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131. Saras Sarasvathy On The Entrepreneurial Method

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The scientific method has served us well to date. The entrepreneurial method, informed by the principles of Austrian economics, can take society much further. Dr. Saras Sarasvathy joins the Economics For Business podcast to distill the essence of the value-generating and wealth-producing method.

Download our knowledge graphic for the Entrepreneurial Method.

There is an entrepreneurial method — a systematic way to achieve the unpredictable.

The scientific method aims to discover universal laws that make the future predictable. If we have enough scientific understanding we can, for example, build bridges that we can predict will not collapse. We can construct an entire scientific infrastructure in our society.

The entrepreneurial method aims higher, at human flourishing. It aims at discovering how we can all work together to achieve our human purpose, including new purposes that we all agree are worth achieving. We can construct an entrepreneurial structure to build a better human life and a better society.

Entrepreneurs choose a control strategy that’s appropriate to uncertainty.

Some people fear entrepreneurship because its outcomes are uncertain. But this is worrying about the wrong things: outcomes are outside your control. Entrepreneurs are more discerning about what can be controlled: means.

Dr. Sarasvathy lists several control strategies:

The Bird-In-The-Hand Principle: work with what you’ve got and can control, which she sums up in the questions: Who Am I? What Do I Know? Whom Do I Know? What resources do I own or control now? This is the first principle of control.

Affordable Loss Principle: Entrepreneurs can control their downside, making it affordable and limiting uncertainty, by asking “What one value generation project would I undertake even if I risk losing everything I invest In it?”

Crazy Quilt Principle: How do entrepreneurs control the uncertain process of identifying the right partners, including hiring the right people? They don’t try to predict the results of hiring and pitching. Instead, don’t hire, don’t ask. Just talk to people — those who fit best will self-select into your project.

Lemonade Principle: Don’t fear the unexpected. Welcome surprises. All unexpected happenings are opportunities and can become resources. Leverage contingency, and make lemonade out of lemons.

The Pilot Is The Plane Principle: Everyone on the plane is a pilot, co-engaged in shaping history. The plane will reach a destination, the exact nature of which is unclear, and everyone on the plane contributes to getting there.

There are some guidelines that entrepreneurs have established over time.

Non-Predictive Action Is The Driver

Everything in the entrepreneurial method is driven by action. Or, more completely, action, interaction and reaction. Things you care about, things you can actually do, things we can do together, and how we handle surprises. Interacting with the environment with a sense of purpose, and thereby changing it in some way.

Even-If Thinking

Our aspirations and the outcomes we experience may not be symmetrical. Not succeeding is not the same as failing. Even if a new idea does not work out, what is the worst that can happen? We shouldn’t make decisions just because we can’t predict the future. Embrace the unpredictable but make sure the downside is under your control.

Intersubjectivity

The great productivity of entrepreneurship comes from intersubjectivity — two or more people can interact and come up with something neither one had actually thought about or dealt with or considered or contemplated before. Intersubjectivity is more than interpersonal and beyond negotiation. It’s a question: “I am doing this. What do you think?”

The Entrepreneurial Method leads to social good and a new role for business in society.

A side effect of everyone in society learning the scientific method was the emergence of the middle class, defined by income. Science brought productivity which enabled a large swath of society to earn enough money to escape poverty. Everyone was able to harness science.

Let’s teach everyone the entrepreneurial method. Let everyone start companies, grow companies, invest in companies, all with no thought of prediction. A middle class of business will emerge, defined not by income but by venturing. This middle class will produce more jobs and more enduring, more stable companies, embedded in strong communities, with greater well-being and less churn. The fruits of creativity take root in endurance and durability — not in Schumpeterian creative destruction — and contribute to stability and the taking on of bigger challenges. Decade after decade, the middle class of business will generate value and produce wealth, employing lots of people and educating successive generations to take the entrepreneurial method with them into a better future.

Additional Resources

“The Entrepreneurial Method” (PDF): Mises.org/E4B_131_PDF 

Among the innovations planned for the Economics For Business platform is a series of encapsulations of important research papers. Here is a sample:

“The World-Making Scope Of The Entrepreneurial Method — An Encapsulation” By Gabriele Marasti (Original paper: “The Middle Class Of Business”): Mises.org/E4B_131_PDF2

Some links:

Effectual Entrepreneurship (PDF): Mises.org/E4B_131_Book

“What Makes Entrepreneurs Entrepreneurial?” (PDF) Mises.org/E4B_131_Paper

“Entrepreneurship As Method: Open Questions for an Entrepreneurial Future” (PDF): Mises.org/E4B_131_Article

The Emerging Middle Class Of Business Is Characterized By Entrepreneurial Venturing.

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Americans have associated their concept of the middle class with virtues and positive values. Members of this group were seen as hard-working ethical achievers, succeeding on the terms set by the economic system of entrepreneurial capitalism, where the cultivation of specialized skills enables individuals to make their distinctive contributions to socially shared goals.

The proxy metric for membership of this admired group was family income. Statisticians defined the range that they decided was middle class – not the richest, not the poorest. But the concepts of income and class don’t gel particularly well. Class refers to bounded structural tiers that restrict entry and exit. A member of the peasant class can’t become a member of the aristocracy. The point about the middle class is that it is open to all who are willing to play by the rules of hard work, specialization, and collaboration.

Disastrously, the use of income statistics to define social class has had the unintended effect, in the entitlement society in which we now live, of triggering envy and anger. Income statistics become comparative, and comparisons engender hatred (https://www.phrases.org.uk/meanings/Comparisons-are-odious.html). Consequently the middle  class – once a realm of admiration for achievement – becomes a war zone of social conflict.

The concept of the middle class as the backbone of an economically dynamic and philosophically vibrant society remains fundamentally important, especially when the twisted and distorted entitlement jealousies of the welfare state threaten to sour all social relationships and to undermine the natural collaboration of free markets. How can we recover the appreciation of the virtue and ethic of the middle class?

Professor Deirdre McCloskey, in her Bourgeois Trilogy, did, in fact, define the middle class by its virtues: prudence, justice, courage, temperance, faith, hope, and love. All of these can be interpreted as including an economic component: the courage to innovate, the prudence to take affordable risk, the justice of honest trading and avoiding extractive and exploitative behavior, and the temperance of meritorious behavior. 

Professor Saras Sarasvathy goes much further, changing the thinking about the middle class and its positive role in society via an entirely new perspective. The middle class, she says, should be a middle class of business – those firms and corporations that are not the biggest, such as the Fortune 500, and not the smallest, such as individual contractors, but ventures between 5 and 300 employees. These ventures are founded, led, managed and staffed by people, bound together by a sense of belonging, both to the collaborative company to which they contribute, and the larger community in which the company is embedded. 

Size is important: there is value in the “middle” in middle class, says Professor Sarasvathy. In society, the middle class follows the impetus to bridge the chasms of unequal opportunity to arrive at a shared level of economic experience, escaping from the distasteful consequences of not producing and not participating. In the realm of business, there are also distasteful consequences at the extremes. When companies grow too large, they tend to become monopolistic and predatory, and they sidle up too close to government in the shared corruption of government lobbying and agency influence. Similarly, economies with the largest number of individual and small-employment ventures tend to be poor communities where entrepreneurship is due to necessity rather than opportunity.

Professor Sarasvathy’s preferred classification is not based on size but on endurance and stability. This embraces growth, but not of the unstable type that aims to produce only unicorns and gazelles. Growth is increase in size over time, but not at breakneck speed. Small firms add vitality through the diversity of innovations they introduce into the economy. Growth need not require the churn of creative destruction, a game of competitive innovation involving large numbers of losers with few winners.

Endurance can deliver a more deliberate and conscious kind of innovation, including the innovation of new ends – reconceptualizing what is worth striving for, and co-creating new possibilities beyond the traditional notions of market and government. 

Ventures can endure without stagnation. They can provide local stability, especially employment stability, but also technological stability and community stability. Individuals and families and communities can thrive while harvesting the productivity gains from deliberate innovation and the social gains from human well-being. The pursuit of well-being involves more than income and prosperity. It involves the freedom to choose what is worth pursuing in the first place. 

The guides on this journey to considered growth, stable communities, and advancing well-being are entrepreneurs. Not all will be founders. Many will be co-founders, team members, managers, employees, or value partners in multiple network roles. The commitment of entrepreneurship is to the generation of value for all, with multiple players in multiple roles of mutual support. The prospect of defining the middle class of business by entrepreneurial venturing promises a future of shared growth and shared well-being in a value generation network rather than an envy-tinged calculation of income levels.

130. Eamonn Butler’s Primer on Entrepreneurship and Its Social Good

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Entrepreneurship is the great force for social good — in fact, the greatest force for good in the history of civilization. It’s the system of continuously improving the lives of others so we can improve our own lives. Through entrepreneurship, we can achieve greater and greater levels of community, collaboration and societal advance. Eamonn Butler, Co-Founder and Director of the Adam Smith Institute, has written what he calls a Primer for understanding and appreciating the wonderful institution of entrepreneurship. He highlights some of the key points on the Economics For Business podcast.

Innovation and improvement.

To continuously improve people’s lives, we need new things. We need people to invent things that haven’t been thought of before. And we need innovators, people who improve those things and find new purposes for them or new ways of producing and distributing them. And we need entrepreneurship, the marshalling of resources to produce these better things faster and more efficiently and get them into more people’s hands.

Entrepreneurs are those unique people who organize the marshalling of resources, and who risk their own capital and their investors’ capital in this pursuit of a better future for all.

Cascading Development.

When entrepreneurs undertake this act of discovery, and especially when they succeed, they trigger cascading development. One innovation and entrepreneurial initiative leads to another. They are all aimed at making people’s lives better — easier, healthier, more convenient, more affordable, more efficient. And, eventually, knowledge spreads, and people’s lives are transformed, so that Indian peasant farmers can check produce prices on their smartphone and get the best offer from the market. Development cascades from individual to individual, firm to firm, market to market and country to country. It’s never-ending improvement.

Long-termism and ethical behavior.

The outcome is long term uplift and benefit for all. Entrepreneurs are long term thinkers. They are focused on the lifetime of their company and their products, and perhaps to passing them on to the next generation (Politicians are the opposite — they can only think in election cycles).

Entrepreneurs don’t want to just make a short term profit and then leave the market. They want long term revenues and long term profits. That means creating reliable, returning customers who love the entrepreneur’s product. That requires delighting those customers, serving them impeccably, never letting them down or breaking a promise. There are few other, if any, institutions that are constituted in this way.

This Long-termism is ethical. Entrepreneurship is ethically driven.

Internationalism

A small firm can trade on a global stage, and if they can, they will. It’s easier than ever before in the digital era. New and better ideas quickly spread around the world. But it has always been the case, since the earliest of times. Politicians establish borders to divide people, and then violate them in invasions and wars. Entrepreneurs see no borders between people. Political borders can’t divide markets.

Social good.

Entrepreneurship achieves more for social good than any other institution. Entrepreneurial innovation in goods and services enhances life and opens up new possibilities. Customers flock to entrepreneurs because of the tremendous service they deliver. The constant improvement delivered by entrepreneurs constitutes civilizational progress. The competitive pressure to improve quality and utilize resources more efficiently generates more and more value for the world.

It’s an error to see business as extractive — extracting and using up resources. Business is generative, putting life-changing inventions at the disposal of the global population. What’s seen is the dirt and smoke left over from mining or manufacturing. What’s not seen, and is often unappreciated, is the huge amount of good that comes into the world via entrepreneurship.

Entrepreneurship is the application of property rights at every scale.

It’s another error to think of entrepreneurship as small business or young and immature business. Ray Kroc of McDonald’s was a great example of an entrepreneur who worked out how to operate a hamburger restaurant at global scale with continuous improvement. Entrepreneurship requires property rights; people need to have control over their property in order to transform it into marketable innovations and services. But that does not limit the scale of entrepreneurship. Property rights are a principle that supports global scaling.

The entrepreneurial method.

Probably the best way to define entrepreneurship is as a process or a method. It’s akin to — and as important to civilization as — the scientific method, but different. They both involve trial-and-success, coming up with ideas and testing them. The scientist tests against reality, looking for a law, a repeatable outcome that will never vary. The entrepreneur tests against consumer approval, looking for acceptance that might be repeatable until conditions change, such as new competition arriving. Entrepreneurs can’t predict the future as scientists can, and they can’t exert control in the form of unchanging laboratory conditions. Yet they still are challenged to build a business that lasts.

Can we nurture this institution?

Yes. In school, via literacy and entrepreneurially-oriented education, teaching young people about profit, and uncertainty and the requirement for supportive environmental elements such as property rights and flexible labor laws, and the value of trying multiple different initiatives before discovering a winning proposition. We might not be able to teach successful entrepreneurship, but we can create the conditions for learning.

A selection of books by Eamonn Butler

Entrepreneurship: A Primer: View on Amazon

Austrian Economics: A Primer: View on Amazon

Classical Liberalism — A Primer: View on Amazon

Ludwig von Mises — A Primer: View on Amazon

Friedrich Hayek: The Ideas and Influence of the Libertarian Economist: View on Amazon

The Condensed Wealth of Nations: View on AdamSmith.org

What Is This Wonderful Institution We Call Entrepreneurship? It’s A Force For Social Good.

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What exactly do we mean when we use the term entrepreneurship? The theoretical definition is the intentional pursuit of new economic value. Intentional means people – entrepreneurs – do it, either as individuals or teams or in an institutional setting like a firm, or a business or a corporation. Value means that there are other people who benefit as recipients, and become better off. Pursuit means that the people who conduct the process are not guaranteed a successful outcome every time, and may take a while to establish the right recipe and the best practice. New means continuous innovation and improvement for those recipients of value. And economic means it’s an ever more efficient use of the resources available to us, free from politics, that mean and vicious fight over dividing the pie that the entrepreneurs have so generously baked. 

Yet, beyond this definition that comes from economics, there is something even greater and more expansive. Entrepreneurship is a social force for good – the greatest such force that has emerged from the long and checkered history of civilization. And if we employ the entrepreneurial method that makes it a force for good, we can achieve greater and greater levels of community, collaboration and societal advance.

Innovation and improvement

To continuously improve people’s lives, we need new things. We need people to invent things that haven’t been thought of before. And we need innovators, people who improve those things and find new purposes for them or new ways of producing and distributing them. And we need entrepreneurship, the marshalling of resources to produce these better things faster and more efficiently and get them into more people’s hands.

Entrepreneurs are those unique people who organize the marshalling of resources, and who risk their own capital and their investors’ capital in this pursuit of a better future for all.

Cascading Development

When entrepreneurs undertake this act of discovery, and especially when they succeed, they trigger cascading development. One innovation and entrepreneurial initiative leads to another. They are all aimed at making people’s lives better – easier, more convenient, more affordable, more efficient. And, eventually, knowledge spreads, and people’s lives are transformed, so that Indian peasant farmers can check produce prices on their smartphone and get the best offer from the market. Development cascades from individual to individual, firm to firm, market to market and country to country. It’s never-ending improvement.

Long termism and ethical behavior

The outcome is long term uplift and benefit for all. Entrepreneurs are long term thinkers. They are focused on the lifetime of their company and their products, and perhaps to passing them on to the next generation. (Politicians are the opposite – they can only think in election cycles.)

Entrepreneurs don’t want to just make a short term profit and then leave the market. They want long term revenues and long term profits. That means creating reliable, returning customers who love the entrepreneur’s product. That requires delighting those customers, serving them impeccably, never letting them down or breaking a promise. There are few, if any, institutions that are constituted in this way.

This long termism is ethical. Entrepreneurship is ethically driven.

Internationalism

A small firm can trade on a global stage, and if they can, they will. It’s easier than ever before in the digital era. New and better ideas quickly spread around the world. But it has always been the case, since the earliest of times. Politicians establish borders to divide people, and then violate them in invasions and wars. Entrepreneurs see no borders between people. Political borders can’t divide markets. 

Social good

Entrepreneurship achieves more for social good than any other institution. Entrepreneurial innovation in goods and services enhances life and opens up new possibilities. Customers flock to entrepreneurs because of the tremendous service they deliver. The constant improvement delivered by entrepreneurs constitutes civilizational progress. The competitive pressure to improve quality and utilize resources more efficiently generates more and more value for the world. 

It’s an error to see business as extractive – extracting and using up resources. Business is generative, putting life-changing inventions at the disposal of the global population. What’s seen is the dirt and smoke left over from mining or manufacturing. What’s not seen, and often unappreciated, is the huge amount of good that comes into the world via entrepreneurship.

Entrepreneurship is the application property rights at every scale

It’s another error to think of entrepreneurship as small business or young and immature business. Ray Kroc of McDonald’s was a great example of an entrepreneur who worked out how to operate a hamburger restaurant at global scale with continuous improvement. Entrepreneurship requires property rights; people need to have control over their property in order to transform it into marketable innovations and services. But that does not limit the scale of entrepreneurship. Property rights are a principle that supports global scaling.

The entrepreneurial method

Probably the best way to define entrepreneurship is as a process or a method. It’s akin to – and as important to civilization as – the scientific method, but different. They both involve trial-and-success, coming up with ideas and testing them. The scientist tests against reality, looking for a law, a repeatable outcome that will never vary. The entrepreneur tests against consumer approval, looking for acceptance that might be repeatable until conditions change, such as new competition arriving. Entrepreneurs can’t predict the future as scientist can, and they can’t exert control in the form of unchanging laboratory conditions. Yet they still are challenged to build  a business that lasts.

Can we nurture this institution?

Yes. In school, via literacy and entrepreneurially-oriented education, teaching young people about profit, and uncertainty and the requirement for supportive environmental elements such as property rights and flexible labor laws, and the value of trying multiple different initiatives before discovering a winning proposition. We might not be able to teach successful entrepreneurship, but we can create the conditions for learning. 

128. Matt McCaffrey: Austrian Business Strategy (Part 2): Principles

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Austrian economics helps entrepreneurs to develop and implement more effective business strategies, and to open up streams of continuous innovation. As Joe Matarese, CEO of Medicus Healthcare Solutions, said about Austrian economics in relation to business: It just works.

In episode #127, Matt McCaffrey outlined the Austrian strategy process of Explore and Expand, and its logic development. This week, he helps us dig deeper to identify the principles of Austrian economics that underpin our distinctive approach to business strategy.

Key Takeaways & Actionable Insights

Realism: real people, real markets, real entrepreneurs in real firms.

Mainstream economics has never been able to help business, because of its focus on math, models, and prediction. Real people and their decisions and interactions and motivations and emotions can not be captured in equations and mathematical functions.

Austrian economics has carved out a particular area of focus in the behavior of real people in its study of entrepreneurs and entrepreneurship. Austrians examine real entrepreneurial decision-making day-to-day; they highlight real people experiencing value and entrepreneurs’ role in generating that value. From this base, Austrian economics investigates how individual actions and choices and interactions lead to the formation of markets.

Dynamism: The market is a process.

Austrian realism sees the market as a dynamic process, continuously unfolding in interaction and innovation and change. Mainstream economics, with its preference for the greater mathematical tractability that comes with abstraction, has no capability of dealing with this real-world dynamism. The embrace and study of dynamic processes gives Austrian economics much of its applicability in business. The business world is never static. It can’t be understood in abstractions. It’s real and messy and changeable and unpredictable.

Uncertainty and complexity: embrace emergence.

Uncertainty is a keyword for Austrian economists. It’s a term that describes the real world in which entrepreneurial businesses operate. They can never know for sure what comes next; they can’t anticipate all of the interactions between competitors, changing customer preferences, technological advances and social and economic trends. There is no sure-footed way to plan for the future. Austrians recognize uncertainty and help businesses think about how to cope with it, how to narrow it, how to accumulate knowledge to lighten it, how to weigh decisions in the environment of uncertainty.

The new scientific term for uncertainty is complexity: in any system, the interactions are so many and their results are so unpredictable that modeling and forecasting are impossible, and outcomes are defined as emergent (i.e., outputs happen in a way that is not predicted by merely combining inputs). Austrian economics helps businesses deal with emergence.

Subjectivism: People are people, both as consumers and as providers.

One of the realistic principles of Austrian economics is to deal with people as people: we are all subjective in our valuations and judgments and emotions. We are not homo economicus: perfectly rational (in the mainstream economists’ definition of rational) in objectively weighing benefits and their opportunity costs. If all we are doing in producing goods and services for consumption is trashing the planet, then we can’t be rational, in their eyes.

In order to understand business and understand entrepreneurship, it is absolutely necessary to begin with subjectivism. Consumers’ subjective values ultimately determine what is produced; if consumers don’t value something, producers won’t make it. On the producer side, entrepreneurs’ subjective valuations of the resources they have available to them to assemble in a production process affect the value of their business.

It is entrepreneurs’ subjective evaluation that results in the identification of new uses for a resource, and the introduction of new innovations. Subjective values lie underneath every new business relationship with customers, from streaming movies to google searches to online travel booking. Subjectivism is everywhere in the economy and in business.

Time: How to plan in the present to satisfy customers in the future.

Austrians are unique in their understanding of the economic role of time in business. Entrepreneurs deal in future time. They imagine better futures in which customers enjoy greater satisfaction, and then they imagine how to bring it about and act on their imagination. Production — getting from imagination to consumption — takes time. Entrepreneurs are dealing with buying decisions in the present (such as hiring and buying inputs) for selling decisions in the future. They can’t know future prices or future customer preferences, so it’s a bet.

The consumption decisions customers make today reflect entrepreneurial decisions that were made weeks, months, years or decades in the past. Austrian economics helps entrepreneurs manage the contingencies of time.

Time makes the customer the boss.

Austrians utilize the concept of consumer sovereignty as an analytical tool. It means that consumers are the ultimate decision-makers in all economic systems, because what they buy or don’t buy determines what is produced. Their power is a result of the time it takes to produce. The value of resources that entrepreneurs assemble today depends on what consumers think and feel in the future.

Forecasting is tricky and best avoided, but patterns can be recognized.

A consequence of time and consumer sovereignty is the fragility and inaccuracy of forecasts. How is it possible to forecast consumer tastes in the future? There are some exceptional entrepreneurs who get it right. What’s their secret? Austrians’ understanding of dynamics and complexity can help point to the processes most likely to be associated with success, without attempting to forecast it.

One alternative to forecasting is pattern recognition. Jeff Bezos said that consumers are unlikely in the future to ask for higher prices, lower quality or slower delivery. That’s pattern recognition. It’s generalized and broad based and lacking in precision and specificity. But there is a consistency to some patterns that entrepreneurs can recognize and act upon, adding their own idiosyncratic insights and guesses to shape the actual value propositions they will make to consumers.

Out of all this emerges the Austrian entrepreneurial method.

We’ve all been educated in the scientific method. It’s utopian: experiments conducted with strict controls will yield the truth.

The entrepreneurial method is different, but with equal status, and greater applicability in open — i.e., human — systems where control is not an option.

It’s a bit messy and hard to characterize with precision, but it’s nonetheless real. It starts with imagination — imagining a future in which customer dissatisfactions are addressed and resolved. Their world is made better. This is proactive creativity on the entrepreneur’s part, triggered by existing highly dispersed knowledge, including tacit knowledge, held by the entrepreneur and others.

The entrepreneur designs a business model that might be able to resolve the identified customer dissatisfactions in the future and assembles resources that he or she believes, in the right combination, could accomplish the task. There’s no correct way; the entrepreneur draws on the realism of Austrian economics to best understand the challenges and how to address them.

The entrepreneur then advances with her or his own form of experiment. It’s not controlled in a closed environment. It’s a hard commitment of resources in a definite format to make a value proposition to customers. The experiment consists in ascertaining the customer’s response: like or dislike, buy or not buy, use and enjoy or use and reject? The experiment does not end there. It is continuous — receive the result, decide on how or whether to change the proposition, and try again.

Gut feeling or intuition or personal subjective heuristics all have roles to play in entrepreneurial decision making. Austrian economics captures these phenomena in the concept of judgment under conditions of uncertainty.

Organizing for the exercise of judgment.

Since judgment is the ultimate generative energy in producing value for customers, and since it’s personal and individual, how do firms grow? If judgement rests with a single entrepreneur, such as a founder, growth can’t scale, and will quickly reach its limits. Austrians have the organizational design solution: delegated judgment. Austrian leaders are able to design and implement non-hierarchical organizations in which every employee is empowered to exercise entrepreneurial judgment.

They do so by substituting value codes for authority. Value codes are the unwritten codes (although they might be found in the employee handbook) and conventions of “how we do things around here”, how we generate value for customers, the mission and purpose and internal methods of the firm.

Additional Resources

“Austrian Entrepreneurial Principles” (PDF): Download PDF

Austrian Perspectives on Entrepreneurship, Strategy, and Organization by Nicolai J. Foss, Peter G. Klein, and Matthew McCaffrey: But It On Amazon

126. Joe Matarese Defines a Whole New Level of Customer Value to Build a High Growth Service Firm

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Firms that can unlock the deep secrets of subjective value can unleash powerful, long-lasting value streams. When these flow in a confluence with well-identified market drivers, revenue and profit growth can be greatly accelerated.

Joe Matarese tells Economics For Business how he conjoined these two forces for his medical staffing service firm, creating a dynamic market leader from a three-person startup.

Key Takeaways and Actionable Insights

Market Drivers are strong, lasting forces capable of projection.

Austrians are skeptical about prediction, but it is reasonable to project some forces into the future. Demographics is one — the progression of age cohorts through the demography of a country can be mapped quite accurately. Increasing longevity is another, based on ongoing increased investment in health care and advances in the associated technologies. When Joe Matarese identified a shortage of doctors, he was able to confidently assume the shortage would continue.

When customer problems result from these forces, a market segment opens for solutions.

One customer problem fed by these forces is staffing for critical roles in hospitals — doctors, anesthesiologists, nurses, etc. Staffing complements need to be assembled, absences caused by holidays, maternity leave, etc. need to be covered, and the natural churn of individuals taking new jobs, retiring, or moving requires flexible response. Not only staffing but scheduling is required — the right medical team for the specific operation at the appointed time.

The problem-to-solve is functional. The deep value is subjective and intense.

Joe’s core insight was about the intense emotional need, not just the functional need. He observed his client — an operations executive in a busy hospital system — stressing out about the problem. Operating room staffing is life-and-death. Unfilled team roles would often arise at the last minute, threatening the healthcare mission of the hospital.

Temporary staffing service providers would sometimes fail to deliver the scheduled stand-in. Stress for the executive intensified.

The solution for a deep-seated and intensely felt emotional need is to transfer the burden to the service provider.

Think of the intense burden the administrative executive bears when she’s not confident that her staffing plans are secure, and her routines and methods are not foolproof. What if there is a failure at the time of a scheduled operation and it can’t go forward? Or patients can’t get nursing care because of under-staffing? How much value is there in a service that can relieve the stress?

Joe Matarese conceived of the emotional solution: take the responsibility off the shoulders of the executive and take it on as a service of his firm. How is that achieved? Bulletproof processes and routines. Comprehensive databases of people and their skills and attributes, and of client facilities and their needs. The latest technology for profile matching and precision scheduling. Impeccable implementation. And, most importantly, intense listening to continuously monitor customer feelings, combined with the responsiveness to act on those feelings.

Growth follows when these market drivers, functional drivers and emotional drivers are aligned.

Medicus Healthcare Solutions quickly gained market share in its initial geography. Growth comes from adding new customers, expanding territory and the underlying forces of an aging population consuming more healthcare.

But growth is a management challenge. One area of great challenge is managing people. Those who signed on for the early stages of growth and development may not have the skills — or the interest — for the later stage tasks of management like strengthening processes and systems. Making sure the team is perfectly tuned to the demands of the current stage is difficult but critical.

Further acceleration of growth is driven by innovation.

Medicus Healthcare Solutions has always grown faster than the market. How? Through an intense search for new knowledge and its application in the form of unrelenting innovation — never resting in the search for better ways to provide client service. For example, in addition to continuous improvement in precision tailored scheduling, Medicus added a consulting service. Scheduling solves the client’s immediate short term problem, and does so again and again. Consulting can examine the client’s systems and solve the problem in the long term by designing and installing internal systems as good as Medicus’.

Joe has a long experience with innovation and how to manage it, and promised to come back to the Economics For Business podcast in the future to share his knowledge.

Additional Resources

“Driving Growth With Core Customer Value Insights” (PDF): Download PDF

“Medical Staffing and the Revolutionary Innovations We Need,” presented by Joe Matarese at the Mises Institute’s Medical Freedom Summit: Watch the Video

Medicus Healthcare Solutions: Visit the Website