Raushan Gross is one of the outstanding writers on the subject of entrepreneurship. In his latest e-book, The Inspiring Life and Beneficial Impact of Entrepreneurs, he establishes the ground rules of the complex system of entrepreneurial innovation in seven principles.
Key Takeaways & Actionable Insights
1) Consumer dissatisfaction is transformed into innovation by alert entrepreneurs.
The fuel that powers the engine of innovative progress is consumer dissatisfaction. The creativity of entrepreneurs transforms the fuel into the energy of innovative ideas, positive change and economic growth.
2) The engine keeps running because entrepreneurs continuously compete for customer approval.
Consumers and customers accept the latest innovation and keep seeking the next one. This relentless search inspires entrepreneurs to out-do each other in trying to bring the next improvement to market. We call it competition, but it’s really the entrepreneurial engine that never stops.
3) Entrepreneurs are empowered by their continuous learning from a constantly changing marketplace.
Some call the entrepreneurial process “trial and error”. Error should not be viewed as a negative concept — it’s learning. The entrepreneur gets smarter with every learning occasion. Learning is continuous because the market is constantly changing.
4) Entrepreneurship is the foundation of a productive society.
A productive and progressing society is the result of consumers seeking betterment and entrepreneurs seeking to serve them via innovation and improvement. There’s no alternative, if what we want is progress. All regulation and intervention impede the system. The worst kind of intervention — socialism — destroys it entirely.
5) Entrepreneurship flourishes most where there is a supportive history and culture.
To preserve and encourage entrepreneurship and to avoid the descent into a sclerotic interventionist economy, we need to weave recognition of the role of the entrepreneur into our culture and institutions. We need to teach it in our K-12 schools and discuss it around the family dinner table.
6) A world without entrepreneurs would be pretty grim.
Economics often sheds light via thought experiments. Here’s one: imagine a world without entrepreneurs. No innovation. No progress. No automobiles and no iPhones. It doesn’t take long to realize the losses we would suffer and the quality of life we would lose.
7) The post-pandemic world is the perfect time to observe the impact of spontaneous agility and adaptiveness.
There is a tendency for us to focus on the destruction that resulted from the pandemic and the politicians’ misguided imposition of lockdowns. Raushan Gross looks in the other direction: what an opportunity to marvel at entrepreneurial adaptiveness at work in the economic recovery.
Free Downloads & Extras From The Episode
To download Raushan’s latest ebook, The Inspiring Life and Beneficial Impact of Entrepreneurs, visit E4EPod.com/Raushan.
https://hunterhastings.com/wp-content/uploads/2020/07/e4e-cover-74.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-07-14 18:09:482020-08-23 11:38:3674. Raushan Gross on The Inspiring Life and Beneficial Impact of Entrepreneurs
Business books and business school courses tend to think of organization design as the structuring of a hierarchy, or the linkages of nodes in a network. The boxes and lines are departments, executives, assignments and communications flows.
Professor Peter Klein invites us to think in a different fashion. Organization design is the distribution of judgment among collaborators. The judgment of many people is necessary to the firm’s existence and value-facilitating practices.
Key Takeaways and Actionable Insights
For entrepreneurs, the future is not risky, it’s uncertain.
Risk is a calculable mathematical probability, like the result of 1000 tosses of a (fair) coin, or the likelihood of you being involved in a car accident in 40 years of driving on US interstate highways.
The outcomes of entrepreneurial decision making are not calculable. They can’t be computed. Yet entrepreneurs need to make decisions, without having all the facts in hand today, and without knowing the odds of the future results. That’s uncertainty.
Therefore they exercise judgment. Judgment is action. It’s business practice.
Judgment is not guessing, or speculating, or hoping. Judgment is action. Specifically, judgment is taking ownership of property and resources, combining and recombining them in different ways, and using them to make a product or service to offer to the market.
Judgment also incorporates spirit: the imagination, energy, creativity and bravery that entrepreneurs apply when they act. Judgment is human action.
And judgment is continuous. Entrepreneurs are called upon every minute of every day to make decisions of judgment.
Judgment quickly becomes team action.
As firms grow, the founder can’t be the sole exerciser of judgment, or the only one making commitments or acting creatively and imaginatively. In larger, more complex, multi-divisional forms, there are many executives, managers and employees who will be called upon to make judgments. And they will be well-qualified to do so, since they have special skills and tacit knowledge that the rest of the firm, including the founder, do not have.
In fact the founders or owners (or Board Of Directors) actively seek the judgment of the whole firm, in order to achieve the highest level of business success. Often, they make sure that everyone in the firm has enough “skin in the game” (in the form of incentives, commissions and supplemental compensation) to motivate them to give their best judgment.
How does judgment apply in complex organizations?
The firm develops a mix of original judgment and derived judgment (see Mises.org/E4E_72_PDF).
Derived judgment is Peter Klein’s term for the delegating of decision-making power and its distribution throughout the firm. Original judgment — the ultimate decision-making power — rests with the entrepreneur-founder, or may reside with a Board Of Directors or an appointed CEO. Derived judgment is granted to others throughout the firm who have special knowledge and skills to act creatively and imaginatively on the specific uncertainty they face in their positions.
The skill of original judgment is selecting the right people to exercise derived judgment, and designing the right combination of motivating incentives and appropriate controls.
What’s the best combination of incentives and control?
Austrian subjectivism and individualism, along with opportunity cost analysis, can point the way to the best mix of incentives and control.
Subjectivism tells us that there is no objective right answer to questions about which decision rights the owner should delegate to which employees under specific circumstances. The answer to those questions depends on the particular circumstances of the venture, its technology, its market, its business environment, the characteristics of the employees and the characteristics of the owner.
Individualism tells us that there are no generalizations about people — each one has different knowledge and skills and characteristics like reliability or trustworthiness, as well as creativity and imagination. The entrepreneur must judge each one individually, and match them as well as possible to specific circumstances.
Opportunity cost analysis tells us to always weigh the potential upsides and potential downsides of each choice and each appointment of an individual to a position in which they can exercise derived judgment. Exercise judgment about judgment.
Consequently there are four considerations:
Be as sure as you can to choose the individual with the most (and most relevant) tacit knowledge for the area in which they are going to exercise derived judgment.
Choose the individual who adds the greatest amount of experience as possible to the relevant knowledge.
Make sure the derived judgment of managers and employees is guided by a well-articulated mission (why we do what we do) and business model (how we do what we do). Pay attention to how well these are understood and shared.
Balance knowledge and experience against the potential for abuse (misjudgment) and the potential cost of that abuse should it occur. Don’t risk “destructive entrepreneurship”.
There are no “bossless” organizations.
Peter Klein points out that even in the flattest of organizational designs (think Wikipedia, Zappos, Spotify, or W.L. Gore) there is always some kind of governance, either of rules or of hierarchical authority, to limit the risk from derived judgment gone awry.
Don’t design an organization with an excessive amount of derived judgment relative to the controls that are in place.
How good are you at original judgment and at delegating derived judgment?
Entrepreneurship in action is real people in real-life situations. It’s not theory. Some are going to be better than others, as indicated by results and outcomes.
It will be useful for you — although not definitive — to self-assess your entrepreneurial judgment and how you delegate it. Gallup’s Builder self-assessment promises to help you build a thriving company and a winning team. Personality assessments like the Big 5 are less specifically tailored to entrepreneurial judgment but can nonetheless shed some light on personality traits that are applicable in entrepreneurship, whether in a small business, a growth firm or a corporate structure.
https://hunterhastings.com/wp-content/uploads/2020/06/e4e-cover-72.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-06-30 16:32:422020-08-23 11:38:3672. Peter Klein: Four Considerations for the Delegation of Derived Judgment
Negotiation is an important economic process. The results of negotiation can significantly influence outcomes for all businesses. There are costs to asymmetry of negotiation skills between firms, customers, suppliers and partners.
Sanjay Yadav is an expert in negotiation. He learned his skills from both sides of the desk: in procurement and operations for large multinationals, and then in contract negotiation for creative services businesses of all sizes selling their services to similar multinationals.
From this unmatched combination of experiences, he has developed processes, tools and techniques and a comprehensive training program for executives.
Key Takeaways and Actionable Insights
Negotiation skills are vital to your business.
How well you negotiate will directly affect your cash flows, your costs, your margins, your scale, your financing and your resource allocation. It will indirectly affect your brand reputation, your organizational designs and your delegated management capabilities based on the employment contracts you negotiate.
Negotiation can be taught and learned.
As with everything in business, knowledge absence renders your outcome more uncertain. If your knowledge of the appropriate skills is lacking, you might experience disappointing results when negotiating with customers, suppliers, partners, employees and others in your ecosystem. If your role includes negotiating, allocate some time to skill development.
Negotiation is a process — the best results come from knowing how to do the right things in the right order.
For example, taking time to establish shared trust at the outset is better than having to recover lost trust later in the process. Think through the process from beginning to end — including what could go wrong or what unexpected difficulties might arise — so that you are never thrown off-track. When you know the correct next step to advance negotiations, you’ll be prepared in advance for that step and be ready with the appropriate action.
Negotiation is responsive to many Austrian principles.
Individualism: Austrian economics helps us think about the individual with whom we are negotiating, rather than the organization he or she represents. Every individual in every negotiation has unique identity, unique needs, a unique set of preferences and a unique context. Understanding individualism helps build trust and rapport.
Empathy: We are trained in Austrian economics to go inside the mind of the customer, in our imagination, in order to empathically understand their dissatisfactions and unmet needs. The same is true when working with a negotiator on the other side of the desk from us. Empathy helps us understand their goals and motivations, and to potentially create some subjective value from that knowledge. And it helps us think about the best tone and language.
Roundaboutness: Your actions early in the negotiation process will emerge as consequences later. If you pitch an absurdly high price at the beginning of a negotiation, thinking it will give you flexibility to lower it later, you’ll lose the trust of the other party and make negotiating harder. Small positive signals at the beginning can become major negotiating advantages later.
Entrepreneurial mindset: An entrepreneur thinks in terms of solving a problem — or relieving a dissatisfaction — for others. The market rewards creative solutions. Negotiation is an entrepreneurial undertaking — think about how to solve the other party’s problem.
Understanding value and communicating value are critical success factors.
Austrians have the best understanding of value. This is a huge advantage. At the outset, be sure to spend significant time communicating to the one with whom you’re negotiating the value of your offering. Value is not related to cost; it’s related to the experience your customer / partner / supplier is going to have as a result of collaborating or contracting with you. Be sure your counterparty can properly assess the subjective value you are going to create for them. If they anticipate the same value that you propose, then negotiation will not be a barrier to an exchange.
You can establish a negotiation culture.
Some companies — especially a small one negotiating with a large one (and especially with the procurement department!) — fall into the trap of feeling overwhelmed or under-qualified. Confidence in both content and process is important for success in negotiation. You can develop a negotiation culture of confidence via training, practice and preparation.
Negotiation is a universally applicable skill.
Mastery of the negotiation process is a life skill as well as a business skill. You’ll feel confident about establishing and managing relationships between your company and its customers, as well as with people you contract to provide services at your home, and in any kind of association or organization. You might find yourself negotiating with your spouse. Use your skills!
Negotiators are happy people.
Sanjay’s sign-off advice: negotiators are happy people. They know the value they are offering, they know how to get the appropriate rewards for their value, they are comfortable and confident with the process of negotiated value exchange, and they know how to resolve conflicts.
https://hunterhastings.com/wp-content/uploads/2020/06/e4e-cover-71.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-06-23 16:40:372020-08-23 11:38:3671. Sanjay Yadav on the Process-Based Skills of Negotiation
In his book, Narrative Economics, Robert Schiller, Nobel Prize-winning economist, tells us that the greatest influences on the nation’s economy come from the stories we tell ourselves about it.
A depression lasts longer when people tell themselves and each other that it’s going to be a long time before things turn around. Recoveries accelerate when people turn optimistic and tell each other that the good times are just over the horizon and will be back soon. Currencies lose their purchasing power when people tell each other prices are going up and its best to exchange cash for products now and not wait for the higher prices. Trade unions are vilified when people start talking about excessively high wages pushing up inflation. Schiller has a lot of stories, or narratives, as he calls them.
These are macroeconomic tales, about trends in GDP, and the price level. But the same is true at the microeconomics level. The reason why there is so much negativism about business, capitalism and free markets is that people are telling each other negative stories about business aggressiveness, unsustainability, lack of sympathy and general coldness. We’re angry at business, it seems.
One source of this anger are the business school instructors, and their textbooks and business biographies and histories that portray businesspeople as a warrior class and business competition as warfare. Invading industries, taking beachheads, fighting for market share. The Art Of War by Sun Tzu is often cited as the most popular business book, and a source of business strategies.
Another military metaphor is defensive – protecting your castle. “You need a “moat” — essentially, a barrier that can protect your business from potential encroaching forces”, says one writer in Medium.
The military narrative is a horrible metaphor for business. The blood and gore and destruction and operational chaos that war metaphors bring to mind have no place in our image of what businesses do and the service they provide. Customers buy products and services only if they believe that, by so doing, they’ll make their lives better in some way. Otherwise they wouldn’t buy. Businesses exist to generate this sense of betterment, of satisfaction, of well-being among their customers. If they are not good at it, they’ll lose the patronage of that customer to a business that pleases them better. Consequently, businesses are always trying harder to understand what will make their customers happy, and to perfect their own knowledge of how to deliver that happiness.
We need a new narrative of business formation and business action that is an alternative to the military metaphor, especially so that we can teach our kids in school that business is a channel for their aspirations, not a regimen to which they are to be subjected. We need a business-is-beautiful metaphor. That its purpose is to serve and to please and to make life better. That it’s the source of what’s good: income to nurture families, products and services to nurture life.
One business guru who is leading us in this direction is Per Bylund, a professor at Oklahoma State University’s Spears School Of Business. He writes about business owners and executives and managers building an island – an island that is inviting enough to attract visitors who will enjoy their time there, and perhaps become residents. An island that’s separate but well connected by bridges and ferries and transportation to bring people comfortably to and fro. Like any island, it’s unique. No two are the same.
Professor Bylund calls them “islands of specialization”, designed by entrepreneurs and their management teams to serve customers in a specialized way that will merit their patronage, keep them visiting, and make them loyal. His strategic advice to businesses has no military overtones.
“Aim to please” is his first principle of beautiful business. To attract people – customers – to the island is simply a matter of understanding what will please them. This requires empathy – understanding people, their hopes and dreams and desires and preferences, and catering to them. It’s a matter of discovery and translation. Business strategy, in this vision, is not aggression but deference: seeking to please others.
“Don’t copy – move beyond” is the next principle. The military metaphor sees competition as conducting wars over business territory, or fighting for customer attention. That’s a misconception of the economic concept of competition. In the economic way of thinking, there is no new value for customers when a firm merely copies what is already offered by others. Value emerges from what’s new and better and different. Smart entrepreneurial island builders assess the current landscape, predict where the customer will be in the future, and navigate to that place to build a new island.
Once they establish the new location, entrepreneurs build from strength. They distinguish what is unique about their resources that can be of benefit to customers. Much of the uniqueness is subjective – the owners’ or the business’s identity, their unique knowledge and expertise, their relationships and interconnections that can co-ordinate the assembly of specific solutions. It’s not about arraying more destroyers on the battle lines than the opponent; it’s arraying a set of uniquely desirable and attractive brand features and attributes that are attractive to the customer.
And the island builder keeps on building. Not for scale or market share or maximizing output. The direction of growth is to maximize value. Value is a feeling of satisfaction in the customer’s mind. Maximization, in this view, refers to higher levels of satisfaction, over a wider range of experiences, for more customers on more occasions. Maximization is not a quantitative or mathematical concept, to be compared with rivals to ascertain who is “winning”. It’s a qualitative concept – what quality of value has been experienced, and how can it be improved.
The four guiding principles – aim to please, in unique ways, based on your own identity and strengths, always thinking about the value that’s experienced by customers – lead to beautiful businesses. If you are developing visual island imagery in your mind’s eye as you read this, think of a balmy climate, vibrant flowers and trees, bubbling streams and distinctive animals and birds. Perhaps there’s an attractive resort hotel welcoming and catering to customer-guests. Let your imagination run free in conjuring up beauty – that’s what entrepreneurs do as the start, grow and sustain their businesses.
Per Bylund, PhD, is assistant professor of entrepreneurship and Records-Johnston professor of free enterprise in the School of Entrepreneurship at Oklahoma State University. His areas of research are entrepreneurship, management and economic organization. He is author and editor of four books.
Mark Packard has a big insight about how entrepreneurs manage innovation. Producers don’t innovate, customers do. That may sound a little odd, but Mark’s Value Learning Process makes it clear.
Key Takeaways and Actionable Insights
Innovation is one of the keys to business success.
The world is changing at such a pace, and your customers’ preferences are changing so fast, that your business has to change at the same speed, or even faster. How to keep up is a part of the entrepreneurial challenge.
Mark Packard has a big insight about how entrepreneurs manage innovation.
Producers don’t innovate. Customers do. That may sound a little odd, but Mark’s Value Learning Process makes it clear. Customers are always looking for new value. They’re always dissatisfied, seeking to make things better for themselves. They know what’s wrong or disappointing or less than perfect with their current experience. And they’re always looking for new solutions, better ways to do things, improved experiences. If you know how to interpret their behavior and their dissatisfactions, they’ll tell you what to do.
Then, as a producer, you need to figure out how to do what the customer wants.
Two kinds of knowledge and two kinds of thinking are essential.
Entrepreneurs need to know about what customers want. Then they need the know-how to deliver the solution. Mark calls these two kinds of knowledge: Needs Knowledge and Technical Knowledge. They require two different mindsets.
Click the image to download the full PDF.
Mindset 1: Think like a customer.
If customers are the ones who innovate, entrepreneurs must be able to think like customers. Really think like them. Be dissatisfied. Demand better. We call the required entrepreneurial skillset “empathy”. It’s sentiment mirroring – your brain and sensory system has to be able to mirror those of the customer. You must feel the same feelings they do. It can be done. Practice it.
A big part of the economy is consumers innovating for themselves. Think like they do. Make a list of what’s most important to you. These are innovation opportunities that you know more about than anyone else. Think about how you’d like to improve your experiences in these areas. What features can you not do without? Why? Think like a customer. Start with your own problem in order to immerse yourself in the problems others want to solve.
Mindset 2: Think like a producer.
You love your customers. You want to please them. Develop the technical knowledge to do so. This doesn’t necessarily mean high technology. If you want them, for example, to enjoy a new kind of convenience grocery store with an organic food emphasis and lots of innovative food-to-go options, you need to know store operations, supply chain logistics, inventory management, and flexible / adaptive hiring practices. You need mastery of technical knowledge.
And while you don’t need to be a programmer, you do need knowledge of the latest technologies from a producer’s viewpoint: how do these technologies help you to deliver a better, faster, lower cost customer experience. Geeking out on these technologies is a good idea for producers.
Knowledge Compounding.
Many innovative solutions come from combining two existing pieces of knowledge. Combining needs knowledge and technical knowledge can produce a new solution to the market. Mark also talks about combining active knowledge — what we know about that’s prominent in our mind — with semi-active knowledge — what we know about that we don’t use every day or is stored away deeper in our memory that’s hidden by our recency bias.
These and other knowledge combinations can generate big ideas. In fact, Curt Carlson in episode #37 told us that combining knowledge is not just additive, it’s multiplicative. Knowledge compounds when we combine it, leading to faster innovative progress. Utilizing Mark Packard’s knowledge combination techniques is the way to get there.
https://hunterhastings.com/wp-content/uploads/2020/06/e4e-cover-69.jpg10632500Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-06-09 10:04:062020-06-09 10:05:1469. Mark Packard’s Value Learning Process: The Two Kinds of Knowledge Entrepreneurs Must Have
Artificial Intelligence promises cognitive augmentation for business practitioners. Professor Steven Phelan’s research reveals that Entrepreneurial Intelligence is far more important and far more likely to influence business success. He explains Entrepreneurial Intelligence and why it will always beat Artificial Intelligence on this week’s episode.
Key Takeaways & Actionable Insights
What is Entrepreneurial Intelligence?
For Steven Phelan, “It’s all about the spark” — the moment of inspiration in combining disparate elements together to develop a new solution. Humans draw on “the fringes of consciousness” to create new constructs.
Entrepreneurs also take risks, investing time, talent and treasure in their venture in hopes of gain, yet understanding that they could lose something of value to them in the endeavor.
Click on the image to view the full PDF.
How do we contrast Entrepreneurial Intelligence and Artificial Intelligence?
First, we need to differentiate between the narrow and general forms of AI. Narrow AI is software that can solve problems in a single domain. For example, a Nest thermostat can raise the temperature or lower it in a room according to a pre-set rule. “If this, then that” is the general rule for this kind of intelligence. The parameters are designed by the programmers.
For the unstructured problems of life and business, a truly intelligent computer would have to figure out for itself what is important. Part of the problem is that understanding or predicting human motivations — as entrepreneurs do — requires a “theory of mind”, an understanding of what makes humans tick. Entrepreneurs need empathic accuracy — unavailable to AI — to anticipate the needs of consumers. A sentient computer would need self-awareness or consciousness to truly empathize with humans, and have a set of values with which to prioritize decisions.
What’s the role of machine learning?
If you work in a business that generates a lot of data, it can be mined by data scientists for patterns, and those patterns might indicate a better way to respond to customer needs. The richest source of data is behavioral — like choosing songs to listen to on Pandora. Machine learning can detect a pattern of what kinds of sings a user chooses most. A human interpreter can translate those patterns into preferences — in other words, motivations are embedded in behavior and machine learning can help entrepreneurs extract them.
So, the entrepreneur’s best resource is entrepreneurial intelligence.
The psychologist Howard Gardner helped us to recognize many types of intelligence, including math, language, spatial, musical and social. There are two types that might be indicative of entrepreneurial intelligence: EQ (Emotional intelligence) might be associated with intensified empathic skills and empathic accuracy; CQ (Curiosity Intelligence) is linked to the kind of creativity that finds solutions by combining elements on the “fringes of consciousness”, as Hubert Dreyfus puts it.
Can entrepreneurs and business owners assess their own entrepreneurial intelligence?
There are scales to measure EQ and Creativity. Here’s a link to an entrepreneurial quotient assessment: Mises.org/E4E_68_QA
And here is a more action-oriented self-assessment we developed for E4E: Mises.org/E4E_68_SA
The bottom line:
Entrepreneurs need knowledge of how to profitably satisfy customer preferences given the resources at hand. This is not a trivial requirement. It is not possible to pre-state all of the uses for a given resource nor to compute the payoff for a given application. Current computational methods are thwarted without a complete list of entrepreneurially valid moves and the payoffs from such moves. No amount of growth in processing power, data communication, or data storage, can solve this problem.
The late Steve Jobs is often held up as the epitome of a successful entrepreneur. His founding of Apple, ousting by his own board, and subsequent return to rescue the company, and then make it the most valuable publicly traded company in the world is the stuff of legend. One of the apparent secrets of his success was to understand that “people don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”
This ability to “read things that are not yet on the page” lies at the heart of the concept of empathic accuracy. Empathic accuracy is “the ability to accurately infer the specific content of other people’s thoughts and feelings”. Until AI can do this, Entrepreneurial Intelligence is a better tool for the innovating entrepreneur.
