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22. Steven Phelan on Managing Expectations

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Entrepreneurs operate in the future. They imagine a future where lives are improved because dissatisfactions are removed and there’s greater well-being to enjoy. Everyone can embrace that future. So what could go wrong?

Well, your customer may expect more than they feel they actually get, so they stop being a customer. Investors and bankers may expect you to get to your next milestone faster, putting you in a race to recover their confidence. Suppliers may expect a better relationship than they actually experience, and they become more difficult to deal with. And heck, you didn’t expect all this angst, so you are dealing with your own disappointments.

What’s the commonality here? Mis-managed expectations. Steve Phelan reckons you might spend half your time as an entrepreneur on the task of expectations management. If you can do it well, it’s a resource for you. Follow these management steps.

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Show Notes

Definition: Expectations management is actively and purposefully changing someone’s opinion about the value of a resource or asset. 

For example, many start-up or growing businesses suffer from a perception liability of newness or smallness. Target customers or potential investors or even potential employees might have a negative expectation about the company’s future prospects, which might present a barrier to securing capital or resources. You need to overcome the risk premium of smallness/newness in their eyes. You do so through expectations management.

Expectations Management Infographic

At the outset, when you are identifying your entrepreneurial opportunity and polishing your idea for a new business, a new project, or a new expansion phase, the expectations that most require management are your own. Get help. 

Entrepreneurs are confident, action-oriented people. Confidence is good – but research indicates that entrepreneurs are often over-confident about their plans. Steve Phelan calls this the Identification Phase, the point at which the entrepreneur forms the belief that arranging a new set of resources to serve customers in new and better way will achieve a profit.

While start-up entrepreneurs tend to over-confidence, those in business over 5 years tend to demonstrate tighter control over their expectations about what’s possible. So experience can be a good expectations management tool. But, if you don’t have the experience, try to gather more perspective from people who have. Assemble an extended team, even if it’s only by e-mail or Slack. Ask them to share their experience to substitute for your own experience gaps.

When you’re assembling resources, your goal is to give the right impression of a solid plan, trustworthy management, and a well-paced path to profits.  

Your target audience may be investors, whether friends and family or venture capital, or credit providers, like banks. In addition to the quality of your plan, your ability to manage expectations is also influenced by soft skills such as presentation style, and environmental variables such as how you dress. As always, the entrepreneur’s go-to tool is empathy. Take the time to learn about your audience’s history and preferences and form a clear idea about their goals and motivations. VC’s are portfolio managers – show them you fit. Bankers want zero defaults – assure them you can easily clear that bar.

If you are managing potential employees’ expectations, try to be sure you know how they form them. Are they thinking about future equity and getting rich? Or is security a higher preference for them? What about commuting versus working from home? What improvement over their current job are they are expecting? In order to manage expectations, you need to know and understand what the target audience expects.

In your growth phase, expectations management shifts to customers. They form their expectations entirely subjectively, and your task is to align with them emotionally. 

Austrian economists understand that it is customers who create value – it’s a consequence of their satisfaction, which only they can determine. In fact, they form satisfaction expectations in advance, based on your value proposition. If their experience is less than their expectation, they’ll be disappointed, even if your product or service performed well. Therefore, expectations management with customers is a matter of alignment.

If you operate a B2B business, the alignment vector is always trust. Customers are taking a risk when they embrace a new supplier or a new idea or a new product. Trust helps them embrace that risk. What is the signal of trust that will make the difference? Can it be influenced by guarantees or warranties? How can you demonstrate that the service level you promise will be the service level you deliver? And take the time required to identify the customer’s transaction cost (the cost of taking on a new supplier) and opportunity cost (what’s the alternative to your service). Be sure to address those two costs directly.

At some point, you will prefer to release assets. This is the time to manage expectations upwards. 

The exit stage may apply to selected assets – for example, you may want to reshuffle your capital structure by selling some and buying others – or you may be exiting a business by selling it. Steve Phelan had two pieces of advice for the exit stage. One was directed at the entrepreneur’s own expectations – to think about exit at the purchase stage (“making money on the buy”) so that there’s an advance plan for a realistic exit price. The second was to let multiple bidders be the influencers of each other’s expectations. Otherwise, you’ll need a strong case to manage expectations to be higher than the market average. For a hard asset, you may have to demonstrate how your ownership was a positive contributor to value – e.g. a superior maintenance regimen. For a financial asset, you may have to demonstrate the opposite – that new ownership can get a higher return. For example, entrepreneurs selling a business to a strategic buyer must create the expectations that the greater resources of the new owner can accelerate growth, reduce costs or increase profitability.

Do’s and don’ts. 

Manage expectations every day. Where are they set in the minds of others? Do they need adjusting?

Don’t create negative expectations (e.g. by failing to meet deadlines or over-promising). Don’t ignore inputs or advice. Don’t set expectations that can’t possibly be attained.

Your brand is not just your promise. It’s keeping your promise.

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17. Yousif Almoayyed on How Austrian Economics Can Make You A Better Businessperson

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Yousif Almoayyed runs a concrete business based in Bahrein, part of a family conglomerate of businesses. It’s a complex business, requiring the procurement of raw materials both locally and imported, the manufacture of products to exacting standards, the provision of on-time and efficient service and deliveries, relationship management, and cash flow management. The business involves high-cost capital goods and careful economic calculation of the revenue flows from those capital goods in an environment of fluctuating costs and market prices.

His university education was in engineering: math and computer science. He declined the opportunity for a business degree in order to learn on-the-job. Part of his self-directed business education was the reading and thoughtful analysis of Austrian Economics texts, and the practiced application of the principles gleaned from non-stop reading. Some highlights from our conversation:

By reading Austrian Economics texts and thinking about how to apply the learning, It’s possible to develop an “economic way” of seeing and thinking. Yousif’s reading plan was eclectic and broad-ranging. He first discovered Irwin Schiff’s How An Economy Grows And Why It Doesn’t (we thought about providing an amazon or Abe Books link, but the originals are now priced at over $90 online). Then he found Bastiat, and heard Ron Paul mention Austrian Economics, so he signed up for Mises University, which he listened to in his car via iTunes U. Since then he’s read all the great texts, many downloaded free from mises.org. His reading gave him principles, economic logic, and clarity and precision in vocabulary.

Looking through an economic lens results in a better understanding of people, their goals and motivations and the purpose of their actions. Now it is possible to look at people and understand why they do what they do. Economics teaches empathy – putting yourself in other people’s shoes to understand their motivations and therefore their actions. This analysis applies to customers, colleagues and employees. Yousif declared himself “surprised and shocked” at why he had not been taught this before.

For entrepreneurs, the core of economics is subjective value. Many people use the term “value” mistakenly and imprecisely. They equate money prices with value. But Austrians do not make this mistake, and by analyzing the subjective value preferences of customers and employees, it is possible to be more effective at motivating. To a customer, on-time delivery and operational efficiency have a value that can be reflected in higher price or longer cash flows through relationship strengthening. To an employee, convenient parking and recognition for extra effort can have more value than a pay raise. Your tennis coach tells you, “Keep your eye on the ball”. In business, it’s “Keep your eye on each individual’s subjective value preferences”.

Austrian economics provides a uniquely helpful perspective on pricing. Pricing is a particularly challenging subject for entrepreneurs. The Austrian perspective recognizes that, at any given moment, price is a kind of average of what many involved actors think it should be, i.e. it’s subjective. Some think it should be higher, some lower; some think it’s going to drop, some think it’s going to go up. At a point on time, all the actors settle on a number. Austrian economics teaches you to observe what all the actors are doing or hoping to do in the market at the time, and to analyze what’s motivating them. Many things influence price actors – including the supply and demand for the product or service, but also the supply and demand of money – but always in the specific market of your local set of exchanges and local actors.

Prices tell the truth. A lot of people won’t accept market prices. They deny the truth. If prices contradict what’s in the news, the news is fake. If a building owner fails to lower the rental prices of apartments because he thinks that would be going too low, and the building becomes one-third unoccupied, it is the prices that are telling the building owner the truth.

In Austrian economics, prices determine costs. The entrepreneur has some discretion to manage costs, but must meet the market price. Entrepreneurs must meet the market price in order to sell, and find ways of keeping costs below that level to make a profit. The entrepreneur can have some influence over costs e.g. via negotiating contracts based on volume, or speculating, or finding new suppliers.

Importantly, if market prices change, the entrepreneur’s cost must change. Subsequently, it’s important to understand that accounts look instantly different. What you did in the past is no longer an accurate indication of what you can do today. You can’t repeat old arrangements when future prices change. Prices change the way your accounts look in the past, present and future.

As a consequence, traditional accounting is mostly useless for entrepreneurs. Accountants do not really measure anything, at least not accurately. Many of their numbers are aggregated figures, or averages over arbitrary periods of time like quarters or months. Accounting takes something inherently dynamic and simplifies it and puts it into numbers for purposes of stewardship over capital. Accounts were originally simplified snapshots for owners who look periodically at what their managers are doing. Entrepreneurs who are actually running a business need to understand what is going on dynamically under the numbers. We need economics to understand “underneath the numbers”. Austrians are very careful with assumptions and are sensitive to the many assumptions in accounting.

For example, asset prices may fluctuate. They are accounted for via straight line depreciation, which is calculated for deduction from income tax, and therefore is not necessarily accurate regarding the real world.

Austrians examine the ends of the people who devised the accounting systems.

Knowledge of Austrian Economics is the foundation for confidence and decisiveness. An entrepreneur can never have complete data or complete information. Austrian economics enables the entrepreneur to make confident decisions under these conditions of uncertainty. That’s because the Austrian lens focuses not on data but on more qualitative understanding. Austrian entrepreneurs utilize the principle of distributed knowledge from F.A. Hayek. Talk to salespeople. Talk to cab drivers. Observe behaviors. Derive indications. If those indications are pointing in a certain direction, reach a conclusion. Confidence, of course, comes from being right. So keep practicing the formation of entrepreneurial judgements. Call things before all the information is in. Review the outcome based on results. If there is contradictory information, don’t be hasty. Economics helps you build a picture of what all these indicators mean.

Supplementals: Yousif mentions accounting as a field where Austrian Economics gives entrepreneurs a different perspective. Here is a link to Thomas C. Taylor’s Accounting In The Austrian Tradition and another link to an interview with him on mises.org.

For a general view of Austrian Economics for Business, you might like this video by Peter Klein.

13. Per Bylund on Subjective Value

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Per Bylund talks to Hunter Hastings about the value-centric model for successful entrepreneurship, and we provide an infographic to help you apply the model to your own business.

Show Notes

Subjective value is an important subject in economics — and even more so in entrepreneurship, where it is fundamental to what entrepreneurs do. It’s the critical factor in entrepreneurial success. Business schools talk about “creating value” and “value added” as if value creation were an objective process. But it’s not. And businesses can fail if they misunderstand value, because they can easily produce something for which there is no market.

Value is a felt experience, 100% inside the consumer’s head. Value is a satisfaction that consumers feel. It’s the result of an escape from or a relief from a felt uneasiness, or felt dissatisfaction. That’s often called a “consumer need” in business language, but unease or dissatisfaction are better words to describe what the consumer feels before the entrepreneur’s new solution is offered. Unease and dissatisfaction are hard to articulate, they are emotional conditions, they are affected by context and circumstance, and they can be inconsistent and idiosyncratic. The consumer feels, perhaps vaguely, that life could be better, or their current circumstances could be improved. Value is the feeling the consumer experiences in the period after having consumed the entrepreneur’s offering that relieves this vague feeling. They feel better – perhaps in a way that the entrepreneur never expected.

The consumer’s perception of value can change, in unanticipated ways, and very quickly. Take food as an example. Consumer needs are changing rapidly. There’s a new unease about ingredients and methods of production. It’s not exactly clear what the consumer “wants”, but their preferences are changing to include notions of holistic health and wellness, so that taste and calories and other attributes of food are less important to them. We can’t rely on consumers wanting today what they wanted yesterday. Just look at the problems big companies like Kraft-Heinz are experiencing as they try to keep up with this rapid and broad-based change in consumer preferences. And it is even harder to predict where the consumer is going next on this journey of change.

So, if value is perceived by the consumer, what do entrepreneurs really do? Do they create value, or add value, or something else? Per Bylund thinks of entrepreneurship as facilitating value. Entrepreneurs can’t create it and can’t add it. They design a value proposition based on their empathic understanding of what the consumer wants and of their sense of unease about their current circumstances, and they present this value proposition to the consumer. Then they must listen for and measure the consumer’s response to find out if the consumer is experiencing value.

Production must be designed with the consumer in mind. The consumer is the boss, and the production chain must reflect the consumer’s preferences and change with their evolving tastes. The economists refer to consumer sovereignty — the consumer determines what is value, and therefore which entrepreneurial initiatives are successful and which are not. The successful entrepreneur designs a production chain that can deliver value. In a very real sense, the physical and financial and human capital in the production process must be a reflection of the consumer’s preferences and desires. The consumer’s preferences determine the capital structure.

And since the consumer’s preferences are continuously changing, the successful entrepreneur practices a kind of capital dynamism that follows these changes and, to the extent possible, imagines where the consumer is headed, because production takes time and entrepreneurs are always concentrating on facilitating future value.

Advertising, marketing and communications are a fundamental part of the value proposition and not a supplemental part. The entrepreneur must tell a persuasive story about the value the consumer will experience. Advertising and marketing are ways of communicating to the consumer that there are new alternatives available to them — new ways to improve their circumstances and feel like life is better. Often, the entrepreneur is a pioneer, creatively interpreting the consumer’s need and developing a solution that the consumer might not have thought of on their own, but which they’ll embrace when they find out about it. Sort of like the Model T the consumers got in place of the “faster horses” they asked for in the (probably apocryphal) store about Henry Ford. Advertising and marketing tell the entrepreneur’s story, and they’re an important and integral part of the value proposition.

This consumer-first (or customer-first) process works in B2B businesses as well. When selling to or supplying a B2B customer, it’s important to know the customer’s individual preferences and needs, which are subjective — the need to feel satisfaction — in just the same way that the consumer’s needs are subjective. In fact, since the ultimate consumer determines what is valuable throughout the production chain, an entrepreneur who is knowledgeable about the B2B customer’s end consumer can establish an advantage. Being able to demonstrate (1) a deep knowledge of the end-consumer’s needs (especially when they are changing), and (2) how to bring the B2B customer’s position into greater alignment with those needs, makes the vendor-entrepreneur an especially important partner. The B2B customer will experience their own sense of satisfaction and value in the exchange.

The entrepreneur who adheres to a value-centric process has the greatest chance of success. The entrepreneur’s process of thinking must start at the consumer and work “backwards” to production. The entrepreneur must live inside the consumer’s mind, and employ empathy to understand the consumer’s subjective needs and wants. From an empathic diagnosis, the entrepreneur designs a product or service and a value proposition and takes it to the consumer when it is ready. By this time, the consumer may have changed, and so speed and agility are mandatory. It’s easier said than done. But it is critically important, especially for a new business or initiative. For established businesses, when the consumer changes, it’s extremely hard to change with them.

Use our free download of the value-centric process for entrepreneurs to help you think about the stages of value facilitation.

Is There A Philosophy Of Entrepreneurship? Yes, There Most Certainly Is. It Starts With Ethics.

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Mainstream economics today does not believe in ethics, or does not count ethics as a part of its program. Instead, it is based on the concept of “rationality”, asserting that both individual human action and economic policy at the government level are determined by mathematical calculations and valuations of costs and benefits. Specifically, the ends that are pursued can be “maximized” by optimally assigning the available means. The result of this approach is that ethical principles lose relevance as guides to human behavior. They are not optimal. They do not help to maximize the beneficial consequences of human action.

However, mainstream economics is a failure. The mathematical calculations are impossible. The economic process is driven by the innate creative capacity of human beings, constantly discovering new ends and means, giving rise to new flows of knowledge and information, making it impossible to calculate the future consequences of different human actions and/or political decisions. This is precisely why socialism and government intervention and central planning fail.

The entrepreneurial approach to economics does not try to calculate or predict outcomes. It recognizes that social affairs evolve spontaneously as a result of the participation of a very large number of human beings who act in very varied ways in different specific circumstances of time and place. They are guided by ethical principles that act as a sort of “automatic pilot” for behavior and therefore for human freedom.

Entrepreneurship consists of the innate capacity for all human beings to appreciate or discover the opportunities for gain that arise in their surroundings and to act to take advantage of them. Entrepreneurship is the human capacity to continually create and discover new ends and means that have a higher value. The ethical approach is not to redistribute what exists, but to stimulate creative entrepreneurship that is best adapted to the betterment of society. One axiom for such stimulus is that all human beings have a natural right to the fruits of their own entrepreneurial activity.

The market economy arises from this creative entrepreneurial capacity of human beings. In the dynamic creation of new knowledge and new opportunities arising from the interaction of thousands of human beings, it’s impossible to calculate costs and benefits. All human beings need a moral framework of principles to guide them towards the behaviors they should follow in order for there to be social coordination as well as individual betterment. This coordination process is both spontaneous and dynamically efficient. Therefore, justice and effective markets are not two values to be traded-off, but two sides of the same coin. Only justice can lead to efficiency, i.e. social coordination, and what is efficient can not be unjust. Moral principles of behavior and economic efficiency mutually strengthen and support each other.

Consequently, we can conclude that the most just society is the one that most forcefully promotes the entrepreneurial creativity of all the human beings who compose it. To do this, it is indispensable for each human being to be certain that he or she will retain ownership rights to the results of their entrepreneurial activity. Any system that expropriates these rights is immoral.

Mainstream economics disagrees. It focuses on the results of the social process, rather than the moral behaviors and rights of those who participate in it. It is a static analysis – it takes an historical moment in time when goods and services are given and fixed, and focuses solely on the distribution of them. But entrepreneurial impetus means that there is never a static moment in time. Production and distribution are taking place simultaneously, with continuous change.

The only way to impose the static concept of social justice on the dynamic entrepreneurial market is to stop it – to coercively prevent the free practice of entrepreneurship and the creativity and coordination that makes civilization possible. From an ethical point of view, the moral principle that all human beings have a natural right to the results of their own creative entrepreneurial activity is violated. Social justice is essentially immoral.

Free markets driven by entrepreneurship are the only just markets. And it is perfectly compatible for this entrepreneurial creativity and spirit also to be used voluntarily to seek, discover and alleviate any situations of urgent need into which other human beings may have fallen.

Adapted from The Ethics Of Capitalism, Jesus Huerta De Soto, Journal Of Markets And Morality, Fall 1999.

11. Per Bylund – What Is Competition?

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How should entrepreneurs think about the economic concept of competition? Is there anything to learn? Is thinking about the concept useful for entrepreneurs running businesses? We asked Per Bylund to steer us through this thicket.

Show Notes

In mainstream economic theory, competition occurs between producers or suppliers of commodities. The good is pre-defined and undifferentiated, and competition is a matter of price and the production function. If this theory were looking for an example, it might find it in the gasoline market, where there are lots of gas stations with identical product, everyone has the same information, and price is the main means of competition. Economic theory calls this “perfect competition”, which is an ideal compared to “imperfect competition” (monopoly, duopoly, oligopoly, etc). It’s all pretty unrealistic and there’s nothing for an entrepreneur to learn.

Austrian economics sees competition as entrepreneurs competing for the customer’s dollar. The starting point is consumer sovereignty – the idea that the consumer (or the customer in B2B exchanges) is the one to exercise choice, and therefore determine what is purchased and, consequently, which brands, products and services are successful. An entrepreneur is competing with all the other ways a consumer could spend their dollar: by not buying at all, by buying a direct substitute, or by spending it in another category, or by deferring their purchase to a later time.

To succeed in this competitive environment, the entrepreneur should seek to create unique value. The Austrian logic of competition is value-centric. Value is subjective – it’s a perception of the consumer or customer. The entrepreneur competes for the consumer’s dollar by creating a value that the consumer can not realize from any other source – including non-consumption. The entrepreneur searches for uniqueness, to find a niche where he or she can serve the consumer in a way that no-one else has done before. This is what Peter Thiel calls a “monopoly” in his book Zero To One: a unique offering in a precise niche.

The way to compete is to develop a better empathic understanding of consumers’ needs. Every entrepreneur has the opportunity to be the best at developing an understanding of a target customer’s needs. In many cases, the competitive edge will be in choosing the right audience to serve – narrow enough that the empathic diagnosis is specific and precise and therefore more likely to yield an opportunity to serve the segment in a unique way. Generalizations and common denominators may not be precise enough and may cause the entrepreneur to miss precisely what it is about an audience’s needs that provides an opening for differentiation. Differentiation means a higher level of perceived value for that audience.

Positioning and telling a uniquely persuasive story are a big part of competitive value delivery. In so-called “perfect competition”, all players, producer and consumers, have the same information. Of course, the opposite is true in real life. One of the important differences in information lies in how value is positioned to the consumer, how the value story is told. Entrepreneurs compete to tell the best stories and communicate in the most persuasive ways.

In this way of thinking about competition, so-called “business strategy” is not particularly useful. Five-year plans and specific organizational goals (like doubling sales) are not useful and there’s a high likelihood of failure. They represent the wrong focus. The right focus is “how can we increase value for the consumer” or “how can we be unique?” How can we satisfy consumers in ways that no-one else does? Dynamism means that all players are changing all the time, including consumers, and so entrepreneurs must be learning and adjusting all the time, and always trying to create new value.

Can strategy tools be useful? Strategy tools can be useful to help structure thinking and help you to be sure not to have overlooked some element you should have considered. The VRIO method helps you to think about assembling a unique set of resources to support a unique value delivery to customers. Modern entrepreneurship education offers a number of frameworks to help entrepreneurs in starting a business, like the Disciplined Entrepreneurship Canvas and the Lean Startup Canvas. They are both pretty good at starting with consumers and the value the entrepreneur can create for those consumers. We’ve re-created a few versions of the Lean Startup Canvas for you to download here:

  • a version with explanatory notes, to help you better understand what each section represents and how it should be used (download);
  • an annotated canvas that can be printed on regular letter-sized (8.5×11) printer paper (download);
  • and a blank one that can also be printed, for you to complete yourself (download).

Bottom line: Austrian Economics’ value-dominant approach provides better guidance for entrepreneurs than the formulas for strategic thinking that come from business school. Start with the customer. Understand their needs, create value for them, and keep refreshing that value. In fact, this is a collaborative view of the market. Entrepreneurs share the desire to find a unique niche and establish a unique service, and they’re happy to compare notes and methods in order to help each other, which is one of our aims at Economics For Entrepreneurs.

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Entrepreneurs Change The World For The Better By Thinking Exclusively About How To Offer New Value To Consumers.

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Original Article by Per Bylund.

Politics is hardly an effective force for bringing about positive change in society. Instead, real change, and especially such that changes people’s lives for the better, comes from elsewhere. It comes from business, and specifically from innovators, entrepreneurs, and pioneers in the market. And very often it does so despite politics and the state — or even in direct conflict with it.

While technology often gets the credit for achievements of the market place, this is too much of a simplification. It is not technology per se that produces the changes and improvements; it is but a common (and eye-catching) means. The real change is brought about through entrepreneurship, specifically through what Ludwig von Mises called the entrepreneur-promoters: the pioneers, the disrupters, the creative destroyers.

These innovative and trailblazing entrepreneurs are often thought of as creators of something new. For example, it is easy to see the immense change brought to the market for personal transportation by new and innovative players like Uber and Lyft. By providing a new type of transportation — ride-sharing — these entrepreneurial firms placed themselves outside of the existing regulatory framework for taxi cabs. And thus they broke new ground and forced deregulation of the often guild-like taxi industry.

Ride-sharing is an obvious and important example of the enormous change that entrepreneurship can have on society — for the better, by providing new goods and services, and thus improving people’s lives. This is the power of the market. But that is too limiting a definition of disruptive entrepreneurship. Such change can also be brought about by incumbent business firms who pursue new and innovative business models.

A Membership-Based Auto Industry

An example of such is the recently advertised change in how automobile manufacturer Volvo intends to do business. While other automobile manufacturers are stuck, partly due to protective regulation, with producing automobiles sold through a vast dealership network, Volvo intends to stop selling automobiles. Yes, you heard that right.

The new program, Care by Volvo, is a flat-rate membership in which you are provided access to your automobile — with maintenance, service, and even insurance included. While this seems like an interesting twist on the face of it, it is a new business model that has the potential to revolutionize the automobile industry. Drivers no longer need to own their cars, and they also, as a result, do not need to worry about anything with the usage of their car. There is an immense convenience gain.

But think one step further. If a Volvo membership, rather than owning an automobile, means you have the right to a vehicle, this could change everything. Imagine going out of town, and being provided with an identical (or, if you prefer, different) Volvo when you arrive at your destination airport. The Care by Volvo program is effectively competing with the rental car business.

Further imagine that “your” Volvo is a self-driving car, as automobiles will soon be, and your leaving town means not only that you can be picked up at the airport by your preferred car, but also that the car in your driveway, or which dropped you off at the airport, can be used by others.

The future that Volvo likely envisions is one in which there is no need for ownership of automobiles because they can provide the transportation service without hassle everywhere and always. The gain is not only that resources become better utilized as automobiles no longer are parked for long stretches of time in one’s driveway or garage, but also that consumers no longer have to make capital-intensive investments in something as banal as personal transportation.

With much more efficient use of transportation resources, one can imagine how automobile manufacturers such as Volvo not only take on rental car agencies and taxi cabs, but also (out)compete public transportation systems like buses, trains, and subways.

Rather than automobile manufacturing being a stagnated industry “of the past,” and under threat from the anti-oil movement, Volvo’s business model innovation can completely change the playing field and revolutionize the entire transportation sector of the economy. (And I haven’t even mentioned how Volvo also envisions soon offering only electric vehicles .)

The driving force here is obvious: entrepreneurship. But the disruption is not from a new player, but from a player thinking anew. The step for Volvo going from a lease-or-sell model to membership is not a huge one in terms of the production or distribution process. The difference lies in how they imagine best serving their customers, and by thinking of their customers first – or the actual value of what they do – they realized they should think differently about their business. Their dealership locations become member care facilities.

By explicitly thinking of and making consumer value the purpose and goal of their business, Volvo has recreated themselves. As a result, they could disrupt the automobile industry. And in the process, they may erase the boundary between different industries involved in providing the value of personal transportation: automobile manufacturing, car rentals, taxi cabs, public transportation.

This is an entirely predictable evolution. The only reason these are considered different industries in the first place is that they started out offering different types of services based on the technology of the day. But what they really do is not to provide technological solutions to consumers, but to provide value. By recognizing this simple but often forgotten fact, artificial boundaries dissolve and more value is attainable for both businesses and consumers. Herein lies the power of business and entrepreneurship to change the world: by serving the rest of us.

Per Bylund is an assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.