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146. Luca Dellanna on the Power of Adaptation: Adapt or Die

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Ceaseless flux. Those are words Ludwig von Mises used to describe the perpetual change in business conditions that entrepreneurs experience. The consequent need, he told us, is for a process of constant adjustment. The current word for that process is adaptation. Economics For Business talks to Luca Dellanna, a leading business expert who advises companies of all sizes on managing the challenge of continuous adaptation.

Key Takeaways and Actionable Insights

Adaptation is a necessary capacity of all businesses.

Adaptation is a necessity. The marketplace changes, customers change, technology changes. Change is the norm. Firms that don’t adapt will suffer and potentially die, so adaptation must become the norm for business. In complex systems theory, adaptation is the selection of strategies or actions that enhance survival or any other measure of success (or fitness, as its sometimes called) amidst swirling change. In business, adaptation means choosing your degree and pace of change.

Change will be externally imposed if it is not internally embraced.

Businesses can influence the level of change impact. They can critically examine their mental models, and assess their products, processes, beliefs, and people, to evaluate their fitness for adapting to market change. To avoid change being imposed from outside the firm — to avoid negative natural selection, in the evolutionary metaphor – all layers of the firm must embrace change, and proactively adapt. Eliminate unfit products and processes, pursue the development of new ones that are better adapted, and upgrade people resources through thoughtful hiring and active learning.

Adaptation is different than responsiveness — it’s embracing harm.

We talk a lot about a business’s responsiveness to customer wants and preferences, especially when those preferences are fluid and incompletely articulated and require interpretation. Responsiveness is critical — but it’s different from adaptation. It’s response to an external signal. Adaptiveness is embracing change inside the firm.

Luca Dellanna has a striking way of communicating this: he advises his clients to deliberately expose themselves to what he calls “harm” — new problems never before encountered. The exposure must not be to a problem that could overwhelm the firm, but one that can be addressed at a subsidiary level or component level or via adjustment in a shared mental model. Luca calls this “small harm” — specific problems (e.g., the price of a product or service compared to the customer’s willingness to pay). Proactively probe the problem, e.g., in a high pricing test, generate feedback and actively use the learning to adapt. Another word for “small harm” is stressors: situations that put stress on the firm. Set up systems to seek out these stressors so that adaptation is deliberate, and can be enculturated, rather than wait for a crisis that requires an emergency response.

Lack of discomfort is a problem to avoid.

Identify the leading indicators that describe the conditions that will change the future.

Lagging indicators — such as revenue — are metrics that describe the past. There are leading indicators available such as number of customer contacts (describing what the pipeline might look like in the future), and satisfaction scores (describing future repeat sales). Luca recommends pairing one lagging indicator with one leading indicator to develop a metrics system.

This is not the same as popular consultant-proposed metrics systems such as OKR (Objectives and Key Results). Objectives are not leading indicators. The best leading indicators are behaviors, because these can be easily adjusted if observed to be in need of change. Falling behind on objectives does not yield an actionable response if not linked to a causal factor. Inadequate behaviors (e.g., conducting a sales call without following the proven process) can be addressed, especially if they are clearly linked to positive outcomes.

This is the same principle as Amazon’s focus on what they call controllable inputs, and Amazon knows a lot about driving business growth.

There are several strategies to pursue adaptation.

Redundancy (having more than needed): A focus on efficiency and “no waste” can be detrimental to adaptation if it leaves no resources for experimentation and exploration. Employees need time to work on new things, not just on current tasks and issues.

Bottom-up initiatives: Central command and control can’t run everything, anticipate every harm, or plan every experiment. Ensure entrepreneurial empowerment of front-line employees and functions so that they can initiate learning.

Avoid game-over: In experimenting, calibrate the risk to ensure that a negative result is not overwhelming, and, in regular operations, be aware of any possibility of a major crisis — a Black Swan event — and be sure that it will not destroy the firm or deliver a setback from which it will be hard to recover.

Never stop exploring, in a culture of anti-fragility.

Nassim Nicholas Taleb famously coined the term “anti-fragile”. The company that has the most well-developed capacity to learn from problems and harm is the most anti-fragile. The culture of anti-fragility is always to surface problems when they are encountered and address them at the source. Luca stresses that culture is built when everyone in the company can see a consistent set of actions in which the trade-offs of addressing problems are consistent with the stated vision. For example, a culture of safe operations will be reinforced when safety precautions are taken even when the cost, in time or money or both, is high.

The leading indicator is that every individual and every operation and sub-operation is following safe practices, and that the company readily commits resources when a new safety procedure or installation is proven to be effective. If the trade-off is made that the new procedure is effective but too expensive to install, the culture will be punctured because the company has acted contrary to its declared vision.

Additional Resources

“The Power Of Adaptation” (PDF): Download PDF

Read Luca Dellanna’s book, The Power Of Adaptation: Download PDF

Another application of adaptation, Teams Are Adaptive Systems: 12 Principles For Effective Management by Luca Dellanna: Download PDF

Visit Luca Dellanna’s website to find more resources: Luca-Dellanna.com

E-mail Luca at luca@luca-dellanna.com

145. Christopher Habig: How Understanding Subjective Value Will Revolutionize the Medical Care Industry

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The field of medical care is so ripe for new entrepreneurial solutions. As is always the case, solution design begins with understanding subjective value, both for customers (patients) and providers (doctors) Christopher Habig of Freedom Healthworks (FreedomHealthworks.com) joins Economics For Business to explain how an Austrian, subjective-value focused approach is bringing market freedoms to medical care.

Key Takeaways and Actionable Insights

Step 1: Like many entrepreneurs, Chris Habig started a revolutionary business from a place of familiarity and existing knowledge.

The so-called effectual process in entrepreneurship begins with two straightforward questions: what do I know and who do I know? Chris Habig grew up in a family where both parents are physicians. This vantage point gave him the opportunity to observe the critical doctor-patient relationship first hand, as well as the way in which modern bureaucratized medicine imposes obstacles and complexities that strangle the value generation potential of that relationship.

Step 2: Assessing the subjective value gap.

From his Austrian analytical perspective, Chris was able to identify the subjective value gap. For customers (patients) it is the loss of the positive feelings that they associate with the doctor-patient relationship. Chris summarizes them as advocacy, access and affordability: my doctor is on my side and looking out for me; my doctor is always available to me; I will not be excluded for economic reasons. These feelings are negated by bureaucratic medicine.

There’s a subjective value gap on the physician side, too. Research shows that doctors are stressed, and no longer find fulfilment in their work. Their mental health declines and there is an increasing rate of defection (leaving the industry) and even suicide. It’s a sign of a dysfunctional system to exert such an effect on its human capacity.

Step 3: Identifying the barriers to remove.

Value generation often consists in the removal of barriers to the realization of the desired experience. Chris identified two major barriers: insurance and government. The current approach to medical insurance actually hampers the market for what customers truly desire, which is the positive feelings of the doctor-patient relationship. Now it’s a patient-insurer relationship: will my visit / test / procedure be covered? Will there be a big bill in the mail?

And, of course, the participation of government to enforce the current system through legislation and regulation perpetuates the barriers.

Step 4: The entrepreneurial solution.

The solution is to free the system from its constraints through entrepreneurship. The physician is the entrepreneur on the supply side. Via a new business model called Direct Primary Care (DPC), the physician-entrepreneur creates a new value proposition for customers. Access is provided via a subscription model, and this financial innovation enables the thriving of a practice composed of a small number of patients to whom the physician can devote more time per visit, more attention, and more personal and individualized care. The physician is networked into a web of complementary secondary and specialist services that can be orchestrated for the individual patient’s need. All the associated business services are clustered around the DPC practice, and the physician does not need to be bound by a hospital system bureaucracy.

The new financial model enables the customer to take charge of their medical expenses, paying cash for current needs and reserving insurance for catastrophic events, which is the way it should be used. Consumer prices are lowered throughout the system.

Lives are improved on both sides of the doctor-patient relationship.

Step 5: The support system for the entrepreneurial model.

We live in an age in which distributed entrepreneurship can be embedded in an enabling system of digital infrastructure. Part of the innovation that Freedom Healthworks brings to the renaissance of the doctor-patient relationship is the platform on which the DPC business model can run.

Chris has identified 158 steps for the set-up, operation, and maintenance of a DPC business model. These can all be hosted, enabled, and implemented on the physician’s behalf. Finance, technology, operations, marketing, and vendor relationships can all be systematized and partially or fully automated. The doctor can focus on the relationship component of interacting with patients.

Step 6: Scaling.

Can entrepreneurs build out a fully-functioning cash-based direct care system to rival and ultimately replace the government-insurance company nexus? It’s already happening. As each DPC practice proves itself, more entrepreneurial physicians will make the transition and momentum will build.

DPC is an important example of the future of entrepreneurial economics.

Additional Resources

“Enabling A Direct Primary Care Practice” (PDF): Download the PDF

“FreedomDoc Launch Process” (PDF): Download the PDF

Healthcare Americana podcast: View Podcast Archives

Visit FreedomHealthworks.com and FreedomDoc.care

144. Joe Matarese on Expectations and Building a Culture of Continuous Innovation

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Every company starts as an innovation. Thereafter, the unceasing challenge is to keep innovating because the market continues to change, technology continues to advance and, crucially, customer expectations continue to rise. Economics For Business speaks with Joe Matarese, Executive Chairman of Medicus Healthcare Solutions, about how to build a culture of continuous innovation and overcome the countervailing forces of the status quo.

Key Takeaways And Actionable Insights

Every company starts as an innovation. The challenge is to continue — and ideally accelerate — innovation without pause.

As Joe Matarese puts it, innovation gets you into the game. It’s how every company starts. There’s the identification of a gap in the marketplace and the operationalizing of a new innovation to fill the gap, better than any other competitor or rival entrant.

Innovation is seldom a great new invention or unprecedented leap. It’s more often the day-to-day incremental changes and improvements in products and processes to meet customers’ changing expectations.

The great challenge is to continue or even accelerate innovation as the company grows and expands.

Continuous innovation combines mindset, processes, technology, empathy, and organizational empowerment.

The world is complex and ever-changing. Innovation is necessary for all businesses to keep up or even move ahead. Innovation is not simple, and it’s not easy — in fact it’s a continuous struggle against opposing forces. Joe Matarese has directed innovation from three vantage points: big corporate, startup, and large growth company. To achieve the goal of continuous innovation requires attention to multiple factors:

Mindset: Innovation must be the commitment for everyone in the company. That means always asking the question, “How can we do better?” Such a mindset requires both tolerance of discomfort — since there’s never any rest — and humility in the face of feedback. Innovative companies hire people with these characteristics and cultivate constant vigilance throughout the firm.

Processes: Things get done through the implementation of processes. Innovative are always seeking to improve their processes — make them faster, lower cost, and more efficient in their use of inputs, especially the use of people’s time. Innovation itself is a process, and process improvement is a form of innovation.

Technology: Irrespective of how innovative any one company may be, technology is progressing at an increasing rate of change with potential to render all processes faster, lower cost, and capable of higher quality and fewer errors. One way to ensure continuous innovation is the rapid adoption and early implementation of new technologies as they become available.

Empathy: Even more powerful than technology is the capacity to tap in to customers’ expectations. This is the source of knowledge about future requirements. Customers are experiencing new technology, are absorbing innovation from other firms in the market (whether they are firms that are competitive to yours or simply adjacent), are experiencing change, and their expectations are changing and becoming more demanding by the moment. By sensing their changing expectations, the innovative firm is in position to be a first responder or an innovator before the expectation has even hardened or matured. Being ahead of expectations is a powerful place to be.

Empowerment: People in front line sales and service functions are closest to customers and their expectations. Line operatives are closest to process implementation. Supply chain managers are closest to business partners and vendors. It is these front-line positions that are best placed to deliver information about expectations and what’s changing. They are also best placed to sense dissatisfaction and unease, and to make real-time changes and adjustments. If they are empowered to make changes and to both suggest and implement improvements — even if what they try doesn’t work — they will be more highly motivated and more likely to serve as an internal engine of innovation.

Tools: Joe shares how his company, Medicus, has developed tools for innovation. Internally, all employees have access to communications tools that ensure the customer data they collect, and the ideas they generate as a result, are widely circulated and responded to. Externally, doctor whom Medicus reimburses for services have access to a tool to record their time that is administratively simple and generates fast payment, addressing two measures of unease.

Our Econ4Business.com platform curates many tools for entrepreneurs. One example relevant to this episode is the “Continuous Customer Expectations Monitor” (see Mises.org/E4B_144_PDF2). It guides entrepreneurs through the continuous process of tracking and keeping up with changing customer expectations.

There is a constant counterforce to innovation that the innovative company must recognize and overcome.

There is an innate human resistance to innovation and change. Consider this from a leading brain scientist and psychologist:

When information streams in through our sensory systems, it first stops off at our amygdalae, which are there to ask the question, “Am I safe?” We feel safe in the world when enough of the sensory stimulation coming in feels familiar. When something does not feel familiar, however, our amygdalae tend to label that unfamiliar thing as dangerous, and they respond by triggering our fight-flight-or-play-dead fear response. —Jill Bolte Taylor, Ph.D., Whole Brain Living (Mises.org/E4B_144_Book)

It’s natural in humans to resist change. It may not be safe. It may threaten my job, or my comfortable routine, or generate unwanted uncertainty. Fear of change is real. The function that exercises the fear response in companies is bureaucracy. Bureaucracy exists to ensure compliance with existing rules, and their consistent and uniform implementation. Bureaucracy is anti-innovation.

When a business leader commits to improving a product or process, he or she is undoing what someone else in the firm had championed and nurtured and maintained. It’s a constant battle that must be waged between change and the maintenance of the status quo.

The adoption of new technologies is an effective technique of innovation, but it can also trigger a fear response.

Technology is the continuous innovator’s weapon. It advances at its own pace, as a form of evolutionary advance. Every technological innovation spurs new applications in the marketplace. The adoption of these new technology applications is a catalyst for continuous innovation in the firm, supporting both product and service improvements and the incremental efficiency of processes — faster, leaner, lower cost.

The fear mechanism exhibits itself as employees worrying about their jobs. Perhaps the application of technology will reduce the number of people supporting a particular process from 5 to 4 to 3 or 2 or even one or none. They fear that progress will punish them. They adopt a defensive mindset. The innovator’s goal is to change the mindset to one of anticipation of rewards for progress.

Basic economics tells us that resources which are no longer utilized in a process that is rendered more efficient are thereby released for higher and more productive uses. Innovation leaders can communicate that, and make sure employees know they will be rewarded for progress via new and better opportunities for them to contribute more through the higher productivity that innovation brings.

The greatest resource for continuous innovation comes from customer intimacy and empathy that senses customers’ escalating expectations.

When we talk about a changing marketplace, we are really talking about customer expectations. Innovation elevates customer expectations and thereby triggers the next round of innovation in a never-ending cycle.

For example, now that many people carry iPhones and other smartphones, they’ve become used to unprecedented levels of convenience, interconnection, functionality, and intuitiveness. Their expectations for every other piece of technology they encounter, and every interface they navigate, are raised to a new level. There’s a marketplace of expectations and every new technology raises the bar.

The way to keep pace, and to have any chance of anticipating and meeting the next level of raised expectations is to get as close to the customer as possible, to be with them when they’re using your product or service or technology and listen and empathize when they express a wish (or expectation) that the experience could be easier, better, faster, less frustrating, more enabling. “I wish it were as easy as my iPhone” is the expression of an expectation that everything should be as easy as the iPhone.

Innovating firms build in mechanisms that make continuous innovation not only possible but likely.

There’s a quote in the book Working Backward, about continuous innovation at amazon, to the effect that “Good intentions don’t work, mechanisms do”. The intent to improve a process or product is not enough; people already had good intentions in the first place. Mechanisms turn intentions into actions and achievements. Some of the mechanisms Joe Matarese recommended are:

Mechanisms for taking in data from and about customers: Customer intimacy has a mechanism, in the form of frictionless and unstructured data collection. Give front line employees and the technology they use the unfiltered capacity to gather customer information about their dissatisfactions and report it back.

Let people experiment: The E4B technique of explore and expand applies to everyone in the organization. Elevate experimentation over compliance. That’s the way learning happens.

Eliminate bureaucracy that is not mission-supportive: Every company eventually builds bureaucracies in order to support consistent application of business rules. Innovators differentiate between bureaucracy that is mission-supportive and bureaucracy that is mission-obstructive. HR is often a department where bureaucracy grows. If HR is helping to recruit talented people who will contribute to innovation, then the bureaucracy is mission-supportive. If HR imposes rules that unnecessarily impede innovation, then that part of the bureaucracy should be shut down. The goal is to liberate the value-generating creativity of everyone in the organization, and not to impede it.

Decentralization and entrepreneurial empowerment: Decentralization is a mechanism of innovation. The goal is for your organization to consist of hundreds of individuals thinking creatively and solving problems for customers. You want them all to think and to learn! They must know that the firm cheers them on for doing so.

Additional Resources

“Designing An Organization For Continuous Innovation” (PDF): Download PDF

“Continuous Customer Expectations Monitor” (PDF): Download PDF

Medicus Healthcare Solutions: MedicusHCS.com

Econ4Business.com

Whole Brain Living: The Anatomy of Choice and the Four Characters That Drive Our Life by Jill Bolte Taylor: Mises.org/E4B_144_Book

139. Fabrice Testa on Super Entrepreneurship

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Entrepreneurship is a method, and it’s also a mindset. Fabrice Testa has written a book that brilliantly integrates the two: he calls the integration “Super Entrepreneurship,” and his book title is therefore Super Entrepreneurship Decoded. He has the appropriate credentials as a proven super-entrepreneur who has created and nurtured numerous great companies (and successfully sold a couple of them).

Fabrice knows the true meaning of the phrase, “The day before something is a breakthrough, it’s a crazy idea”.

Entrepreneurs are animated by their purpose. Super entrepreneurs embrace a massive transformative purpose.

The motivation for entrepreneurs is to help others — to solve problems for others, as we sometimes phrase it. Super entrepreneurs, in Fabrice Testa’s language, are those who choose to dedicate their businesses to solving the biggest problems. By setting big goals, they attract many like-minded partners, collaborators, and employees. By targeting transformation, they aim to change the world in a significant way.

In making this choice, super entrepreneurs are delving deeply into their own personal story to understand their own drivers and their own passionate commitment. There’s a major self-discovery component.

Having set their MTP, super entrepreneurs develop a systematic approach to the pursuit of their goal.

Fabrice Testa recommends that super entrepreneurs combine what he calls CRAZY thinking with a relentless sense of purpose. CRAZY is an acronym for elements of entrepreneurship that Testa calls the Five Secrets. We agreed not to give them away, but they add up to a five-step method entrepreneurs can follow, and a checklist that they can use to assess the market power of their own concepts and business models.

The context for the 5-step method is the exponential rate of growth of available and applicable technologies for entrepreneurship, and the convergence of those technologies that results in a compounding of productivity. When, for example, sensor-based data collection can be combined with A.I. and robotics, whole new fields of automation open up, potentially helping billions of people.

A relentless sense of purpose is a major element in the super entrepreneurial mix.

Super entrepreneurs are highly motivated. They display high levels of ambition and drive, and they generate strong momentum. They seek change, and aim for breakthroughs. They love to set the bar high.

There is a spirit to super entrepreneurship, an intangible spark of super energy and boldness that sets the best entrepreneurs apart and powers them to unusual levels of achievement.

There’s a plan, but it’s not fixed.

Fabrice Testa identifies a master plan for the activities of high-achieving entrepreneurs, but it’s not the restrictive plan of the business school strategist. One term he used was Roadmap: there’s a goal to get from A to B, but it’s OK to visit C, D and E along the way, and to learn and double back and embrace recursive procedures to reach the targeted end-results. The key to success is keeping the goal in mind with flexibility on the route to get there.

Let the customer be the guide.

Testa subscribes to the protocol of involving the customer early and often in the process of designing and building a product or service or a company. Entrepreneurs are always working with assumptions, and, at minimum, must validate them with customers.

He introduced us to the “Starbucks method” of customer validation. Park yourself in Starbucks, order a beverage of your choice, then look around for likely-looking people who might be open to a brief conversation about your idea or proposal or even prototype. It’s easy to engage people, they’re willing to help, and you can offer to buy them a coffee to lubricate the relationship. A few hours investment of your time and a few dollars invested in coffee will result in a deep, broad and rich set of reactions and responses and a meaningful feedback loop.

Success is more about fitting in than it is about timing.

When writers and historians are trying to analyze the unusual success of a particular business, they often attribute a lot of the cause of the outcome to timing — the product or service or technology came along at just the right time. This is a misinterpretation. The happy correspondence of a new offering with a receptive context is not timing but fitting in.

According to Fabrice, to fit in in a big way is to fit in with the zeitgeist of the era. The dictionary definition of zeitgeist is the general intellectual, moral, and cultural climate of an era. What Fabrice is pointing towards is a heightened ability to sense the movement of the time, and the direction of its flow, and to step into that river at the right point.

Entrepreneurship is everywhere, and can be achieved at multiple scales.

Super entrepreneurship is not limited by the scale of resources, but it can certainly be augmented wherever resources are abundant. That’s why we seek to encourage entrepreneurship for individuals, teams, and firms of all size, including the largest corporations. Big companies under-perform at entrepreneurship for two reasons. First, they spawn bureaucracy, which is a form of organization that is counter-entrepreneurial. Second, they have existing businesses to defend and fear the consequences of self-disruption.

The solution is to change the purpose of big corporations so that they can become super-entrepreneurial. The purpose would be to create new businesses with no bureaucracy and separated from the defense mechanisms of existing business units or divisions.

Additional Resources

Super-Entrepreneurship Decoded: 5 Secret Keys to Create Breakthrough Businesses that Change the World by Fabrice Testa: Buy It On Amazon

“Super Entrepreneurship” (PDF): Download PDF

113. Jacqui Boland’s Entrepreneurial Journey on a Red Tricycle

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This week on the Economics For Business Podcast we were gifted the opportunity of reviewing and assessing a completed entrepreneurial journey, courtesy of Jacqui Boland, founder, CEO and now alumna of Red Tricycle, following the acquisition of the company by the corporate owner of tinybeans, a family photo sharing and journaling app.

Red Tricycle is a brand — “a lifestyle brand that fuels the parenting universe with daily inspiration for family fun.” In the “Economics For Business Value Proposition Template,” the Red Tricycle proposition would be:

FOR: Fun Moms

WHO: Search for and utilize ideas for family activities for parents and children to enjoy together.

VALUE PROMISE: A unique daily source of ideas and inspiration for family fun

VALUE RATIONALE: Every day, Red Tricycle finds and presents all the best local and in-home family fun opportunities and makes them easy for Moms to research, evaluate and act.

BENEFIT > COST: In one daily web visit, Moms have easy access to a unique curation of new ideas and inspirations, simply formatted, and requiring a minimum of their precious time.

Jacqui was generous in helping us map her entrepreneurial journey to the stages of the Economics For Business GPS.

Key Takeaways And Actionable Insights.

Imagination

The pre-design phase in which entrepreneurs develop the imaginary construct of their business idea.

Jacqui was a new mom in a new and unfamiliar city. She wanted to identify all the opportunities for fun with her family. She became an avid online searcher. A few conversations with some other moms revealed that many moms are searchers — with intensity and determination and a commitment to find and evaluate all the relevant information in their field of search. The idea of an online one-stop location for information about local family-friendly fun activities was born.

A useful tool for the Imagination phase of entrepreneurship is “Entrepreneurial Empathy”: Download Here.

Design

The phase where a validated imagination is transformed into a more formal business model.

Jacqui capitalized on her existing knowledge field. She knew magazine publishing and the power of content, and how to source it. She knew the advertising revenue model for magazines. She was able to design a crisp business model of content creation, content presentation, consumer engagement, and attractiveness for local and eventually national advertisers.

One of the tools in the Design tool set is the “Means-Ends Chain,” helping entrepreneurs to align their business design with customer values: Download Here.

Assembly

The phase in which design is operationalized by selecting and combining assets: people, technology, content, operating processes.

Assembly for Red Tricycle began with people: content producers, editors, salespeople. Jacqui found investors, initially angel investors, then angel groups, and, later in the business’s evolution, institutional venture capital. In turn investors and investor groups like 500 Startups were very useful in providing connections and recommendations for technology and software resources. Comparisons between different operating models that the investor groups were able to provide were useful guidance in making resource selections.

Consult our “Austrian Capital Theory” tool for capital assembly of resources: Download Here.

Marketing

The phase in which the designed and assembled entrepreneurial offering is presented to the market for consumer consideration.

Red Tricycle adopted a city market-by-market rollout strategy, starting in Seattle, proceeding to San Francisco, then systematically adding more cities. The killer app for market introduction was “Mom Word Of Mouth”. Moms have friends in other cities, and travel between cities, and are excited to share family fun ideas with others. The best sharers were subscribers to the Red Tricycle newsletter, so the brand worked hard to build up a subscriber list.

Red Tricycle KPIs were traffic, subscribers, and revenue. As a result of a system of creating and testing content, Red Tricycle could seed new markets with say 20 or 30 stories that drove good SEO traffic. And then the job was to convert that traffic to subscribers to the newsletter.

Building brand uniqueness is fundamental for the Marketing Phase. Use our “Brand Uniqueness Blueprint”: Download Here.

Customer Experience

The phase of the value learning process in which customers try the offering, experience its benefits, and assess the subjective value.

Red Tricycle designed a very specific customer experience, which Jacqui described as: “Quick, get an idea and inspiration to spend time with your kids, and then go offline and do it, and then come back two days later and do it over and over again.” The model was distinctive in not asking for too much time (“the infinite scroll”). Red Tricycle helped Moms focus on the lighter side of parenting and having fun with their kids.

Social media came into play as an aggregator of subjective value anecdotes. Moms would share a picture of themselves at the zoo and use Red Tricycle’s recommended hashtag, “Best weekend ever.” And not just everyday moms, but even celebrity moms, like Randi Zuckerberg, Pink, Ivanka Trump, sharing that they found a great idea for a campsite or a restaurant. These were subjective value data points.

Facilitate great customer experiences with our VUCA tool: Download Here.

Management and Growth

The phase where the business model is scaled and the marketing and customer experience reach is expanded, with continuous innovation accelerating growth.

The major growth pivots for Red Tricycle were the transition from local to national advertisers, and hiring and assembling and empowering the new team members best suited to lead the way in the new business environment that this entailed.

The goal for the management and growth phase was to roll out multiple local markets, and build a strong foundation of local advertising revenue until Red Tricycle had enough scale to interest national advertisers. The transition was a 5 year process. As Jacqui described it: “We put a plan in place and then we adjusted and adjusted and adjusted.”

A core element of the transition management is hiring. Skilled national advertiser salespeople are expensive, and sometimes it might take a year of that salary before a new salesperson can close a big national deal. There’s a lot of foundational work that needs to be done. Scaling the business was a delicate process. A fully staffed company would have a sales team across the U.S. in every market, but if you can’t afford that, you have to stretch and think, “Can this person sell local and national? Could this person cover Chicago, and L.A.?” And then once you start to get a little bit bigger, and you can hire an L.A. staff, what happens to that Chicago rep?” It’s a constant adjustment.

How does growth feel? “You’re always looking for the next milestone. And you have about a minute after you hit a goal or a milestone to celebrate, and then you run into the next quarter and you have another goal that’s even higher. So it’s a constant stretch.”

“Upsizing a Customer Need” is a useful tool for the Management and Growth Phase: Download Here.

Disposition

When the entrepreneur decides to sell the business, merge it into a larger business and relinquish the founder / owner role, or to turn it over to the next generation.

Selling a business is just as much a marketing task as establishing it and growing it. And that means seeing the business through the eyes of an acquirer — empathic diagnosis of their needs, their preferences, their goals and desires, their constraints.

Jacqui had made the economic calculation that the best path forward was not to raise additional venture capital for continued high growth, but to demonstrate solid and sustainable profitability and look for either a strategic partner or an acquisition partner. She didn’t use a banker (whose process she compared to a dating app) but conducted her own search for a firm that would recognize a complementary asset that could be a marketing engine for them. She found a partner in an adjacent field (family photo sharing) that was strong in technology and would benefit from Red Tricycle’s content creation and sales expertise. The deal was made quite quickly.

Additional Resources

Map of Jacqui Boland’s Entrepreneurial Journey (PDF): Download PDF

eGPS Handbook (PDF): Download PDF

107. Ivan Jankovic: The Special Understanding of Entrepreneurship by Americans of the Austrian School

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Austrian economics has always been on the leading edge of innovative thinking applicable to business. Back in the last century, there was a group of American economists of the Austrian school who greatly advanced theories related to subjectivism; that is, the role of human beliefs and preferences, and of the market as a process. Here are some of the insights they gave us about entrepreneurial business.

Download The Episode ResourceEntrepreneurship Drives Markets, Innovation, and Value Generation – Download

Key Takeaways & Actionable Insights

The function of entrepreneurship is the generation of new subjectively perceived value.

These economists got the name The Psychological School, because they understood that value is a function of human feelings, preferences and beliefs. The secrets to the successful pursuit of new value are not found in data and mathematics, but in human motivation.

The activity of entrepreneurs is the development and implementation of value-generation business models.

The twentieth-century economists we talk about on the podcast this week would probably never use the term business model. But their concept of the market as a process governed by subjectivism would embrace this modern term. A business model is a recipe for identifying value potential — an analytical outcome of understanding customer preferences — assembling a value proposition — a creative act of the entrepreneur — and enabling the customer to experience value, some of which can be captured by the entrepreneur via exchange if the business model is well-constructed.

Who are entrepreneurs?

Historically, some economists have debated whether entrepreneurs play the role of managers of the assets and activities of firms, or the role of owners establishing the asset base and purpose of the firm, or the role of capitalists providing the enabling financial capital. From the subjectivist point of view, it’s not a difficult question. Entrepreneurs are those engaged in the business of pursuing and generating new value. They might play one or more roles (manager, owner, capitalist) at different times in the pursuit.

Those in business firms who do not have an entrepreneurial role are the bureaucrats engaged in governance actions with no customer value, imposed by external influencers, usually government.

How do entrepreneurs generate value?

These economists understood the market as a process of individuals interacting to exchange. Therefore, they were able to establish that entrepreneurial value generation is a process and that it can be systematized (which is the essence of our Economics For Business project). A process has a beginning — in this case the identification of value potential, which requires a deep understanding of subjective value) and an end — the facilitation of value to the point where the customer can easily exchange for it, activate it, and experience it. It’s not necessarily linear, rather it’s recursive and dynamic, a continuous creative flow of knowledge gathering and learning and responding via innovation.

How are entrepreneurs compensated?

These economists realized that it represents a poor reflection of real life to identify the compensation of entrepreneurs solely with profit. On the monetary axis, they can just as well be paid in wages or dividends or other forms of monetary compensation. On the non-monetary axis, these subjectivists fully understood the concept of psychic profit: that entrepreneurs can do what they do for their own individually-perceived motivations, including achievement, fulfillment, the reward of serving others, and the purpose and meaning found via the entrepreneurial journey.

 

Additional Resources

Entrepreneurship Drives Markets, Innovation, and Value Generation (PDF): Download Here

Professor Jankovic’s Book, Mengerian Microeconomics: The Forgotten Anglo-American Contribution to the Austrian School – Buy on Amazon

The Austrian Business Model (video): https://e4epod.com/model

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