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The Value Creators Podcast Episode #46. Digital Enablement: Customer-Led Business, Subjective Value, and Empathy with David Kramer

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Digital enablement and AI are revolutionizing how companies operate and reshaping the economy. 

At the core of this transformation remains a fundamental principle: the customer is the boss. In this new era, empathy becomes crucial as businesses strive to meet subjective values and deliver hyper-personalized experiences. Consumers demand instant access, precise responses, seamless order fulfillment, and transparency, while resisting intrusive tracking and data monetization.

David Kramer, Founder & Chief Product Officer at Cooperative Computing, joins Hunter Hastings to highlight how AI can enhance creativity while balancing automation and human touch. In this discussion, Kramer shares insights on the digital enablement movement, emphasizing that AI should complement human creativity rather than replace it.

He underscores the need for maintaining a brand’s unique voice amidst the risk of generic content. As AI advances, businesses must adapt, using it to innovate while preserving the essential human element that resonates deeply with audiences. This approach aligns with the shift towards hyper-personalization, where understanding and delivering what each individual wants becomes the new standard, as exemplified by companies like Nike, which serves diverse customer needs with tailored, transparent experiences.

Resources:

Connect with Hunter Hastings on LinkedIn

Cooperative Computing

Connect with David Kramer on LinkedIn

Digital Enablement by Cooperative Computing PDF

Show Notes:

0:00 | Intro: Vision of the Digitally Enabled Firm
01:57 | 5 Key Business Functions: Branding and Marketing
03:15 | Second Key: Sales and Commerce
03:56 | Digitally Enabled Organization: Third and Fourth Key
04:48 | Fifth Key for a Digitally Enabled Organization: Service Delivery Management
07:13 | Human Role: Coding OR Evolving Decisions?
13:13 | Are We Still Customer-Centric?
20:33 | Transition Away From Control
25:01 | Customer in this New Digital Environment
29:39 | Demand for Transparency and Responsiveness
35:34 | Managing Accelerating Digital Change Speed: The Art of Possible
40:47 | Stephen Hawking: Cosmology Depends on the Questions You Ask
45:38 | Is Competition Still Relevant, and Can Large Firms Adapt?
53:52 | Wrap-Up

Knowledge Capsule:

Digital enablement will change the way companies are run, and even change the structure of the economy. But one principle that remains the same, and becomes even more fundamentally important: the customer is the boss, subjective value is the goal, and empathy is the key capability. The customer is the driver of the digitized firm and its business model. The number one capability for the digitally enabled firm is empathy.

The governing factor is what consumers feel is appropriate to meet their needs and desires. They want instant access, fast and accurate personal request response, order completion and delivery, and complete transparency. They don’t want the uneasy feeling of being tracked and surveilled. They don’t want the diversion and interruption caused by sites selling consumer data to third parties to be monetized as digital advertising.

This consumer-led environment will require hyper-personalization: understanding and delivering what each individual wants.

It’s the opposite of mass marketing. Think about a company like Nike. It serves hundreds of millions of consumers. Its business is driven by what those customers want, when they want it, and how they want it. Nike’s customers range from the very best performance athletes who want unrestricted performance at the cutting edge of technology, to sedentary elders who appreciate comfort and stability. How can Nike serve all these customers with equal transparency? Via digitally enabled hyper-personalization. Every individual gets the experience they want when they want it, and how they want it.

The digitally enabled firm

The digitally enabled firm uses digitization (including AI) to know its customers deeply (i.e., through data), fully understand its customers and their individual experiential needs (through deductive analytics), and meet those needs better than anyone in the world (through commercial engagement, operations and fulfillment, service delivery, continuous improvement, and innovation).

For customers in general, whether B2C or B2B, their experiential requirements are going to extend towards instant access and response that is both rapid and accurate. To become an effective consumerized or customer-led company, the digitally enabled firm reviews its capacity in 5 core functions.

1. Branding and Marketing

This is the primary function of the customer-led company simply because the first requirement is to accurately identify, deeply understand, listen to, reach, message, and persuade customers of the firm’s value proposition. Without branding and marketing, there’s no flow of information (and no flow of cash since marketing induces willingness to pay). Branding and marketing incorporate the firm’s value proposition into customers’ daily thought culture, aligning with and complementing their mindset and their perspectives, and shaping the firm’s hyper-personalization capability. This marketing capacity is becoming hyper-automated since it is fueled by digital information flow, instantaneously processed for insights and driving the rapid reaction to generate the high-response relationship the customer seeks and, ultimately, the capacity to anticipate customer desires.

2. Sales and Commerce

Conventional commerce, including e-commerce, will go away as digital assistants become the power behind purchasing and daily life choices. They become dominant sales and commerce engines, to the digitally enabled firm’s advantage in the case where they interact well with customers and integrate into customers’ own systems and lifestyles. The result will be memorable on-demand buying and delivery experiences and frictionless repeat purchases.

3. Order Fulfillment and Operations

Real-time operational data and analytics will enable risk and error avoidance, predictive planning, and the scalable infrastructure required for frictionless operation. Fulfillment and operations provide the means to keep promises and meet expectations, two vitally important commitments in the consumer-led relationship.

4. Customer Engagement

The customer’s experience-in-use is the critical key to value creation, and the digitally-enabled firm will be integrated into this experience, thereby opening up the opportunity for continuous addition of new and supplemental value and ever-strengthening sticky relationships. Continuing engagement after a purchase and after a usage experience is important. Some brands are creating digital online spaces and experiences where customers can participate and engage, such as Gucci’s Vault on Discord. Even when they are not buying or consuming, customers can be digitally engaged with their brands.

5. Service Delivery Management

Process automation ensures delivery excellence and consistency, and customer transparency generates confidence and trust across all channels. Digital integration enables continuous improvement of processes whenever feedback indicates an opportunity. Digitally enabled firms exhibit excellent governance of the service experience.

How do we manage digital organizations of this kind, where decision-making must be near-instant and the accuracy of a millisecond decision is so critical? It’s futile and dangerous to rely on traditional management styles. Leadership and governance will exist, but they’ll change considerably. One result will be the digital CEO, connected to all aspects of all decision-making processes, governing in millisecond transaction times.

The advantage for humans

The thing that humans do very well, better than any AI, and in all likelihood for a long period of time, is understand people through an emotional perspective. And this is where the engine of branding and marketing and all economic activity actually exists. Humans will continue to keep control of their own consumerism in order to grow economic activity so that we enjoy the world that we live in. The human is not only in the loop, but the core of the loop in this regard.

Digital machinery and digital processes can understand feedback loops very well. It can read the clicks and the purchase data and generate the appropriate signals for analysts, but it can never understand the emotional attachment between economic activity and consumer needs. Consider a purchaser buying a red shirt from a shopping site. The AI can record the purchase, align the data with other historical data to generate a pattern, and perhaps draw a pattern recognition inference. Perhaps there’s a trend or a tendency. Perhaps there is a comparison to be made with other shoppers, yielding more inferences. But if the purchaser loves red shirts because his or her grandma bought them a red beanie hat for their 8th birthday and they’ve loved that shade of red ever since because they loved their grandma – AI can’t empathically diagnose that motivation, and probably won’t ever be able to.

But AI can make the purchase frictionless, the delivery faster and more accurate,  and monitor the customer experience and perhaps enhance it in the future, perhaps generating loyalty and relationship stickiness. AI can become self-teaching and self-learning by structuring data and organizing it and running feedback loops. But it doesn’t know what to do with the emotional components of human engagements.

It may be possible to develop triggered models – data models or simulation models that can create signals from the states of emotional and empathic input that come from humans and human interaction, and it will get better at fine-tuning the signals and the models. It is already possible to detect temperature changes (blushing), eye movement, body language and other signals of emotional change.

The direct connection to the customer

The most exciting part of all this is the direct connection of the business model to the customer. Whether in the recording of online purchase data and digital behavior, or the monitoring of eye movements, the connection is direct and the end user directs the flow. AI (what Kramer calls digital sapiens, working alongside homo sapiens) enters the customer’s system and the customer’s life cycle and becomes part of that customer’s life, and part of the customer’s culture. AI makes data-driven decisions, and the data is customer data.

How do firms make the transition?

The first transition step is to conduct a digitization discovery: what is the capacity of the firm to digitize across four dimensions?

1. Digitizing organizational structure – eliminating hierarchy, planning, and command-and-control and substituting digital implementation of job functions wherever appropriate.

2. Methods, procedures and routines – where they have emerged and proven useful, can they be digitized for continuity and consistency? And can we change them digitally when it becomes clear we need to work differently?

3. Systems and technology – how well are IT systems facilitating people, processes and change?

4. Key performance indicators – what are the signals of success and how well are they measured, monitored and distributed for action? The key here is not KPI’s as control mechanisms (which is how they are traditionally used) but as feedback loops: building up an understanding of the current state and the patterns of its dynamics through data, analytics, and the response environment.

A current state of these dimensions is established through discovery, from which a delta is derived: what is required to improve and accelerate:

* To grow revenue.

* To become more operationally efficient.

* To continuously improve the performance of the firm through digitization and data-driven decision-making.

* To develop the cultural identity that best facilitates the collaboration of digital sapiens and home sapiens. There will be a different way of working and different forms of collaboration, and the cultural identity of the firm will be highly relevant to the nature of the adoption of these new ways.

The new customer experience

In the world of e-commerce and digital advertising that has evolved recently, the customer experience has often been undesirable, in that customers are surveilled and tracked by cookies and other software devices, and are urged into transactions by “interrupt and annoy” messages that are unwanted frictions in online engagement. This is evidence of a failure of empathy.

But the new AI approach is to prioritize an understanding of how the customer prefers to interact. After profitability (which is the mandatory gateway – business can’t proceed if it is not profitable), the quality of the customer’s experience in the response environment will be the number one attribute of business operations. Understanding the needs of the individual customer and interacting with those needs in the way that the individual customer likes best is the goal of the digitized capability that we call hyper-personalization.

Digital assistants will become more closely attached to and associated with individuals and will sense our feelings – whether that’s frustration with a process or delight with an experience. Businesses are building the tools for empathic diagnosis, empathic response and instant and dynamic updating. They’ll become highly effective at hyper-personalization.

This is the realization of the dynamic of customers bringing innovation and desirable experiences into being. Through the responsiveness environment, customers will figure out how to generate a desired experience and achieve it through the adaptive dynamics of the digital assistant.

An example of this principle in action is 3D printing, which is the capacity for an individual to self-manufacture. The implementation of individual consumer desire (“I want what I want when I want it and how I want it”) is made materially operational, whether in the form of 3-D printed buildings, machines, or clothes, or food.

Speed of change and the art of possible.

The acceleration of the rate of speed of change has been identified as a challenge for firms, but in the new customer-led digital age, the acceleration is in the hands of the customer. When what customers want is more and more attainable, they will learn to ask systems for what they want and the system will understand enough of what’s available from all potential sources to recommend and bring it to that customer. The system will assemble sub-components into a solution. For example, if a customer wants a mirror with a digital camera in it and an audio source of weather information, powered by DC because they live in Denmark, and that particular configuration is not currently offered, a digital assistant will specify it from available parts and build a personalized sku, deliverable two days from now at a specific price. That’s the art of possible: not what exists now, but what it is possible to assemble quickly.

Asking the right questions

The future lies in getting better at prompting: asking the AI the right questions: Can I do this now? What is possible? The questioner dreams it up, and the system assembles the dream. Then, the organization implements the assembled solution in the firm’s environment and in the marketplace.

Copilot is a good early example of what’s possible – a tool that observes and takes information and comes back to you to say, ‘here are the activities at which the firm is not efficient that could be done much more efficiently.” For example, the AI detects that people are keying-in invoices, and the process could be automated. It provides the art of possible. It could do the same for customers and customer interactions.

Constructing the firm for the new environment

Today’s construct of the firm is:

The empathetic component – how do we create valued experiences for the customer?

The technical component – what do we need from a technical perspective to meet customer expectations?

The financial component – how do we operate profitably and efficiently?

Ask these questions of an AI and, ultimately, the AI will respond with a highly accurate recommendation of what company or brand to build. It has the universe of knowledge at its fingertips, with all customer and buyer data to reveal preferences and trends and desires. The best entrepreneurs will be the ones asking the right questions, while the operation of that business can be left more and more to the AI and the digitized firm. The AI will build a digital CEO that can develop a market analysis and a business plan, perhaps raise capital against that plan, sign up the initial customers, design the products and aesthetics, and the customer experience. Over time, the digital sapiens species footprint will expand, and the homo sapiens species footprint become more specialized and focused. Competition will boil down to building specialized digital CEO’s. The software might be open source and free, and the data proprietary, so the added value is in designing better digital CEO’s from better data sets.

How? By asking better questions. McKinsey, for example, has decades of data and intelligence about good decision-making and what’s associated with it. That could be the input data for building a digital CEO. WPP has data about great marketing campaigns and great marketing agencies and could create great marketing CEO’s. Digital doctors will out-perform non-digital doctors because of the mass of data around medical history, practice, research and so on.

Management will become less and less relevant because digital sapiens can do more and more of it. Entrepreneurship – creatively asking the right questions and imagining the future in a better way than others – will become more and more relevant.

The Value Creators Podcast Episode #18. Anthony Iannarino on The Negativity Fast

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We all suffer from negativity. That’s a business risk for entrepreneurs, since we are in the business of running lots of experiments, some of which will work and some of which won’t. If we process the learning negatively (“I should never have tried that” versus “One more useful piece of knowledge”) we open ourselves up to unproductive disappointment instead of the energizing excitement of discovery.

Anthony Iannariono knows the problem, and knows the solution: take a negativity fast. Just like cutting bad food choices from your diet to improve your metabolic health, you can cut negative thinking to improve your emotional health. He discussed his book, titled The Negativity Fast, and shared his insights with The Value Creators podcast.

Show Notes:

0:00 | Intro

02:30 | Dangers of Negativity in Entrepreneurship and Evolutionary Biology 

07:06 | Major Triggers: Stress and Optimism Bias

10:44 | Exploring Internal Dialogue in Anthony Iannarino’s ‘Negativity Fast’ 

14:09 | Cognitive Behavioral Therapy

16:28 | Empathy as a Key Exit from Negativity 

19:35 | Detailed Insights on Empathy by Anthony Iannarino

23:44 | Idea of Radical Acceptance

27:04 | Value of Feedback and Solutions in Entrepreneurship

30:47 | Practice Gratitude in detail by Anthony

34:25 | Emotional and Metabolic Health: Keys to Overcoming Negativity

37:38 Positivity and Negativity: A Matter of Choice

39:26 | Does Positive and Optimistic Approach Link to Better Performance?

41:36| Wrap up: Practical Advice and Mind Hack by Anthony Lannarino 

Resources:

The Negativity Fast: Proven Techniques To Increase Positivity, Reduce Fear And Boost Success.

Knowledge Capsule

Human beings are hard-wired for negativity.

  • Our negative emotions are stronger than our positive ones.
  • It’s a result of evolutionary biology: fear and the flight instinct have evolutionary value in keeping us alive.
  • Everyone has negative feelings at some point – positivity is about balance, not elimination.

Stress and change are triggers.

  • Entrepreneurs must embrace and pursue change – recognizing that change can be a major source of stress.
  • Anthony christened entrepreneurial change ACDC: Accelerating, Constant Disruptive Change.
  • If we allow it to stress us, we risk lower productivity and efficiency in all parts of our life.

We can talk ourselves into a negative state – and out of it.

  • There’s a voice in your head that takes the negative point of view.
  • It may not be your own – it’s a composite voice of the rules you’ve been told to follow and the expectations set for you by others.
  • There’s the voice of the worrier, the critic, the victim, the perfectionist and others.
  • CBT (cognitive behavioral therapy) guides us to talking ourself out of a negative state with positive affirmation.

The entrepreneur’s number one tool – empathy – is the best weapon against negativity.

  • At The Value Creators, we always emphasize the power of empathy in identifying others’ needs we can meet with innovative value propositions.
  • Other people often bring negativity into our lives; empathy helps us regulate our own emotions while compassionately dealing with theirs.
  • You may believe others are pushing your buttons, but often you are pushing these buttons yourself.

Stop complaining.

  • Complaining can cause us to adopt a negative mindset, even if we didn’t have one before.
  • We adopt a victim mentality, which is a forfeiture of freedom and autonomy.
  • Complaining can harm our relationships – and all value comes from relationships.

Focus on solutions, practice gratitude, and learn reframing.

  • Positivity is a choice. If we focus on designing solutions rather than identifying problems, we choose positivity.
  • Gratitude can help us be more positive. It focuses us on positives, and it can be practiced.
  • Anthony recommends The Three Blessings: write down three successes or three good things from your day, including why they went well. Keep this up.
  • Reframe all adverse events positively as your chance to improve and do better.

Eliminate the negativity of politics and social media from your environment.

  • It doesn’t help us to mindlessly engage in politics or social media controversies.
  • We sell our attention, and it has a high cost – fewer conversations and poorer relationships.
  • Don’t get sucked in.

Anthony’s book provides a lot of specific techniques for practicing these principles, and a list of resources for learning more about them and about yourself.

Business Is Not A Set Of Practices Or Strategic Methods Or Planning Techniques. It’s A Mindset

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In the current business era, there’s a lot that seems mandatory: using quantitative methods of strategy and planning, following documented IT-enabled processes, organizing fixed structures that can be captured in org charts, and complying with government-mandated rules and regulations. Even the acts of creativity that contribute to innovation are specified, documented, and captured in software. There’s a bias towards fixed cause-and-effect thinking: if a business takes action X, it will result in outcome Y. We are told that case studies will reveal this cause-and-effect linkage in hindsight, to be re-applied in future planning.

There appears to be no room for individualism, spontaneity, unpredictable interactions, or rebellion. Those concepts are insufficiently objective for today’s business executives, consultants, professors and executives. The goal in business is primarily stability: to make a plan and achieve it, to set targets and hit them, to predict quarterly earnings with accuracy, to define processes in the knowledge that they will be followed unfailingly. The goal is to turn business into a science, with hard numbers, laws, and data-driven methods.

But in excess, this objective approach does not support the primary goal of business, which is value. 

The purpose of all firms is to generate value for customers and value is not objective or measurable or amenable to design or planning. Value is a feeling – a feeling of well-being or satisfaction experienced by customers. Different customers experience more value or less value than each other even when using the same product. Value occurs when the customer has used the product or service and compare the consumption experience with their going-in expectations. Value is subjective from beginning to end – from the search for potentially satisfying experiences to the realization in use to the evaluation after use. 

In fact, it is not the firm’s job to create value. It’s the customer’s role to find the most effective solution to their wants and needs. They can express some doubt or uncertainty that there’s anything available to them that exactly meets their need, although they might buy something that the best available option, even though their satisfaction is incomplete. They’re always looking for the discovery of something better. This is the role of the customer – the genius role of insisting on something better, thereby stimulating innovative action among producers to respond with new value propositions. Together, the producer and the customer imagine a new future value via a new or improved service or product; the producer can help the process along with product enhancements and advertising and PR and perhaps prototypes to help the customer’s imagination along.

If the customer’s imagination is piqued, the firm must commit resources to assemble the product capacity that will put an actual, purchasable offering into the marketplace for consumption. There’s no guarantee that this will be profitable or successful. The customer has the final decision. There’s no planning, predictive modeling, sales goal targeting or quantification of any kind that can eliminate or overcome this uncertainty. The customer will choose between all the alternatives available, including to buy nothing at all. It’s all contingent, and there are infinite possibilities. Firms choose their path towards facilitating the customer’s value experience, but there are no objective certainties.

So if business is not objective, quantifiable, or plannable, how would we describe it?

The philosophical word is subjectivism. Businesses would be better equipped for marketplace success if they followed subjective methods. They’re dealing with people and their emotions and their interactions with others in a complex social system. There’s no hard science, no spreadsheets, no data set that can predict the outcomes. 

That raises the question, what are the skills for business, if they’re not numeracy and hard science and mathematical economic. The answer is empathy. The skills of empathy – the ability to see inside customers’ minds and simulate a view of the world as they see it, to imagine what they are imagining, to reconstruct their mental model as opposed to imposing your own – are the most important in every business, and for every individual in every position and every function in business. Everyone must display customer empathy. What is the experience they are having? What’s imperfect about it from their point of view? What might result in a better experience for them, a potentially greater satisfaction for which they might be willing to pay. This empathy is best exercised at the level of the individual customer. If a business can get the empathic diagnosis right for one business, then they can investigate how it scales. Every customer is different, but there might be some patterns of response and interaction that spread out among a population of customers. 

Empathic diagnosis can reveal customers’ intent. What ends are they aiming for? What’s the highest value they seek? How can the firm’s proposition stimulate them to believe that it might contribute to that highest value? Uncovering the customer’s intent can indicate what experiments to run to find out whether any of the propositions a firm is able to get customers to imagine a future where new value is a possibility for them. Experiment is a key word: there’s no certainty in advance. Possibility is another key word: there is a wide range of possible outcomes. But by running the experiments and responding to feedback, the number of possibilities, the range of uncertainty, can be narrowed.

Once the results of experiments are in, then the firm can start unleashing its quants to do the economic calculation. How much will the customer pay based on these experimental results? How many customers might there be? How frequently will they buy. How much advertising budget should I spend to make the value proposition more widely known. Quantification is appropriate for these questions, once the empathic diagnosis is authenticated. 

Of course, the quantification can’t be accurate, and circumstances will change. It’s subjective calculation – the right method for an uncertain and subjective world.

Customer Value Is All That Matters In Business.

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Value creation is – or should be – the number one concern of every business and everyone in business. The term means value for customers. If a firm does not generate value for customers, it is not in business and can’t possibly serve other constituencies like employees, shareholders, stakeholders, and local communities.

Businesspeople must think deeply about value and understand it fully, and it’s not always the case that they do. Let’s start at a higher level than the business firm, at the level of the economy. What is an economy? It’s how well-off a group of people make themselves with the resources they have available to them to work with. It’s the shared well-being of that group of people. It’s their quality of life, their enjoyment, and their satisfaction. In other words, the economy is not just the goods and services we produce or the dollars we exchange with each other to buy and sell goods and services. The economy is value that is generated for people – feelings of satisfaction, of joy and reassurance, and security, of meeting not just functional but also emotional and spiritual needs. The pursuit of economic value takes on purpose and meaning when it’s viewed through the eyes of people – and people are customers for business.

If we now return our focus to the level of the individual firm and its customers, we realize that value generation at this level in the economy must embrace and address the same feelings of satisfaction, joy, emotion, and spirituality. These feelings must be present in the value propositions that businesses make to customers. Each individual customer’s current state is a dynamic function of multiple values that they are trying to balance. You can refer to various analytical models for people’s value bundles. Here’s one called the Schwartz Theory of Individual Values. A quick look tells you that people are integrating values as diverse as pleasure, conformity, and security (and many more) into their everyday decisions and choices. The balance changes in every situation and from moment to moment.

Any business engaged with any customer at all must be conscious of the range of individual and cultural values that are in people’s minds and consciousness. If your customer is part of a firm in a B2B relationship with you, then you need to take account of the shared values of the firm you are dealing with, which will color and shape the decision-making of the individual you are engaged with.

From this perspective, value creation can be seen as pretty complex. Quite forbidding, even. How do businesses manage? There are a couple of simplifying approaches.

Get the direction right.

Value is a process. Your customer is continuously learning about value – what they themselves value in any specific situation and at any specific time. Their evaluation is changing. But they are seeking one direction, which we can call betterment: improving their feelings of satisfaction. Value is a change in status from one of less well-being to one of greater well-being. It is an increase in well-being. That means that you may not need to understand every nuance of the balance of the customer’s multi-functional values system. You just need to measure and monitor whether their feeling of well-being and satisfaction is moving in the right direction, towards betterment.

Get aligned.

While it is probably too demanding to try to identify every position of every customer on every vector of the Schwartz Value System or one like it, there is a less demanding way of value mirroring, and that’s alignment. If your position on your own value system is reasonably well aligned with your customer’s (you’re not in conflict, at least), and perhaps even better aligned than your competitor’s, then there’s a good chance of forming a value partnership: you make a value proposition that they can feel good about accepting. Alignment comes from an analysis of what matters. What matters most to your customer? You can ask them; it’s often very hard for them to articulate their values, but they might be able to answer a question about what’s important to them, at least at this time, in this situation, and regarding this deal. (Bill Sanders told us how just asking the question can “expand the value pie” in any contract negotiation with any customer.)

If what you think matters is close to what the client thinks matters, then there is the opportunity to become value partners, to make a deal or make a sale or make an exchange.

Empathy And Knowing Your Customer.

The business skill that underpins the generation of customer value is empathy. This is not a casual “get inside the customer’s head” routine. Value empathy is a product of the rapidly advancing knowledge of neuroscience that is spreading into business methods, combined with an understanding of complex adaptive systems thinking. Empathy starts from the concept of a mental model – a way of seeing the world and processing the information gleaned from sensory inputs – hearing, seeing, touching – into an individually cogent perspective. Every individual operates a unique and different mental model. The process of empathy is first to construct someone else’s mental model – the customer’s – and then run new information through it – the new value proposition that the business wants them to consider. If the business has constructed the customer’s mental model accurately, it should be possible to make a reasonable prediction as to how they will react to the value proposition. It’s not infallible, but it’s also not guessing, not projecting, and not wishful thinking. It’s not even marketing – that comes later if the business wants to attempt to change or modify the customer’s mental model. There’s a learning process, and humility is called for in thinking about customers’ complex mental processes.

Empathy is knowledge-based, unlike sympathy, which is emotional. Therefore, the more a business knows its customers and the more they know about their customers, the greater the potential for an accurate empathic diagnosis of the customer’s mental model. The first step in value creation is selecting the right customers for your business – customers you can know well and will enjoy knowing.

A Value-Dominant Business Culture.

Many of the criticisms aimed at big corporations today are the result of businesses’ failure to understand value. The claim to maximize shareholder value, but this is a financial calculation, not the generation of valued experiences for customers which is the true purpose of business. They claim to pursue stakeholder value, where the term stakeholder is amorphous, but generally taken to include employees, the population of the communities in which offices and factories are located, sometimes the environment, and sometimes even the government. None of these business activities fall under the true heading of value creation – only customer value fits. All else follows: profits (signals from the customer that they fully approve of the value they receive), stock price appreciation (reflecting the discounted future cash flows from satisfied customers), and stakeholder benefits (profitable companies with a loyal customer base are more likely to support all of their other constituencies).

Customer value takes care of all the other values. That’s why it’s all that matters.

Six Superior Characteristics Of The Entrepreneurial Society.

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We live in a political society. Politicians and the bureaucrats whom they enable hold all the power. Most people despise them.

Why? Because of their role. They exist to argue over the division of the economic pie that others produce. Politicians despise production and elevate themselves over producers. The fact that they behave badly in the performance of their role merely exacerbates the disdain in which they are held; it is not the primary cause.

The producer role is played by entrepreneurs. That’s the economic term for those who monitor what politicians call (but never truly examine) the will of the people: what people want, what they need, what they prefer, how they feel, what pleases them, and what disappoints them. Entrepreneurs gather this information by listening. They process it through their empathy – the skill of imagining what it’s like to feel what others feel – and decide whether there is a business’s opportunity there. That depends on many variables – the intensity of the need, its durability (how long will it last if unfulfilled), the viability of assembling resources and a business plan to produce a good or a service to meet the need, the likelihood of people buying the solution from one entrepreneur versus another.

Collaboration.

There are important human values at work here. There’s collaboration. People need entrepreneurs to find new ways to solve their problems or meet their needs. Entrepreneurs need customers to channel the market rewards they seek to keep their production going. This symbiosis is the essence of the market system, raising everyone’s boat through the collaboration of buying and selling.

Shared emotion.

There’s the animating emotion of wanting. Human beings act in a conscious way to improve their circumstances. They want something better than what they experience in the present. This is the energy that drives civilization all progress. Consumers want need fulfillment. Entrepreneurs want to feel the fulfillment of acting as the solution source. This is how mutual wants come into alignment in society. 

Listening.

There is listening. There is none of that in politics of course. Yet it’s the core informational input into the entrepreneurial process. The first question in that process is, “What do I know?” Entrepreneurs need continuously updated information about the market, about trends, about preferences, about available options, about pricing, about competitors, and about a thousand other things. They get it through listening. It’s a humble mindset – not dictating or declaring or asserting, not jumping to conclusions, not arguing or contradicting, not wishful thinking, just listening. 

Empathy.

And there is the core entrepreneurial skill of empathy. How can we understand what others feel they need to make their lives better? We all have consciousness but we are not gifted with experiencing the consciousness of others. To be an entrepreneur, it’s necessary to overcome that cognitive barrier. How? It’s a mental modeling process. Entrepreneurs build a mental model of how others – customers – think and feel. It’s not their own mental model, so humility again comes into play – the humility of trying to understand and appreciate another’s point of view. It’s a kind of self-sacrifice – sacrificing one’s own ego in order to feel the way another person feels. 

Sacrifice.

In fact, sacrifice is fundamental to successful entrepreneurship. It takes mental sacrifice to understand others’ needs. Then it requires the sacrifice of time and resources in production to design, assemble and produce the goods and services which will become the value proposition to the customer. To serve others with economic offers and innovation is an ethic of devoting one’s present to the future satisfaction of customers. It’s for this sacrifice, when successful in the eyes of the customer, that the entrepreneur is rewarded. 

Value.

The result is an ever-increasing pool of value. In entrepreneurial economics, value is the customer experience that transpires when the offer made by the entrepreneur is successful in making the customer feel better. Value is a feeling, a good feeling. Entrepreneurs aim to generate value – only the customer can actually create it via their own experience. The more value the entrepreneur generates, the better the customer experience and the greater the ultimate reward to the entrepreneur. The mutuality is self-reinforcing. The whole society is raised up.

A Better Society.

Imagine what society would be like if it were entrepreneurial and not political. It would be characterized by the values of collaboration, emotional sharing, listening, empathy and sacrifice. It would be productive, because entrepreneurs always figure out how to generate more value with less input and fewer resources. It would be about a growing pie for all rather than a political fight over the division and redistribution of the pie. The entrepreneurial society would be much superior to the political society. Let’s work to create it.

Entrepreneurship Is Our Highest And Most Productive Technology.

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Technology is a means to a better life. Few would dispute the case today. Whether you think of food production or air conditioning or medical services or smartphones and computers and software, our living and working conditions are better as a result of technology. We would not want to back to pre-technology days, and most of us would not want to go back to the earlier technology days of, say, the 1700’s. There was technology back then, but it couldn’t be as useful to us as it is today.

W. Brian Arthur has written a useful book called The Nature Of Technology: What It Is And How It Evolves. At the outset, he asks the question: what is technology? How do we define it? He proposes three separate but related definitions:

  1. Technology is a means to fulfill a human purpose, a means to an end as economists phrase it. The means might be a diesel engine to power your car to get to work, or a roller bearing to reduce friction in the work of a machine. Technology is always a means to carry out a human purpose.
  2. Technology is an assembly of parts and practices. Bio-technology, for example, combines many toolboxes of individual technologies and practices such as laboratory research and injections into the human body.
  3. And technology can mean an entire collection of devices and practices available to us as a culture or a society.

Arthur illustrates the three meanings with reference to a F-35 carrier-based fighter aircraft. It’s a means to the end of displaying power and making war. The aircraft itself is an assembly of parts and practices: a jet engine, wings, avionics. Each of these is an assembly of sub-assemblies: the jet engine has an air inlet system, a compressor system, a combustion system, a turbine system, and so on. Each of these sub-assemblies has components. And they all use the practice of engineering. 

And the F-35 is part of a larger collection of devices that constitute the carrier battle group, the Navy, the armed services, and the military-industrial complex.

Then Arthur adds another element to his definition of technology. In all its forms, technology harnesses phenomena. Oil refining harnesses the phenomenon that components of vaporized crude oil condense at different temperatures. A hammer harnesses the phenomenon of transmission of momentum from a moving object to a stationary one. A humble radio receiver harnesses phenomena including induction, electron attraction and repulsion, voltage drop across resistance, frequency resonance and more. Arthur’s point is that phenomena are the indispensable source from which all technologies arise.

What this excellent author and his penetrating analytical description of technology in society misses, it seems to me, is the most productive and beneficial technology of all: entrepreneurship.

Entrepreneurship is technology in every one of Arthur’s definitions. It is, first, a means to fulfill a human purpose. That purpose is a better life – to bring into being a better set of circumstances, a preferable set of conditions, than exist today. Entrepreneurs pursue this end for others now, in order to achieve it (later) for themselves. 

Entrepreneurship is also assembly. In fact, economists use that very word to portray the act of entrepreneurship: assembling resources, capital, processes and people, and organizing them in teams and firms and corporations in order to achieve their human purpose. Entrepreneurship brings about lasting institutions to transmit the achievements of assembly across generations and across geographies.

And entrepreneurship is a collection of actions and practices for the benefit of society and the strengthening of culture. We study entrepreneurial history to understand how the actions of individual entrepreneurs, embracing risk and defying uncertainty, have led to civilizational advance, scientific understanding and commercial discovery. Entrepreneurship drives social evolution and technological evolution. Entrepreneurs experiment and try new approaches and build new devices so that we can all benefit from the learning that comes from both success and failure. The entrepreneurs bear the brunt of the failures and the rest of society benefits from the successes.

And what are the phenomena harnessed by entrepreneurship? The first is the most fundamental of all: the phenomenon of human action: that humans act, take decisions and make choices in order to improve their subjectively-perceived conditions of life, to make things better. And there is a special second phenomenon that is particularly harnessed by entrepreneurs, that of anticipative understanding (as Ludwig von Mises termed it): the reasoned, sensible, intuitive anticipation of that future better life, based on their tacit knowledge, their subjective understanding, their empathy and their experience. Successful entrepreneurs harness this phenomenon better than other people, though it may be available to all.

It is not the technology of the F-35 or the computer or the smartphone or of biotech that makes life better, or that advances civilization. Those are secondary outcomes of the complex human system powered by entrepreneurship. The conditions of life can be continuously improved and our human state can be continuously elevated because we have entrepreneurs who can harness the phenomenon of human action aimed at betterment. Entrepreneurship is the meta-technology, making all sub-assemblies and components possible, continually driving advances in other technologies, society, the economy and civilization.