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66. John Tamny On America’s Uniquely Productive Entrepreneurial Flywheel

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The flywheel is a robust and powerful mechanism so long as restrictive regulation by government and failures of imagination by capitalists do not slow it down.

John Tamny speaks articulately with Hunter Hastings about the uniquely American entrepreneurial flywheel in Economics For Entrepreneurs podcast #66.

Key Takeaways and Actionable Insights

A growth business is what John Rossman, in episode #50, termed a flywheel. Using amazon.com as an example, he gave us this simple image.

Flywheel Economy Diagram

The flywheel looks simple, but in reality it’s quite nuanced. Lower prices and a great customer experience will bring customers in, Bezos reasoned. High traffic will lead to higher sales numbers, which will draw in more third-party, commission-paying sellers. Each additional seller will allow Amazon to get more out of fixed costs like fulfillment centers and the servers needed to run the website. This greater efficiency will then enable it to lower prices further. More sellers will also lead to better selection. All of these effects will come full circle back to a better customer experience.

John Tamny sees the American entrepreneurial economy as a beautiful and productive flywheel.

Why are Americans so entrepreneurially focused? We descend from “the crazies” – the other thinkers who came from around the world, dissatisfied with their lives, and willing to cross oceans and borders to get to a place that offers no security but offers freedom. They took the ultimate entrepreneurial leap. We got the nut cases. Steve Jobs, for example, was of Syrian descent. Could he have started Apple in Syria? No.

John Tamny's Entrepreneurial Flywheel

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Entrepreneurs lead us to a better place.

John’s definition of an entrepreneur is someone who has a vision that everyone else thinks is ridiculous, yet they follow it anyway. They have no time for the way things are done today. They want something different. And to win consumer acceptance, what’s different must also be better. So they quite literally lead us to a better place. Horse-drawn carriages weren’t enough, so Henry Ford gave people something different. Everyone wanted Blackberry phones when Steve Jobs brought out the iPhone, and he quickly demonstrated its superiority. Every entrepreneurial act is speculation – there is never certainty that people are going to want the new product. That’s what is so important about entrepreneurs.

Entrepreneurs need to attract intrepid finance and intrepid financiers.

Silicon Valley is littered with VC’s who turned down Facebook, and turned down Amazon. Founding entrepreneurs think differently and have a vision that is far out of the norm, and they need to be matched with financiers who can be strong supporters and collaborators on the path to a better place. Irrespective of whether it is from Wall Street or Sand Hill Road, or from visionary friends and family, it’s critically important that we figure out a way to get financing to brilliant people. Government restrictions on entrepreneurial activity are certainly barriers to growth, but so is failure of imagination on the part of capitalists.

Intrepid lending takes place far away from banks. Unspent wealth is the source, and the more unspent wealth one person has, the more risks they can take.

We tend to complain about the antiquated and sclerotic banking system, but it has nothing to do with entrepreneurs and innovation. Banks make loans to entities they know will pay them back. Entrepreneurs fail 90% of the time. Banks want nothing to do with innovation.

Those with unspent wealth are the most crucial people in the economy when they match their unspent wealth with entrepreneurial talent and vision. The more unspent wealth they have – and the less the government takes away from them in taxes – the more intrepid they can be in investing it. When we tax away the wealth if the richest, we tax away the most important wealth of all. – that which has the highest odds of being directed towards new ideas that, while they look promising, have high odds of failure.

More and more of us have the opportunity to become entrepreneurs, if we harness the flywheel of original ideas that attract intrepid capital.

One of John’s many books, The End Of Work, describes how we are all now so enabled with interconnectivity to resources that we have the chance to make money by doing what we love. Our passion can become our job. If we are able to imagine a future place that is better – that improves the lives of individuals – we can create a growing business. The more of us who can do this, the more we grow the whole economy – which, after all, is made up of individuals. If we can also attract that intrepid capital that John refers to, growth becomes faster and higher.

Besides The End Of Work: Why Your Passion Can Become Your Job, John’s books include Popular Economics: What The Rolling Stones, Downton Abbey and LeBron James Can Teach You About Economics, and Who Needs The Fed: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America’s Central Bank.

Free Downloads & Extras

“John Tamny’s Entrepreneurial Flywheel”: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

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64. Per Bylund: Avoid The Errors of UNtrepreneurship.

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Per Bylund warns us that there is some entrepreneurial advice and some proposed business models that are misleading. They amount to what he calls UNtrepreneurship – a bad business direction to take. He defines the standard of the Austrian entrepreneurial business model and highlights the business risks that lurk on some other pathways in Economics For Entrepreneurs podcast #64.

Key Takeaways and Actionable Insights

Follow the guidance of the Austrian Business Model.

The entrepreneurial business model is built on a set of important economic principles. Wandering away from the entrepreneurial pathway can lead to errors that Per Bylund christened UNtrepreneurship.

Focus on serving consumers and customers.

The purpose of a business is to create and keep a customer. It’s a demanding task, because customer needs are continuously evolving and changing, and competing entrepreneurs are vying for their dollars. It is critical to maintain intense focus on service to customers.

There is a lot of distracting entrepreneurial advice. You might encounter instructions to “identify and exploit market gaps” or to “seize opportunities”, for example. But there are no such things as gaps to fill or opportunities to grab. The language makes it sound like these are objective phenomena, unmasked by analytics. They’re not. The right strategic platform for entrepreneurs is to focus on serving customers by identifying their preferences and meeting them.

Every hour you spend, every strategic thought you develop, should be focused on the customer.

Productivity lies in returns on customer satisfaction.

You’ll hear a lot of talk of generating returns, especially on funds invested by lenders or VC’s. These returns are emergent outcomes of other activities. Even profit is an indirect outcome more than it is a goal.

Ludwig von Mises wrote in Human Action that the task of the entrepreneur is to use capital “to the best possible satisfaction of consumers”. Anything else “hurts people’s well-being”. Customer sovereignty, in the language of economics, means that the customer decides, by buying or not buying, what will be the return to the entrepreneur on their investments of time, effort and money. Productivity results from the most efficient assembly and combination of resources to produce customer satisfaction.

Sometimes, business literature and business practice can deviate from this standard. Often, for example, the pursuit of “scaling” – making a firm big, in numbers of employees, say, or number of transactions, as fast as possible – can divert resources from serving customers to serving the needs of infrastructure growth and bureaucracy. Customer satisfaction should be the only focus.

Understand subjective value.

The economic concept of value is challenging to master for entrepreneurs. Value is an experience in the customer’s mind. We’ve also identified that it’s a process – a learning process customers initiate and actively conduct to make a decision as to whether an offering has potential value (“I might like it”), relative value (“I think I might feel better about buying X versus Y”), exchange value (“I am willing to pay Z dollars at this point in time to acquire X”), experience value (“my satisfaction was more / less / the same as I expected”) and assessed value (“looking back on it, my value experience was worthwhile and worth repeating unless something with more potential value is offered to me”). All through this cycle, the customer is active in the marketplace, learning about alternative offers, changing their consumption preferences, interacting with other people with different experiences and preferences that might be influential, receiving advertising messages, and generally rearranging their personal value recipe.

It’s a challenge to understand and a challenge to keep up. An entrepreneur’s understanding of subjective value is a critical business success component. Importantly, the business school concept of “creating value” can be unhelpful. Value is created by the customer. The role of the entrepreneur is to understand how to fit in to the customer’s life and contribute to it, making possible (“facilitating”) the mental experience we call value.

View pricing as a discovery process, not as an expression of market power.

Another challenge of the economic way of thinking to conventional business writing is the understanding of prices. Prices are emergent market signals, ultimately determined by the consumer’s willingness to pay. Prices can’t be “set” by the entrepreneur. There is no “pricing power”. Margins can not be calculated by determining the price you want to sell at and then subtracting the costs you have imposed on yourself.

Entrepreneurs discover prices – the market reveals them. Attempts to use pricing as leverage to grow market share irrespective of costs and profits are doomed to failure if it is later discovered that customers become conditioned to the artificially low prices and resist returning to a higher price.

Follow the entrepreneurial ethic.

Per Bylund has emphasized that there is an entrepreneurial ethic that applies. Entrepreneurship is the service of meeting customer needs. Profit emerges as a result of successfully accomplishing this task. Profit is necessary to maintain the service, but it’s not necessarily the primary goal. In some ways, entrepreneurship is a calling. There are social and emotional benefits for taking on the role of the entrepreneur – we can classify them as psychic profit. There is purpose and meaning in the entrepreneurial life.

This should not be confused with the misguided economics of so-called social entrepreneurship or impact entrepreneurship: attempting to rearrange and redistribute resources in society through the active application of the entrepreneur’s personal preferences. Only the customer’s preferences in the marketplace can direct the best allocation of resources. The entrepreneurial ethic is to follow and serve.

Our Free E4E Knowledge Graphic summarizes these precepts – keep it on your device for reference.

Free Downloads & Extras

“Avoiding The Errors of UN-trepreneurship”: 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:

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

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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

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

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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.