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The Value Creators Podcast Episode #4. Reza Farhani: Navigating the Future of Work: Insights on Culture, Communication, and Entrepreneurship

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Successful innovation is a combination of deep customer knowledge and deep technical knowledge. Both are critical, and it is the unique combination of them that becomes a marketplace advantage-serving customers by solving an important problem for them with a differentiated, preferred and technically superior approach.

Reza Farahani, the founder of WFHomie, is a data scientist, who, working at top global companies in tech and consulting, developed great insights into the way data can reveal human motivations and patterns in customer behavior. 

Equipped with deep technical knowledge in data science and analytics as well as deep customer knowledge, he speaks on how we can apply this to startups to solve new problems for our customers, create healthy and productive teams, and create real innovation.

Show Notes:

0:00 | Introduction

0:40 | Introducing guest: Reza Farahani

1:27 | The combination of customer & technical knowledge

2:01 | Becoming a Data Scientist

3:05 | Putting his expertise to work

4:42 | Creating Hypothesis

7:20 | Identifying Qualitative Data

9:01 | Understanding Teams

11:18 | Leap to Entrepreneurship

13:55 | Crumbling of Teams Due to Remote Work

16:18 | Metrics to Measure Performance

18:05 | Engagement with Employees

22:08 | Importance of Recognition

25:12 | Work Culture

28:42 | Future of Work

30:43 | Entrepreneurial experience

33:08 | Acknowledgement

Knowledge Capsule:

In a captivating conversation, Reza, an entrepreneur and former CEO of WF Homie, shares valuable insights on the future of work, with a specific focus on culture, communication, and entrepreneurship. This summary combines the key points from the conversation to provide a cohesive overview of the podcast.

Reza delves into the impact of remote work on culture and observes that the way people work together plays a pivotal role in shaping a company’s culture. He emphasizes that culture emerges from how people collaborate and align their efforts. While top-down vision from leaders is important, lateral communication and learning from peers also contribute significantly to shaping a cohesive culture. However, the shift to remote work has disrupted these communication channels, necessitating efforts to rebuild and strengthen them. Reza proposes that by fixing communication channels and ensuring effective asynchronous communication, a company can cultivate and maintain its desired culture even in a remote or hybrid work environment.

The conversation moves on to the significance of recognition and celebration within organizations. Reza highlights the lack of recognition as a common challenge in remote and hybrid teams. To address this, WF Homie developed tools like the Kudos app, enabling team members to easily send appreciation to their colleagues. Additionally, partnerships with companies providing physical gifts or gift cards were established to facilitate tangible recognition. By making recognition effortless and accessible, organizations can foster a positive culture where small wins are celebrated, leading to increased engagement and productivity.

Culture and communication are deeply intertwined, and Reza emphasizes the importance of effective communication channels within a company. He shares how WF Homie focused on improving communication to ensure the spread of cultural values. By enhancing communication between top management, employees, and lateral teams, companies can create a cohesive and aligned culture. Reza notes that creating an open and supportive communication environment is crucial, especially in remote or geographically distributed teams. Furthermore, the ability to measure communication and engagement through qualitative and quantitative data allows organizations to identify areas of improvement and take actionable steps to enhance the working experience.

Looking ahead, Reza discusses the role of AI in shaping the future of work. He highlights how AI tools act as equalizers in communication, assisting individuals who may struggle with effective communication. AI can provide support in areas such as documentation, improving productivity and output. While concerns about job displacement exist, Reza believes that AI enhances productivity and enables individuals to achieve higher output, leading to a positive impact on organizations.

The conversation concludes with a reflection on the entrepreneurial experience. Reza shares that being an entrepreneur has provided him with a sense of harmony between work and life, as he enjoys what he does. However, he acknowledges that the journey can be challenging and lonely, as entrepreneurs bear the weight of making tough decisions and carrying responsibilities. Despite the difficulties, the joy and fulfillment derived from building something valuable and appreciated by customers make the entrepreneurial journey worthwhile.

In summary, Reza’s insights shed light on the future of work, emphasizing the critical role of culture, communication, and entrepreneurship. By prioritizing effective communication channels, fostering recognition, and leveraging AI tools, organizations can adapt and thrive in the changing landscape of work. With a focus on creating a harmonious work-life balance, nurturing a positive culture, and embracing technological advancements, the future of work holds promising opportunities for both individuals and businesses.

209. Lipton Matthews: A 5-Way Global Perspective on Innovation and Entrepreneurship in the USA

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Entrepreneurship and innovation are the keys to economic growth and higher standards of living. The USA has long enjoyed leadership status on these dimensions — people see the USA as the land of entrepreneurs and the source of new ideas and advances in business. Is the reputation still deserved? Or is it being eclipsed as part of the general decline in standards and capabilities that we observe? Lipton Matthews is a global economic and geo-political analyst who brings deep knowledge and expertise to address our concerns.

Knowledge Capsule

Borrowing a framework from the Global Innovation Index published by the World Intellectual Property Organization, we can examine the state of entrepreneurship and innovation in the US relative to both other countries and its own history, under the headings of institutions, human capital and research, infrastructure, market sophistication and business sophistication.

Institutions: The private sector institutions of the USA continue to excel for entrepreneurship and innovation.

When we think of American institutions for the encouragement of entrepreneurship and innovation, we must examine private sector institutions, not those of government. Ordinary people in civil society build the institutions that promote innovation. Private scientific research is robust in responding to market signals of consumer and business needs. Financial institutions such as venture capital and angel investors support innovative development. Policymakers mistakenly believe they can conjure up a creative economy by fiat, but they’re wrong. It’s private institutions that support and cultivate innovation. Even if the public sector tries to encroach, the private sector maintains its innovative edge.

Professor Sam Gregg warned us recently that the United States of today more closely resembles a European social democracy than many Americans are willing to admit, but Lipton Matthews is confident that America is still winning the entrepreneurship contests because the forces of democratic socialism can’t overpower the higher-energy force of the private sector drive for creative innovation in return for market reward.

Human capital and research: The ability to execute overcomes any shortcomings in education.

If we look through the declinist lens, it’s easy to become gravely concerned about the state of education at all levels in the US, which directly impacts the development and deployment of what economists refer to as human capital. Do we under-allocate resources to teaching schoolkids business and entrepreneurship skills and tools, and at the college level, do we turn out too many English and philosophy grads compared to market needs, and not enough engineers and STEM grads?

Lipton Matthews cautions us against worrying about the wrong things. The educational qualifications of the products of American schools and universities matters less than their executional and implementational capabilities. America is a nation of do-ers, and that type of expertise is embedded and innate, from the time of the founding fathers and early immigrants who built the America economy. We prize innovators more than inventors — the ones who successfully turn ideas into marketable products and services. Entrepreneurship is action, and American business capitalizes the talent for execution, combining scientific learning with creative action to generate innovation. Executional capacity comes more from a market orientation than from formal learning.

A concern about the research component of the Global Innovation Index’s “human capital and research” classification is, perhaps, more justified. Government-directed research dominates formal research budgets — directed to fields such as climate change — for universities in the US, and the historical evidence is clear that this pool of research is inappropriate for the support of entrepreneurship, despite European aspirations to an entrepreneurial state. Brilliant scholars and researchers who could be entrepreneurs and innovators are diverted into unproductive activities.

It’s difficult to quantify private sector R&D; we must hope that it is sufficient to counter-balance the state’s diversion of research funds. In fact, Lipton Matthews points out, we must expect the state and innovators to be in competition. The former prefers control and stability versus the latter’s pursuit of disruption and change.

Infrastructure: Think local and regional, not national.

We are frequently presented with stories about the crumbling of US infrastructure. That’s the wrong level of focus, according to Lipton Matthews. First we should compare US infrastructure to other countries, where the quality of engineers and engineering may be lower, and so roads, bridges and communications networks are inherently superior in the US. Second, we should focus on infrastructure in our localities and regions. Local communities can manage infrastructure well in support of local businesses. Some towns and cities will have better-managed and better-maintained infrastructure than other parts of their state, and businesses will be attracted there.

Market sophistication: capital flowing to best entrepreneurial uses.

Lipton Matthews interprets the Global Innovation Index’s category of market sophistication to refer to the financing of startups, scale-ups and innovative entrepreneurial businesses. American deployment of venture capital and the widespread networked access to investment funds are examples of market sophistication in practice. Ordinary people can invest in startups and innovation, and entrepreneurs at every stage of their journey can arrange access to investors.

While these investment funding networks may not be perfect, and while we may encounter some challenges in moving capital to the bottom of the pyramid, nevertheless, the private financial sector in the US is effective in directing funds towards innovation. While there may be some erosion of purpose, from long term funding of innovation to making money via short term trading in-and-out of markets, this does not detract from America’s lead in market sophistication.

Business sophistication: The ability of business to absorb new knowledge and use it to innovate.

Bart Madden called knowledge-building proficiency the central differentiating function of the successful firm. Our businesses are learning machines, continuously generating new knowledge via R&D, marketplace experiments, interactions with customers and feedback from all business activities. While it’s possible that Americans might be eclipsed by some other countries in the race to produce patents, this is not a relevant measure. Marketplace innovation is the test of business sophistication, not patent registration. Knowledge accumulation must be accompanied by knowledge application.

America’s entrepreneurial nation of doers not only engages in eternal learning but in the adaptive entrepreneurial method of act-learn-improve. The rest of the world has not fully caught up.

Summary

In Lipton’s eyes, America was oriented for entrepreneurial success by the founding fathers and early immigrants, and will continue to innovate and grow as a result of entrepreneurship. Only if we get in our own way through excessive statism, regulation and government intervention that misdirects our energy and resources will we break the well-established historical track record.

Additional Resources

Global Innovation Index: Mises.org/E4B_209_Index

“For Now, Entrepreneurship And Innovation Still Hold A High Place In The USA” by Lipton Matthews: Mises.org/E4B_209_Article

208. Melissa Swift: Human Action To Build A Powerhouse Workplace

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What can economics tell us about designing fulfilling jobs and productive workplaces? Quite a lot if we apply the economics of subjective value and empathy. Melissa Swift is the author of Work Here Now: Think Like A Human And Build A Powerhouse Workplace. She discusses her research on the Economics For Business podcast.

Knowledge Capsule

Poorly designed jobs and workplaces are dangerous, dull, annoying, frustrating and/or confusing.

The results of academic research have confirmed how alienated many workers are from their jobs, and the trends in these findings are worsening, not improving. During the pandemic, many of us had the opportunity to stand back and survey this situation, and realize that it’s a problem that we need to address.

We can do better by applying Austrian economics principles of subjective value and empathy.

The economics of subjective value should point employers in the direction of asking how employees feel about their jobs and the sense of purpose and meaning they derive from them. Why do these considerations not arise, or why are they insufficiently acknowledged? Melissa Swift sees what she calls a wall between how human beings operate and how the world of work operates. We think in discrete terms about “work” on one hand, and “people” on another, and don’t integrate them well.

Managers have demonstrated a penchant for intensifying work (doing more in less time and with fewer resources) and for pressing for over-collaboration (too many reports, checkpoints, meetings and interactions and exchanges, and belonging to too many teams) with the ultimate result of detracting from an individual’s capacity to get things done. Managers don’t necessarily tie the design of work to impact delivered or value created.

In fact, much work is performative, putting on a display of work that is not necessarily productive (writing impeccable but essentially useless reports, for example).

Managers should be actively looking for and rooting out problems of bad jobs and poor work environments.

Melissa Swift’s formula is to be humble and curious in asking how work feels to those who are doing it. Employees know their work better than managers do (an observation which, of course, turns management science on its head).

There are a couple of “monsters” that can be identified and tamed. One is the anxiety monster – we all feel anxiety about whether we are productive enough, or doing good enough work, or being viewed in a favorable light. Anxious managers stand over people, telling them to work harder and faster. We must shut down all the anxious stories that are in our heads.

Employees can be over-anxious about customers, too. We may tend to over-deliver on customer care and customer expectations, to the point where we train them to be so demanding that they go beyond the point where the corporation is capable of fulfilling its own promises.

Once “monster” jobs — those that generate excess anxiety — are established, there’s a tendency for the HR “copy machine” to copy-paste them throughout the company, so that more employees become stressed.

Listening for job stress and devising better ways of working is an entrepreneurial task.

The entrepreneurial mindset is to listen to customers (in this case, job incumbents), to identify unmet needs, which are aways based on emotion and can never be articulated perfectly clearly, to creatively design new solutions to the customer’s felt problem, and to institute positive change using the new solution. This implies continuous adaptive change in job descriptions, performance expectations, structures, team and tasks.

The entrepreneurial approach is often hard to apply in the corporation. One reason is that incentives are lined up to favor what Melissa Swift calls “smooth”. Management incentive schemes are often designed to encourage “smooth” — no drastic changes or turns, steady progress. Yet the adaptive entrepreneurial system does not promise smooth, and can’t delver it. Innovation in response to changes in customer preferences or competition can be bumpy. And many organizations suffer from autoimmune disease — the defenses go up as soon as something unknown or unprecedented is encountered.

Good leadership can counter the auto-immune response — but it’s leadership that does less rather than more, relaxing constraints and letting those closest to customers and markets to make any needed adjustments and to respond at the rate of change that the market demands. Business school concepts of leadership have goaded executives into over-managing and over-controlling, and reversing the over-active concept of leadership is one of Melissa Swifts core prescriptions.

The HR Department is a big part of the problem.

The deep history of HR is dark. The function was founded to quell violence between labor and management. HR was to stand in the middle and to keep a lid on a boiling pot, as Melissa picturesquely expressed it. Performance management — mechanically measuring humans’ output in these toxic adversarial environments — was never a warm or supportive concept. As big business became more centralized, HR simply became more empowered and widened its scope. There was never much humanism in HR.

HR departments are not typically thinking about work and how work is changing and how to make it a better experience for people. If they were, they’d be thinking differently about matching talent to jobs, thinking more deeply about how alienating and constraining automation technology can be to those who have to use it. They know they are being monitored and measured and assessed.

Melissa recommends couples therapy for technology and those who work with it — to stop each party from driving the other crazy.

Asynchronous work, deconstructed work, transparent work.

Melissa’s book has 90 strategies for organizational level and team level problem solving actions and adjustments. We discussed three directions for better work.

Asynchronous work: fewer meetings, which provides greater flexibility for workers, it naturally de-intensifies (you don’t have to have the report ready for the regularly scheduled Thursday meeting), and it makes for more relaxed collaboration across time zones. Asynchronous work tends to be better documented and more permanent.

Deconstructed work: start with tasks to be done rather than job descriptions; assemble the optimum combination of humans and technology to get the tasks done; let talent flow to the work, i.e., it doesn’t matter if it is full time employees, part-timers, project specialists or gig workers or agencies or consultants doing the work, so long as the tasks get done by the best-qualified talent.

Transparent work: make all information available to all employees at all times, nothing hidden or out-of-bounds. As a result, employees and teams have all the information they need to do their jobs, with no need for hierarchical or administrative intervention. Accountability and empowerment are enhanced, and new talent may emerge when you don’t hire for information but for skill in using it.

Additional Resources

Work Here Now: Think Like A Human And Build A Powerhouse Workplace by Melissa Swift: Mises.org/E4B_208_Book1

Bullshit Jobs: A Theory by David Graeber: Mises.org/E4B_208_Book2

201. Trini Amador: How Gracianna Became The Most Awarded Winery

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It’s the ambition of every entrepreneurial business to advance from a standing start to customer—recognized leadership in its chosen field. It’s achievable, even without breakthrough technology and venture capital financing. Trini Amador’s Gracianna Winery is one of our Economics For Business entrepreneurial businesses of the year for 2022 for precisely such a journey story. Trini joins us to review the principles, processes and programs that are driving success.

Knowledge Capsule

Gracianna is the most awarded winery.

Metrics of success can vary across categories and industries. In the wine industry, awards presented in tastings conducted by prestigious panels and arbiters are important signals to customers. In a recent period, Gracianna winery, a small craft producer in the highly competitive Russian River wine area of Sonoma County, California, has become the most awarded in its class. And since that class is, by the owner’s choice, world-class — the best-of-the-best — the achievement is elevated to the highest possible level. Examples of the awards won include gold medals at the Sommeliers Choice Awards and the Sunset International Wine Competition, and double gold at the Los Angeles International Wine Competition. More awards are listed at Gracianna.com/Awards

Gracianna winery has also won hospitality awards for its tours and wine tastings, including a #1 position on TripAdvisor for Things To Do In Healdsburg, CA (out of 117 competing alternatives).

Everything begins with a commitment to understanding customer needs.

Trini and his family set themselves a goal of making a mark as a world class winery. They’ve certainly done that. How? Trini Amador is an entrepreneur in the Austrian tradition: the entire journey starts with deep understanding of customers and their needs. Who are the people who enjoy world class wines and associated experiences, and why do they choose to participate in this industry as consumers? What kind of experiences do they seek? How do they want to feel about those experiences?

Why do they undertake travel to visit different wineries? Why do they choose California, and Sonoma County and the Westside Highway in the Russian River Valley? How do they like to buy online? Why do they join wine clubs? All of these choices are emotionally driven — the answers lie in the heart and not the data.

Becoming a world class winery is a direction of travel, and the destination becomes clear with more and more learning about customers and their needs, wants and preferences. Brand vision is integrated with customer understanding and empathy.

Focus and feedback can take a brand to the top.

Trini describes his company and his team as obsessively focused on customers. As they collect more and more customer knowledge via more and more interactions, the better they get at serving customer needs.

There are really only two I techniques: listen and observe. Since the Gracianna experience includes onsite tastings and tours, the Gracianna team can meet customers face to face and listen for their responses, preferences and hopes. And since all Gracianna wine is sold direct via the internet, butting activity can be observed directly. The requisite business skill is always to pay attention for signals, and always attend to the feedback that results from interaction. All guests are self—selecting themselves to be part of the Gracianna story. They’ve chosen the relationship. Gleaning the motivation behind their doing so is the goal of the marketing team.

Consistent, precise execution is more important than strategy.

Once the brand’s direction is set, and an initial understand of customers is established, then execution takes over. Execution is a daily discipline, and the power tool is consistency: establishing a high standard and maintaining it in every action.

It’s perfectly possible to build a brand this way. Trini likened his approach to building a bird’s next — one twig at a time. Every act of execution, every customer service interaction, every e—mail and every tasting service is another twig added to a perfectly shaped, ultra—strong construction. Small brands can claim ownership of an equity this way (such as “best tasting room experience” on TripAdvisor) without expensive investment in communications; just execute, execute, execute. Let employees on the team exercise both their responsibility and their creativity in precision execution. Always aim for effectiveness (the best possible execution) rather than efficiency (the lowest cost or least—resource execution).

The best kind of planning is contingency planning to establish a prepared adaptiveness.

Wine is, at its fundamental level, an agricultural business. Trini calls it rhythmic — grow, harvest, make wine, store wine, release a vintage. No two growing seasons are ever alike. In addition, there can be crises — excess rain, floods, unusual growing temperatures, fires, pests. The best way to deal with these variations is contingency planning, i.e., imagining all the things that could go wrong and having a set of actions in mind if they do.

Adaptiveness is a core attribute for all entrepreneurs, and is especially applicable in wine. Explore and expand is an orientation that fully applies — once the curves that nature throws have been negotiated.

The greatest entrepreneurial attribute is courage.

In face of all the challenges and amidst all the uncertainty of an entrepreneurial business, Trini maintains that the key to a successful outcome is not so much strategy as courage. Make the best decisions you possibly can based on understanding customer needs, and then have the courage to act on the decision. The action generates interaction, which results in feedback, which provides the knowledge and energy for the next decision and next action.

Courage is the entrepreneur’s best business tool.

Additional Resources

“Gracianna: Award Winning Winemaking and Entrepreneurship” (video): Mises.org/E4B_201_Video

Gracianna.com

Lisa Amador’s Cookbook, Comfort! A Gracianna Member-Inspired Cookbook: Mises.org/E4B_201_Cookbook

Trini Amador’s “Brand Uniqueness Blueprint” (PDF): Mises.org/E4B_201_PDF

192. Mark McGrath on Orientation and the Adaptive Entrepreneurial Method

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When firms apply the principles of Austrian economics to business management, we call the result the Adaptive Entrepreneurial Method. It’s adaptive in that it is a continuous learning process, and it’s entrepreneurial in elevating customer value realization as the most important business purpose.

Key Takeaways and Actionable Insights.

The Adaptive Entrepreneurial Business Method

Businesses that follow the adaptive entrepreneurial method put customer value first.

Value in Austrian economics is customer value: contributing to customers’ feelings of being better off as a result of the interaction with an entrepreneurial business or service provider. A useful way to think about value is in terms of alignment and order. A value exchange is a harmonious alignment between customer and entrepreneur, in which both parties benefit and both parties’ interests are served. Order is represented by the customer’s decision, a point of clarity in a world of multiple choices, overlapping preferences and broad-based uncertainty.

Entrepreneurial businesses make value their purpose and identify it in alignment and harmony with customers. Everything else — cash flow, profits, growth — follows.

Entrepreneurial orientation enables the right interpretation of data and information for customer value realization.

Mark McGrath emphasizes the powerful role of entrepreneurial orientation in business success. Orientation is a mindset — a kind of internal operating system — that guides firms to translate information from customers, partners, competitors and the market into an effective, winning vision and mission.

The essence of orientation is learning. Uncertainty is assumed, and orientation is the unique set of filters through which entrepreneurs and management teams process the quantitative and qualitative data that customers and markets present. Mises called it economic calculation: the entrepreneurial capacity for combining a constantly changing stream of information into a business decision. The decisions are always reviewable and revisable; a learning mindset makes entrepreneurs comfortable with frequent decision changes in response to changing information and feedback. Principles — such as the primacy of customer value — remain the same; it’s actions that are adjusted.

Businesses that don’t learn can get locked into models that no longer reflect the realities of the marketplace, and lose their effectiveness.

People, ideas, and things.

Learning, adapting, and changing are difficult capabilities to master. Continuous change can feel disorienting absent the right mindset. How do companies achieve this mastery? Mark McGrath quotes Joh Boyd on the eternal verity of people, ideas, and things — always in that order.

The first critical component are the people engaged in and operating the business. They must be good at change, comfortable with constant flux. They must accept VUCA — volatility, uncertainty, complexity, and ambiguity — as the normal condition. At the same time, management must be conscious of how each new change or wave of change impacts people, and anticipates the effect it will have on them.

In this change-accepting environment, unlimited new ideas can emerge via the creative process. They can be tested, and marketplace results become the yardstick. When new ideas look promising in terms of the results they potentially enable, then things can be changed: capital can be redeployed in new combinations, marketing campaigns can be revised. When people are pre-prepared, smooth transitions are achievable.

Continuous Reorientation And Entrepreneurial Intent.

While entrepreneurial orientation is the firm’s operating system for processing information, it is not fixed. Adaptive firms are continuously reorienting, Active reorientation supports learning, recognizing that all perceptual models are only as good as the moment they were developed. They must be renewed to stay relevant. Challenging assumptions and reframing problems must be continuous in order for firms to thrive and use change to advantage. Effective orientation looks to the future rather than the present, emphasizing agility and avoiding clinging to outdated models.

Reorientation precedes intent and reshapes it. Entrepreneurial intent can be equated to what systems thinkers call vision. A vision is shared and provides a North Star for everyone in the firm, but that doesn’t preclude adjustment in continuous alignment with customers. The vision is to serve customers, and customers are also changing and adjusting. Thinking in terms of intent (rather than, say, implementing a rigid plan) permits greater flexibility in pursuit of the vision.

Entrepreneurial judgment is decision and action.

The theory of entrepreneurship emphasizes judgment — that mysterious-sounding capability of entrepreneurs to make economic calculations from a mix of data and intuition. That can sound like a kind of mulling over of options. But it’s much more active than that. The entrepreneurial method emphasizes deciding and acting. Decisions are recognized as hypotheses; it’s impossible to know exactly what to do, so action-oriented develop hypotheses about what actions could have the effect they desire. The hypotheses are carefully aligned with their intent in order to double-check the logic as far as possible. But the purpose is not to be “right” but to generate feedback information so that alignment can be better informed by reality.

Action — the implementation of decisions — is an experiment, a test of the hypothesis. Action produces interaction (with customers, with retailers, with competitors, with the changing market environment) and thereby provides new information in the form of feedback, which might indicate the need to change actions next time.

The number of hypotheses and tests can be narrowed; what’s important is that they reflect as wide a range of perspectives as possible — from those at the front line interacting with customers, whether in person or at the call center or online, from engineers and operatives, from finance and HR, and from all relevant points of view. The more diverse the range of perspectives, the more likely it is that different angles of view will provide new insights and illuminate blind spots. Make sure that internal communications are organized so as to make it possible for all perspectives — including dissenting Cassandras – to be recognized and acknowledged.

Candid self-assessment of people in business leadership roles is a good place to start the adaptive entrepreneurial journey.

Some elements of the adaptive entrepreneurial model require the discarding of standard ways of managing. For example, many businesses spend considerable time and effort developing plans that lock in budgets and resource allocations, and don’t make allowance for constant adjustment and change. It’s useful to take inventory of these practices and question whether they can be abandoned or reformed in pursuit of agility.

Additional Resources

The “Adaptive Entrepreneurial Method” Graphic (PDF): Mises.org/E4B_192_PDF1

“Destruction and Creation” by John Boyd (PDF): Mises.org/E4B_192_PDF2

Mark J. McGrath on LinkedIn: Mises.org/E4B_192_LinkedIn

“Orientation: Bridging The Gap In The Austrian Theory of Entrepreneurship” (AERC 2022) by Mark J. McGrath and Hunter Hastings (PDF): Mises.org/E4B_192_PDF3

191. Allen Mendenhall: Putting Humanness and Ethics Back Into Business Economics

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We are living through a particularly bad moment in history for free markets and capitalism. Government, not business, is promoted as the solution to all problems. Young people have never known any other environment, and one of the consequences is the skepticism about capitalism that they learn in school, college, and university. One solution to this problem lies in better business education — shaping how young minds think about business by shedding light on the social and individual benefits of capitalism that might otherwise be deliberately shadowed by misinformation and misdirection.

Allen Mendenhall is leading the way with a new business curriculum at Troy University.

Key Takeaways and Actionable Insights

There are unmerited concerns among young people today about the ethics of capitalism and business.

Business is too often cast as the “bad guy” in the movie of life. Business is portrayed as exploitative and greedy, and businesspeople as self-serving. Historical scandals like Enron and WorldCom are cited as case studies. But this presentation is a caricature; there’s no evidence to support it. Business is the essential component of the capitalist system that has raised standards of living and quality of life all over the globe and especially in the West, where markets are somewhat freer.

Business didn’t have the same bad rap in the past. In the nineteenth century, there was a great celebration of the civilization-advancing commercial republic powered by the protestant work ethic. The image of the businessperson was a positive trope — it was a good role to be a businessperson creating value for others. Businesspeople were the good guys. They innovated, collaborated and served. We’ve lost that imagery.

A lot of the unmerited concern emanates from educational institutions, especially universities.

Who is teaching young Americans to be skeptical about capitalism and business? A large portion of the blame goes to educational institutions, and especially universities. There’s an anti-business and anti-capitalism bias among the teaching profession in higher education that is communicated to students.

In this academic anti-business campaign, there’s a special role for economists, who have dehumanized economics by trying to make it a mathematical science. All their equations and computer models have the effect of taking humanness — the role of subjectivism, individual preference, and individualized emotion — out of economics. They try to reduce human behavior to a predictive data-driven algorithm.

The heritage of economics is humanizing.

The mathematical approach to economics is not the tradition of the Austrian school approach, which embraces a humanizing perspective. Commerce cultivates virtue; the pursuit of honorable profit leads businesses to act with good faith and integrity in joining with partners to produce products and services that are valued and welcomed by customers because they serve their ends in their search for betterment in their lives.

The concept of honorable profit is often alien to students, and requires new learning: that profit is an emergent result of all the detailed interactions of individuals in a market, sending price signals to producers to indicate what society wants them to produce. Profit is a result of these signals indicating that society wants the producers to continue offering their goods and services.

Understanding value is central to understanding the ethics of capitalism.

The emergence of profit is an outcome of the generation of value for customers. Value is central to the ethics of business, and Professor Mendenhall’s new course at Troy University places it squarely in the center. Value is subjectively determined by the customer, and the purpose of business is to help them realize the value they seek with the right products and services responsive to their wants, preferences and goals.

But here’s where the plot twists. The big corporate business community — representing less than 1% of businesses by count but the biggest proportion of GDP by dollar revenues – has been incentivized by Wall Street to pursue shareholder value (goosing stock prices) and stakeholder value (the diversion of value away from customers in favor of non-customer interest groups). Value for customers and even profit now takes a back seat to supposedly serving constituencies such as climate activists, victim groups, and, of course, government. Stakeholder value can act as cover for the CEO who fails to generate profit: they can claim to be focused on socially more important things.

The generation of value for customers, guided by the confirmation signal of profit, is no longer primary — except in Professor Mendenhall’s Troy University curriculum.

The perspective of entrepreneurship can help students appreciate ethical business.

While young people express disdain and distrust for capitalism, they often have a more positive attitude about the concept of entrepreneurship. They realize that entrepreneurs are problem solvers, and that they add value to people’s lives. People benefit from the risks entrepreneurs take and the personal sacrifice they make. Entrepreneurial innovation makes lives better.

Students appreciate this, and can even identify some corporate CEO’s to whom they are willing to grant ethical approval — individuals such as John Mackey or Richard Branson. And many young people see entrepreneurship as aspirational — they want to start their own businesses and make a lot of money (i.e., profit!). Looking at business from an entrepreneurial perspective generates more positive attitudes, and we can show that all businesses started entrepreneurially, and are sustained by their continuing entrepreneurial performance, i.e., profitably delivering value for customers. If there are questions about corporate ethics, they relate to their non-entrepreneurial functions — such as HR (whence a lot of corporate wokeness emanates), legal (the people who write the opaque and deceptive terms and conditions that justify surveillance), finance (directing activities like stock buybacks that divert value from customers), and compliance (keeping corporations closer to government and more distant from markets).

Part of Allen’s approach to his students is to teach the entrepreneurial mindset — not just for business, but for life in general. He calls it “unleashing the inner entrepreneur” and includes what he calls “the economics of your dreams”, the secret of win-win, the creativity of the market, the entrepreneurial principles of career building, starting a profitable business, and character and leadership.

He also covers personal finance skills — developing knowledge of stocks and bonds and mutual funds and other financial instruments, insurance, retirement planning (even at age 18!), investing, spending, and, of course, personal management of student loans. It’s the entrepreneurial approach to life.

We should develop a new value proposition for business schools as humanness schools.

Business schools today are part of the problem. They don’t focus enough on how business can be the catalyst for positive change. They should be committed to solving problems affecting not just business, but humanity as a whole. But reading business school leaders’ and graduates’ speeches and their books demonstrates that they’re not trying to help humanity as a whole but a few selected businesses and a few particular industries. They’re not dedicated to helping ordinary people, as they should be.

Allen’s new curriculum aims to redress that imbalance.

Additional Resources

AllenMendenhall.com

“Corporate Wokeness Hurts The Groups It Purports To Help” (AEIR) by Allen Mendhall: Mises.org/E4B_191_Article1

“Troy professor: Students ‘very enthusiastic’ over anti-woke business scholars program” (Yellowhammer News) by Dylan Smith: Mises.org/E4B_191_Article2

Allen Mendenhall on Fox Business—”Ending Wokeism in the Corporate World”: Mises.org/E4B_191_TV