70. Per Bylund: How Entrepreneurs Build Businesses That Are Beautiful Islands Of Specialization

Per Bylund discusses the distinctive Austrian theory of the firm on this week’s Economics for Entrepreneurs podcast. He captures his unique business strategy construct in the metaphor of Islands of Specialization.

Key Takeaways and Actionable Insights

How do creative entrepreneurs design and build new businesses, new products and new services that grow and succeed? You’ll make a big difference for your own venture if you follow Per Bylund’s advice to Think Better, and Think Austrian. One step in the right direction is to clear your head of thoughts about competitors to fight, markets to invade, beachheads to take, or moats to construct around your business and your brand.

The alternative way of thinking is to envision your business enterprise, your brand or your offering as an island of specialization. What you create, launch, build, grow and sustain is something that is so special that your customers experience a deep and rich feeling of value that they can’t possibly get anywhere else. For your customers, it provides the business equivalent of a visit to (and eventually permanent residence in) a comfortable, amenity-laden resort on a beautiful tropical island, where the staff recognizes and caters to their every wish. There’s nothing else like it.

How can you create one? There are four principles that successful entrepreneurs follow to build their island.

Tropical Landscape Cartoon

Click on the image to download the PDF

Aim To Please. That’s not the kind of advice you’ll find in business school or textbooks. Yet it captures the core of our Austrian approach to business. The customer is the reason for you to be in business. Aiming to please them is the right way to think about strategy. Aiming to please is a process of observing, listening, studying and empathically sensing what will please customers the most. You aim to understand their ecosystem and their logic, their hopes and their dreams. Your offering is the way you indicate to them that you can fit in to their ecosystem and contribute to their goals. Your business model is the way you arrange your activities to please customers once you’ve fully understood their preferences and desires. Competition, cost, resources and other considerations are secondary.

Don’t copy — move beyond. Military business metaphors depict competition as conducting wars over business territory, or fighting for customer attention. In Per’s Austrian way of thinking, there is no new value for customers when a firm merely copies what is already offered by others. There’s no point — no value — in fighting over market spaces. Value emerges from what’s new and better and different. Smart entrepreneurial island builders assess the current landscape, predict where the customer will be in the future, and navigate to that place to build a new island.

Build from strength. Entrepreneurs distinguish what is unique about themselves, their partners and employees, their processes, their brand and their resources that can be of benefit to customers. Much of the uniqueness is subjective — the owners’ or the business’s identity, their unique knowledge and expertise, their relationships and interconnections that can co-ordinate the assembly of specific solutions. It’s not about arraying more destroyers on the battle lines than the opponent; it’s arraying a set of uniquely desirable and attractive brand features and attributes that are attractive to the customer.

Maximize value not output. The island builder keeps on building. Not for scale or market share or maximizing output. The direction of growth is to maximize value. Value is a feeling of satisfaction in the customer’s mind. Maximization, in this view, refers to higher levels of satisfaction, over a wider range of experiences, for more customers on more occasions. Maximization is not a quantitative or mathematical concept, to be compared with rivals to ascertain who is “winning”. It’s a qualitative concept — what quality of value has been experienced, and how can it be improved.

The four guiding principles — aim to please, in unique ways, based on your own identity and strengths, always thinking about the value that’s experienced by customers — lead to beautiful businesses. If you are developing visual island imagery in your mind’s eye as you read this, think of a balmy climate, vibrant flowers and trees, bubbling streams and distinctive animals and birds. Let your imagination run free in conjuring up beauty — that’s what entrepreneurs do as the start, grow and sustain their businesses.

Free Downloads & Extras

The Two Kinds of Knowledge Entrepreneurs Must Have: Our Free E4E Knowledge Graphic

For a full-length essay by Per Bylund (“Make Your Startup an Island”), download our latest free e-book, Austrian Economics in Contemporary Business Applications: (PDF): Our Free E-Book

For a shorter essay, see Per’s article, “Forget the Moat and Make Your Startup a Tropical Island”: Click Here

For a full exposition of the Austrian theory of the firm and the concept of islands of specialization, see The Problem of Production: A New Theory of The Firm: Click Here

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4. Bob Luddy on Entrepreneurial Specialization

It’s a fallacy for an entrepreneur to believe in chasing the biggest possible audience or the largest possible market. Why? Because your business will get pulled in the direction of “all things to all people”, and you may end up pleasing none.

The opposite rule applies: identify and gather specialized knowledge, and apply it in a specialized market to a select group of customers. Aim to be the best in your specialization. To do so requires discipline, application, and—as we discovered when we talked to Bob Luddy—time.

Bob is the founder and CEO of CaptiveAire, a business specializing in commercial kitchen ventilation systems. It’s a fast growing business, now generating hundreds of millions of dollars in revenue and hailed by its customers as best-in-class. It didn’t get there overnight, and it didn’t get there without some difficult moments along the way. Bob shares his experience with us on Economics For Entrepreneurs.

Show Notes

Bob Luddy’s case history represents an approach to starting an entrepreneurial business that is sometimes called Effectuationillustrated in this handout. See also Bob’s book, Entrepreneurial Life: The Path from Startup to Market Leader.

Your first business may not be your ultimate business. Bob started in the fire suppression business. He aimed to be the best in that niche, but realized that there was a better opportunity in kitchen ventilation, so he made the switch. The new business was a slower build, but in a more fruitful market.

He felt a positive tipping point in year 9. He obtained a commercial bank loan — prior to that he had been short on capital. Now he felt he could accelerate growth. That didn’t mean he had “made it”, but that he was on slightly firmer footing. Nine years is a long time to find firmer footing — be patient! It takes a long time to build a great business.

Patient specialization is a critical component of success. So-called “serial entrepreneurs” never spend enough time to be the best at the business they’re engaged in. By being patient, Bob was able to identify weaknesses in the market on which he could capitalize: long lead-times (shorten them!), high prices (lower them!), imperfect performance (improve!), and poor service levels (invest in service!). These were innovations a new entrant could bring.

Be the best in your specialization — not all things to all people. Bob’s specialization methodology has been to create the highest industry standards for the products and services he sells, and then don’t deviate. Don’t make “wild” sales promises that are not standard. Keep to a tight range of products so as to drive down costs, and shorten execution times. Competitors who try to be “All things to all people” go out of business. Specialization is a basic economic concept that is key to success.

Systems thinking brings growth to specialization. Thinking like a customer means systems thinking: what is the complete solution the customer is seeking? Specialization does not mean being a tiny piece of the solution. By integrating the entire system, you become more valuable to the customer. The future of entrepreneurship is in integrating systems, and defining integration is the job of the entrepreneur. A business can keep growing by advancing towards greater integration.

Innovation is ephemeral — you never stop. Innovation is important, but don’t think of it as an event. It’s an activity that is continuous. Every single innovation will be competed away. You’ve just got to keep on doing it, and always be alert to new ideas, new combinations of existing ideas, and changes in customers wants and needs.

All decisions are subject to re-evaluation. None of us gets it right every time. Most decisions are made with incomplete information. But that’s necessary — an entrepreneur needs to make high velocity decisions. If they are wrong, own up to it, fix the consequences and re-evaluate based on new information.

The purpose of a business is profit. With no profit, there is no business, no jobs for employees, and no innovation. Make profit in a fair and moral way. And make profit in the long term, not necessarily maximizing profit in the short term. Everyone — the whole society — benefits.

Entrepreneurs don’t plan: they execute a vision. Entrepreneurs have a vision they are working towards. They have aspirational goals for sales or revenues. But they know they can’t plan the future. It’s hard to plan a month or even a day, let alone five years. What they can do is execute with excellence. The key question is, did you get it done today? As the world of business closes in on real time, execution is primary.

The winning entrepreneurial trait is brute determination. Sometimes, all you have is your own determination to succeed. You define what are the things that MUST be done, and you execute with no exceptions. Vision is good, but execution is hard. Doing the hard things, correctly and consistently, is what makes an entrepreneur.


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