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58. John Cox: Facilitating Value Through Skilled Orchestration

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There’s a skill that can turn any individual entrepreneur or small business into a global powerhouse exhibiting the highest quality service levels to the most demanding customer base. That skill is orchestration. Listen to a master orchestrator, John Cox, share important lessons from his entrepreneurial journey on this week’s E4E Podcast.

Key Takeaways and Actionable Insights

Entrepreneurs make orchestration a value-producing service.

Entrepreneurs don’t necessarily need to own the capital and resources required to deliver value. What they do is organize capital in a new way to facilitate a new value experience for customers. They orchestrate capital, resources, people, skills and technologies. Their orchestration creates a unique combination of resources, uniquely applied for a highly valued customer experience.

First, the entrepreneur imagines the customer’s future experience and how they will value it.

Entrepreneurs create their own opportunities by imagining a future experience that customers will find valuable. John Cox, a tax accountant and lawyer, discovered in his client interactions that his customers had to deal with many different service providers when managing their own finances — investment advisors for stocks and bonds, investment funds for non-public investments, tax preparers, tax lawyers, contract lawyers, accountants, estate planners, and many more.

There were inefficiencies and frictions in these arrangements — time and money for the client to talk to the lawyer and accountant separately, and then for the lawyer to talk to the accountant before agreeing on a unified solution for the client. John imagined a future where there was a single point of contact with a better client experience at a faster speed and a lower cost.

Second, the entrepreneur orchestrates top providers in each field to efficiently channel their services through them as a single client contact point.

A single point of contact dedicated to the client’s needs can provide a singularly valuable benefit — quality, speed, efficiency, low cost and high trust all in one place. John’s deal with the provider orchestra was to bring customers, providing the players with a place to demonstrate their unique skills and contribution to the integrated offering, as well as a revenue stream at lower cost (no sales costs and lower overhead).

Relationship capital results in the customer getting an integrated, high-quality plan and good outcomes with an interface of both trust and convenience.

John brought relationship capital to the client solution in two ways. His clients knew him as a tax accountant and lawyer of high capability and trustworthiness, so that when he added new outside services to his offering, there were grounds for extending their trust. Second, he brought relationships with the outside service providers that the client did not have to develop and maintain themselves.

Better outcomes, lower cost and established trust — a valuable client experience.

Technology brings higher levels of integration to the orchestra.

In the earliest days of his orchestration of services, John was a leading edge user of technology. At the beginning, it was the new Digital Equipment Corporation (DEC) mini-computers and peripherals, of which John’s firm was one of the earliest users. Later, he networked many lawyers together on an Apple network — again, as one of the earliest such users. Today it’s the internet that provides the technical backbone for orchestration. Orchestrators are adept at employing the latest technology for managing distributed resources.

Customer value is enhanced even further when the orchestrator has skin in the game.

When John expanded his orchestrated offering to include private investments in apartment buildings he purchased, his client relationships were strengthened further by the “skin in the game” effect. Clients believe that when a provider’s own capital is at risk as well as theirs, there is an even greater focus on shared value.

Skin in the game is not mandatory for orchestrators, but it can be relationship-reinforcing in appropriate cases.

Entrepreneurs who excel at orchestration are systems thinkers.

Orchestrators assemble a system of services to deliver a unified client experience. Systems thinking requires understanding of what the client wants from the system (safe asset value growth, for example), how they want to interact with the system (one point of contact, unified reports, etc.) as well as which external services to include in the orchestration and how to be the conductor who gets them all working together in harmony.

In addition to assembling the orchestra, the orchestrator must be skilled in higher-level ecosystem thinking about the larger systems into which the orchestra must fit: prevailing financial systems, compliance systems, regulatory and reporting systems and so on.

Learn more about John’s Californians for Honest and Non-Partisan Government Effectiveness: Change-CA.org

Free Downloads & Extras

The Entrepreneurial Skill of Orchestration: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

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57. Per Bylund on Coronapreneurs: How Austrian Entrepreneurs Manage An Exogenous Shock To The System

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The coronavirus panic is an exogenous shock to the economic system. For entrepreneurs, the pathway to dealing with its consequences starts with systems thinking.

What’s the ecosystem in which you operate? How does your business fit in? How can you systematically adapt to the changes going on upstream, downstream and laterally? How can you contribute to system resilience? How can you tap your resources of adaptability, agility, and imagination? We talk with expert systems thinker Per Bylund on E4EPod.

Key Takeaways and Actionable Insights

Two methods of applying reason to the analysis of changing circumstances can be particularly helpful during cases of external, or exogenous, economic shock, such as the current coronavirus panic.

The first is thinking in terms of economic output. The second is systems thinking.

Applying these methods can help Austrian entrepreneurs to make sound decisions amidst the high-speed rate of change of economic conditions.

Coronapreneurship Cover Photo

1) Identify the ecosystem in which you operate and analyze expected changes in output. If you operate in the health care ecosystem, output can be expected to rise. More hospital beds in use, more cleaning services utilized, more deliveries to hospitals, additional workers hired. If you operate in the food and beverage ecosystem, output may stay the same but the location of consumption may shift, for example from bars and restaurants and company cafeterias to homes. If you work in the physical mobility ecosystem of cars, buses and planes, output can be expected to decline. In the digital mobility ecosystem of Slack and Zoom and webinars, it can be expected to increase.

Try to approximate the output potential of your ecosystem over the next few weeks.

2) Next, review the conditions in your own micro-system of suppliers, customers and support services (such as banks). Dr. Bylund advises us first to look upstream to suppliers and vendors. The key economic tools here are communication and information. They will not know your business needs in these changed circumstances unless you reach out to tell them. Call them on the phone, talk person-to-person, let them know what you expect and what you need. You’ll be reducing uncertainty for them and you’ll be strengthening your relationship and building trust, with beneficial long term consequences.

If supply might be interrupted, you will benefit from contingency planning which looks at all possible scenarios, which is a characteristic of the Austrian view of uncertainty. Dr. Bylund suggests we look at a worst-case scenario, a best-case scenario and one in the middle. This will narrow your uncertainty and the range of possible actions and make them more manageable.

3) Next, look downstream to customers and consumers. If you are a B2B entrepreneur, your customers are in the same position as you relative to your upstream suppliers. Talk to them, build relationships and find out their needs. How can you facilitate new value for them? Offer assistance. If you are able to help them with their cash flow or their inventory management or other aspects of their business, it’s an opportunity for long term business building. Extended terms, discounts and bonuses, if you can extend them, have the potential to pay back in the long term via loyalty and extended relationships.

For B2C businesses, the same mindset applies: how can you facilitate new value experiences under changed circumstances. Some of the same tools might apply, such as extended terms, discounts and savings. Or the answer might lie in new distribution methods, such as home delivery or curbside pick-up outside restaurants. Always keep the value process in mind: consumers still want value from you, but the way they experience that value may change.

Of course, in both cases, you must carefully manage your own cash flow, and this is a critical metric under these circumstances. Weak cash flows are the biggest small business killer.

4) Therefore, it also makes sense to look laterally across your ecosystem to collaborators and enablers like banks. Be clear with them what your requirements are, and make sure they communicate clearly to you what new facilities they are able to extend, both of their own volition and in response to new legislation coming from the Federal government. We Austrians are skeptical about government intervention in the economy at any time. However, it behooves all business owners and manages to be up-to-date in their knowledge of available assistance.

Read Dr. Bylund’s entrepreneur.com article on this subject here.

And download our knowledge graphic as a guide to your system thinking here.

Let us have your comments, suggestions and ideas on our Mises For Business LinkedIn page here.

Free Downloads & Extras

Coronapreneurship: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

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56. Steven Phelan on Building Trust and Exerting Control in Collaborative Business Relationships

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All business relationships have downside risk: your counterparty / partner / vendor / customer / investor may not perform as you expect or require. In today’s interconnected economy, more and more elements of your business model are provided by relationship partners. It’s wise to recognize downside risk potential and to know how to mitigate it.

Key Takeaways and Actionable Insights

There are two relevant types of risk to consider:

  1. Relational risk, sometimes thought of as character risk: that your business partner may not perform as you’ve agreed to because they are taking advantage of you in some way.
  2. Performance risk, sometimes thought of as competence risk: your business partner intends to perform as agreed, but is incapable of doing so for competence, capability or resource reasons.

For entrepreneurs, there are two levers for risk mitigation: trust and control.

Trust includes Goodwill Trust and Competence Trust — trusting your partner’s character and capabilities respectively.

Control includes output control, behavior control and social control.

Output control is generally thought of as setting measurable targets and monitoring performance relative to those targets. Did your partner meet the agreed-to sales targets in dollars or units? If they did not, they are not performing. This is a means of performance or output control.

Behavioral control focuses not on output but on behavioral inputs: did all the team members check in at 8am this morning as agreed? There is no guarantee that the desired behavior will lead to the desired output performance, but you think they are correlated and the behavioral commitment sends a signal of positive intent.

Social control is thought of as shared values and norms. If the collaborating teams or individuals have shared values and a highly-networked clan-like environment, they are more likely to have shared commitment to the goal.

Trust is much more positive for business relationships than control.

When people in business relationships exhibit integrity and good character, and perceive it and experience it in their collaborators, there is less need for output controls and behavioral controls. They’ll do the right thing without those controls in place.

From an economic point of view, trust reduces transaction costs — the cost of making sure that people are following agreements and doing what is expected of them.

Trust is a business competency.

Trust holds relationships together. For this reason, it is a business competency. It’s the kind of competency that fits well into the Austrian economics mindset: it’s a soft skill, not quantifiable, highly individualistic, with a significant moral component to it (doing the right thing).

Viewing trust as a business competency means that entrepreneurs are able to develop trust-building as a skill, one that can be reinforced and strengthened over time. It starts with an individual’s nature: you are someone who can be trusted. Such a nature attracts others who value it. Business speeds up, and runs more smoothly, with less need for high-litigation problem solving and more instances of viable handshake agreements. Start with your own character and seek to identify the same character type in those you deal with. There’s an element of Austrian subjectivism: there is no formula for “how I can trust someone”, but you can develop the skill over time, even learning from entrepreneurial error when you mistakenly trust someone who doesn’t deliver.

Trust is a value.

People want to feel trusted and seek relationships that feature trust. Trust is a business skill that’s as valuable to you as operational knowledge or financial expertise. Learn how to build and maintain trusted relationships with other stakeholders.

Trust is a resource.

Resource and competency are two sides of the same coin. Trust is a resource that fits into Austrian Capital Theory as an asset that generates revenue from customers. Think of relationship capital and social capital and the culture of the organization that generates trust as assets on the balance sheet, even if conventional accounting can not recognize them.

The 4 Cores Of Trust

In The Speed Of Trust: The One Thing That Changes Everything, Stephen M.R. Covey identified 4 cores of trust.

Integrity: Honesty — telling the truth and gaining credibility by doing so. Leaving no gap between what you say and what you do. Humility — being concerned about what is right and not just with being right. And the courage to do the right thing.

Intent: People judge you by your intent, which grows out of your character. If you “declare your intent” and your behaviors are consistent with your stated intent, people will trust you. Your motive is clear and honest, and your agenda is open.

Capabilities: Can you do what you say you intend to do? Do you exude confidence in your own capacity?

Results: What’s your track record? Do you take responsibility for results?

Integrity and Intent relate to character, capabilities and results relate to competence.

In a high trust relationship, everything speeds up. Trusting people give you the benefit of the doubt. Morale is high, people volunteer to go the extra mile, and they don’t resist changes you want to make. High trust liberates the relationship and its potential.

But don’t trust too much, or where it’s not justified.

In the long run, we all gain by trusting each other to give and not to take. But at the outset, you may not know if you are dealing with a taker or a giver. You should maintain a contingent element in your business relationships.

When you have many opportunities, you should be very intolerant of people who do not live up to their word. Do not be forgiving at all.

If you have fewer opportunities, maybe you have to be more tolerant of others doing the wrong thing and try to remedy the situation while maintaining the relationship. But giving people more than 2 or 3 chances to do the right thing is about the limit. Be willing to cut people off. Re-evaluate and measure the level of trust continuously. Be on guard especially at the earliest stages.

Trust-building Mechanisms

Trust in relationships is a business principle, and, as always, entrepreneurs need mechanisms to apply their principles effectively. Steve Phelan gave us the story of a large and successful General Contractor in the building industry. This GC put an enormous amount of time and effort into relationships with sub-contractors, so that there came to be tremendous trust between the parties. He would start them on small jobs, and gradually increase the size of the job in which they were invited to participate. At each escalation, the sub-contractor had the opportunity to prove that they could handle both the competence and character aspects of the relationship, as well as the capability and results aspects. Trust was built over time — a learning process for trust.

The same was true on the customer side. The General Contractor would decline to bid on very large jobs from a developer with whom he had not worked before. He would always start with a small commitment, and demonstrate mutual integrity and shared intent at that level, before proceeding to larger jobs.

Over time, as a result of this trust learning process, the General Contractor’s reputation and relationships became stronger and stronger, enabling smoother and more efficient operations in good times, and resiliency in downturns.

Summary

You can build trust in relationships and you can recover it. Don’t just think in terms of compliance, think about building a network of trust around you with customers, suppliers, employees, investors and partners. You can lower transaction costs and make your business run more efficiently. Make the investment to strengthen your capabilities in trust-building. Build a culture and a set of norms where people mange themselves and don’t have to be watched around the clock 24/7. Shape the organization you want to operate and live within for the rest of your life.

Free Downloads & Extras

Tools of the Value Learning Process: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

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51. David Rapp on Harnessing Accounting To Your Purpose

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Accounting is a tool for entrepreneurs to achieve their business goals. There are plenty of options for you in how you use it to serve your purpose. In this episode, Dr. David Rapp, who teaches Accounting and Management Control in the elite Grandes Ecoles system in France, takes us inside the “purpose orientation” approach to accounting.

Key Takeaways & Actionable Insights

When we asked international technology entrepreneur Paul Tenney (episode #49) about the pre-requisites to entrepreneurial business success, he said, “Learn accounting”.

Accounting – or economic calculation – is one of the four pillars of entrepreneurship. And when it’s viewed through Austrian eyes, it becomes a more powerful business tool than, perhaps, you might have realized.

Whether we are talking about retrospective accounting (P&L accounting and financial reporting) or commercial pre-calculation to plan future actions (management accounting or cost accounting), how you use the tool makes a difference to the results you get.

Dr. David Rapp is an international leader in the field of Accounting And Management Control, a subject he teaches at one of Europe’s top business schools. Below are some key takeaways from the podcast, and we’ve also compiled a Free PDF Download of Dr. David Rapp’s technical analysis of accounting from an Austrian Economics viewpoint.

Accounting is a means to help you achieve your desired ends – apply judgment when using the tool.

Austrian economics teaches us to subjectively choose goals and then select the best means to achieve those goals. Accounting is just another tool to help the entrepreneur. There are plenty of explicit and implicit options in how to use it. David calls this attitude “purpose orientation” – one of the most important aspects in the field of accounting. Any computation should be shaped by its underlying purpose.

Financial reporting is subject to local rules – but there are always options in applying them.

If the purpose is to pay as little tax as possible, for example, a firm may apply depreciation or amortization rules in such a way as to reduce taxable profits. If the purpose is to present the firm in the best possible light to secure external funding, the same rules might be applied in a different way to display a different calculation of profit. There are options available for valuation of assets and of inventory that can materially affect the balance sheet.

Entrepreneurs should be rigorous in ensuring that their own managerial accounting does not mislead them.

Some modern finance theories and models are unrealistic – such as the standardized Capital Asset Pricing Model and the Weighted Average Cost Of Capital approach. The entrepreneur’s task is to apply real world judgement in deciding on future actions. Austrian Economics guides us towards realism not models, and the insights from Austrian Economics are the best ones to integrate into managerial accounting.

Entrepreneurs should bear in mind core Austrian Economics principles to guide their options in accounting.

Dr. Rapp mentioned these principles:

  • Subjective value
  • The importance of opportunity costs
  • Distinguishing between value and price
  • Understanding that prices determine costs rather than vice versa,
  • Differentiating between uncertainty and risk

Does accounting send reliable signals of business health to the entrepreneur? Not necessarily. Entrepreneurs should be on their guard.

Dr. Rapp advises us that general guidance to the firm’s owners and management is not possible via accounting. Accounting is not neutral and not a perfect tool for measurement or reporting.  Again, the choice of reports comes down to the goal the entrepreneur is pursuing.

If the goal is a sale to an external buyer, then an accounting focus on EBIT might be the best channel for the most relevant business health monitoring. If the goal is external financing from a bank, a more appropriate signal might be found in a solvency measure such as debt-to-equity ratio.

Can accounting accommodate the Austrian Economics mandate for dynamic flexibility – continuous adjustment to changing customer preferences in the marketplace?

Yes says Dr Rapp: by emphasizing the P&L to reflect the profit-and-loss outcomes of entrepreneurial actions and to reflect how well changing allocation of resources serves customers. Sub-dividing accounts into shorter time periods and different lines of business can more accurately reflect the dynamism of a business. And extensive use of notes to accounts in reports can provide a qualitative flexibility in reporting.

Accounting plays a primary and noble role in the advance of civilization.

Our complex market economy could not have evolved without accounting. It’s an important part of the system that allocated capital to its highest and most profitable use. Accounting is not boring, dry or dispensable. Rather, it’s a mainstay of human progress.

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Accounting From An Austrian (Misesian) Perspective: Download HERE
Understanding The Mind of The Customer: Our Free E-Book

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48. Chris Casey’s Journey To A Distinctively Austrian Financial Services Business

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Learn how directly Austrian Economics can be applied in entrepreneurial business design. A creative founder of a financial services firm demonstrates to customers how an understanding of business cycle theory and monetary theory can be applied to investment portfolio design.

Key Takeaways & Actionable Insights

Chris Casey's Entrepreneurial Journey

Click to Download The Full Version

Innovation often emerges from the combination of existing components in new ways. 

In Chris’s case, the new combination was his knowledge of Austrian Economics – specifically Business Cycle Theory and Monetary Theory – and of Finance. He invested a great deal of time and effort in mastering both parts of this knowledge combination.

Chris Identified An Unmet Customer Need, A Dearth Of Available Solutions, And A Potential for Market Growth. 

There were a few – probably a very few – customers for a financial services offering designed with recognition of the relevant principles of Austrian economics in mind. But the fact that there was at least some customer need provided evidence of potential. Then external stimuli such as the 2008 financial crisis and the Ron Paul Presidential Campaigns caused a growth in demand.

A value proposition naturally emerged. 

For a narrow but highly receptive target audience, the value proposition that “Austrian Economics is vitally important to designing investment portfolios” proved to be very effective in generating a value anticipation.

Communication skill is a critical element. 

A value proposition doesn’t sell itself. Chris utilized – and continuously polished – his communications skills to help customers fully appreciate the direct link to their desired value: a feeling of improved financial security because the uncertainties identified by Austrian Economics are accounted for in portfolio design.

Chris’s implementation was consistent with the value proposition, and capable of delivering. 

In portfolio design, the product of Chris’s service firm, the inputs from business cycle theory and monetary theory are top-down elements. Chris added the bottom-up element of personalization of the design process to the individual customer. This is classical Austrian entrepreneurship: understand the customer’s needs, empathize with them, and customize the service so they feel individual satisfaction of idiosyncratic needs. In subjective value analysis, portfolio performance is not the sole criterion for the value experience. Customer feelings are far more significant.

Chris keeps an eye on the competitive frame of reference to maintain the uniqueness of his offering. 

Chris’s competition is not other investment advisors. It’s the general demeanor of Wall Street sales-focused firms. “Stay fully invested” and “Don’t try to time the market” are typical sales communications of these firms that don’t truly have customers’ best interests in mind. He can always utilize this contrast as a value frame of reference.

Chris’s success exemplifies the clarity that results from candid entrepreneurial self-assessment and the embrace of the entrepreneurial process. 

Self-assessment = In what field am I best resourced to enter and do business?

Entrepreneurial process = Identify opportunity by identifying customer dissatisfactions in that field.

Visit WindRock Wealth Management at https://windrockwealth.com

Free Downloads & Extras

Chris Casey’s Entrepreneurial Journey: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

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47. John Chisholm’s Tools And Techniques For Success In The Entrepreneurial Process

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In this episode, Hunter Hastings talks to John Chisholm, author of Unleash Your Inner Company: Use Passion And Perseverance To Build Your Ideal Business.

John is a very successful repeat entrepreneur (he founded and grew multiple businesses in multiple fields and had multiple successful exits). He looked back on his successes and formulated a 10-step process that all entrepreneurs can follow, with a full suite of tools we can all use.

This beats the business school case study method!

Key Takeaways & Actionable Insights

Entrepreneurship is a process. Taking this view enables successful navigation over time, whatever the interim ups and downs. 

Sometimes the process can feel like stumbling through a jungle, tripping over rocks and vines, always picking yourself up again and marching onwards. Don’t expect the process map you start with to be the one you continue with. Don’t plan too far ahead. Do be adaptive. Nonetheless, the process view is a source of support during the journey.

Processes require operating tools. John Chisholm’s toolset starts at Need and Advantage. 

“All you need is a Need and Advantage.”

Need = “A real, unsatisfied customer need in an area about which you are passionate.” 

He defines Need in an Austrian way: a subjective value sought or anticipated by a customer. He defines Customer as a living breathing person (or group of people, as with a corporate customer) rather than an abstract “market need”. Unsatisfied means that the need is not addressed by currently available products and services (requiring the entrepreneur to understand customer dissatisfaction). And Real means shared by a sufficient number of customers or sufficiently intense in one or more customers to make it worthy of you to satisfy. 
 
The entrepreneur must have an advantage for satisfying that need. John’s process is aimed at establishing and extending that advantage, in spite of the fact that existing businesses will have more and better resources than you.

John offers a 10-step process for entrepreneurs to follow. 

You’ll find John’s process pretty complete, cogent, and consistent with Austrianism. We didn’t cover every step of the process in the podcast, but we did pick out two tools and one principle.

Make a STARS inventory of your resources and strengths and turn them to your advantage. 

John recommends making and continuously updating an inventory of your individual strengths. The STARS acronym stands for Skills, Technologies that you know and can use, Assets and Achievements, Relationships and Reputation, and Inner Strengths. He has wise advice on each one of these subjects, and he suggests multiple uses for the completed STARS inventory:

  • Use it to assess the fit of your strengths with the customer needs you have identified.
  • Use it to identify strengths gaps you’ll need to fill.
  • Use it to build your own self-confidence (most people under-estimate their own strengths).
  • Use it to innovate by making new combinations by pairing STARS elements in new ways.

We provide a template with directional examples here. 

Map out a logical and sequential growth path with John’s “bowling pins” methodology. 

John’s advice is to avoid tackling too large a market and too large a target customer group at the outset. Focus on a best fit intersection between your resources and customer needs. Label it. Then identify the next most logical adjacent customer need you can fill, ideally leveraging your learning from the first market. Keep on building up the map of adjacent needs to fill. When you’ve got to 10, think of them as bowling pins. Knock them down one by one, starting with the first – that’s your early focus – and ultimately completing them all. That’s your vision – the largest set of customer needs you can possibly fill.

John calls this process Upsizing A Customer Need, and notes that this bowling pin strategy is particularly persuasive to venture capitalists – they like it that you are focused, and also that you have a map to growth.

We reproduce John’s bowling pin map here.

Make the most of limited resources: Different is better than better. 

How do you overcome the fact that existing businesses in a market you are trying to enter have greater resources than you? John’s answer: focus on being different rather than better. If you can identify how to be different – with a different solution, for a different target audience (even if it is small to begin with) you’ll evade competition.

John has additional advice about scalability, network effects, partnering and other tools for growth. Listen to the complete podcast for a rich reward of process tools and methods.

Free Downloads & Extras

STARS – Your Resources: Our Free E4E Knowledge Graphic
Upsizing A Customer Need: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

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