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29. Per Bylund on the Critical Importance of Executional Excellence and How To Achieve It

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Have you heard of the knowing-doing gap? Accumulating unique knowledge – expertise, processes, experience, skills, recipes, qualifications etc – is important, as we always emphasize at Economics For Entrepreneurs. In business, that’s half the story. The second part is effective action, judged by results. Knowing what to do translated into actually doing it. Becoming not just a learning organization but a doing organization.

Dr. Per Bylund framed it this way: having a great idea for a business is not the crucial element for success. It’s whether you can pull off the idea in implementation. That’s what investors and customers are looking for – not the idea, but executing the idea.

Key Takeaways & Actionable Insights

Dr. Bylund guides us with 5 Austrian action principles.

5 Ways to Analyze Executional Excellence

Principle 1: Consumer sovereignty. The consumer is boss and decides whether a business is executing well, i.e. to customers’ satisfaction. The only purpose of a business is to make and keep customers. Amazon calls this customer obsession – everything starts and ends with the customer, and the customer is central to every decision, in every resource allocation, and is invisibly present in every meeting and presentation. Does your company act this way? Are you certain you know and understand your customers’ needs and preferences, and their hopes and dreams? Are you deeply immersed in customer knowledge? Do you talk one-on-one with customers as often as possible? Do you go out to the building sites where they use your equipment, or to the offices where they use your software, or to the homes where they consume your food and beverage products? The consumer culture is exemplified by anthropology – getting out there with your users. Jeff Bezos observes that consumer-obsessed companies act differently. What actions are you taking to observe, understand and serve individual customers better?

Principle 2: Subjective Value. The consumer or customer you are getting close to by implementing Principle 1 is the decision-maker on whether or not your firm is providing value. Their decision is subjective – it’s entirely theirs, entirely emotional, entirely about their perception. Do you know what factors are the most persuasive and influential in creating a positive perception? We discussed a case study of premium vodka. The basic liquid is to a great extent an undifferentiated commodity. Differentiation comes from the varied subjective experience a consumer can feel in ordering and consuming and sharing a brand of vodka. How much of that perception is affected by the bottle shape design and the label design? How much by the social prestige of the location where the brand is served? How much by the consumer’s perception of the merit of the people who drink this brand? It’s hard to know but necessary to find out.

One route to implementation success in business is to manage expectations. Find out what customers expect, then make a promise to meet those expectations and keep your promise. So often in business, promises are made but not kept. That means you created an expectation, then did not meet it. You should make sure to do the opposite.

Principle 3: Dynamic Resource Allocation. The Austrian principle is that the firm’s capital and resources are, at all times, a reflection of the market and of customer preferences. What does that mean and how can a firm activate this principle? In practice it means two things. First, do not lock in to any asset or resource that is difficult to change or adjust on short notice. Stay flexible at all times. Second, make sure that you are collecting market signals – data – that tell you what you need to know about customer preferences today (not yesterday) and will provide you with insights into where they might shift tomorrow. Based on those insights, conduct experiments and tests that can be quickly scaled up when they show results, and quickly shut down when they don’t. If you find yourself responding to changes in customer preferences – or, even worse, changes in competitors’ behavior that seem to be more responsive to customers than your own – it’s too late. Get comfortable with continuous change.

Principle 4: Dynamic organization. How can you identify and eliminate all the barriers to your team’s empowerment to serve the customer in the way the customer prefers? Often, the barriers can be found in rules. In customer service, for example, there may be rules about the level of decision-making delegated to a customer representative, or even the amount of time a representative can spend on the phone with a customer. Examine all your rules, standardized protocols and bureaucratic structures. For each one, ask: does this contribute to the satisfaction of the customer? Does it produce customer value? Or is it to cut cost and minimize risk? Cutting costs will never add value. To be great at implementation, examine all practices to make sure they are value-creating and not value-consuming. Who decides? Your customer.

Perhaps you have employees who are not value-creating. You can’t afford them.

Principle 5: Measuring The Right Things. With metrics, most business advice is to be objective and numeric. You are advised to measure sales, profits, distribution, etc., and take surveys of customer satisfaction expressed as numbers on a scale or percentages compared to a norm. For great execution, it is far more important to measure subjective value, and to shed light on what the firm is doing right in the creation of consumer value and where it is falling short. This is a challenge, but not an impossible one. There are places to look, such as sources of spontaneous praise. Your firm’s Trip Advisor comments from recent visitors, for example, if natural, honest and spontaneous, can be great indicators for you. The same goes for other spontaneous commentary channels. Commit to conducting a minimum number of in-person one-on-one customer conversations every week. Summarize them. Conduct sentiment analysis. Try to develop data on the direction that sentiment is trending – modern tools can do this via language analysis and emotional content analysis. Commit your firm to becoming the best at monitoring, projecting and analyzing subjective customer perceptions.

Do you have any experience of measuring subjective value creation? What has worked for you?

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28. Steve Phelan on Negotiation As A Core Capability For Entrepreneurial Success

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Negotiation is a capability that entrepreneurs use almost all the time. It’s an area of entrepreneurial performance where an understanding and application of Austrian Economics can be very helpful.

Key Takeaways and Actionable Insights

It’s all Austrian! Negotiation skills represent one of the resources entrepreneurs must assemble and maintain. The value of any resource is subjectively determined, and so the price is never fixed, it’s subject to negotiation. Two people can have different subjective opinions about the value of a resource – and those opinions can change, e.g. during the course of a negotiation, when one agent changes the opinion of another.

Negotiation starts on Day 1 and never stops. Founders deciding to set up a company negotiate over who plays what role, who gets what share of the equity, and so on. From Day 1, the entrepreneur bargains for advantage, putting the best case forward at all times, and always thinking ahead to the next negotiation.

In Bargaining For Advantage (Revised Edition, 2018), Richard Shell lays out 6 principles of negotiation that Professor Steven Phelan, himself a teacher of negotiation strategies to entrepreneurs in business school, reviewed and illustrated with examples.

Subjectivism: Know Your Own Bargaining Style. The entrepreneurial journey starts from self-assessment: Who Am I? Some people are uncomfortable with negotiation, and sellers might take advantage by making only fixed offers. There is a competitive negotiation style and a co-operative negotiation style, and some points on the spectrum between them. (Most professional negotiators think of themselves as co-operative.) Don’t feel bad if you hate the confrontation of traditional negotiation. You don’t have to drive the hardest bargain. You can control the timeline for greater reflection. You can prepare yourself well to reduce your anxiety. Know yourself, accept your self-knowledge, and learn how to apply it for advantage.

Know your ends and select the best means. Ends-means analysis is fundamental to entrepreneurship, as it is to negotiation. Identify your own expectations, set your goals high, and be ambitious. Remember that a goal is not a fixed point – like a price to settle on. It’s complex and layered and can have a lot of non-monetary components. These are the elements you can vary to adjust the bargaining advantage in your favor, by using them as concessions, or trading them for a better deal. For example, you may be able to reach the price you want by providing seller financing.

Use external – and authoritative – standards and norms to help you. Norms can narrow the uncertainty in negotiation for both sides. For example, real estate agents use “comps” (recent sales prices of comparable homes in the local area) to narrow the range of possible prices in a transaction. Of course, there are multiple norms and standards that could be used – like price per square foot, or lot size, or views – and you should know them all, select your preference, and then argue persuasively in favor. Pick a standard that shows your offer in the best light.

Time preference – thinking long term. A negotiation might seem like the very definition of short-term: you want a good outcome now! But is this the last time you’ll negotiate with this party? Does your agreement in this situation potentially affect future negotiations? If you bargain a new hire down to the lowest compensation level, do you risk them leaving in the future and jeopardizing a team project? Think of the second order consequences and the lifetime of your business. It’s a mark of the good economist – and the good negotiator – to always think in the long term.

Use empathy as the planning basis of all negotiations. We’ve emphasized many times that the core skill of the entrepreneur is empathy – understanding the feelings of the other party, whether that’s a customer or a party to a negotiation. Why is the other party negotiating with you at all? What do they want – or need? Get to know them as people. Take them to dinner. Meet their family. Can you ethically meet their personal needs as well as their corporate needs? You can never eliminate all uncertainty, but deeply understanding the other party can go a long way towards doing so.

Find your leverage: the situational advantage to reach agreement on your terms. Of course, leverage in a negotiation can be positive or negative at the outset, depending on the situation. You should always look for ways to reduce the value of the other party’s alternatives (that’s their leverage) and increase the value of their own. Put scarcity on your side by having more than one bidder for what you are offering. Use time – leverage can change over time, especially if you can wait and the other party can not. One useful tool is BATNA – best alternative to a negotiated agreement. If you have more alternatives than the party on the other side of the table, that gives you leverage.

Use the six principles to prepare a strategy. Shell recommends that you make your opening position as aggressive as you can, and support it with the best norms and standards you can compile. That will put the other party in the position of having to find contrary logic as a counter – it’s called anchoring: your opening bid becomes the anchor for locating the range of negotiation. Never meet in the middle. Let the other party concede first. Shell refers to if-then thinking. If you’re called upon to make a concession, then you know exactly what counter-concession you are going to call for from the other party. Never concede voluntarily, always ask for a responding concession.

Have a specific negotiation plan in mind. Use the accompanying planning tool, adapted from Richard Shell’s book. Physically fill it out, use empathy, acknowledge uncertainty, gather as much information as you can, find your own norms and predict which ones the other party will use, find a good agent if you need one. Planning in advance will give you confidence and help you succeed, even if you don’t relish negotiating.

Use this 10-step planning guide to plan your next negotiation.

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27. Cheryl and Cliff Pia on the Economics of Creativity

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Every entrepreneurial initiative is creative. There’s also an entire creative industry in which entrepreneurs can participate and succeed. Today we follow the journey of two very successful founders – Cheryl and Cliff Pia of The Pia Agency.

Key Takeaways and Actionable Insights

There are many, many pathways of entrepreneurial opportunity in creative services, where it is eminently possible to succeed on talent, where big companies are eager to work with small creative companies and individuals, where agile low-overhead business models are thriving, and where technology is the entrepreneur’s friend. 

It’s an exciting time for entrepreneurs to be in the creative industry, say Cheryl and Cliff Pia, founders of the Pia Agency, a leading video and audio production firm working with many of the leading brands and largest companies worldwide. It’s an industry of rapid change – for example from the orderly process of television advertising to the frantic chaos of social media and web advertising and YouTube and Twitter videos. Change is confusing and scary for established businesses, and therefore full of opportunity for innovative entrepreneurial creativity. Centripetal forces of decentralization are breaking up the “Big Agency” structures and their retainer fee-based business model. If you can become the best at a specialized service, many doors are open.

The pathways of the creative industry often start very differently than for more traditional industries. Cheryl and Cliff provided E4E listeners with their creative origin stories.  

Cheryl & Cliff Pia's Entrepreneurial Journey

Click the image to see Cheryl & Cliff’s entire Journey Map.

Cliff played in bands and as a studio musician. He played some jazz and learned the “jazz method” (you don’t know what is coming next so relax and pick it up when it comes to you). He performed comedy in clubs and learned how to act on his intuition, read the mood of the room, and be hyper-responsive to audience input. By “always sitting next to the sound engineer” – and asking questions – he learned the technology and techniques of recording.

Cheryl worked in the music industry because that’s what her friends were involved in, and then in the film industry. She learned about music publishing through another friend, saw an opportunity and started her own publishing company. She also worked in the film industry and the non-profit sector, learning development and fundraising. Learning, learning, learning all the time.

Force majeure can be the catalyst to make the ultimate creative leap to start a new company. The key is to do it fearlessly, with grit and courage. 

Cliff’s position at a corporate was eliminated in an economic downturn. He had started a new division for his company to produce television advertising. Faced with a need, he and Cheryl started their own TV production company: The Pia Agency. “The phone didn’t ring for seven months,” Cliff told us. They didn’t quit. Entrepreneurs embrace that uncertainty and answer it with problem-solving action.

Often, the first problem for entrepreneurs to solve is their own.

The Pia Agency opened in Arizona and the critical mass of clients was located on the East Coast. The new agency found the solution in the adoption of cutting-edge technology for time-shifting and location-shifting (e.g. working with animators and voice talent all over the world) and remote online collaboration (e.g. online real-time video editing with remote studios, which sounds commonplace today but for which the Pia agency had to invent a new digital toolbox at the time).

Growth comes from demonstrating value, and a people-first approach. 

The new system worked, and the Pia Agency began to get work from big name clients like Hewlett Packard and Merrill Lynch, among many more. High quality work generates recommendations – from one brand manager to another in a multi-brand company, and from one company to another when clients change jobs and take their valued relationships with them. Cliff told us that a “people-first” approach – treat clients like people, empathize with them holistically, not just in their business lives – generate not only meaningful relationships but the pass-along recommendations that cause service businesses to grow. Austrian empathy and the role of trust are all pervasive in successful service providers. It’s the human moments that are the most valuable; paydays follow.

Innovation consists simply of new ways to serve clients by responding to their expressed needs. 

Innovation 1: Speed and Responsiveness. TV Production processes were traditionally slow and linear and expensive. But clients preferred speed and responsiveness to rapid market change. The Pia Agency developed speed and responsiveness capabilities (e.g. multiple editors working on the same video at the same time) and a fast-turnaround culture (e.g. hired a key producer from the news industry who was used to high-speed turnaround). This became part of the agency’s unique value to clients.

Innovation 2: Sonic Branding. In the internet age, when we listen on laptop computers, phones and earbuds, audio has taken a second position to video. Consumers put up with generically poor quality. But as voice-shopping evolves, consumers are going to hear brands instead of seeing them. Audio will regain its importance. Cheryl and Cliff understand audio and have developed and invested in capabilities in “sonic branding”: distinctively identifying brands though their audio signature. There is huge growth potential in this new field.

Greater growth comes with adding new external resources. 

Cheryl took an MBA so she could better direct the growth phase of the Pia Agency. She found she was able to apply this resource directly and immediately. And then Cliff and Cheryl merged their agency into a larger global group called Creative Drive, to establish the organization model of the future, an independent collective of content creators, a larger expression of the speed and responsiveness operational model. The Pia Agency has access to a larger client base, a more widely distributed set of relationships, and to expertise in new channels, such as e-commerce. The journey continues.

Cheryl and Cliff recommend their journey map to creative entrepreneurs for consideration. 

If you enjoy music or film or art, and you have a talent, there is every opportunity to do what you love and what you are good at, and the challenge is to learn how to get paid for it. The recommendation they make is to work in an appropriate part of the industry for an established company. For example, you might love music and performing, but you also might realize that music production is more lucrative than performing. The key is to create value, and therefore to understand what others find valuable, and what they will pay for the value brought into their lives. Get a job where you can learn in an area you’re passionate about, and learn what the world will pay for. Start there. Learn more, work with like-minded people. The pathways of entrepreneurship will open up to you.

Creating Freelancers – Check out the Creative Drive Work Market at https://creativedrivefreelance.com and add yourself to their talent pool!

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25. Peter Klein on Organizational Designs

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Austrian economics has valuable and important things to say about organizing entrepreneurial firms.

Organization can make a crucial difference to entrepreneurial success. Ideas alone are not enough – execution is needed and the details of execution are important. The entrepreneur must design an organization for detailed, effective and efficient execution. Some entrepreneurs shy away, thinking it drudgery. That’s a mistake.

Key Takeaways and Actionable Insights

Organization is never static, but always dynamic. It’s not a structure, it’s a process. It’s your business model. It’s the collaboration that achieves the desired return on the entrepreneur’s imagination.

Austrian economics doesn’t prescribe a fixed way to “do” organization (unlike the rules- and framework-based approaches of consultants and organization gurus). It provides the right way to think about organization.

Organizational Designs

Organizational design starts with the entrepreneur’s ends in mind.

The purpose of the organization is to create customer value. Everything about the entrepreneurial firm is customer value, and so organization must be all about customer value. Elevate those elements that deliver customer value, and eliminate those that don’t. Everything that is not customer value, or gets in the way of creating customer value, or diverts resources from customer value, is waste and inefficiency.

Start with the best combination you can – in the current moment – of people and resources and capabilities to create the most customer value possible.

Delegate as much entrepreneurial judgement as you can – to people with the same customer value-creation focus as you, but greater expertise and knowledge in specific areas of the business.

Hire good people (or engage good contractors and vendors) who have the right skills and experience for a specific task or field, and then give them as much authority as possible. Don’t worry about over-delegating. Rather, worry about retaining too much control and becoming a limiting factor. Employees may find better ways to utilize an asset or expand a capability than you could have done in their place. They may show more ingenuity. Make sure your organization is consistent with the most productive use of available resources. It’s becoming more and more inefficient over time to exercise authority through control mechanisms. You can’t afford the transaction costs. By delegating, you lower your monitoring and management costs.

The owner-entrepreneur’s role is to design the rules of the game: making specifying decisions and determining how performance will be evaluated.

You retain ownership control by making what Peter Klein calls specifying decisions up-front: how you are going to run the business, tight or loose; defining in advance what discretion employees have, so that they don’t have to ask about every decision.

The second tool of control is defining the measurements of success and holding your team members to your metrics.

Outsource as much as possible.

The entrepreneur defines what resources and functions are crucial and proprietary to the business of customer value creation, and keeps control over them. Everything else can be outsourced – items like payroll services, accounting, transportation, legal, anything that constitutes overhead, and any tasks that are routinized. Just make sure there is no possible damage to the customer experience.

Employment contracts and compensation systems are tools of entrepreneurial control.

The specifying decisions can often be captured in the employment contract, where decision rights can be traded for benefits, and incentives can be defined to motivate the right levels of performance and the right feelings of participation and motivation. Go-getters and exceptionally creative people can be turned into “proxy-entrepreneurs”, exercising entrepreneurial judgement that is derived from the owner’s original judgment. There are no hard and fast rules about this trade-off, and it’s often a matter of gut feel. The savvy entrepreneur constructs a mental model of how the organization operates when it’s “just right” and makes adjustments when it’s not.

How you finance your business has major implications for your governance of your own company.

Venture capitalists want a major say, often a board seat and supervision of critical decisions. Lenders may have covenants that affect your governance decisions, and most definitely affect reporting. Friends and family will want to look over your shoulder, at minimum. When you are planning your financing, be sure to think about how it will affect your organization, and whether you want to accept the inevitable constraints.

In all cases, be ready to make adjustments to your organization design, your specifying decisions, your resources, and your metrics.

The entire point of flexible, dynamic organization is to facilitate change and adjustment on the fly. Plan to monitor continuously, and make changes whenever indicated. Never get locked in to a poorly functioning organization: change it.

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24. Dr. Smita Bakshi: An engineer, passionate about her mission, makes an impact by combining what the world needs and what the world will pay for.

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What is the nature of the journey from growing up in India and Africa, to an education in America and the successful founding, growing and managing a high-impact ed-tech business that helps instructors teach and students learn computer science?

The answer is: it’s not direct, and it’s not planned from start to finish.

It’s powered by individual drive, assembling knowledge, collaborating with a changing circle of smart and accomplished people, identifying the right pain point to address, and eventually finding – and then keeping – your focus.

Key Takeaways and Actionable Insights

The journey starts with individual drive: to better your own circumstances and those of your family. 

You are not necessarily called to change the world or start a brilliant new company. You find your drive at an early age to do better, move forward, expand your opportunity and improve life for you and your family. Perhaps there is some hardship in your early experience that provides greater determination and zeal. Channel it well.

Don’t necessarily expect a direct path. Keep moving forward, accumulate knowledge and experiences, and gradually start to narrow your preferences.  

Dr. Smita Bakshi identified engineering as her pathway. Her undergraduate degree was gained in India, and her Master’s and Doctor’s in the USA. Then she taught. Then she took an MBA. Then she worked for a small company in an engineering role, then a large one. There was diverse knowledge around engineering and its application in business and commerce. She established what she was good at.

Finding out what the world needs is a process of experimentation and discovery. It’s not always clear, and sometimes the people with the need can’t articulate it. 

Dr. Bakshi realized that her passion could not be fulfilled working on server configuration software, because, important though it undoubtedly is, it was too far removed from observable human impact. She made human impact her passion and began to experiment and investigate – in finance, healthcare and education. The idea was not necessarily to start and own a business, but to find the right place and the right way to make an impact.

There are two challenges in finding out what the world needs. The first is articulation: the customer can’t translate their felt unease into an articulated need. No-one “needed’ Uber to fix the problems of the taxi industry. All the taxi user knew was that they were unhappy with the existing experience. In what way? In many, many ways. Uncertainty of getting a ride when wanted; uncertainty of the quality; uncertainty of the costs. It takes entrepreneurial skill to articulate a solution and a business model.

The second challenge is scale. Is the need big enough to support a business? Answering that question also requires entrepreneurial imagination.

A mission emerges when you can identify a pain point within your circle of human impact that’s big enough and important enough to generate significant revenues.  

Dr. Bakshi started a consulting business helping start-ups to fashion business plans for their ideas and technologies. She rapidly found that it’s easy to identify pain points – engineering-speak for market needs or problems-to-be-solved – but that many of them are not significant enough to generate a business. A pain point is only half of a value proposition. Customers can live with pain points that don’t cripple them. It’s important to find the ones that they can’t live with. She advised all of her consulting clients that their ideas would not translate into effective business plans.

Having identified a significant pain point, with a potential for real human impact via a new solution, the next step is product-market fit. Imperfect is OK at the outset, improving steadily over time. 

Product-market fit is Silicon Valley-speak for the solution to the two challenges of articulation and scale: a set of features and benefits that truly meets the market’s need, and delivers an experience that matches the expectations that a sufficient customers have in their mind when they buy the product, and for which they will pay.

Dr. Bakshi found an unarticulated need in Higher Education for teaching Computer Science (CS). The inputs were part data (more than 50% of students abandon their CS course in Year 1 because the struggle to learn is too difficult) and part sentiment (instructor unease not only at this student struggle, but also at the instructor struggle of teaching with tools that were a poor fit to the task – text books – and the imbalance of administration (especially grading) versus teaching.

The answer was an educational technology solution – a web application instead of a text book, facilitating learning in as interactive a manner as possible, with limited text, interactive, animation, built in labs (tests for students to see if they can write short pieces of code), and auto grading. The brand name was Zybooks.

Importantly, the pilot looked nothing like the Zybooks product today. Once the product was in the market and began to generate feedback, there was a process of continuous updating, improvement and adding features. The MVP (minimum viable product) model worked for Zybooks because the first experience, though imperfect, was a sufficient improvement over the status quo of CS textbooks.

The harder part of success is adoption, rather than product design and launch. Even though the market has confirmed the need, that doesn’t mean adoption is ensured. 

Dr. Bakshi had commitments from target customers that “if you build it, I will use it”. That turned out to be an unreliable promise. Dr. Bakshi had to take an engineer’s approach to understanding how the market really worked. In this case, the higher education market, there is no incentive for the adoption of the best technology and best practice. In business, there is an expectation of switching to a new service – e.g. a CRM suite – if it is the best performer and an improvement over existing choices. This is not true in higher ed. The instructor has the academic freedom to use whatever techniques he or she prefers.

The engineering solution was direct sales: one-on-one, telephone, e-mail, online and in-person, whatever it took to influence one instructor at a time.

The final part of the journey is “crossing the chasm” from early adopters to early majority. 

The famous technology adoption life cycle chart suggests that the first 2.5% of a market are the innovators who grab at new technology. The next 13.5% are the early adopters who like to be not necessarily the first but at the front end of adoption. But then there is a chasm to cross before bringing in the early majority, who are more skeptical and less open to change. Dr. Bakshi feels she is still not across the chasm, but is making progress.

The keys, she suggested are:

  1. Focus – don’t be tempted to stray from your core mission and core product. Stick with what you do well, and what your core knowledge and core capabilities fully support.
  2. Never compromise – and always keep improving – product-market fit. Is the user experience exactly what the customer wants – and ideally, even exceeds their expectations. Obsess about this fit, and make sure the people in your company think and act as one in their alignment around this singular purpose.

When there is time to reflect on the journey, Ikigai is a good philosophy. 

Ikigai

IKIGAI CIRCLES SMITA’S IKIGAI
Find out what you love. Engineering.
Invest in becoming really good at it. 3 degrees, teaching, working at small and large engineering companies.
Impact: find out what the world needs. A better way to teach and learn computer science.
Business model: make sure you can be paid. Design, launch, get adoption for, and scale Zybooks.

The result is a life well-lived.

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The Culture Of Entrepreneurship Promises An Exciting Breakout From Government, Corporatism And Dependency.

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The science of economics has a big problem with vocabulary. It attempts to capture complex concepts in single words and phrases, which only serve to confuse and befuddle and cause arguments. To take a current example, the word “socialism”, for an economist, means state ownership of the means of production (which, in itself, is a good example of clunkiness in economic terminology). But when the country and its journalists and its bloggers argue about socialism and who is or is not a socialist, they’re not arguing about who owns the means of production. They’re arguing about forcible redistribution of people’s income by government, and about the top-down imposition of all-encompassing resource allocation schemes like Green New Deal and Government Health Care. They’re arguing about the role and scope of government and what it means to be free. “Ownership of the means of production” doesn’t help us understand the issues to any great extent.

The opposite of socialism is entrepreneurship. This is another word that comes from economics, and is even harder to define than socialism. The definition of entrepreneurship at the Library Of Economics And Liberty (econlib.org) is 2000 words long. Within those 2000 words, there are references to the many disagreements between economists as to what entrepreneurship really means.

Let’s propose that, instead of defining entrepreneurship, we examine it as a complex and multi-faceted system of individual and social human behavior, and identify its consequences.

Entrepreneurship is the system for the generation of betterment for all in a society characterized wholly or partially by both collaboration and private property.

Entrepreneurship is action. Entrepreneurial individuals, teams or groups are alert to situations where their fellow citizens are dissatisfied with current conditions – when they feel things could be better. Entrepreneurs see this as an economic opportunity: if they take action to devise a new, different and better offering than is currently available, people might buy it to improve their condition, delivering a profit to the entrepreneur. Entrepreneurs do take that action – that’s what separates them from others. There’s a risk in acting. It takes time to design and produce the new offering; the finished product or service may not be as good as the entrepreneur imagined in the design phase; the selling price may not be right; the consumer may have changed preferences over time and no longer wants this new solution, instead preferring someone else’s offering. But whatever the outcome for the individual entrepreneur, the system is a win-win. The consumer ultimately has the choice of the various new offerings, and at least one entrepreneur is rewarded, and society is better off. The entrepreneurs who were not chosen by the consumer in this case will redirect their efforts in another direction until they find the right exchange in which they can reap the reward of the marketplace.

The nature of the entrepreneurial system is that both consumers and producers experience reward when one responds to the other in a way that aligns what the consumer wants with what the entrepreneur can provide. It’s a collaborative win-win, and society (i.e. all the producers and consumers rolled up) progresses and improves. Consumers are more satisfied. Entrepreneurs are more fulfilled. GDP per capita rises. The world gets better.

The system works for everyone.

The econlib.org encyclopedia entry on entrepreneurship informs us that widely cited studies conclude that between one third and one-half of the differences in economic growth rates across countries, states and localities can be explained by differing rates of entrepreneurial activity. Economic growth is the economists’ way of saying “things get better for everybody”.

That’s because the goal of entrepreneurs is to help customers towards better lives, in which they experience feelings of greater satisfaction. When they succeed, the entrepreneurs get paid, i.e. achieve the monetary reward of profit. And they, too, also feel greater satisfaction: a sense of achievement and the expanded horizons that come with success. Entrepreneurs’ personal pursuit of higher aspirations results in consumers’ attainment of higher levels of satisfaction and happiness. Everybody wins.

Entrepreneurship blossoms in a culture that supports it and admires it.

Entrepreneurship requires an institutional and cultural framework in which it can blossom. Primarily, it thrives in political and economic systems that protect and secure private property rights. The entrepreneur must have control over private property in order to transform it into new offerings and solutions for consumers to choose and enjoy. In this case, private property includes their own personal effort and ideas, physical resources and capital, and money to invest.

More broadly, entrepreneurship thrives in a framework of economic freedom: low taxes, minimal regulation constraining entrepreneurial imagination, and an unbiased and rapidly-functioning judicial system to resolve any contract disputes that arise. Empirically, the level of entrepreneurial activity in a country correlates closely with the Economic Freedom Index, a measure of the existence of premarket institutions.

There’s also an important element of how we think about feel about and talk about entrepreneurs and business’s role in our culture. If the culture tags the successful entrepreneur as an exploiter rather than a hero, and emphasizes the inequity of outcomes – some succeed, some don’t – rather than the achievement of those who establish and grow successful firms, then society will turn against those who bring betterment. We must, as Professor Deirdre McCloskey insists, assign dignity to our entrepreneurs.

The main barriers to entrepreneurial productivity are governments and corporatism.

Government action – regulations, subsidies, tariffs, taxes, manipulation of labor markets and financial markets, and so much more – impedes entrepreneurship. Governments limit the scope of entrepreneurial imagination and freedom, by restricting what is possible. They divert the productive efforts of entrepreneurs through taxation, which is the confiscation of the fruits of productivity so that they can be put to unproductive uses. They restrict productivity via regulatory constraints, such as the limitations on the location of new production facilities (think solar energy farms) and the distribution of produced goods (think interstate electricity distribution). Government, by its very nature, is anti-entrepreneurial.

As government gets bigger and more interventionist, it brings into existence new barriers to entrepreneurship. Entrepreneurial action can take place at any organizational scale – single employee companies, small businesses and venture-funded startups, and within medium and large-sized businesses. But, as Michael Munger explains, government distorts the incentives for entrepreneurship by creating conditions in which a dollar invested in lobbying can provide a greater return than a dollar invested in R&D and innovation. If a large corporation can secure the passage of a bill or a regulation or a tax or a tariff that is favorable to its business and unfavorable to competitors, domestic or foreign, it will be tempted to make that investment. R&D is starved, innovation is slowed or stopped, and incumbent corporations are insulated from the creative destruction that entrepreneurs generate and which raises consumer satisfaction through innovative improvement.

If we can restrict government and reduce its level of regulatory and fiscal activity, we will enjoy a double boost in economic productivity because the temptation for corporations to spend money cozying up to regulators and legislators will be reduced, if not removed, and the level of investment in entrepreneurial innovation will be increased.

Entrepreneurship is the antidote to the culture of dependency.

At the level of individual behavior and attitude, the culture of entrepreneurship can be energizing, motivating and fulfilling in ways that the current culture industry of state schools, leftist media and welfare state socialism can never emulate. The entire cultural edifice of government and its associated institutions is dependency. This culture insists that individuals can not be successful without state assistance, welfare, subsidies, and regulatory control. Since our children are continuously and exclusively indoctrinated in this dependency framework from the earliest age in state schools, it is not surprising that most of them never get to experience the joys and rewards of entrepreneurial striving. They feel that they must depend on others, especially the welfare bureaucrats, to achieve whatever goals they are capable of conceiving. As a result, self-reliance, imagination, resourcefulness and entrepreneurial energy are under-developed attributes among our young population. The long-term drift towards suffocating hopelessness and helplessness sometimes feels irreversible.

Yet the spirit of entrepreneurship has not been fully extinguished. We still have some entrepreneurial heroes, despite the cultural repudiation of “millionaires and billionaires”. We still have some supportive branches of our institutional framework, including local small business groups, entrepreneurial business school courses, private online education, incubators, venture capital, private loan platforms, and exchange platforms like Upwork and Angie’s List. Perhaps someday, we’ll be able to extend that list to include pro-entrepreneurship public policy.

Until that day, let’s celebrate every entrepreneur who breaks out from statism, corporatism and dependency.