Our goal at Economics For Business is to help entrepreneurs and their businesses succeed. Per Bylund and Hunter Hastings discuss the true implications of the current furor over the anti-market behavior of some of the Big Tech companies of Silicon Valley. They are destroying value and consuming capital.
Download The Episode Resource Silicon Valley Is Bad At Entrepreneurship – Download
Key Takeaways & Actionable Insights
Where Is the consumer?
The Austrian business model emphasizes that the consumer is in first position. The goal of entrepreneurship is the creation of new value, and Austrian entrepreneurs understand that value is an experience, and evaluation is in the consumer’s mind. Entrepreneurs facilitate value experiences, via an understanding of what consumers will value, and of gaps or shortfalls in the value propositions from which they choose today. Business success lies in filling the gaps and solving the shortfalls.
Technology-driven means not thinking about the consumer
The histories of many Silicon Valley tech firms reveal that they started out to build a technology, one that performs efficiently, automates effectively, and exhibits cool features. There’s a pride in engineering, as there should be. But even the most beautiful technology can’t succeed without consumers in mind. The technology-driven approach to innovation must not contravene the principles of the consumer-driven approach to value.
When consumer value is not the business model
Facilitating consumer value is a business model. Value is a learning process for consumers, of which exchange value (paying in dollars for value anticipated) is a component part. The revenue model for the entrepreneurial firm consists in earning this exchange. It’s all integrated. Some Silicon Valley companies (Google, for one) accepted investor funds and began operations without a business model in place. When consumer value is not integral to the firm, it’s quite possible that they lose their grip on the concept. They don’t create value for consumers, or for the economy. Or for investors, for that matter — they’re using investor funds in ways the consumer does not value.
In many Silicon Valley models, consumers are creators of content for the technology company to control, analyze and re-sell as data to the advertiser. Consumers are creating value for the platform, not vice versa.
Monetization as an afterthought
We often hear the word “monetization” in descriptions of Silicon Valley business models. The word itself is quite revealing. It certainly doesn’t connote a commitment to serving the consumer. Monetization is the search for a revenue model after the technology is launched. Many of the monetization schemes are advertising-based, which can be problematic. They are often value-destroying for consumers, especially in the “interrupt and annoy” formats that are common on the internet today. Advertising is certainly not innovative — it’s been around for a very long time, long before Silicon Valley came into existence. When firms are selling consumers to advertisers, their commitment to consumer value becomes secondary.
It’s not that B2B business models are any less valid than B2C. The key is to remember the Austrian principle that value in any stage of the production chain is made possible only if there is consumer value at the end of the chain. Microsoft, for example, is a technology company primarily focused on B2B value propositions in areas like business productivity. They always have an eye on the next stage in the value chain: improved business productivity and efficiency enable Microsoft’s customers to, in turn, produce lower-cost consumer services and enhanced consumer experiences. Microsoft has its eye not only on the immediate B2B customer but also on the next stage of the value chain.
A cultural problem
Ultimately, the kinds of Silicon Valley companies to which these observations apply face a cultural problem. Consumer value and consumer service are not a sufficient part of their DNA. They were founded and developed to nurture technology — in some cases, brilliant technology, in others more mundane; they found technical ways to reach mass distribution based on the new power laws of digital networks; they found bolt-on monetization schemes that responded to mass reach. Culturally, the idea of consumer value has never been central to them.
Perhaps that’s why, today, we see Twitter censoring its users and throwing them off the platform, angering many more.
Generative products versus central control
The value promise of today’s digital products and digital markets is exciting for consumers. The term “generative” has been coined to describe the new characteristics of products that give consumers leverage – make their jobs easier; that provide adaptability so that consumers can change them to suit their own purposes; and that are easy to master and easy to access. The spirit of generativity lies in unleashing end-user creativity.
Some Big Tech companies don’t seem to believe in the generativity of their products and their consumer relationships. They prefer centralization and control. They want to collect and control consumer data and turn it into their own closed products. That’s why they need so many engineers to build the algorithms and the data banks. That’s why they need so many content monitors to project their control. They are centralizers in a world of decentralization. This leaves them open to disruption by the next generation of entrepreneurs who start their journey from the point of view of what consumers value.
https://hunterhastings.com/wp-content/uploads/2021/01/e4e-cover-101.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2021-01-20 06:21:292021-01-20 06:23:40101. Per Bylund: Silicon Valley Is Bad At Entrepreneurship.
Consumer sovereignty is a principle of Austrian economics. Here’s how entrepreneurs apply the principle in business, as told by Martin Lünendonk, co-founder of FounderJar.com, as well as Finance Club and Cleverism.com.
Download The Episode Resource How To Make The Customer Your Boss – Download
Key Takeaways & Actionable Insights
“There is only one boss. The customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.” —Sam Walton
Though they are several decades old, these words by Walmart founder Sam Walton are still very relevant, especially in today’s highly competitive world.
This is particularly true for those trying to make money online. You are already in competition with hundreds, perhaps thousands of other businesses, and if you do not put your customers first, they can easily move to the competition. It’s as easy as tapping a few buttons on their smartphone.
Great business leaders understand that businesses exist for one sole purpose — to serve the needs of their customers. If you want your business to not only survive, but to thrive in this hyper-competitive world, it’s time you started treating your customers like the boss.
Below, let’s take a look at the steps you need to take to place your customers in their rightful seat — the boss’s seat.
1. Identify the Key Problems Customers Want To Get Solved
To effectively serve your customers, you need to first identify what key problems the customer is trying to solve.
Very often, entrepreneurs set out to solve problems they think the customer has, without trying to look at things from the customers’ point of view and confirm whether the customer has this problem, and whether it is a problem they are trying to solve.
For instance, Blackberry assumed that what its customers wanted was a laptop that could fit on the palm, so they focused on improving the physical keyboard.
Apple, on the other hand, realized that what customers actually wanted was a device that was amazingly easy to use, and when they introduced a device with a touch screen and no physical buttons, they took Blackberry out of business.
So, how do you identify the problems that customers are trying to solve? There are two ways to do this:
Listen To Your Customers
The easiest way to identify the problems your customers are trying to solve is to actually listen to them. They know what they are struggling with and why they need this problem solved.
If you listen to your customers, you are unlikely to find yourself in a situation where you are solving a problem no one cares about.
There are two main approaches you can take to listen to your customers and identify the problems they are trying to solve. Here are a few…
Interview your customers: Your first option is to get proactive and ask the customers directly. You can do this using surveys on your website, by getting on the phone and talking to customers, through focus groups, and so on.
Look at customer reviews: Your customer reviews present another great opportunity for you to learn about the problems your customers are trying to solve. Here, you should place more focus on the negative comments, since these are the ones that highlight customer needs that are not being met. However, even positive comments can give insights into customer problems that you’re solving effectively.
Listen To Your Salespeople
The second approach to identifying the problems customers are trying to solve is to listen to your salespeople.
Your salespeople are in direct contact with your customers, and they, therefore, have better insights into your customers’ thought processes.
They know the pain points that drive customers to purchase your products and services, they know the things that customers like or dislike about your products, they know the reasons that keep some customers from purchasing, and so on.
By administering surveys to your sales teams, you can gain insights that will help you figure out your customers’ key problems, which will in turn help you to serve them better.
When trying to gain insights about customer problems, either from the customers themselves or from your salespeople, it’s good to try to get to the root cause of the problem. Sometimes, what you think is the problem might not actually be the problem.
For instance, at one point, Disney was experiencing lots of criticism because visitors felt the queues for the rides were too long. At first glance, the problem seems obvious – visitors spending too much time waiting for their rides.
The solutions to this problem are obvious as well. To shorten the queues, Disney would either have to invest in more rides, or reduce the number of visitors getting into their parks. Both of these solutions would cost Disney millions.
Disney hired a group of designers to help them solve this problem. After interviews with Disney visitors, the designers realized that the problem wasn’t the long queues. The problem was that visitors were getting bored because they had nothing to do while waiting in the queue.
To solve the problem, they had Disney add themed music and videos that visitors could listen to and watch while waiting for their rides. By getting to the root cause of the problem, they were able to come up with an effective solution that saved Disney millions.
Similarly, do not take your customers’ feedback at face value. Try to identify what the root problem is before you start developing a solution.
2. Make Sure Your Offering Solves Those Customer Problems
Now that you have identified the problems that your customers are trying to solve, it’s time to come up with solutions to solve those problems.
The best way to ensure that the solution you are developing solves the actual problems your customers are struggling with is to involve your customers in the development process.
One approach is to develop a minimum viable product (MVP) of your solution and show it to a group of customers with the problem you are trying to solve. You then collect their feedback, and use insights to improve your next iteration and ensure that your final solution solves the customer problem in the most effective way.
For instance, when creating DropBox, founder Drew Houston didn’t want to spend months, perhaps years, working on a product that no one was interested in, so he started with an MVP.
Drew’s MVP was a simple 3-minute video demonstrating how his product was meant to work. He shared the video on Digg, an online community of technology early adopters.
After sharing his video, over 70,000 people joined the DropBox beta waiting list within a single night, which was enough validation that his product was solving the right problem.
Another way to involve customers in the development of your solution is to form a small community of beta testers and give them access to your solution during the development process.
This works even if you are developing a service-based product. For instance, if you are a digital marketing consultant, you could create a package — say a content marketing package — and test it among a small group of customers before you launch it in full scale.
The aim here is to have a group of actual customers continually testing the solution you are developing to make sure that it addresses their key concerns in the best possible manner for them.
This way, you don’t have to worry about spending months or years coming up with a solution to your customers’ problems, only to discover that it is not the kind of solution they were looking for.
Another way to ensure that what you are offering solves your customers’ actual problems is to conduct A/B tests. This basically involves creating two versions of your offering, giving two small groups of customers access to each version, and then tracking the results to identify the version that solves customers’ most effectively.
3. Track Customer Satisfaction
Ultimately, what matters is keeping your customers satisfied. If your boss is unsatisfied with your work, you can bet that you will be out of work soon.
Similarly, if your customers are unsatisfied with your business, they will fire you – by spending their money on your competitors.
To know whether your customers are happy, you need a way to track and measure customer satisfaction. Here are five of the most effective ways of measuring customer satisfaction:
Customer Satisfaction Surveys
This is one of the easiest ways of tracking customer satisfaction. With this approach, you simply need to put up a survey asking your customers how satisfied they are with your services.
Depending on the medium you are using to administer the survey, you can add one to three open-ended questions to learn more about what they think of your services.
Customer satisfaction surveys can be served through email, through your website, or through your app.
Customer Satisfaction Score (CSAT)
The CSAT is the standard metric for measuring customer satisfaction. Here, you ask customers to rate how satisfied they are with your products or services on a scale. The scale could be 1 – 3, 1 – 5, or 1 – 10.
After receiving responses from various customers, you then find the average rating to determine your customer satisfaction score. The higher the score, the more satisfied customers are with your services.
Net Promoter Score (NPS)
This is another popular metric for measuring how happy customers are with your business and your services.
Unlike the other metrics covered here, however, NPS does not measure how satisfied customers are with your business. Instead, it measures how likely they are to refer someone to your business. This is especially useful for those in the freelance business, which depends heavily on referrals.
The NPS will ask a customer to rate on a scale of 1 – 10, how likely they are to recommend your business to their friends and acquaintances.
Promoters: These are customers who give you a rating of 9 – 10. They are willing to spread the word about your business and recommend your products and services. These customers are already satisfied with your business.
Neutral/Passives: These are customers who give you a rating of 7 – 8. They are indifferent to your business. They aren’t disappointed with your business, but they aren’t satisfied either. They are unlikely to talk about your business to others.
Detractors: These are customers who give your business a rating of 6 and below. They are unhappy with your business, and will spread negative word about your business in a bid to discourage others from doing business with you.
The Net Promoter Score is a very useful metric. If someone is willing to recommend your business to others, then this means that your products or services are good enough that they would stake their reputation on them.
Customer Effort Score (CES)
This metric measures customer experience, particularly how hard it is for your customers to get what they want from your business. Customers are typically asked to rate their effort from 1 (very little effort) to 7 (very high effort).
A high score means that customers have to work very hard to get what they need from your business, which translates to poor customer experience.
Social Media Mentions
Keeping track of what people are saying about your business on social media can also help you figure out how satisfied your customers are with your business.
Satisfied customers will take to social media to praise your business, while unhappy customers will share their dissatisfaction with their social media followers.
Monitoring the conversations about your business happening on social media will allow you to step in and respond to comments in time and control your brand perception, especially when people are sharing negative comments.
Here are three tools that you can use to track social media mentions:
A lot of entrepreneurs believe that the core purpose of a business is to make profits.
Smart entrepreneurs, those with the right entrepreneurial mindset, on the other hand, know that the core purpose of a business is to serve its customers. Therefore, their core focus is on delivering customer value.
Of course, this does not mean that businesses that put customer value first don’t think about profits. They do. What differs is their approach.
These businesses understand that when you keep your customers happy (by delivering great value), these customers will bring more business, and spread positive word about your business, leading to more business, and ultimately, greater profits.
Actually, the findings of research by Deloitte and Touche show that companies that put customers first are 60% more profitable compared to those that don’t.
So, what exactly does it mean to put customer value first?
Putting customer value first means that every single business decision made within your organization should have a positive impact on customer experience.
For instance, when upgrading its systems, a customer-centric company will choose systems that allow it to deliver the best customer experience.
Similarly, when hiring, customer-centric companies go for employees who show a knack for putting customers first. Basically, every decision is evaluated based on its impact on customer experience.
Here are some tips on how to make your company customer-centric and put customer value first:
Understand your customers deeply. It is impossible to put customers first when you don’t even know who they are. To get a good understanding of who your customers are, you need to develop highly detailed buyer personas. Actually, gaining a good understanding of the customer segments you’re targeting is a key component of the business model canvas.
Make sure that all your team members are engaged and have a good idea of the impact of their work on customer experience.
Make it a habit to collect customer feedback, and then use this feedback to gain insights on how to improve the customer experience.
Don’t just focus on getting customers to make the purchase. Focus on building relationships that will turn them into loyal customers and brand ambassadors.
Be easily accessible. Make it easy for customers to get in touch with your business when they have an issue, or when they need any sort of help.
Ready To Put Your Customers In The Boss’s Seat?
As an entrepreneur, you are in business to serve your customers, which means that your customers are your boss. If you want your business to thrive, you need to start treating them as such, by putting their needs first.
In this article, we have gone over 4 key points on how to make the customer your boss. Here’s a recap:
Identify the key problems customers want to get solved
Make sure your offering solves those customer problems
Track and measure customer satisfaction
Put customer value first and profits will follow
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https://hunterhastings.com/wp-content/uploads/2020/12/e4e-cover-95.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-12-08 15:01:202020-12-08 15:01:2095. Martin Lünendonk: How To Make The Customer Your Boss
Innovation and marketing are the two most important functions of entrepreneurial business: bringing innovative new goods and services to market, and convincing customers of their value. On the E4E podcast, we are providing a detailed exposition of Professor Mark Packard’s deep analysis of exactly how customers arrive at, and act upon, their assessment of value.
Key Takeaways and Actionable Insights
Mark’s insights provide entrepreneurs with a powerful tool to fine-tune value propositions for maximum marketplace results.
Value is a process.
Value is a feeling that the consumer experiences. To arrive at that experience, consumers actually follow a process — a learning process. This process is actively conducted by the customer — it’s conscious, subjective, sequential, and continuously fine-tuned. There are 5 process steps:
Predicted value (what will the experience be like?)
Relative value (comparing that predicted value to existing solutions)
Exchange value (putting a price on willingness to pay for the solution)
Experienced value (what was it actually like?)
Value assessment (comparing experienced value to predicted value).
In other words, it’s a cycle.
The first overview of the cycle was presented in E4E episode #44. Next, in Episode #55, Mark provided two tools for entrepreneurs to manage the process: the High Knowledge Customer Tool and the Mindfulness Tool. The first one ensure entrepreneurs talk to the right customers to gather knowledge, and the second helps them focus on the right things.
In the current episode, Mark helps entrepreneurs to identify and gather the right data for the management of the Value Learning Process.
Ethnography can sound a bit like it’s the activity of explorers in safari suits. But it’s actually the most modern data collection method for the new digital economy. The term is used to describe the process of embedding oneself in the situation that is being studied — in this case, the actions the customer is taking, and the decisions and choices they are making, regarding your value proposition and your business. Why do they do what they do? Why do they choose how they choose? Can they even explain it to themselves? In many cases, the answer is no. Ethnography doesn’t attempt to ask for an explanation or accept the one that’s given. Ethnography observes — it’s a journal record of behavior. And today, ethnography can be conducted via video and clickstreams as well as physical presence. The data streams are rich and deep.
Mark’s lesson to entrepreneurs is to be constantly observant, to watch and monitor what customers do, how they act, what they choose. At every step, ask them why they did what they did. But they might not be able to explain. Some actions may be made without too much thinking. Some may be habit. But, Mark explains, “The reasons are embedded in the behavior.” The reasons people do the things that they do and make the choices they make are embedded in the behavior itself and the observant entrepreneur is able to dig out those embedded reasons.
Therefore, there’s a next step after ethnographic observation: interpretation. And Mark offers us another tool to help us.
City Of From / City Of To
Customers are engaged in a continuing journey. Where they start from is their current experience. Call this starting point “the City of From”. And they are always dissatisfied, always seeking something better, aiming at some improvement in their experience. Call this new experience “the City of To”, the destination they want to reach.
The tool Mark calls “City of From / City of To” maps the customer’s journey. To understand where they are now, the entrepreneur as observer collects data or deduces findings about the customer’s current place — current experience – and their reason for being there. Then the entrepreneur as analyst projects the customer’s desired future experience in the City Of To. Why would they move there? Why do they like it better? What was wrong with the City of From and how is it fixed in the City of To?
Empathy and The Customer Knowledge Generation framework.
The core skill for entrepreneurs in the analysis of the customer’s experience in the value learning process is empathy — being able to feel what they feel. In fact, as Mark points out, that’s literally impossible. You can’t feel another’s feelings. But the brain is capable of amazing feats of imagination and projection — what Mark calls counterfactuals. You can imagine what another person feels and project that feeling onto your own experience so it’s as if you are experiencing it yourself. You create a mental model in your own mind of the feelings in theirs. It’s a skill you can practice and one that is crucial to unraveling the customer’s value learning experience — to experience it the way they do.
Mark provided a framework that helps you with sharpening your empathic diagnosis capability: Customer Knowledge Generation. There are 5 components, which are actually 5 pitfalls to avoid:
Talk to the right customer — “high knowledge” customers who can truly help you understand value experiences that are most relevant to your business success. We discussed these high knowledge customers and how to identify them in episode #55.
Make sure these customers are intrinsically motivated to share the right information. Don’t pay them to participate in your ethnography, but make sure they know there’s something in it for them – a better experience in their future.
Assess your own motivation to learn — you must be sincerely committed to the learning process. Don’t “just ask”. Don’t just go through the motions.
Be conscious of and actively seek to identify distortions in the information you are receiving from the customer — misstatements, inexact vocabulary, information loss, inattentiveness, looseness in communication. Interpret with rigor.
Be aware of your mental model — the experience that you are imagining the customer is having — at all times to make sure it remains congruent, and that the information you are receiving is important and fits the model.
Next: changing the customer’s mental model.
If you practice ethnography and Customer Knowledge Generation, you’ll allocate a lot of time and effort to construct a model in your own mind of what the customer is experiencing in theirs. The next step is to flip the switch. You are going to adjust their mental model. You want them to consider your value proposition. That’s new for them. They don’t yet have a model of what it feels like to choose your service, or what it might feel like to experience it in the future. They haven’t formed a picture of relative value versus other options. You must provide them with that new model. We’ll talk about that in the next episode with Mark.
https://hunterhastings.com/wp-content/uploads/2020/04/e4e-cover-62.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-04-21 12:40:402020-05-12 11:19:4962. Mark Packard: The Customer’s Value Learning Process