We’ve conducted 99 conversations with value-creating entrepreneurs, and we’ve conducted about 100 Q&As with business school professors who research and teach value creation. Here’s a headline summary of what we’ve learned.

Knowledge Capsule1) A firm is defined by its purpose.Firms with a clear purpose that aligns everyone who works there, along with all suppliers and partners and customers, perform at a high level over the long term. Lack of clarity of purpose is associated with fluctuating performance and often with “fade” — permitting competitors and market changes to erode away a firm’s advantage.

Knowledge Capsule #199: Mises.org/E4B_200_A

2) A successful firm’s purpose is always based on value for customers.Purposeful firms identify a vision of value received by the customer, and commit themselves to it. They craft a business model to deliver the vision, including continuous increases in efficiency and continuous innovation, thus expanding the value space in which they operate. They build and maintain strong relationships in all directions. They look to the long term, including future generations.

Per Bylund and Mark Packard on Subjective Value, The New Economics Of Value and Value Creation: Mises.org/E4B_200_B

Econ4Business.com/value

3) Firms need a deep understanding of value.We say in Austrian economics that value is subjective. It’s formed entirely in the mind of the customer, as result of a customer’s learning process: becoming aware of a firm’s offering, evaluating its attractiveness, comparing it with alternatives, putting it to use and assessing whether the usage experience met expectations. They learn from their own perspective, in their own context, and in the process of running their own system (their household, their office, their factory) and living through dynamic changes that alter their perspective. Value is a 2-way flow: the value proposition flows to the customer, and the value experience flows back to the firm as cash flow and feedback.

The value cycle is complex and understanding it is very demanding, as is understanding the customer and their system. Winning firms work hard to build a deep value knowledge.

The Value Learning Process: Mises.org/E4B_200_C

4) Purpose + Value Creation + Entrepreneurship.In Austrian economics, entrepreneurship is the driver of the business system. The term is often misinterpreted as pertaining to start-ups and small business innovation. It actually pertains to value creation. Entrepreneurship is an approach to business that starts with the customer and their needs — a definition of what new value opportunities are currently unmet — and develops the knowledge and assembles the capability to craft a product or service to meet those needs. There is time uncertainty and resource risk in committing to this development. Any firm and any project that pursues this new knowledge with the intent of creating new customer value is entrepreneurial, irrespective of scale.

Entrepreneurship also weeds out elements that are not value drivers — bureaucracy, obsolete assets and unproductive infrastructure such as luxury office suites. Entrepreneurial firms are focused and efficient.

This is Value Entrepreneurship: Mises.org/E4B_200_D

5) Entrepreneurial firms operate unique value-centric business models.Entrepreneurship is action, and the set of actions the firm takes to make money consistently over the long term is called the business model. Business models vary by industry — some industries are more profitable than others — and by firm — in every industry, there is something about some firms that makes them more profitable than others. That something is their business model.

The business model that emerges from 199 Economics For Business episodes is the 4V’s model:

Value understanding: building an advantaged and exclusive knowledge base on understanding your chosen customers and their value needs and value preferences.

Value facilitation: designing and assembling a system to meet those needs and preferences and taking it to market for feedback on customer acceptance and approval.

Value exchange: market implementation at scale to generate reliable recurring cash flows from customer purchases and relationships.

Value agility: systems to receive and respond to feedback in a dynamic, responsive flow.

Per Bylund introduces the Austrian Business Model: Mises.org/E4B_200_E

The Austrian Business Model Video: Mises.org/E4B_200_F

Hermann Morris’s Business Model: Educate The Industry: Mises.org/E4B_200_G

1. The entrepreneurial mindset is different.Over 199 episodes, we observed the following characteristics of the entrepreneurial mindset:

Greater capacity for imagination: imagining great futures for customers;

Better judgment: judgment is intent (the strong emotional relationship with a desired successful outcome), plus intuitive decision-making when data are incomplete, plus confidence in action-as-experimentation, whatever the degree of uncertainty;

Learning: entrepreneurial firms are learning machines, and especially good at challenging their own assumptions.

Empathy: the skill to understand how customers feel subjective value, and to process data through the customer’s mental model;

Orchestration: entrepreneurial firms seldom have direct control over all the resources required to deliver value, and they are expert at orchestrating others’ resources, including their time and skills and knowledge.

Embrace of change: entrepreneurs don’t fear change, they welcome it as an opportunity.

Peter Klein: Opportunities Don’t “Exist”. Entrepreneurs Create Them: Mises.org/E4B_200_H

Victor Chor’s Entrepreneurial Orientation: Mises.org/E4B_200_I

1. Explore and expand.Entrepreneurial firms not only embrace change, they make it, through a process we call explore and expand. It means always running lots of experiments to see what works unexpectedly. Experiments should be designed to refute existing assumptions. There should be a wide variation of experiments, not just a series of nuanced changes. Entrepreneurs look for a big variation in outcome and so they make big variations in inputs.

The Age Of Strategy Is Over: The Replacement Is Explore And Expand: Mises.org/E4B_200_J

1. Harnessing the highest values.What guides customers’ behaviors are not features and attributes, like pricing and performance metrics and guarantees, but values. The firmest guidance comes from the highest values. If a customer’s highest value is family security, they’ll never buy any offering that doesn’t align with their value system. Successful entrepreneurial firms know how to climb the values ladder from features to highest value, providing strong rungs at every level, and always going all the way to the top.

Internally for business, the highest values are service to others, delivered in the form of value creation, and ethical behavior.

Value As A Basis For Business Building: Mises.org/E4B_200_K

1. Managing the loopBusiness is a flow. In business-as-a-flow, there’s no start and no finish. It’s non-linear. The environment is entirely uncertain and unpredictable. A business forms its intent, and then chooses and implements actions it judges will advance that intent. There’s no way to know what the result will be, and so the business commits to receiving and reading the feedback, making appropriate adjustments, and then implementing new, adjusted actions, to gain the next round of feedback.

This is the flow of knowledge-building, and it flows as a repeated loop, with the same process but different actions, new learning and continuous adjustment.

With sound and active monitoring and management, the loop will generate some durable learning that merit repeated action. Cash flow will flow back to the company, and profitable returns will grow. The loop can be self-reinforcing.

Mark McGrath: OODA Loop: Mises.org/E4B_200_L

Bart Madden: Proficiency With The Knowledge-Building Loop Is The Key To Value Creation: Mises.org/E4B_200_M