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81. Dr. Keith Smith: The Free Market Medical Association Brings Entrepreneurship to Medical Services

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Dr. Keith Smith, co-founder of The Free Medical Association (FMMA.org), is an entrepreneur and free market warrior who is undaunted by the seeming scale of his innovation task: to bring to healthcare the kind of customer experience only entrepreneurial free markets can deliver (see “Pillars of the Free Market Medical Association” PDF).

He is laser-focused on the problem to solve.

(Full episode transcript available here.)

Key Takeaways and Actionable Insights

The aim is to bring buyers and sellers together.

As Dr. Smith explains, simply stating that there is a need to bring buyers and sellers together is an indication of dysfunction in the market for healthcare. Buyers and sellers talking directly with each other is what makes a market: willing buyer, willing seller, mutually agreed price.

Buyers are patients who care what healthcare costs. Today, they have sticker shock.

Buyers who care about price can be direct-buying individuals, and their proxy buyers, who can include self-funded employer health benefits systems, more and more of which are emerging. Innovations like Health Savings Accounts and high-deductible insurance policies are bringing more direct buying into the market.

Willing sellers should be complete and comprehensive advocates for the patient, across the whole range of their needs, including financial aspects.

The targeted customer experience is for patients to feel confident when they visit a doctor that they have an unapologetic advocate. Today, physicians are medical advocates, but to be a more complete advocate, physicians must think and act like entrepreneurs, bearing some risk in serving their patients. Many say, “I don’t want anything to do with the business side or the money side of medicine.” By doing so, they are abandoning their patients to the financial wolves, many of whom are willing to step in and make a living off the patient. It’s not so much willful neglect of the patient’s interests, as simply caving in to a system that has become extremely difficult to navigate.

A problem in healthcare is the dominant presence of intermediaries between the buyer and the seller.

Dr. Smith described the wide range of intermediaries, cartels and proxies that get in the way of a direct, transparent and mutually beneficial relationship between buyer and seller. Insurance companies are “money handlers and money changers”, keeping healthcare prices high, so they can offer false discounts and skim off the difference. There are brokers and consultants to employers, whom Dr. Smith calls “self-dealing”, who add a layer of costs. There is Big Pharma, the pharmaceutical industry that largely funds the FDA, making it inevitable that the regulator will protect the pharmaceutical companies and their business model and their pricing.

In the end, the “ultimate culprit” is the Federal Government. None of the financial abuse of the patient would be possible “without Uncle Sam riding shotgun for all of this thievery”.

A solution lies in decentralization, disintermediation and the application of Hayekian knowledge theory.

Dr. Smith alluded to F.A. Hayek’s concept of dispersed tacit knowledge in describing the FMMA’s decentralized approach. The Free Market Medical Association establishes local chapters, who follow a small number of “pillars” regarding price and value and mutually beneficial exchange, including equal pricing to all cash buyers of the same service. The chapters are completely free to respond to customer preferences in their own local market. These chapters create new knowledge based on their transactions and experiences in their local market, and can share it with all other chapters.

Austrian principles of decentralization, free exchange without intermediaries, and the recognition of the value-creating dispersed knowledge of patients and entrepreneur-practitioners are Dr. Smith’s starting point.

Free Downloads & Extras From The Episode

Pillars of the Free Market Medical Association: Download PDF

The Free Market Medical Association’s annual conference, “Mission Possible: Healthcare Entrepreneurship as the Antidote to the Broken Healthcare System”: FMMA Annual Conference

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

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65. David Bienstock on the Business of Politics

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When we talk about entrepreneurial alertness to opportunity, it can sound pretty vague. What exactly does that mean? How is alertness translated into profitable action?

Key Takeaways and Actionable Insights

This week’s guest, David Bienstock, provided us with a very precise example. He had just started his media buying services business when a phone call came in. Do you provide service in the category of political advertising? David’s answer was yes. There was no reason for it to be otherwise because there was no information at the time that would indicate any differences between media buying services in the political advertising category compared to the commercial advertising category.

He was able to transfer existing knowledge from his expertise in media buying and placement, and also develop more and more new knowledge. He thereby identified more and more ways in which political advertising was specialized — factors of timing, competitiveness, geography, pricing, regulation, and many more. David built his own island of specialization and became the foremost expert in a burgeoning field.

What can we learn from following David’s entrepreneurial journey?

David Bienstock's Entrepreneurial Journey

1) The alertness we talk about that entrepreneurs display to opportunities can be triggered by the smallest piece of data. For David, it was one phone call. His instantaneously positive and open response led to a long and successful journey.

2) Wherever there is business expenditure there is an opportunity for an entrepreneurial business service. The business we discussed in episode #65 is campaigning — political, public affairs, ballot measures. How much is spent on campaigns? A lot. There’s the opportunity.

3) The best entrepreneurial businesses are often the ones that clients put you into. David’s inbound phone call was a new client stating an unmet need. That’s all the invitation the alert entrepreneur requires.

4) Opportunities, once seized, expand. David has expanded his original business by adding many related services for current clients to utilize, including multi-channel media, market research and analytics. In addition, he has added multiple new businesses in related spaces. He’s been creative, he’s taken action, he’s been constantly looking for new opportunities that are complementary to the first one that he spotted. However small the start, the next steps will quickly become apparent to the entrepreneur who is not only alert to opportunity but also to expansion and growth.

Free Downloads & Extras

“David Bienstock’s Logic Of Customer-Led Growth”: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

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37. Curt Carlson’s Systematic, Repeatable Process to Generate Customer Value

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Is successful value creation through innovation the product of genius? Or of luck? No, it’s the product of a system, applied with discipline. Utilizing the system can result in repeated success in customer value generation.

Key Takeaways and Actionable Insights

Curt Carlson is the world’s leading expert practitioner. He is the founder and CEO of Practice Of Innovation, LLC, and was President Of SRI International, identified as the most successful innovation company in the world based on its development and introduction of globally important innovations like Siri for the iPhone4 and HDTV. Under Curt’s leadership, SRI grew 3.5X and created tens of billions of dollars of new customer value.

Curt believes any company can systematically generate new value for customers, and reap the rewards of the market for doing so, when they rigorously apply three fundamental rules.

  1. They have a simple value creation methodology that everyone in the company (and its collaborative partners) can describe, understand and apply every day in every job function. (Curt’s test: ask everyone in the company what the firm’s value creation method is: if they can’t describe it, there isn’t one.)
  2. They have metrics to define innovation work that is important rather than merely interesting. While subjective value is not quantifiable, there are proxies for measuring importance and market potential.
  3. They have a system for active learning. Innovation is a learning science, and active learning is a specific, high speed, high productivity version of learning, applying the best learning science principles.

In this week’s podcast, we focused especially on the simple, effective value creation methodology that Curt identifies by the initials N-A-B-C.

NABC Innovation Process

Click the image to view and download the full PDF

N is the identification and quantification of the important customer need. In B2B businesses, it’s possible to monitor financial flows and identify needs based on quantifiable elements – cost savings, time savings, and measurable quality improvements. In consumer businesses, need identification is much harder, and quantification impossible except by proxy, since needs are subjective and individual. Importantly, they are also multi-dimensional, and need identification must encompass all the dimensions.

It’s important to deeply understand human wants, whether it’s for convenience, or higher order wants such as pride and identity. Surveys told Steve Jobs that consumers wanted a “new keyboard” for existing Nokia phones that were hard to use. Jobs’s intuition was that what they really longed for was convenience. The touchscreen on the iPhone provided convenience and opened a doorway to all kinds of additional services.

A is the Approach the entrepreneurial innovator takes to meet the customer need. The approach is the design of an experience that the customer will desire. The Approach mist embrace both the assembly of the right resources into a technical solution, and the business model so that the solution makes money. There’s an iterative back-and-forth between technical solution and business model that can continue for years. Nike’s technical solution for shoes is good but not unique; its business model for sponsoring athletes to inspire aspirational consumers who wanted to “be like Mike” (or today like LeBron) elevated their offering from product to experience.

B is Benefits Per Costs. Curt uses this construction to emphasize that there are large buckets of both benefits and of costs. Benefits include not just features and performance and appearance, but also the feelings produced by the experience. Costs are similarly multi-layered: not just dollars, but also the effort required to acquire the product, and perhaps to master its use, the opportunity cost of what is given up, durability, and more. The innovative entrepreneur must look at costs from all of these angles and calculate that the “benefits per costs” for customers are much better than alternatives.

Curt’s rule of thumb is 2X to 10X better. People measure perceived benefits in percentages. 10% better, 50% better, 100% better than the status quo or the alternatives. Transformational innovations are 2 – 10X better.

C is the competition and other alternatives – both today and in the future. What are all the other ways the customer can experience the benefit they seek? What are alternative ways for them to spend their money – perhaps on a different experience that’s not a direct substitute but on which they’ll spend instead of buying our solution. How does your innovation fit into their lives so compellingly as to become preferred over all these alternatives?

N-A-B-C is a simple framework, but it’s not easy to achieve results. It requires iteration at speed among many collaborators (including customers, and possibly investors), all with different and specific talents and tacit knowledge. No individual can command sufficient knowledge, so team learning – active, comparative learning, frequently updated – is critical to the outcome.

The result is transformational: for customers who experience new value, for the firms that facilitate it, and for the individuals who practice the discipline of innovation.

DOWNLOADS & EXTRAS

Download Curt Carlson’s NABC Innovation Process PDF: Our Free E4E Knowledge Graphic

Buy a copy of Curt Carlson’s book, Innovation: The Five Disciplines For Creating What Customers Want.

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36. Professor Arthur Diamond on Sustaining Innovative Dynamism

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This week, while keeping our eye on our highest value – entrepreneurial success – we raised our focus to the system level and the meta-ideas that sustain entrepreneurial effort and Austrian innovative dynamism.

Key Takeaways and Actionable Insights

Professor Arthur Diamond has written a wonderful book about nurturing the system in which we entrepreneurs operate. The subtitle of his book is Sustaining Innovative Dynamism. Like all great writers in the Austrian tradition, he recognizes and celebrates the contribution of the entrepreneur to society: to make others’ lives better.

In many ways, this is both an economic and an ethical stance. To quote Jesus Huerta De Soto (in a similarly titled essay, The Theory of Dynamic Efficiency):

….the most just society will be the society that most forcefully promotes the entrepreneurial creativity of all the human beings who compose it1.

But Professor Diamond is a little bit concerned that the environment for entrepreneurial dynamism is under assault in the US. It’s up to all of us to work hard to sustain the system. Professor Diamond lays out the threats under three headings.

Sustaining Innovative Dynamism Infographic

Click the image to view the full PDF.

Culture

The entrepreneurial culture would celebrate the contributions of its entrepreneurs to a better life for all: prosperity, comfort, efficiency, health, personal achievement, and the human augmentation that comes with technology. Our lives are not only more prosperous, but more productive and more enjoyable, longer and healthier, thanks to entrepreneurs.

Often when we do celebrate entrepreneurs, it’s one hand clapping. Bezos, Musk, Gates and Jobs and others are recognized, but also sometimes vilified, and often judged on whether they “give back” – as if there was some guilt about their incredible contributions to human well-being.

And, Professor Diamond points out, a truly entrepreneurial culture would celebrate the lives of meaning and purpose led by entrepreneurs on every scale, from small business to big business.

We can all participate by celebrating the heroic stories of the entrepreneurial life, telling them loud and often.

Institutions

Under this heading, Professor Diamond focuses on the law, private property and markets.

We can observe our legal institutions turning against entrepreneurs in the form of tort suits and punitive damages. Professor Diamond calls for reform to preclude unreasonable awards of damages, and points to examples where doing so has resulted in unleashing entrepreneurship (such as 7000 new doctor’s practices opened in Texas after a damages cap on malpractice cases was put in place).

Private property protection is fundamental to the economic freedom entrepreneurs exercise to bring the benefits of innovation to society. Government is always tempted to seize private property, and often succumbs to the temptation. We must publicize each instance and protest each time.

Markets are the institution that facilitate the entrepreneur’s presentation of new offerings, and the consumer’s freedom to choose from what’s on offer. We talked about matching venturesome consumers (early adopters) with venturesome entrepreneurs, and removing the barriers that often come between them (for example, in medical innovation markets).

Governance

At this point, Professor Diamond exhibits amplified animation, recognizing that government regulation is the greatest threat to entrepreneurship and innovative value creation on behalf of others. He’s angry. He discerns two types of anti-entrepreneur regulation. The first is regulation that is sourced in purportedly well-intentioned (but demonstrably wrong-headed) efforts to protect consumers or workers. Here, we must energetically point to the greater benefits that ensue from the exercise of economic freedom than from its constraint.

One particularly important example is medical innovation. Too often, the heroic efforts of medical entrepreneurs to alleviate pain and suffering are thwarted by FDA regulation.

The second kind of regulation is the overtly corrupt protection of industry incumbents and big business, lubricated by lobbying and political quid pro quos. Here, we must all be whistleblowers.

Key Takeaway

Maintain entrepreneurial energy at all times and spread it in all directions. Celebrate heroic stories at every scale. Educate the world on the ethical and moral superiority of the entrepreneurial society, as well as its prosperity and well-being. Denounce legal predators, regulation and protectionism. We must contribute to the development of the entrepreneurial culture, institutional framework and governance as much as we do to customer betterment.

Downloads & Extras

Sustaining Innovative Dynamism: Our E4E Knowledge Graphic

Entrepreneurial Stories For Young Socialists: Arthur Diamond tells Walt Disney’s story.

When New Yorkers Cheered The Wright Stuff: Arthur Diamond tells The Wright Brothers Story.

Openness To Creative Destruction: Sustaining Innovative Dynamism: Arthur Diamond’s book.

Visit Professor Diamond’s personal website and blog, and read his article on Innovation Unbound, which begins: Inventors and entrepreneurs are key drivers of innovations that result in improvement in human welfare.

31. Per Bylund on Big Data vs. Big Ideas

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Wouldn’t it be nice to predict the future? It’s tempting to reach for the analytical tools and big data sets that are newly available and for which big claims are made regarding their predictive capabilities. For entrepreneurs, small businesses and corporate innovation teams, rich qualitative data are far more relevant and collecting these data is far more productive. By this we mean talking to customers and potential customers, observing behaviors rather than collecting clickstream data, and immersing yourself in the unpredictable subjectivity of the consumer.

In this week’s Economics For Entrepreneurs podcast, Dr. Per Bylund analyzes what big data can and can’t do for entrepreneurs and the innovation process, and explains how qualitative data can generate big ideas for the future.

Key Takeaways and Actionable Insights

Predictive analytics can’t predict! That was Dr. Per Bylund’s provocative introduction to our discussion of the uses and drawbacks of big data in the context of the entrepreneurial mission.

The claims made on behalf of the analytical powers of big data may be exaggerated, and entrepreneurs should learn what they can and can not expect from the application of big data analytics to business. Otherwise there is the chance of both error and wasted spending on the tools of business intelligence. It’s important to distinguish between the different roles of multiple data types.

Big Data vs Big Ideas Chart

Click on the image to download the Big Data vs. Big Ideas PDF

Pattern recognition is not prediction. Dr Bylund contrasted what Big Data can and can’t do for entrepreneurs. He used an example of analytics predicting the outcomes of future NFL games. Here there are large sets of historical data on players, teams, plays and previous outcomes. There are limited potential outcomes (e.g. one team will win the game – there is no third team that will unexpectedly turn up to change the range of possible outcomes). The predictive analytics got the outcome right about 75% of the time. In a world of more open-ended results (e.g. predicting the outcome of a multi-team tournament), big data could be expected to be right fewer times. There is danger in over-reliance on the law of large numbers and tendencies like reversion to the mean. Pattern recognition from historical data sets (which is what big data does well) is not prediction.

In fact, in the world of economics and entrepreneurship, there is no prediction. Entrepreneurs deal with social phenomena that emerge from individuals’ actions and interactions, across billions and trillions of instances. Entrepreneurial outcomes depend on how people act, and how they act depends on their feelings, how they see the world (subjectivism) and what they feel like doing. We can’t know or predict that. There may be some general rules that apply in many cases (for example, raising prices rapidly and significantly in a competitive market will, all other things being equal, result in a reduced unit volume of sales). But those rules don’t predict the decisions of specific individuals in specific cases.

Mainstream economists and central planners long for a mechanistic world: turn a dial, get a result. But this approach is not valid. In the economy or any market, all variables are dependent on all other variables. Everything affects everything. The consequences of any action – like central bank interest rate tinkering – affect different people in different ways, and whoever is affected first or last will experience different consequences and react in different ways.

The core of the issue is that human behavior is unpredictable. Subjective choices can’t be predicted.

Prediction implies precision, and that’s not available.

Yet the entrepreneur must deal with the future. The entrepreneur seeks to produce a good or a service that consumers will consider valuable at some point in the future. Even if they tell you today that they will value your offering in the future, they may change their minds.

Is there any contribution that big data can make, any help that it can offer? We discussed these areas:

  • It’s hard to know what people might want in the future. But it might be possible to identify what specific people will not want, based on their past behaviors. Data can show you which purchases cluster together, and which don’t. Beef purchasers may also buy red wine. Vegans won’t buy beef. Facebook and other ad targeting tools (which use big data effectively) can help you avoid marketing beef to vegans or pasta to keto diet followers.
  • Data can sometimes detect dissatisfactions, which are the universal raw material for entrepreneurs.  Analysis of sentiments expressed in reviews can guide you in the right direction. Writing a negative review on Yelp or Trip Advisor is both a behavior and an expression of sentiment and data analytics can detect patterns here. But Dr.Bylund advises us that it can only provide a guide – there is no substitute for talking directly to consumers, human to human.
  • Data can help with segmentation. If you want to better understand a geographical market segment or a demographic segment or a behavioral segment, there are lots of data that can detect the differences between segments, and this can help you with targeting of communications (but not necessarily with the message).
  • Quantitative data can be combined with qualitative data to sharpen insights. Dr. Smita Bakshi, in our episode #24 described how analysis of student performance data (50% of computer science students don’t complete their first-year course) combined with personal discussions with students in class, delivered an empathic understanding of their struggles, from which her team developed a winning interactive learning tool for computer programming languages.

Sometimes an entrepreneur can skip the big data analytics, but never the empathic diagnosis. Entrepreneurship consists of understanding the mind of the consumer and understanding the economics of the marketplace. Where the market is heading and what will be in consumers’ minds in the future are more the realm of judgement than analytics.

Entrepreneurs behave differently than dig data-driven large corporates. They think harder about the customer, they study human motivation, they utilize the rich qualitative data that comes from talking to customers, and they concentrate their capital and resources on developing and extrapolating their customer understanding. They uncover subjective value – the value that only exists in the mind of the consumer. Imagination is the key to the future. Entrepreneurs try to succeed in bringing about that imagined future. Big data might help them avoid mistakes, but it’s impossible to rely on the past to produce the future.

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16. David Nordfors on the Huge Entrepreneurial Opportunity of the People-Centered Economy.

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David Nordfors is CEO and co-founder of IIIJ and the co-chair of the i4j – Innovation For Jobs – Summit together with Vint Cerf. He was previously co-founder and Executive Director of the Center for Innovation and Communication at Stanford University. He has served on World Economic Forum Global Agenda Councils and was one of the WEF Innovation 100 in 2009. Here are some highlights from our conversation.

Will technological innovation kill or create jobs?

It’s the wrong question. The right question is whether technology being used enough to innovate new ways of earning a living, to open new sources of income. The value proposition should be focused on the individual earner.

David predicts there is a huge opportunity for entrepreneurs to make people more valuable to each other.

He calls this idea The People Centered Economy. It’s a research project, a book, a Summit and discussion group, and an innovation idea. Or, rather, an idea for a solution. The problem to be addressed is the fear that technological automation will destroy jobs. David wants to make sure technological innovation makes people more valuable to each other. We’ve illustrated David’s People Centered Economy in an infographic for you to download and share – click here to download it.

In his view, this is a disruption of the conventional economic approach – which he calls the Task Centered Economy.

In the Task Centered Economy, producers pay workers to do tasks with little concern for making those people more valuable. If they can eliminate them through automation, they will. But on the other side of the economy, the consumption side, they want those people to buy the goods and services that are produced. Corporations are working hard to help people consume, but less hard to help them earn.

In the People Centered Economy, entrepreneurs will work hard to make individuals more valuable to each other.

Entrepreneurs are creative people who identify an unmet need felt by customers, and devise novel and profitable ways to meet that need. David says that the need among earners that is largely unmet is to “work with people you like, be valued by people you don’t know, in order to provide for people you love”. That’s a pretty good description of the collaborative entrepreneurial economy. Making people more valuable will be a new market for opportunity-seeking entrepreneurs. It may be one where entrepreneurs will be highly successful, because the difficulty for large corporations – who control much of the relevant technology – in switching to a PCE (people-centered economy) mode from a TCE (task-centered economy mode) is daunting for them.

David has developed a concept for the execution of PCE: Jobly.com.

In his book, David describes a conceptual platform called Jobly.com. On one side of the platform are earners. Jobly applies A.I. to assess everything about the individual that’s available to know – probably more than they know about themselves – to profile them and assess their talents. Those talents may be latent or hidden. As an example, he uses people with synesthesia. They combine senses in an unusual way, for example, seeing colors when hearing music or a person’s voice. There may be no obvious way this talent can be applied in the job market to earn money.

But what if Jobly could also use A.I. to ascertain what unmet job needs can be met by this unusual talent. For example, HR can be viewed as an industry with 95% failure rate – only 5% of people say they have a job that both fits them and is engaging. What if a synesthetic could identify people who are in the “wrong” jobs – hear a marketer who’s “green”, and would be better placed in a technology job – and thereby improve the performance of an HR department with their hidden skills?

Jobly would match hidden talents to unrealized job needs so that both the earner and the employer become more valuable. Jobly could find a person with talents they don’t know about, and introduce them to an organization to solve a problem the organization didn’t know it had, creating the perfect job for both the individual and the organization.

David’s imagination of the future is that a good economy will be defined as people finding valuable things for each other to do.

If people don’t find valuable things for each other to do, ultimately no-one does valuable things. Then we don’t have a very good economy. The customer is the earner. It’s the difference between EBay and Uber. EBay makes its sellers – earners – the most important people; they’re more important than buyers. Uber takes the opposite approach, making riders more important than drivers – and now drivers are dissatisfied because of eroding earning power. Uber may have to think about how to make its Drivers more valuable.

We’ve prepared a graphic to illustrate the evolution of the People-Centered Economy. We’d welcome any ideas you have regarding entrepreneurial initiatives to make people more valuable. Click here to download the graphic.

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PDF icon Download The People Centered Economy Graphic PDF (97 KB)

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