Posts

171. Ben Ford on Situational Awareness and Managing for Constant Change

/0 Comments/in /by

How do businesses actually manage — rather than plan for — continuous change?

The increasing adoption of systems thinking in business tells us that the world is changing very fast, and companies need to change at least as fast as their environment in order to thrive. It’s comfortable to talk about but hard and uncomfortable to do. Most people prefer to continue to do what they’re used to rather than embrace change and constant experimentation.

There’s a lot to be learned from the military where special forces are trained to specialize in rapid reaction in chaotic or VUCA (volatile, uncertain, complex and ambiguous) worlds. They face an ever-changing environment (often described as kinetic). They have a very pure evolutionary process: what wins, survives. While the military organization is hierarchical, military operations are flat so that tactical decisions can be made by the people on the ground.

While we are anti-war, we can nevertheless recognize that the military has experience and expertise in managing and organizing for continuous change. We can learn from it.

There are significant barriers to overcome to implement rapid change management in business.

Certainly, the time scales are different. Companies change at an intergenerational pace, one generation of managers (or managerial techniques) learning from the last one. In hierarchical organizations, people reach managerial and executive positions by accumulating experience. By the time they get to their high position in the hierarchy, they have locked in an old mental model. They miss the signals of change and fall back on preconceived ideas and notions and methods.

In addition, there is considerable inertia to overcome — a resistance to change that acts as a blocker to agility. It’s human nature to resist change. Once a company has established a niche or a market share, it’s genuinely hard to abandon the strategy or the tooling or the products and services and the marketing that got them there.

To put it in military terms, change is a constant battle.

Situational awareness is a set of tools that are transferable from military to business to improve management of change.

Situational awareness governs how well your understanding of the world maps to reality. It operates along two perspectives and 3 time frames.

Internal situational awareness concerns the orientation of your firm, resources, capacity, the capabilities of your team, morale and so on. External situational awareness concerns markets, competitors, customers, trends, technologies, and all the environmental factors that are subject to change.

The three timeframes in military terminology are tactical, operational, and strategic.

The tactical timeframe concerns people on the ground in contact with the environment. In business, this can be the sales team or customer service or engineers in direct contact with customers. They’re doing implementation work but they are also the sensing mechanism. They may have daily or even hourly cycles for intention to change, making the change, learning from the consequences of the change and moving forward to the next change. They must be empowered, trained and equipped, and confident about their freedom of action and adaptation.

The strategic timeframe is the macroeconomic scale of what the firm is trying to achieve for the customer. This frame may be months or years, and dictates how to organize, how to invest, and where to allocate resources.

The operational timeframe is between the other two. How does the firm integrate short term implementational excellence with long term strategic engagement with a changing environment? How does the firm integrate all the hourly and daily information coming from the front line with the long-term investments and resource allocation projects? In a software business for example, there may be a trade-off between building new tooling, which takes time, and rapidly delivering products from established tooling.

How to apply situational awareness.

Actively use the 6-box framework (internal /external perspectives, tactical/ operational/ strategic timeframes.

To achieve better alignment of internal / external timeframes, look for mismatches across boundaries in the firm. Do the people working on the front line have the same understanding of the importance of the work as the managers and executives. Does getting thing done seem more difficult than it should be? Are the feedback loops fast? Is the information in the feedback loops spread throughout the firm, through multiple teams, divisions and silos? What’s the gap between perceived ideals and actual experience?

To implement across three time frames is an exercise in portfolio balancing and active discovery, with a high premium on sensing skills.

How much time and resource effort should a firm spend on refining its tooling (the operational timeframe) so that every produced end-product is exactly the same (the tactical timeframe) while keeping an eye out for environmental change, when a future competitor might introduce a faster cheaper product (the strategic timeframe)?

As Austrian economics always stresses, there’s no objective answer, just subjective learning from experience. For example, Netflix was part of the strategic timeframe that Blockbuster failed to manage. Blockbuster was operating its stores in a proven fashion (tactical) and adding new stores (operational), while rejecting the implications of the Netflix model. Today (May 2021), Netflix shows signs of missing some strategic signals. They made content their focus (tactical) and built original production capability (operational) but may be finding that customer tastes are changing and the appeal of their produced content is in decline (strategic).

Similarly, for the last few years, funding has been easy for startups (tactical) and so they have focused on long term market development (strategic) without hitting profit and cash flow milestones (operational). Now that funding is drying up, they are having to shore up their operational capabilities.

There are a couple of techniques that are helpful. One is Horizon Scanning: allocating some resources to identifying and picking out future external scenarios that represent potential change or strategic threats and building a response in advance. Another is red team thinking: mapping out future internal failure modes and then working backwards from them to identify the trip wires to look out for, and to nip emerging issues in the bud.

The after-action review (AAR) is an important element of situational awareness.

The AAR is applied not just in the military but in fast change business environments such as agile software development. It’s a tool to separate the quality of the decision you made from the outcome of the action that you took. We tend to get attached to our decisions, even if they were based on poor principles.

The components of an AAR include:

  • What was expected to happen?
  • What actually happened?
  • What went well and why?
  • What can be improved and how?

The discussion must be open and honest without hierarchy or blame. As far as possible, everyone on the team should participate so that all perspectives can be included. The focus is on results and identification of ways to sustain what was done well as well as the development of recommendations on ways to overcome obstacles. It’s really important to identify with high fidelity what happened because only then is there a good chance to identify new opportunities or trends with equal fidelity. In situations of uncertainty, it’s important to identify “what happened” accurately, in order to be able to identify what it means and what it implies for future actions.

AAR becomes part of disciplined execution.

The Economics For Business community is familiar with the explore/expand method of managing business complexity: explore many options through experimentation and expand (by allocating more resources) those that show good results. Annika Steiber in episode 170 called this capability “ambidexterity” — combining two logics of business in consistent and reliable execution on one hand and openness to change and exploration on the other.

Ben expands this thinking into the concept of disciplined execution. Once a process is proven and is producing reliable results, map it out carefully and then take individual steps or parts of the process and see if they can be further improved, e.g., by automation, without changing the outputs. Processes thus become more resource efficient in producing their output. Always be trying to improve what you already do well.

Similarly, once an “explore” project starts to become productive, apply the same continuous improvement standard. Map the process, examine parts that can be improved, and do so part by part so production is maintained and efficiency is increased.

All of this change dynamic should be driven from the bottom up.

Process improvements, fast responses to feedback loops, experimentation and rapid change are all insurgencies — the established hierarchy and mental models will often find them hard to embrace. Insurgency is a bottom-up dynamic. When transformation is pushed from the top down, it often happens that the territory changes before the consultants have drawn the new map. The hierarchy’s role is to provide strong alignment with the orientation of the firm and its culture and vision-mission, alongside loose control of front-line action.

Additional Resources

“Apply Situational Awareness To Manage Change” (PDF): Download PDF

Ben Ford’s website, where you’ll find his Mission Control services: MissionCtrl.dev

Ben Ford’s LinkedIn page, with a lot of presentations and recordings to learn from: Visit LinkedIn

170. Annika Steiber: Rendanheyi is the Most Radically Disruptive Organizational Innovation

/0 Comments/in /by

Innovation in organization is at least equal in importance to technological innovation and product / service innovation. It tends to get less attention, which is a great opportunity for imaginative entrepreneurs to implement change for competitive advantage. Dr. Annika Steiber has studied organizational innovation for over twenty years and is a global authority. She shares her insights with Economics For Business, including her analysis of the most dramatic organizational innovation of all, Rendanheyi.

Professor Steiber’s most recent book is Leadership For A Digital World, and is her most comprehensive guide yet for business management in the digital age. She’s the author of eleven books, including The Google Model and The Silicon Valley Model.

Her Menlo College Rendanheyi Silicon Valley webinars are available at Menlo.edu/Webinars.

Key Takeaways and Actionable Insights

Organizational innovation doesn’t get the attention it merits, even though it can contribute greatly to customer value generation.

Innovation thinking tends to focus on technology innovation and product/service innovation, with the definition of innovation as the successful introduction of new customer value to markets. Organizational innovation is not often seen through that lens. But it should be. We can reframe the problem this way: does bad organizational structure subtract from the customer value experience? We can all think of ways in which it might do so: for example, poor customer service when customer-facing employees are not empowered, and layers of bureaucracy that impede responsiveness to customer needs. In those cases, organizational innovation could readily generate improved customer experiences and enhanced customer value.

Dr. Steiber had made organizational innovation her research focus for over two decades.

There are a small number of organizational innovators, and a lot of imitators. Google has been one of the originators of new organizational models.

Many organizational innovations are pre-packaged — LEAN is an example — and implementers are following someone else’s lead. Others are long drawn out evolutions of incremental improvement without a great burst of innovation.

One example of what Dr. Steiber calls “an entirely new animal” in organizational innovation can be found in the early years of Google, which she studied first hand — she was embedded in Google as an independent researcher. She observed a different management model than anything she had seen before anywhere in the world. From this research, Professor Steiber developed six new management principles, published in her book The Google Model, and summarized in our free PDF.

Silicon Valley companies employed and expanded on the Google Model.

Dr. Steiber studies the peers of Google in Silicon Valley and found that they all adopted the Google Model and its six principles, some more slowly than others. Interestingly, her research pointed to a DNA advantage for Silicon Valley going back to the gold rush: it was a location that attracted and was populated by innovative and entrepreneurial people who were capable of building businesses and new institutions from scratch in the late 19th Century, and in the 20th Century, it was the place where Information Technology emerged, was expanded and accelerated and first put to use in business. Knowledge and knowledge flow replaced management structures and face-to-face administration, including at early pioneers such as Hewlett-Packard.

Read “The HP Way”—an early Silicon Valley organizational innovation manifesto.

The six management principles Dr. Steiber describes are:

Dynamic capabilities.

Ability to integrate, develop, and reconfigure internal and external competencies in order to meet rapidly changing surroundings.

A continuously changing organization.

Instead of waiting and springing into action after needs become pressing, a company should ensure that its organization is permeated with a proactive approach to change.

A people-centric approach.

People-centric, focusing on the individual and liberating their innovative power and providing them with a setting in which they can express their creativity.

An ambidextrous organization.

Two different forms of organizational logic within the same organization: daily production, which works best with a conventional planning-and-control approach, and innovation, which requires greater freedom, flexibility, and a more open attitude toward experimentation. An ambidextrous organization must successfully handle and utilize the energy inherent in the contrast between these two forms of logic.

An open organization that networks with its surroundings.

Permeable boundaries and a constant and conscious exchange of information with the surroundings. Long-term survival requires that companies develop into more open networking systems.

A systems approach.

A holistic view of the system and understanding that the system can spontaneously develop new characteristics that can be difficult to predict. These new characteristics can be positive, negative or a combination of the two, creating a demand for additional measures, such as decreasing the fallout from unexpected negative system effects.

We highlighted a couple of these new management principles.

A continuously changing organization

The most successful companies are designed for constant renewal. They expect change all the time, and they lead its development. They aim for excellence on every dimension, applying three layers of expertise:

  1. Be proactive: Search for change internally and externally. Embrace it and practice it.
  2. Experimentation culture: Try every initiative assuming that it could be a new opportunity. Mobilize fast.
  3. Don’t follow. Take the lead, change the standard, be disruptive rather than disrupted, practice creative destruction.

These companies never lose external focus, continuously monitoring developments and competitors that could disrupt them, and constantly market-testing new initiatives. They have highly developed sensing capabilities.

An ambidextrous organization

Combining the two logics of flawless daily execution for known established businesses and exploratory experimentation seeking unknown new business innovation is an organizational breakthrough. It’s a systemic view of an organization combining different kinds of leadership for the two styles, different cultural signals, different milestones, different incentives, and different evaluation criteria. One system is designed for stability and one for change.

Rendanheyi: the most radically entrepreneurial organizational innovation.

True organizational innovation is very rare, but there is a new one that Professor Steiber described for E4B called Rendanheyi.

Rendanheyi is an organizational innovation for the network age in which a large company (Haier, the Chinese company that first instituted the model has 70,000 employees) splits itself into hundreds of microenterprises of averagely 60-70 people — but could be as low as 10 or so – each enterprise performing as its own entrepreneurial business with its own P&L, its own customer base, and control over hiring, budget, and distribution of profit, and over its own value-adding line of business. Defining characteristics include:

  • No bureaucracy, hierarchy, or pyramid forms of organization; no managers.
  • Employees are not referred to as such — everyone can be an entrepreneur is the mantra; they choose which microenterprise to work in. The focus is on the customer or end-user and not on pleasing the manager above. Incentive systems reward all employees for value creation, and all individual employees are constantly trying to understand how to increase value for customers. Increased value creation is rewarded, and so wealth generation is democratized.
  • Zero distance to the end-user: this is a Rendanheyi principle that brings the consumer or customer inside the microenterprise to co-create new value in the form of new products and services and solutions. Wholesalers and retailers, for example, can inject distance between a Haier micro-enterprise and its users; the enterprise might look to digital solutions to eliminate that distance. Generally, they seek to identify barriers to zero distance to the users and get rid of them.
  • End-user is a general term, so that those micro-enterprises that are serving other businesses rather than consumers can nevertheless practice the zero distance principle. For example, there may be a marketing micro-enterprise within Haier that serves a manufacturing micro-enterprise and a sales micro-enterprise. All can be aligned with zero distance and can work to fulfill end-users’ needs.
  • Paid-by-user. This principle focuses micro-enterprises on end-user value by emphasizing that all businesses live or die based on whether the end-user pays them for value perceived, or not. It’s Austrian customer sovereignty in action.

The general tendency in paid-by-user is away from transactional relationships to extended relationships across multiple purchases in ecosystems and via subscriptions and memberships. Relationships are an important focus, and the focus is on creating life-time users.

A sports team on the playing field is a sound analogy for Rendanheyi. There is no central control, each team member is collaborating and combining specialized skills for a team result.

There is only limited call for corporate functions at the center of the Rendanheyi organization. There is a role for developing and furthering vision that crosses multiple micro-enterprises, and for portfolio decision-making as to where to invest resources. Some orchestration functions can be assigned to the center — for example, furthering ecosystem thinking whereby micro-enterprises serving a consumer domain such as the kitchen can develop multiple services including information services and integration services across multiple appliances, tasks, and problems for the kitchen ecosystem.

The result of the Rendanheyi model is the animation of a living system, a superorganism. Rendanheyi provides a genuinely new and different perspective on entrepreneurial organization at scale.

Additional Resources

“Six Organizational Principles for Adaptive Entrepreneurial Models” (PDF): Download PDF

Rendanheyi Silicon Valley Center: Explore the Center

Menlo College Rendanheyi Silicon Valley Webinars: Menlo.edu/Webinars

Menlo College Digital Management Courses and Webinars: Executive.Menlo.edu

169. Jeff Arnold: A Passionate Entrepreneur Profitably Redesigns The Insurance Experience

/0 Comments/in /by

Is there any industry a passionate entrepreneur can’t improve and enhance by elevating the customer experience? The answer is clearly no. Economics For Business talks to Jeff Arnold, who finds insurance fun, exciting, and a source of inspiration, and who is advancing profitably towards the new future he’s imagining, where buying insurance is so enjoyable that customers will stop shopping on price and clamor for the new experience he is designing.

Key Takeaways and Actionable Insights

Passionate, creative entrepreneurs can deliver profitable innovation to any industry, no matter how static and rigid it may seem.

Jeff Arnold loves insurance. He told us he finds it fun, awesome, and exciting. Studying the intricacies of contractually trading and transferring risk for payment generated a lifetime interest and passion in him. He’s turned that passion into revenue and profit by delivering new value to customers in aspect of their life or their business that is extremely important to them.

As a good Austrian, Jeff Arnold views his industry first from the customer’s perspective.

Customer-first. That’s the Austrian way of business. When Jeff thinks about insurance, he thinks from the consumers’ perspective. They pay hundreds of thousands of dollars over a lifetime for insurance of many kinds: house, automobile, business, medical care, and more. Do they know exactly what they are buying — or, perhaps more importantly, not buying because of exclusions buried deep in the small type of the appendices to an insurance policy agreement? How do they feel about the customer interface, including call center phone trees and hard-to-decipher policy documents?

From this perspective, he is able to develop design principles for an insurance business with a better customer experience:

  • Help customers to think about a systematic lifetime plan for all their insurances;
  • Help them develop the knowledge required to properly understand insurance offers and alternative policies;
  • Give them the opportunity to customize insurance products for their needs as opposed to buying a commoditized vanilla product;
  • Help them to get the exchange value from the purchase that is right for them.
  • Give them an interpersonal experience that’s much better than the industry norm.

Jeff focuses his customers on value, not price.

Most often, buyers approach an insurance purchase with a transactional frame of mind: how can I pay the lowest price. They’ll shop around to find it. Jeff wants to put an end to “price shopping”, to be replaced with a value calculation: what coverage do I need, how did I get it, and who is the best provider?

The value calculation often entails discovering and eliminating exclusions — coverages that are excluded in the fine print of the contract. These exclusions occur in home insurance (which is especially hard to read and understand) auto insurance (there are 12-14 exclusions to look for according to Jeff) and commercial or business insurance (where many coverages are automatically excluded and must be built back in item by item, with careful attention to detail).

The value solution lies in the integration of technology and personal service.

Jeff’s latest business, RightSure, aims to get individuals the right insurance by using A.I. in combination with “famously friendly humans”, i.e., staff carefully selected and trained to deliver knowledge and service in an amenable way. The A.I. can provide a preliminary phone interface, a chatbot interface on the website, and can do an excellent job of matching customer needs to the right policies. Famously friendly people can patiently explain all the policy options, point out what’s covered and what’s excluded, answer customer questions, and help them to make informed decisions. They’re good at listening, exhibit high empathy, and can help customers navigate from suspicion to trust.

The combination of A.I. and famously friendly humans delivers a superior customer experience while also achieving high levels of efficiency. The return on investment in human capital is as high as the return on technology capital. The combination generates brand uniqueness.

Jeff represents entrepreneurship in action in the insurance industry.

Jeff Arnold is a quintessential entrepreneur. He’s driven by a passion for his industry, where he spent a career in multiple roles before launching his current business. He gathered knowledge he learned from others and from his own experience in those various roles. He innovates by having a more highly developed customer focus than others, and commits to a better experience for his customers than they can expect elsewhere. And he knows how to combine and recombine assets and resources in new ways to deliver that better experience. He continuously monitors the customer experience and customer sentiment to keep improving.

His primary skill are empathy and imagination — understanding the experience customers prefer and designing it in his mind before bringing it to life. He doesn’t need technology expertise to bring his vision to life; he can buy that on the market. It is the human factors of empathy and imagination that lie behind his superior product.

Imagining the future drives product and service innovation.

After a lifetime in the insurance industry and informed by hundreds and thousands of conversations with consumers, Jeff can accurately identify current dissatisfactions and easily imagine future products and services to address some of those satisfactions. Some of the ones he mentioned in our conversation were:

The macro policy: Why do customers have to buy home and auto and business and medical insurance I separate policies and separate transactions. What if there could be one macro policy for a family, adjustable to new needs as life goes on yet still a “one policy” solution for managing all the risks a family faces?

Expanding liability coverage: It seems like lawmakers and courts are continuously finding new things the rest of us are guilty of, like saying bad things on social media. Liabilities are expanding — Jeff called it social inflation. What if our policies could keep up without us having to adjust them in new transactions?

New payment systems: What if we bought automobile insurance by the mile instead of in a lump? Or what if we got refunds based on good driving habits (which is beginning to happen with telematics)? Generally, the payment system of lump sums for coverage over a time period can be replaced by behavioral measures of consumption.

These are the kinds of innovation Jeff is imagining, and working hard on bringing to market. Entrepreneurs make the world a better place.

Additional Resources

Jeff Arnold’s author page on Amazon.com: Mises.org/E4B_169_Author

Jeff’s website, Ambassador For The Insurance Industry: JeffArnold.com

The Art Of The Insurance Deal by Jeff Arnold: Mises.org/E4B_169_Book

RightSure.com

168. Anthony J. Evans: Markets for Managers and Entrepreneurs

/0 Comments/in /by

Markets are marvelous. They’re the poetry of economics. They are one of the most remarkable technologies humans have ever built. Beautiful businesses develop new markets both outside and inside the firm. We discuss markets with Anthony J. Evans, a business school professor who teaches that all businesspeople must become economists.

Key Takeaways and Actionable Insights

A business economist is an Austrian who looks at the fields of economics and business to see how one is best applied to the other.

Aim to be a good economist and a good business practitioner. Managerial economics is the application of the economic way of thinking and the insights of economics to the managerial task of creating value. It was Shlomo Maital who wrote, “Managers can’t just employ economists, they must become economists”. Anthony Evans follows that direction and teaches his students at ESCP Business School that they’ll be more productive and more capable as businesspeople as a result of learning and applying economics.

Market system economics provides businesses with the best toolkit for success.

Businesses are participants in the market system. Managerial economists study markets in order to find ways for businesses to use market insights, harness market mechanisms and understand the signals and information that markets provide. It’s easy for firms to overestimate their ability to affect the markets in which they are participating, and don’t sometimes they don’t fully understand or properly analyze what market prices are telling them.

Prices are the most important market signals, and they can transmit information about potential futures. They can guide firms on understanding how much value they are creating relative to competitors. They can provide signals about how to increase revenue by moving process higher or lower. They can help businesses understand opportunity costs and transaction costs.

Markets are decentralized experimentation, and if some new experiments by disruptive competitors are commanding purchases from actual buyers today, that may signal more buyers and more transactions in the future especially after prices adjust to higher transaction volumes. Monitoring prices and reading the signals must be a core managerial skill.

Market tests should be applied whenever feasible. Technology can help.

Businesses should run a market test for every question that a market can answer: is this offering or initiative valued, is it preferred, can we put a price on it, will varying the price change the level of demand or acceptance, is the benefit greater than the cost, do some customers prefer a competitive offer? Run a market test — A/B test, pilot program, prototype evaluation, survey with customers, whatever is feasible.

Today’s technology provides tremendous help with low-cost digital testing methods, fast feedback loops, and efficient data processing. In fact, more and more, technology can relieve managers of the task of formulating their own understanding by automating the test procedures and the analytics and recommendations.

Markets can be brought inside the firm to improve business performance.

Markets stimulate innovation, lower costs, and efficiency because customers always want better, cheaper, and faster and competing entrepreneurial firms always want to provide those benefits in the search for profits. The same effects of the market order can be sought inside the firm. What is the market value and the right price for marketing services from the marketing department, or HR services or IT services? What’s the marginal cost versus marginal benefit analysis for one more HR staff member, or the opportunity cost of one more IT system installation versus one more sales campaign? What’s the value of the knowledge flowing through the firm?

These are the kinds of questions that the market order can answer, and managers should always be asking them. Prices can be the metric for all learning.

Market economics can also guide organizational design and processes.

Markets are dynamic and ever changing. Businesses must reflect and emulate this dynamism. Organizational design and structures must be flexible enough to enable dynamism and not erect barriers to change and adaptation. What are the forces that make markets grow and decline, and what are the forces that have this effect on firms? Organization should harness the forces of market growth.

Professor Evans’ suggestion is a constitutional view of the firm. Let simple rules of conduct emerge from a shared sense of vision and mission, codify them, and then let decentralized teams run the experiments that feel constitutionally right to them given their reading of market signals.

Subjective value is immeasurable, but can be gauged in market tests.

The purpose of a firm is to generate subjective value, which is created by customers through their own experiences and co-created by the firms and brands and services that facilitate those experiences. Subjective value is intangible and immeasurable. But exchange value — what customers actually pay in an exchange transaction — can be a proxy in some cases.

Subjective value is a hard concept to grasp for those who have been educated or trained to think of value in objective terms, as something inherent in a product. Professor Evans finds his students, when asked to describe the value of an offering or an idea, instinctively gravitate to the product-based view, citing attributes, features and performance benefits.

Taking the customer perspective is very hard, and perhaps unnatural. The economic point of view is always to put the producer in the shoes of the customer, to take the customer’s view and identify the customer’s mental model for processing information and observation. It’s hard to do, and requires significant cognitive effort. But done well, it’s key to marketing, innovation, product improvement and competitive positioning. Empathically diagnosing subjective value is one of the greatest insights economics can give to business.

Entrepreneurs thrive in markets.

Markets are the place where entrepreneurs ply their skills, and the entrepreneurial role will never diminish. Their imagination of the future and anticipation of future demand – even under conditions of uncertainty – their creativity and their judgment will always be important in the context of dynamic interactions of multiple players, offerings, and institutions within markets. The human factor is the most important.

Entrepreneurship is not an academic matter to be debated for the distinction of different nuances, but a practical matter of working and succeeding in markets. It concerns the identification of a profit opportunity via some kind of new product, service, method, or recombination of capital, and the ability to introduce this novelty into the marketplace, actively making decisions about resource allocation, cost, investment, communications and all the other elements of a business, overcoming obstacles and resolving difficult challenges. It is, as Professor Evans stated it, both ideational and implementational. Ambidextrous.

And the common backdrop for all entrepreneurs and businesses of all kinds is continuous change. In his book Economics: A Complete Guide For Business, Prof Evans states that, “Economic change will disintegrate existing combinations (of capital goods) and force entrepreneurs to find new ones”. This action, which Prof Evans refers to as “recalculation”, is core to the dynamics and agility of entrepreneurs in markets. Recalculation is the creative pulse that provides the energy for generating new capital structures out of old ones.

Austrian economists have always been acutely aware of change as an economic factor. Perhaps the business world is catching up, but Austrians have always been ahead. It’s the perspective that entrepreneurs and businesses can co-ordinate with each other fruitfully in markets where change is so pervasive and so fast that no-one has complete knowledge and yet must be able to act. Austrian economics demonstrates that good outcomes are possible, even in these conditions of bounded knowledge, for everyone participating in the market, so long as entrepreneurs are free to do their work without intervention. It’s a very powerful message.

People in business can be proud of acting as value generators and not feel any imposed need to “give back” or sacrifice themselves to artificially constructed restraints.

Additional Resources

Economics: A Complete Guide For Business by Anthony J. Evans: Buy It On Amazon

AnthonyJEvans.com

167. Mo Hamzian: Everyone Deserves the Best Workplace

/0 Comments/in /by

There’s a lot of speculation about the future of work — what form it will take, where it will be done, and who will do it (including the robots versus humans debate). We talk to Mo Hamzian, an entrepreneur who is not only theorizing about the future of work, but building newly imagined workspaces that combine spatial design with technology and custom services, making elite workspaces available to everyone.

Key Takeaways and Actionable Insights

Entrepreneurship is now both an economic and societal trend, opening up business opportunities of its own.

Entrepreneurship is now, as our guest Mo Hamzian styles it, “a thing”. It’s in the forefront of culture, it’s always in the news, it’s a lifestyle choice as well as a business choice, it’s a career, it’s a source of new heroes for our time.

  • Institutions of entrepreneurship are growing: schools are teaching entrepreneurship, media are covering entrepreneurship, technology is supporting entrepreneurship.
  • Standards are emerging: tools like our own value learning process and 4 Vs value generation model, as well as processes like the Business Model Canvas are becoming standards of the entrepreneurial method.
  • The sharing of entrepreneurial knowledge in a community is expanding via mentoring by experienced entrepreneurs.

As a consequence, we see the emergence of new societal norms.

An entrepreneurial society favors self-reliance over dependency, resourcefulness over entitlement, breakout achievement versus structured conformity, and creativity over formula. Entrepreneurship is understood as a journey that is never completed, and may adaptively follow many diversions in pursuit of evolving goals, rather than a predictable climb up the hierarchical ladder of the corporation. Keep thinking rather than keep climbing.

Even inside the corporation, structure is giving way to small self-organizing teams and corporate procedures are being replaced by adaptiveness and agility.

One of the implications of the growth of entrepreneurship is the trend that gets the name “The Future Of Work”.

Entrepreneurship brings many significant social changes, including flexibility of time and place and methods of work. And the government’s pandemic policies of shutting down office and work spaces and encouraging work-from-home accelerated those changes. Now it is clear, more than ever, that, in the digital age, there is no need whatsoever to commute through grey suburbs on jammed roads or overcrowded trains to get to a dull and depressing cubicle farm just so that you can be in the same building with the other sad souls who are your colleagues.

Cities will empty out, commercial office markets will enter a period of secular decline, and individuals will feel liberated and empowered to do their best work in the physical location and surroundings of their choice.

One way to seize the opportunity represented by the future of work is via real estate itself — repurposed and re-imagined.

Mo Hamzian is an entrepreneur who sees the opportunity in real estate for work where many might see only decline. He looks at it through a different lens, as entrepreneurs do. Can real estate provide the multi-purpose flexibility and adaptiveness required for today’s and tomorrow’s work patterns? It can if looked at creatively.

The creative lens is the customer-first lens: everyone deserves the best workplace.

Business thinking that prioritizes customer sovereignty can often solve the most challenging problems. Mo Hamzian translates the unmet needs of today’s distributed workforce as seeking the best space from which to work — comfortable, well-equipped, good acoustics and conferencing technology, a place that “recognizes you” and your needs.

He developed his ideas, in part, by studying the workspaces of the business elites — the top bankers, tech executives and corporate CEO’s. These are immersive, high tech, high comfort, high style ecosystems you never want to leave. They’re available to a very few. What if they were made available to a much wider audience? This is the way many markets evolve — first, affordable at great expense only for a few, then quickly expanded to a mass audience.

This is the idea behind VEL — Mo Hamzian’s startup to bring elite workspaces to a wide audience of users on demand.

  • Do your best work: the VEL concept is aimed at personal productivity, encouraging the individual to achieve high quality output in a temporary workspace. This implies, of course, some responsibility and commitment on the part of the user.
  • Achieve flow: the ultimate level of individual work is characterized by the feeling of flow — the fulfilment of experiencing how good you are and how much you are improving while doing your work. VEL’s workspace and technology are designed to support flow.
  • Elite environment for everyone: Mo Hamzian’s study of immersive elite workplaces enables designs that bring the same experience to a temporary workspace.
  • Technology: From wi-fi telecommunications and conferencing to (in the future) A.I. and VR and holography, there’s a lot that technology can do to support high quality and high productivity work, and VEL can provide it on demand at variable cost and affordable pricing.
  • Flexible access: customers can rent VEL space and technology by the hour or by the day, in whatever configuration they prefer.
  • Democratization and decentralization: VEL workspaces are available to all, with an aim to distribute them across the country for wide availability, whether urban, suburban, or rural, wherever work can be done.
  • Customization and recognition: Ultimately, the high-tech VEL workspace will recognize the individual when they walk in and configure to their customized set of needs.

The VEL concept removes frictions and barriers that might otherwise stand in the way of the future of work and the future of distributed entrepreneurship.

As we advance towards a more entrepreneurial future across the entire business landscape, from big corporations operated by flexible, agile teams to individual practitioners, gig workers and small, highly specialized and highly networked companies, concepts like VEL will be an important part of the enabling infrastructure.

Additional Resources

Mo’s LinkedIn page: LinkedIn.com/in/MoHamzian

Mentioned by Mo as a worthwhile mentoring site: GrowthMentor.com

VEL website: MyVEL.com

166. Murray Sabrin: What Entrepreneurs Do When The Yield Curve Inverts

/0 Comments/in /by

To what extent should entrepreneurial businesspeople concern themselves with macro-economic variables? At E4B, our point of view is: not much. We don’t believe you can fully trust the data, we don’t believe you should put much credence in the interpretations of it, and we encourage businesses to concentrate on serving customers and generating value.

We made an exception this week to discuss the phenomenon of the inverted yield curve, because it might, conceivably, have some immediate effect on businesses and their customers. We talked with Dr. Murray Sabrin, author of Navigating the Boom/Bust Cycle:  An Entrepreneur’s Survival Guide.

Key Takeaways and Actionable Insights

The yield curve inverted. What does that mean?

Technically, the yield curve inversion refers to short term interest rates on the 2-year treasury note doing above the interest rate on the 10-year treasury note.

Chart 1

The reason this is of interest is that, historically, it’s a signal that the countdown to a recession has begun. At the human level, it means that market participants expect tighter short-term borrowing conditions, potentially making financing business activity more expensive and more difficult.

In reality, there’s no way to be certain of future conditions, and there are so many variables, from inflation to unpredictable Federal Reserve activities, that prediction is inevitably inaccurate.

Moreover, on their own terms, the Federal Reserve interest rate data are not consistent. The 3-month treasury rate remains 2% below the 10-year rate — no inversion there.

Chart 2

Therefore, predictions of a recession should be taken with the proverbial grain of salt. It may be different this time.

What matters is what entrepreneurs do in the face of this uncertainty.

Dr. Sabrin has a number of ideas and pieces of advice for businesses.

  • Examine conditions in your own sector rather than in macro-economic variables.

Economic conditions and trends and outcomes vary significantly by sector. What’s happening in automobiles, housing, energy, and retailing is sector specific.

Look especially for those sectors where free markets are allowed to operate; there may be different trends there. For example, deflation (a continuous trend towards lower prices) might be anticipated from the technology sector as result of innovation and competitive striving, rather than the price inflation we are being promised from other sectors.

  • Similarly, pay greatest attention to your most relevant geography: neighborhood, city, and state.

Economic conditions in Florida are a lot different than in California. Manhattan is different than San Diego. Your neighborhood might be different. Maybe your business operates internationally. Think about your relevant geography and not about the macro-economic headlines.

  • Focus first on your supply chain.

Dr. Sabrin’s extensive research into the longitudinal success of entrepreneurial businesses emphasizes the important of reliable inputs. In risky economic periods, the supply chain may need bolstering — extra inventory coverage, additional suppliers in case of disruptions. This may be expensive and more expensive to finance amidst rising rates, but guarding against supply chain disruption is a primary concern. Don’t risk disappointing your customers because your supply chain breaks.

  • Maintain your most important lending relationships.

If financing is a concern, look to bolster and strengthen lending relationships. Secure a line of credit. Nurture the relationship with your bank. And explore the newly emerging landscape of fintech lending — another example of free markets expanding the range of options and possibilities for entrepreneurs.

Here’s a financial landscape map from an earlier E4B podcast — use it to become familiar with the latest financing options: Mises.org/E4B_166_PDF

Your individual cost curve is not the same as that of the market.

The current pervasive concern is with higher interest rates and higher costs. These are macro-economic variables. But the cost curve for your business does not have to be the same. Many suppliers will be lowering prices and offering promotions or special terms to maintain their business flow. You can take advantage by shopping around, rebidding contracts, and seeking out the most eager suppliers. Your micro-economics can be different than the headline macro trends.

Most importantly, seek opportunities within changing economic circumstances.

An inverted yield curve is just another instance of continuous change, and change is the condition under which entrepreneurs thrive. They find opportunities in change. There are always growth sectors, there are always customers with needs, and there are always new openings, even when some doors are closing. The agile entrepreneur is alert to new possibilities.

Additional Resources

Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide by Murray Sabrin: Mises.org/E4B_166_Book

“Financial Capital Options For Businesses at All Stages” (PDF): Mises.org/E4B_166_PDF