There is a body of economic science that has identified entrepreneurship as the driving force of economic growth.
The purpose of economic science is to discover and verify methods to achieve increased well-being for individuals, families and any groups they form or choose to belong to, such as communities and firms or collaborative networks and associations. Scientific process and results must be realistic, i.e. relate to the real world rather than to mathematical equations and models.
Economic science uses the language of means and ends: the science aims to identify the best and most appropriate means for achieving chosen ends. In the economics of individual well-being, the ends are not represented by so-called aggregate measures such as Gross Domestic Product (GDP – a measure of the total monetary value of finished goods and services produced within a country’s borders) or total employment.
The end of this body of economic science is individual satisfaction, often identified via the concept of subjective value – subjective in the sense that the individual decides what is valuable and what they value. In this way, customers run the economy. Whatever they feel satisfies their needs and wants, i.e. what they decide is valuable, is what is ultimately produced. In this sense, customers create value – it isn’t valuable if they don’t say so. Economic growth means more of what customers feel is valuable.
Customers get help in value creation from the entrepreneur. It is the entrepreneur who studies customers, ascertains what they think is valuable, and undertakes a production process to deliver that value. Logically, they are producing for a future value experience, because production takes time.
This is why the role of the entrepreneur is so pivotal in the creation of new economic value. Entrepreneurs take all the responsibility and all the risk in value generation. They bet on being able to identify customer preferences pretty accurately (they can never be exactly right) and then they bet on being able to assemble resources in the form of a firm to produce for that preference, and they bet that the preferences won’t have changed before they get to market, and they bet that they can get not only the product or service right but also the price, and they bet they can beat competitors who are rivalrously eyeing up the same set of possibilities.
Economic science observes and recognizes this role of the entrepreneur. It’s not a matter of personality – anyone can be an entrepreneur. There is definitely a method to entrepreneurship, in spite of (in fact, because of) the uncertainty of betting on customers’ future preferences. The economics of entrepreneurship is not fueled by sources of finance like debt or equity, but by imagination. Entrepreneurial projects are built on the choice of which customers to serve and how to serve them, imagining a future world in which customers’ formerly unmet needs are now satisfied. Imagination is turned into the design of a business model, which is the mechanics of actually delivering imagined value to customers. Revenue is the feedback loop that tells entrepreneurs that they have offered something valuable, and profit is the feedback loop that tells them that they chose the right costs.
To embark upon and stay on the path of successful production for profit, entrepreneurs must embrace and overcome uncertainty. How do they do this? They act. They make a commitment. They get started on the project or business initiative. Having once moved into action, they begin to learn. They can never be 100% right, so some parts of what they do will go wrong, and be unsuccessful.
The entrepreneurial firm learns what doesn’t work and what does, discards the former and does more of the latter. Business strategy is experimentation and learning, not multi-slide presentations and extensive spreadsheets. Agility – fast learning, fast adjustment – beats business school training.
Because of entrepreneurial exploration and experimentation to identify what works, the world advances – people enjoy more satisfaction and a higher standard of living, services and technology improve, and civilization advances. The world we live in is shaped by entrepreneurial economics.
One clear implication of this body of economic science is that there is no place for – and no need for – government economic policy. It can only get in the way of entrepreneurial exploration and experimentation. Governments extract value from the economy through their taxes and regulation, and then sometimes claim to redistribute it via subsidies and rebates. They claim to design policies such as what level of wages to pay, or the cost of imports, or the amount of market share any firm can have before an anti-trust suit. It’s all futile and, worse, damaging. In entrepreneurial economics, the role of government is to stand back, get out of the way, and marvel at the living standard enhancements entrepreneurship brings.
Academics call this body of science Austrian economics, because its early thought leaders came from Austria when Vienna was the commercial and cultural capital of the globe. Thinking in the Austrian way is helpful to entrepreneurial success, but, for economic growth, we don’t need to adopt the name, just the method.
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.
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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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“How To Make The Customer Your Boss” (PDF): Get It Here
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In an attenuated Christmas Eve podcast, we highlighted four of the useful principles we covered during 2019.
Principle 1: Customer Sovereignty – Which Means Putting Your Customer First.
The economists call it customer sovereignty – the principle that it is the consumer who ultimately decides which businesses are successful and which are not, as a result of their purchasing (or not purchasing) entrepreneurial offerings. Stephen Denning calls it The Law Of The Customer. John Rossman calls it Customer Obsession.
Entrepreneurs who understand the leverage of customer sovereignty do everything they can to know and understand their customer’s goals, values and feelings. They seek out negative emotions – disappointments, unease, a feeling that things could be better – because these are the inputs for designing new offerings that customers will welcome to make their lives better and relieve their unease.
The method of Austrian Economics in this regard is empathy. It’s a soft skill you can nurture and develop with practice. Use the empathic diagnosis tool that we provided earlier this year (link below).
The techniques for empathy include the Means-End Ladder (understanding customers’ goals, or ends, and why they select the means they choose to attain them) and Listening From The Heart, a market research technique given to us by Isabel Aneyba.
Check out these episodes and PDF resources for a deeper understanding of Customer Sovereignty:
The mainstream economics concept of competition considers firms competing to sell identical goods to an identical audience. Entrepreneurs take the opposite tack: they choose a select group of customers whom they understand deeply, and they assemble a unique set of capabilities to deliver unique, customized solutions.
The tools we presented during the year include differentiation and branding. Differentiation is the pursuit of uniqueness in your offering. It requires providing your customer with a means to achieve their goals that is different and better than any alternative. That can be faster, or easier to use, or more comfortable, or more personalized, or some other attribute or combination of attributes that the customer prefers. Differentiation is not achieved through pricing. It’s achieved by superior understanding of your customer and their subjective goals.
Trini Amador demonstrated how to capture differentiation in a brand. A brand is a promise – a unique promise only you can keep to help customers achieve their ends. It’s a promise that customers can embrace emotionally, and that you can deliver consistently, every time with certainty and without exception. Promises must be kept. Trini provided us with a templated process for brand building.
Check out these episodes and PDF resources for a deeper understanding of competition:
Austrian economics has always been on the leading edge of dynamically flexible resource allocation and capital assembly. Austrians see the worth of capital purely in the future revenue streams that it can generate from customers. If customers change, and the revenue stream changes, the worth of the capital has changed. The capital structure of a firm must change to reflect changes in the marketplace.
This applies to hardware, software, human capital, processes and methods and organization. Old capital must not be allowed to eat up resources that could be better used to serve customers in new ways.
With the arrival of the digital age, dematerialization, interconnectedness that can support rapid assembly and disassembly of global networks and supply chains, practitioners are now able to apply in practice what Austrian theory has been saying all along.
Dynamic flexibility is well-captured in the methods of the Agile revolution, as Steve Denning explained. And the ultimate expression of dynamic flexibility is innovation – the dynamic flexibility to supplant old technologies, old services, old organizational structures with new ones. Curt Carlson gave us his formula for successful innovation, and it’s very Austrian: always start with the customer’s need.
Check out these episodes and PDF resources for a deeper understanding of Dynamic Flexibility:
We finished the year with three episodes on the new economics of value. It’s the opposite of traditional economic thinking for entrepreneurs – the economics of scale and cost reduction. The economics of value entail selection of the smallest customer group to serve in the best possible way, so that they can experience maximum subjective value. It involves scaling down – personalization, customization, scarcity, limited availability, and high differentiation. We published a simple guide to the economics of value.
Mark Packard shared his latest research on the economics of value and specifically how customers experience it. They do so as a learning process, one that takes place entirely beyond the entrepreneur’s line of visibility – in the customer’s perception. Mark explained the neuroscience as well as the economics behind the process, and introduced a 5-part cycle of customer value learning. We published a flow chart and a set of explanatory slides, using pizza as an example.
The power of the value learning cycle is that it replaces the concept of the funnel for entrepreneurs. The funnel has built-in inefficiency – wide at the top and full of costs, with revenue at the end where it’s narrow. There’s a lot of waste. The value learning cycle, when used effectively, engages a small group of customers well-known to the entrepreneur, and guides them logically to an experienced benefit that they assess positively.
Check out these episodes and PDF resources for a deeper understanding of how customers experience value:
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Small business generates about 45% of US GDP, provides close to half of the jobs in the US Economy, and, in a typical year, accounts for more than 60% of the new job creation.
That all adds up to big economic impact. And the news is that small business impact is going to get bigger. In fact, small business will grow to dominate and take over the economy as the problems of managing big business compound.
Big Technology Comes To Small Business.
We have become habituated to the idea that big business deploys technology at scale to achieve reach, coverage and efficiency that small business can’t match. Giant telcos have vast, expensive networks; cable companies have their wired infrastructure; amazon has warehouses and airplanes and unlimited computing power. Today, all infrastructure is variable rather than fixed. It can be rented by the minute and on demand, so that small business can use big technology at the time and in the amounts and for the highly targeted purposes it is needed. Big technology can be downloaded from the internet, and economies of scale are no longer the barriers to entry or to efficient operation that they used to be. Flexibility, agility and timeliness are far more important economic attributes for a winning business, and small business has a good shot at not just competitiveness but at superiority on those dimensions.
Science Comes To Small Business.
We may traditionally think of small business as the product of hard work, super-specialization and local relationships rather than as a child of advanced science. Artificial intelligence and adaptive machine learning will change all that. Small businesses will be able to employ the cognitive assistance of software and robotics to personalize and tailor their services for individual consumers. Aestheticians will be able to offer and implement individually tuned facial treatments and cosmetic procedures. Landscapers can design and manage plantings and gardenscapes and irrigation systems customer by customer. Vehicle fleet owners will pick up and deliver at precise times door-to-door for their local and global clientele. Lawyers will have the searchable data from every relevant case, judgment and law text at their disposal with a robot paralegal who is smart and fast and productive: the best in the world at what they do. Personalized medicine can be practiced by the local doctor, and the local dentist will be able to implant the latest in dental construction and architecture into their patient’s mouth at the neighborhood clinic. Rapid prototyping and fast-turnaround micro-testing will be fully available to small businesses and keep them on the leading edge.
New Organizational Forms Favor Small Business.
The age of bureaucratic management is coming to a close. Bureaucracy has always been a problem for business. Big business needs it to exercise control over far flung organizational outposts, over budgets, over project management and resource allocation and HR policies. But bureaucracy slows response times down in an era when agile responsiveness is a requirement to maintain customer loyalty, and it alienates talented employees in an era where individual creativity is becoming the most important tool to manage in-market performance.
The replacement for bureaucratic management is small, agile, customer-obsessed networked teams with unrestricted autonomy for responding to customer requests and marketplace changes. There is no waiting for HQ approval. There’s no actual organizational model – every company is capable at arriving at its own form of organization that works best for its customers in its geography and its business. Therefore this organizational style is not mediated by business school-imposed standards or consultants’ print-outs. As a result, it’s hard for big business to adopt, which is one reason why small business will take the lead in organizational innovation.
Small Business Will Win With Humanity.
It’s remarkable how many people complain about their jobs in large corporation. Gallup’s global survey (2016 edition) on the subject of employee engagement (whether employees find their jobs meaningful and look forward to their work) indicates that only 13% of employees worldwide say they are engaged. The rest actively hate their jobs or merely put up with them. If they can’t engage with their jobs, how can they engage with customers? Gallup calls it an engagement crisis.
Entrepreneurial small businesses operate on empathy. They are tasked with understanding their customers’ needs and responsively designing services that meet those needs and are simpatico with customers’ values and are able to compete with every other offering that’s available. Small businesses depend on their humanity to succeed – their success in matching values with their customers in an extended and deep relationship depends on it. Digital tools can help in tracking the state of the relationship, but it is the subjective, emotional, and idiosyncratic elements in business exchanges that will be the mark of future winners. Big business will find that they can’t be successful on these dimensions.
People Prefer To Deal With Small Businesses.
We live in a time when people’s tolerance for unresponsive, insulated institutions is at a low point. This is true for political institutions like Congress and the Presidency. NPR reports that only 8% of Americans have a great deal of confidence in Congress, 19% in the Presidency, and 22% in the Supreme Court. The number for big business is 12%. If you let people down, and don’t act with humanity, you lose trust. Small business has a much greater incentive than a bureaucratic management team to be human, to engage, to respond and to earn customers’ trust.
In a 2017 Public Affairs Council poll, 41% of respondents expected small business owners to exhibit high honesty and ethical standards and only 5% expected them to have low standards in those departments. For employees of major companies, there was an expectation of high ethical standards among only 18% of respondents, and that number declined to 9% for big company CEO’s. (Only elected officials in Washington polled lower: 7% of respondents expected high honesty and ethical standards there!)
People prefer to deal with those they know, like and trust. Small business can win big on these three fronts. More and more customers will make the choice to buy from small business, especially now that technology, science, efficiency and organizational effectiveness are no longer reserved to big business.
https://hunterhastings.com/wp-content/uploads/2018/12/shutterstock_417862336-e1544205872512.jpg482995Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2018-12-14 03:00:092020-08-23 11:43:21Here’s How Small Business Will Take Over The Planet.