffer the errors of not advertising during a down economy in the long run. As opposed to established companies, nascent companies have to break through established brand positions in the market.
Case in point, customers do not know what they need to know unless you tell them – and trust me; they want to know! Without your firm’s marketing, customers will be forced to search and purchase elsewhere. In other words, customers have high time preferences – they want satisfaction now – and added high search costs now will result in a more uncertain future for a company.
Now is the time to be even more vigilant about informing and educating your customers based on specific quality measures, prices, and your offering’s importance to them. Remember, market success is about the delivery of a timely, essential product or service information. Information delivery can be accomplished by incrementally informing customers via content pages, digital campaigns, podcasts, digital marketing, and digital promotions to reap the benefits of digital flexibility that increasingly lower customers’ search costs.
We must also not forget that advertising is a social function. A function that should not be ignored but fulfilled. At the same time, advertising is the primary device in which companies of all types bring forth market opportunities to customers. That is, the information costs incurred by the customer are the driver from not knowing to know. Why would customers cease to accept information from their market providers during a down economy? Do customers cease buying things of importance during a down economy? Brands that are choosing to go dark on marketing must think about the subjective nature of customer value and expectations. Failure to meet expectations in the future will result in long periods of resuscitation going into a post-COVID economy.
There are many new methods on the horizon for you to deliver timely advertising. However, it is best to use the technique most satisfactory to your customer, not to all customers, i.e., customers are different in the information needed. Tailored information delivered to your customer during this slowdown is a moment in time where much ground can be gain in lowering knowledge acquisition costs and increasing rapid-fire production of information. Continuous advertising, during this down economy, enables customer conversions and, at any rate, reduces the information cost for customers who find themselves searching for updates of the state of the changing market.
Knowledge comes at a cost. Therefore, the mistake of not advertising will indeed allow a competitor to reap the benefits of your inaction. Unfortunately, customer information and decision-making often are based on past market conditions. Trust me; your customers will love you for keeping them in mind and lowering their search costs, and showing your commitment to them when times are not so great.
https://hunterhastings.com/wp-content/uploads/2020/10/marketing-triangles.jpg4501200Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-10-02 11:45:382020-10-02 11:45:38Thinking About Reducing Marketing and Advertising During This Down Economy? Perhaps You Should Think Again.
FinTech sounds like the latest over-hyped tech bubble. But it has a much more fundamental importance in entrepreneurial economics. It brings entrepreneurs the best-priced capital in the marketplace. Dusty Wunderlich explains on the Economics For Entrepreneurs podcast #63.
Consider these findings from a 2017 report from the G20 Global Partnership For Financial Inclusion, titled Alternative Data: Transforming SME Finance.
Access to financing remains one of the most significant constraints for the survival, growth, and productivity of micro, small and medium enterprises (SME’s).
Digital SME finance, using alternative data, offers an extraordinary opportunity for addressing…this problem.
The world’s stock of digital data will double every two years through 2020. Every time SME’s and their customers use cloud-based services, conduct banking transactions, make or accept digital payments, browse the internet, use their mobile phones, engage in social media, buy or sell electronically, ship packages, or manage their receivables, payables and record-keeping online, they create digital footprints. This real-time and verified data can be mined to determine both capacity and willingness to pay loans.
A rapidly growing crop of technology-focused SME lenders are putting the use of SME digital data, customer needs and advanced analytics at the center of their business models, setting forth new blueprints for disrupting the SME lending status quo.
The report refers to 800+ innovative digital SME lenders. Colloquially, we can refer to them as FinTech.
Dusty Wunderlich, a subject matter expert and seasoned investor in the FinTech field, discusses this lending landscape.
Entrepreneurs need capital in the present to deliver goods and services to consumers and customers in the future.
Entrepreneurs take scarce resources and apply them to what they believe the consumer will want at a future date. In order to do that entrepreneurs need capital in the present so they can deliver on those goods and services to the consumer in the future in the hope that their forecasting is correct.
That’s why entrepreneurs need to understand capital financing and modern day capital markets.
Access to capital has historically been difficult and expensive. Today, it’s becoming easier and less expensive, aided by the digital data revolution referred to in the report quoted above. It’s important for entrepreneurs to be familiar with the new field of FinTech and how to navigate it.
Dusty Wunderlich suggests that entrepreneurs map out the financing alternatives on the axes of their own business stage versus the cost of capital.
Cost of capital refers not just to interest rates and fees, but to the requirements that lenders can impose on entrepreneurial borrowers. At the very earliest stages, “friends and family” lenders, angel investors and seed stage venture funds will all require equity stakes, and ratchet up those stakes via deferred interest and debt-to-equity conversion requirements. These early investors perceive themselves as taking a high amount of risk, and the start-up entrepreneur typically has little or no collateral or leverage in negotiation. The best negotiation stance is to generate competition among investors with the quality of the customer value proposition and the business plan and revenue model.
Fintech financing is now available at the earliest of entrepreneurial growth stages.
Today, from the very outset of the business journey, start-ups and small businesses can access a range of financing types – debt, convertible notes, equity and SAFE’s (Simple Agreement For Future Equity) – via crowdfunding platforms like nextseed and others like it. Marketing your business to investors on platforms like these taps into your existing skills in marketing and social media, and doesn’t require you develop capabilities in pitching your business that you might not have mastered.
As you advance along the growth curve, FinTech options expand and may offer you the best-priced capital on the market.
As a result of the expansion of FinTech based on alternative digital data sources, the potential for connecting your particular business to a well-matched and well-priced source of capital is greater and more precise than ever. Dusty cited a couple of examples like Kabbage (where, incidentally, entrepreneurs can currently get help with PPP loans). There are several more. Because of the competition in the FinTech market and the quality of the information they utilize, capital from these lenders is well-priced – probably approaching Mises’ originary rate of interest, Dusty observes, in a testimony to Austrian free market principles.
It is when your business represents the least risk to lenders that big banks offer their high-requirements business loans.
At a later stage of your business journey, banks will lend money against collateral and will impose additional onerous requirements and loan covenants. The entrepreneurial embrace of uncertainty is not for them! Bank financing is at the top when it comes to cost of capital and is to be approached cautiously. It is with bank financing that entrepreneurs become entangled with the negative effects of Federal Reserve repression of interest rates, that can mislead them into making incorrect investment decisions.
The cost of bank financing for mature companies revolves more around terms and covenants than interest rate percentage points. Banks are transactional, whereas entrepreneurs are operationally minded. This can cause a lot of friction if covenants, terms and triggers are not properly set. Entrepreneurs must pay attention to every detail in the loan contract. Great businesses can be ruined because of draconian covenants and triggers banks put into their loan contracts.
Indicated action: Entrepreneurs will be well-rewarded for fully investigating and understanding the emerging world of FinTech and digital SME finance. Be sure to calculate the full cost of capital – not just interest rates – and weigh all options.
Austrians maintain an active focus on business ethics. Why? It’s simple self-interest. As entrepreneurs, we want to succeed; individuals can’t do it alone, we need to co-operate with other people.
Key Takeaways And Actionable Insights
In continuing transactions and exchanges between two parties, each side must benefit, otherwise, one side will not be open to further transactions in the future, and will terminate the relationship.
Ethical entrepreneurs focus on the long term for their entire business ecosystem.
That’s why Henry Hazlitt (in The Foundations Of Morality) emphasized morality as simply a focus on the long term: what he called The Long-Run Principle. Entrepreneurship always maintains a focus on the long term (i.e., beyond individual one-time transactions), and good business ethics is simply good business sense in this perspective. Transactions that are mutually beneficial are ethical.
Yousif Almoayyed extends this perspective to the entire business ecosystem: customers, employees, vendors and suppliers, and the community in which a business operates.
Good ethics generate sound business relationships.
As we have emphasized many times, business and brands make a promise to their customers. Those customers must have faith that the promise will be kept. Otherwise there will be repercussions such as termination of contracts, and loss of faith in the future relationship. Customers place more trust in a company that demonstrates a higher level of ethics. They’ll pay more and seek to extend their relationship. Banks will extend better terms.
Unethical behavior destroys trust and co-operation and has a very high cost. As Stephen Phelan pointed out in Episode #56, relationships built on trust operate faster with less friction. Trusting partners co-operate better. Information flows unimpeded. Losing these advantages is highly damaging.
Your good business ethics are important to the individual development, personal commitment and productivity of your employees.
The company that is ethical will be able to develop the potential of its employees to a higher level. Ethical entrepreneurs give their employees freedom to take initiative, within the norms and cultural guidelines that emerge naturally from collaborative attitudes.
The tactics of implementation can vary by level and role. Front line workers are paid for their production; managers are paid to enhance the productivity of those they manage. Incentives are aligned via wages and salaries and profit sharing so that every employee is looking out for the best interests of the company. When they are, employees think beyond their immediate task; when they do so they are thinking at a higher level. An ethical firm develops employees’ sense of the bigger picture and finding their highest and best role; employees know they’ll be rewarded for doing so.
It’s not appropriate to try to incentivize employees by paying them above market rates. It’s the wrong incentive. They will become defensive and self-protecting; they’ll avoid hiring people to work in their department who might prove to be smarter and more productive, because they become fearful of protecting their over-compensation, knowing they can’t reproduce it elsewhere in the market. Ethics gets compensation right.
Does your firm prize clever, capable people? Does management keep their promises to help employees develop and flourish?
Ethics are fundamental to a business’s relationship with its community.
This comes up often in the context of environmentalism. But ethical business is not the powerless victim of activists. Ethical business is honest and truthful about the costs and benefits of specific business activities – and there are always both when viewed from a community perspective — and weighs them carefully in the balance of long term perspective. There is an ethical logic to the market — if business manages resources well and for the net benefit of all, it will be awarded with more resources to manage.
You don’t need to be a trained ethicist. Just ask yourself some simple questions about any firm. Whether you are an employee, a manager, an owner, a shareholder or a stakeholder, you can ask these questions to ascertain the ethical nature of any firm — including your own.
https://hunterhastings.com/wp-content/uploads/2020/04/e4e-cover-61.jpg6801600Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-04-14 09:13:312020-05-12 11:20:4561. Yousif Almoayyed: Good Business Ethics Are Simply Good Business
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.
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.
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.
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.
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.
