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54. Steve Mariotti: Teaching Entrepreneurship as the Universal Route to a Better Life.

Can entrepreneurship be learned? We’d like to believe it can, since entrepreneurs drive economic growth – creating tomorrow as Per Bylund puts it – and betterment for their individual customers and for society.

Key Takeaways and Actionable Insights

Emergent circumstances placed Steve Mariotti in the position of teaching entrepreneurship to boys and girls in the nation’s toughest high school. After some trial and error, here’s what he established.

There’s a universal desire for the fruits of entrepreneurship. Steve classified this desire as a drive to escape poverty.

You are restricted from ownership, and all the feelings of pride and fulfillment that come with it, when you are poor. Ownership – what economists call private property – is an exciting prospect. If entrepreneurship provides a route, people will take it.

Steve’s innovative entrepreneurship curriculum generated intense excitement.

He had difficulty in commanding attention for English and Math, but the same students who resisted conventional learning were stimulated and energized by the subject of entrepreneurship.

The open door to learning entrepreneurship is understanding market pricing.

Steve started the entrepreneurial journey for students with thinking about pricing of an everyday product – in his case, wristwatches. Why are there so many prices for wristwatches? Why are there so many kinds of wristwatches at different price points? Why is it that one person would pay a high price for one kind of wristwatch and another person would refuse, preferring an alternative at a different price? Just thinking about pricing in this way was a revelation.

Thinking about pricing can lead to an understanding of unit economics.

Entrepreneurs need to know two prices – the one the buyer will pay and the one that represents their cost. Steve quickly established that this knowledge is harder to establish. Is there a profit in the priced transaction for the entrepreneur once all costs – of time, money, effort and alternatives – are taken into account. This requires an understanding of sourcing and supply chains, wholesalers and vendors, direct and indirect costs and overhead, as well as personal preferences (do you really want to spend all the time and effort that the business will require of you?)

High schools are resistant to teaching entrepreneurship, and Steve’s students were constrained by regulation and authority.

“You may not talk about money in the classroom.” These and other restrictions were typical of the barriers Steve faced – and faced down. Entrepreneurship is one of the most relevant skills to impart to high schoolers, and yet the subject was viewed with disdain.

Steve emphasizes practicality as the critical foundation for teaching entrepreneurship.

He taught his kids unit economics, profit and loss, simple accounting and the practicalities of starting, growing and managing a business. No theory. Everyone in his class succeeded with a starter business. Many went on to greater entrepreneurial success.

Steve has taught entrepreneurship all over the world, and found that culture matters a great deal.

In post-communist Russia, young people could not grasp supply and demand, entrepreneurial profit and unit economics. The labor theory of value had been brainwashed into them.

In post-communist Vietnam, in contrast, people thronged to his teaching and eagerly pursued all the behavioral changes he advocated, both at the entrepreneurial level and the government administrative level (like adopting low, simple tax schemes). Theirs was a more receptive culture.

Items Mentioned In This Episode

Steve’s Book Goodbye Homeboy –  Click Here
Steve’s Book Entrepreneurship: Starting and Operating A Small BusinessClick Here
Austrian Entrepreneur’s Journey Course – Click Here

Free Downloads & Extras

The Role of Knowledge In Entrepreneurship: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

Ready to put Austrian Economics knowledge from the podcast to work for your business? Start your own entrepreneurial journey.

Enjoying The Podcast? Review, Subscribe & Listen On Your Favorite Platform:

Apple Podcasts, Google Play, Stitcher, Spotify

53. The Entrepreneurial Ethic: What Drives Entrepreneurs to Create the Future?

Non-one has thought more deeply about the entrepreneurial ethic than Per Bylund. The subject is critical for understanding the source of energy in the free market system, the sources of economic growth, the creation of value, the making of a just and moral society, and the success of individuals and firms who make the commitment to entrepreneurship.

This week on Episode #53 of the Economics for Entrepreneurs Podcast, I talked to Per about these deeply important subjects.

Key Takeaways And Actionable Insights

The role of the entrepreneur is vital to economic growth, individual well-being and social cohesion. But individual entrepreneurs are not trying to grow the economy or promote a better society. Their goals are individual – to serve one customer by improving their lives with better service and innovation directed at meeting their needs and wants.

Entrepreneurs create the future…

Tomorrow will be different. Tomorrow is created by entrepreneurs. From the high street store owner introducing new inventory to the high tech founder introducing new features, entrepreneurs actively participate in changing the future to the way they want it to be.

…and thereby change the world.

Real change happens through value exchange in the marketplace, facilitated by real entrepreneurs. Changing the world is a matter of responding to customer dissatisfactions, and not false impulses like so-called “social entrepreneurship”.

The Entrepreneurial Ethic Infographic Sample

Click on the image to download the Full PDF Infographic.

To create tomorrow, follow the entrepreneurial ethic.

The entrepreneurial ethic is the belief in taking action to deliver an experience of value to the customer. Customers always feel that things could be better in some aspect of their lives. Entrepreneurs are people who bring that betterment. They do so voluntarily, without fraud or coercion, or deception. Their ethic is to improve the lives of one customer at a time, and then eventually a whole segment of customers, and ultimately of all customers. One entrepreneur serving one customer leaves resources available for another entrepreneur to help another customer. It all rolls up to a better society.

The mechanism of the entrepreneurial ethic is customer betterment.

Entrepreneurs decide on principles for their business – how are they going to facilitate value – and then seek mechanisms to implement their principles. They put theory into practice, operationalizing the Austrian economics idea of the economy as a process for getting to customer satisfaction. For example, they apply Austrian Capital Theory by always making sure that any investment they make in their business contributes to customer betterment. If it’s not important for the customer, they don’t make the investment. If it is, they do. Customer sovereignty is the theory; always asking what the customer will think of any action the entrepreneur takes is the practice.

Betterment is decided by the customer.

The entrepreneurial ethic is that the customer is the boss. The entrepreneur seeks to understand the need for betterment. It is a feeling on the customer’s part, sometimes inarticulate. Customers can’t tell entrepreneurs exactly what they want, but they can express dissatisfaction with the status quo. The entrepreneur gives form to the customer’s dissatisfaction by developing a new value proposition for a new service or product. Do they always get it right? No. The customer’s inarticulateness makes accuracy difficult, and the customer dynamic is continuous change, always rebalancing preferences. The entrepreneur submits to the customer’s decision.

The entrepreneur solves uncertainty, for themselves and society.

Future uncertainty can sound like a burden or a barrier. Entrepreneurs solve this problem. Firstly, they recognize uncertainty. It exists: no-one can know the future. Entrepreneurs break down uncertainty by process. Step-by-step, they set out a pathway to their goal of bettering customer’s lives, knowing that there will be changes along the route as customers change and competitors bring even more change. The mechanism here is learning. Each step reveals new knowledge about whether the entrepreneur has imagined the goal and the path accurately. There will be lots of pivots before reaching the market. The earlier and more frequently the customer value learning can be incorporated, the more accurate the pivots. Entrepreneurs are reflective about every step.

When one individual benefits, there are no losers.

When an exchange does take place, and the world changes as a result, there are two beneficiaries – the customer, who experiences value and the entrepreneur who facilitated it. But no-one loses. There is a false anti-business meme that the success of an entrepreneur can somehow be interpreted as a loss for society. Especially if that entrepreneur becomes a billionaire by helping an especially large number of customers. It’s just not logical. A gain by one individual can not be a loss for society.

The entrepreneur experiences their own kind of value.

A few entrepreneurs become billionaires. Most don’t. They may or may not make more income than they would if they took a corporate job. But the experience of value for the entrepreneur is subjective, just as it is for the customer. They may be pursuing a feeling of self-reliance or a sense of achievement. Importantly, entrepreneurial goals are long-term, often intergenerational. Many individuals start businesses that they can pass on to their children or generate the funds for their children to attend college and become doctors or lawyers or economic professors – positions that the entrepreneurial effort of the parents made possible. Other entrepreneurs set up charitable foundations that can deliver benefits for decades.

Items Mentioned In This Episode

Mises For Business: Mises Institute Economics For Entrepreneurs Podcast Archive –  Click Here
Our Austrian Entrepreneur’s Journey Course – Click Here
Per Bylund on Twitter – Click Here
E4E searchable archive of podcasts and free tools – Click Here

Free Downloads & Extras

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

Start Your Own Entrepreneurial Journey

Ready to put Austrian Economics knowledge from the podcast to work for your business? Start your own entrepreneurial journey.

Enjoying The Podcast? Review, Subscribe & Listen On Your Favorite Platform:

Apple Podcasts, Google Play, Stitcher, Spotify

52. Mark Schaefer: The Future of Marketing Is Austrian – How Human-Centered Marketing Can Fix A Business Function That Has Lost Its Way.

This week I spoke with Mark Schaefer about his iconoclastic and deeply insightful book Marketing Rebellion, in which he expounds the solution to modern marketing’s failures, via an approach he calls Human-Centered Marketing.

Listeners to Economics For Entrepreneurs and aficionados of Austrian Economics will recognize the close overlap between Austrian Economics and Human-Centered Marketing.

Key Takeaways & Actionable Insights

Marketing has lost its way – in its current state, it’s no longer a useful business growth tool for entrepreneurs.

  • An obsession with technology has eclipsed the focus on people and human values.
  • A mania for measurement has obscured emotional connections with customers.
  • “Marketers hide behind their dashboards” and are not conducting conversations with customers.

The solution, says Mark Schaefer, lies in the principles of Human-Centered Marketing. Austrians can easily recognize these principles as our own.

Austrian Principles vs Human-Centered Marketing Principles

Click on the image to download the full PDF

The customer-sovereignty perspective yields actionable truths.

  • Customers don’t need ads – they don’t see them, they don’t hear them, they block them.
  • Customers are rebelling against the interrupt-and-annoy approach of marketers.
  • The customer is in charge.

What do customers want from marketers? The answer for Mark Schaefer lies in Core Human Truths – what Austrians call Highest Values.

  • They want to feel loved.
  • They want to be respected
  • They want to belong
  • They want you to advance their self-interest
  • They want proof that a firm or brand is contributing to their community

These are deep human needs that don’t change. Whatever the speed of change in market, these values are constant. Humanism lets marketers hold on to what is not changing, rather than being overwhelmed by change.

Marketing mantras like “loyalty” and “engagement” are false.

  • Customers don’t want to be loyal; they want freedom and choice – they like shopping around.
  • Engagement does not result from clicking on an e-mail and downloading a white paper or a coupon.
  • These are dashboard measurements, not human values.

Mark’s recommendations are grounded in humanism.

Customers respond to shared meaning and shared values – so long as the sharing is authentic. Businesses must be loyal to consumers, never let them down, always be consistent. Live on their island.

Seek trust. Marketers have burned through trust. The Edelman Trust Barometer shows trust in business and brands and advertising going down for 11 straight years. Now brands must transcend the public’s mistrust.

Flip your branding. A brand is not what you tell customers. A brand today is what customers say about you to their friends and peers. People trust other people.

Let customers create their own value. This is pure Austrian Economics: customer value is an experience that takes place entirely in their domain. Brands and businesses facilitate – but can’t create – the customer’s value experience. Customers hire your brand or business or product or service to help them create value.

Marketing is promise management.

  • Choose the promise you make to customers carefully – is it one they really want from you and will they trust you when you make it?
  • Ensure that you have the capabilities to deliver on the promise. Don’t over-promise.
  • Keep your promise every time, with no exceptions ever.

BONUS: Small and medium businesses have an advantage in human-centered marketing.

The larger the business, the harder it is to connect to customers on an individual, emotional level. Small business has an advantage in showing its face, demonstrating its personality and exhibiting trustworthiness.

Items Mentioned In This Episode

Mark Schaefer’s Human-Centered Marketing Manifesto is here. 
For comparison, our Menger’s Manifesto, from Principles Of Economics, is here. 
Find Mark’s book, Marketing Rebellion, here.
Mark’s website is https://businessesgrow.com 

Free Downloads & Extras

Accounting From An Austrian (Misesian) Perspective: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

Start Your Own Entrepreneurial Journey

Ready to put Austrian Economics knowledge from the podcast to work for your business? Start your own entrepreneurial journey.

Enjoying The Podcast? Review, Subscribe & Listen On Your Favorite Platform:

Apple Podcasts, Google Play, Stitcher, Spotify

What Would The World Be Like Without Entrepreneurs? Pretty Grim.

Reading Per Bylund’s How Entrepreneurs Build the World inspired a thought: What would the world be like without entrepreneurs? Could we really know what our world would be like without entrepreneurs and competitive markets? The Austrians view the entrepreneur as a key player in the market economy—not a glorified hero, as Israel Kirzner stated, but as the purveyor of information in the interaction of decision making between buyers and sellers.

F. A. Hayek expressed that many interactions and exchanges between market participants are spontaneous. With the absence of entrepreneurs in a market economy, the consumer could no longer demand products. Producer-entrepreneurs would no longer try innovative activities in which to profit through a harmonious spontaneous order of consumer-seller interaction. Nor would information through prices, as Ludwig von Mises found, be communicated effectively between buyers, suppliers, and sellers. There would be no new advancements in product or science breakthroughs from which the combination of inventions could further spin off other innovations that add increased value. In a real sense, no one would get what they want. More importantly, no one would act.

I think we can agree with Bylund. He asserted that the world was built by entrepreneurs. Without entrepreneurs, we would still be experiencing a Stone Age existence, feudalism, and dragging along at work and at home with antiquated means to modern ends. We would own archaic products and pay for ineffective services deemed valueless. No incentive would exist for producers and others to serve the consumer. The consumer would have no expectations to find value in products. This situation of no entrepreneurs would ipso facto lead to a dystopian state of autarky.

Consider how the world was built by entrepreneurs. Most of what we purchase and use daily started in the mind of entrepreneurs with their energy and capital. They thought of consumers’ needs and wants and brought products into existence with continually more reasonable and affordable prices, making these products available to almost all people. If the entrepreneur were absent from the market, our lives would look vastly different and our economy would be stagnant.

Toothpaste, floss, and brush were invented by William Colgate; the elevator was brought to us by Elisha Otis; and the printing press was accelerated by Richard March Hoe who invented the rotary printing press. The laptop or smartphone you are using to read this article was created by several entrepreneurs acting to provide you with this capability. That morning brew you drink was developed by entrepreneurs who used their capital and produced and delivered coffee beans to you—from bean to cup. Another innovator created the coffee maker.

The list goes on as to the benefits entrepreneurs have brought us and the progress they have made in the lives of the average person enjoying these conveniences spun out by the market process, competition, and ingenuity. Without entrepreneurs, a minimum of needs would be fulfilled in the market. The consumer would not have a voice—no vote. A lack of entrepreneurship would result in less human flourishing the world over. If it were not for entrepreneurs in their insistence to meet consumer demands and expectations, we would still be using rotary phones!

Additionally, companies would not exist. Or would they exist in a different form? In order to pursue innovation, firms need to acquire learning paths as described by Alfred Chandler (2001) in Inventing the Electronic Century. Chandler explained that the technology industry started as a result of entrepreneurial spin-offs directing newer innovative solutions based on the acquisition of learning paths. Chandler described the epic movements of entrepreneurs:

Those earlier industries were based on a number of basic technological innovations: the electricity-producing dynamo, which brought the electric lighting that transformed urban life, and electric power, which so transformed industrial production techniques; the telephone, which brought the first voice transmission over distances; the internal combustion engine, which produced the automobile and the airplane; the new chemical technologies that permitted the production of man-made dyes and, of more significance, a wide range of man-made therapeutic drugs, and other man-made materials ranging from silicon and aluminum to a wide variety of plastics. (p. 11)

As Chandler explained, the consumer electronics market would not have started ex nihilo—without entrepreneurial-minded people within the firms or without consumers demanding new and innovative products.

Learning paths facilitate the evolution and continuation of innovation. Market feedback enables firms to produce the products consumers demand. Once learning paths are discontinued, firms do not invest in innovative production methods. As the saying goes, “you cannot get blood from a turnip.” Why then would you think that firms that are not entrepreneurial will be entrepreneurial? They won’t. As Hayek so famously stated, “The market process is discovery through trial and error.” It is amazing how this critical function of the market is taken for granted—no inventions, no innovations, no competition, no entrepreneurs.

Consider the role of an employer—the one who provides employment to those wanting to earn a livelihood. Commerce and e-commerce would break down along with the division of labor, ultimately resulting in a decline in knowledge spillovers and entrepreneurial networks. Forget about ordering your favorite products or foodstuffs online and having them shipped to you expeditiously at a responsible price.

No entrepreneurs today, no entrepreneurs tomorrow. Without entrepreneurs today, who would pave the way for future entrepreneurship? There would be no one and no place to start—or as some say, “to build upon the ruins” created by past entrepreneurs. If the Great Atlantic and Pacific Tea Company (i.e., A& P) did not innovatively create the supermarket revolution of its day, the products and services consumers demand now would not exist—no home delivery, self-checkout, coupons, variety of foodstuffs, one-stop shopping. No gaming consoles, laptops, smartphones, modern medicine, quick-service restaurants, streaming, social media, customizable shoes, mass-produced clothing, etc. These industries and products would not exist today if the entrepreneur did not exist.

Without the entrepreneurial function in the market, the world would look different. Would there be such a term as consumer? Would better products with better quality come to the market each month, quarter, or year? Maybe not. The picture is bleak without the entrepreneur—without the entrepreneur putting forth savings, capital, energy, and resources to provide consumers with their most urgent demands. Where would the world be without entrepreneurs?

A Nation Has Lost Its Way. Entrepreneurship Will Put Us Back On The Right Track.

A nation has lost its way. On July 13, 2012, in a political campaign speech in Roanoke, Virginia, United States President Barack Obama uttered the sentence: “If you’ve got a business—you didn’t build that”. Successful entrepreneurs and businesses, he implied, owed their success to government spending and public infrastructure.

President Obama’s statement has been used to justify a view of economics that is dominated by government planning, intervention and regulation, and has contributed to public vilification of entrepreneurial success. The result has been a “new normal” of stagnant economic growth, the dullness of over-regulation, and growing socialist sentiment.

Contrast this with the story of one entrepreneur, Steve Jobs. Jobs was an entrepreneur from the beginning of his adult working life. He co-founded Apple in 1976, and co-created the breakthrough Apple Macintosh in 1984. He introduced the desktop publishing industry. He helped to develop the visual effects industry. He helped to develop a line of world-changing and culture changing products including iPod, iPhone, iPad and iMac. He launched a series of digital services like iTunes and the App Store. Today, Apple provides employment for tens of thousands directly, and hundreds of thousands more working for suppliers, vendors and app developers. Few human beings have done as much good in the world as Steve Jobs, entrepreneur. He did build that.

You and I have the opportunity to do the same, and the nation and the world have the opportunity to re-experience the glories of entrepreneurial action, exciting innovation and surging economic growth.

We will do so by rediscovering and re-asserting the economic role of entrepreneurship. Entrepreneurship is voluntary action: individuals energized to activate their ideas, create new benefits, and build new firms and new capabilities. The ethic of entrepreneurship is betterment: serving others by improving their lives, and delivering unprecedented experiences of health, wealth, comfort, convenience, speed, and augmented capabilities. The result of entrepreneurship is value for all: greater feelings of satisfaction, confidence, opportunity and optimism. Entrepreneurs elevate the achievement and aspirations of the nation. That’s what Steve Jobs did.

We’ll accomplish this return to the entrepreneurial spirit that built America by following the entrepreneurial method. We’ll start by sharing the knowledge of what entrepreneurship can achieve and how individuals embrace entrepreneurship. We’ll release young people from the constraints of the educational institutions that don’t teach entrepreneurship, and show them how to learn the new way. We’ll build a community of entrepreneurs who share the enabling knowledge, ideas, skills, tools and techniques. We’ll celebrate the success stories that light the way. We’ll teach entrepreneurs how to embrace the uncertainty that seems to deter them today.

45. 2019 In Review: Four Principles Of Austrian Economics You Can Usefully Apply To Your Business

In an attenuated Christmas Eve podcast, we highlighted four of the useful principles we covered during 2019.

Principle 1: Customer Sovereignty – Which Means Putting Your Customer First.

The economists call it customer sovereignty – the principle that it is the consumer who ultimately decides which businesses are successful and which are not, as a result of their purchasing (or not purchasing) entrepreneurial offerings. Stephen Denning calls it The Law Of The Customer. John Rossman calls it Customer Obsession.

Entrepreneurs who understand the leverage of customer sovereignty do everything they can to know and understand their customer’s goals, values and feelings. They seek out negative emotions – disappointments, unease, a feeling that things could be better – because these are the inputs for designing new offerings that customers will welcome to make their lives better and relieve their unease.

The method of Austrian Economics in this regard is empathy. It’s a soft skill you can nurture and develop with practice. Use the empathic diagnosis tool that we provided earlier this year (link below).

The techniques for empathy include the Means-End Ladder (understanding customers’ goals, or ends, and why they select the means they choose to attain them) and Listening From The Heart, a market research technique given to us by Isabel Aneyba.

Check out these episodes and PDF resources for a deeper understanding of Customer Sovereignty:

Principle 2: Avoid Competition.

The mainstream economics concept of competition considers firms competing to sell identical goods to an identical audience. Entrepreneurs take the opposite tack: they choose a select group of customers whom they understand deeply, and they assemble a unique set of capabilities to deliver unique, customized solutions.

The tools we presented during the year include differentiation and branding. Differentiation is the pursuit of uniqueness in your offering. It requires providing your customer with a means to achieve their goals that is different and better than any alternative. That can be faster, or easier to use, or more comfortable, or more personalized, or some other attribute or combination of attributes that the customer prefers. Differentiation is not achieved through pricing. It’s achieved by superior understanding of your customer and their subjective goals.

Trini Amador demonstrated how to capture differentiation in a brand. A brand is a promise – a unique promise only you can keep to help customers achieve their ends. It’s a promise that customers can embrace emotionally, and that you can deliver consistently, every time with certainty and without exception. Promises must be kept. Trini provided us with a templated process for brand building.

Check out these episodes and PDF resources for a deeper understanding of competition:

Principle 3: Dynamic Flexibility.

Austrian economics has always been on the leading edge of dynamically flexible resource allocation and capital assembly. Austrians see the worth of capital purely in the future revenue streams that it can generate from customers. If customers change, and the revenue stream changes, the worth of the capital has changed. The capital structure of a firm must change to reflect changes in the marketplace.

This applies to hardware, software, human capital, processes and methods and organization. Old capital must not be allowed to eat up resources that could be better used to serve customers in new ways.

With the arrival of the digital age, dematerialization, interconnectedness that can support rapid assembly and disassembly of global networks and supply chains, practitioners are now able to apply in practice what Austrian theory has been saying all along.

Dynamic flexibility is well-captured in the methods of the Agile revolution, as Steve Denning explained. And the ultimate expression of dynamic flexibility is innovation – the dynamic flexibility to supplant old technologies, old services, old organizational structures with new ones. Curt Carlson gave us his formula for successful innovation, and it’s very Austrian: always start with the customer’s need.

Check out these episodes and PDF resources for a deeper understanding of Dynamic Flexibility:

Principle 4: The Economics Of Value.

We finished the year with three episodes on the new economics of value. It’s the opposite of traditional economic thinking for entrepreneurs – the economics of scale and cost reduction. The economics of value entail selection of the smallest customer group to serve in the best possible way, so that they can experience maximum subjective value. It involves scaling down – personalization, customization, scarcity, limited availability, and high differentiation. We published a simple guide to the economics of value.

Mark Packard shared his latest research on the economics of value and specifically how customers experience it. They do so as a learning process, one that takes place entirely beyond the entrepreneur’s line of visibility – in the customer’s perception. Mark explained the neuroscience as well as the economics behind the process, and introduced a 5-part cycle of customer value learning. We published a flow chart and a set of explanatory slides, using pizza as an example.

The power of the value learning cycle is that it replaces the concept of the funnel for entrepreneurs. The funnel has built-in inefficiency – wide at the top and full of costs, with revenue at the end where it’s narrow. There’s a lot of waste. The value learning cycle, when used effectively, engages a small group of customers well-known to the entrepreneur, and guides them logically to an experienced benefit that they assess positively.

Check out these episodes and PDF resources for a deeper understanding of how customers experience value:

Enjoying The Podcast? Review, Subscribe & Listen On Your Favorite Platform:

Apple Podcasts, Google Play, Stitcher, Spotify