Interviews: Recent Episodes
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A compendium of individual interviews and topical series covering a broad range of topics important to Austrians.
Ryan McMaken joins Bob to discuss the surprisingly negative reaction (from a Reason writer and Tyler Cowen) to Oliver Anthony's hit song, "Rich Men North of Richmond." Ryan and Bob defend the lyrics, arguing that Anthony doesn't say anything objectionable from either a libertarian or economic perspective.
Listen to Oliver Anthony's "Rich Men North of Richmond": Mises.org/HAP412aChristian Britschgi's article in Reason on Oliver Anthony: Mises.org/HAP412bTyler Cowan's Bloomberg Editorial: Mises.org/HAP412cJoin us in Nashville on September 23rd for a no-holds-barred discussion against the regime. Use Code "HA23" for $45 off admission: Mises.org/Nashville23
Peter Lewin joins Bob to discuss his work with Nicolás Cachanosky on uniting Austrian capital theory with mainstream finance.
Peter's New Book on Capital and Finance: Mises.org/LewinBookJoin us in Nashville on September 23rd for a no-holds-barred discussion against the regime. Use Code "HA23" for $45 off admission: Mises.org/Nashville23
Peter St. Onge joins Bob to discuss his latest piece at Mises.org on "China's Doom Loop." They cover a wide range of topics, including the contrast in leadership between Xi Jinping and Deng Xiaoping, the dollar as global reserve currency, the Belt and Road Initiative, and Jim Rogers' prediction that the 21st century would belong to the Chinese empire.
Peter's Article on China: Mises.org/HAP410a
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime. Use Code "HA23" for $45 off admission: Mises.org/Nashville23
Jonathan Newman joins Bob to discuss the argument being put forth by Alan Blinder, James Galbraith, and other progressive economists, who claim that the Federal Reserve's rate hikes couldn't possibly be responsible for the quelling of consumer price inflation.
Jonathan and Bob stress the important role of expectations as a "transmission mechanism" from Fed policy to impacts on prices.
Galbraith's Article on the Fed's 'Soft Landing': Mises.org/HAP409a The Paper on the Forward Guidance Paradox That Mentions Krugman: Mises.org/HAP409b
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Michael Rectenwald talks with Paul Gottfried about Paleoconservatism, the left, Wokism, the identity and ethos of the ruling elite, and decentralization.
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime. Use code "Rekt23" for $45 off admission: Mises.org/Nashville23
Ryan McMaken joins Bob to discuss the recent US Women's World Cup elimination, and to dispel the myth that markets are discriminatory. After defending Megan Rapinoe's failed penalty kick, they dismantle her outspoken views on "equal pay" in sports, and examine the left's claim that law is required to fix prejudice in the labor market.
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
As Fed staffers no longer predict an impending recession, economists on social media are all assuring themselves that Americans are in store for a "soft landing." Mises Fellow Jonathan Newman joins Bob to explain why the data still support the case for recession and point out the eerie similarity to the calm before the storm in 2008.
Robert Lucas' Nobel Prize Winning Lecture: Mises.org/HAP407a Bob's Eerie Article from 2007 on the Recession: Mises.org/HAP407b 'Bernanke Was Wrong' Compilation: Mises.org/HAP407c 'Peter Schiff Was Right' Compilation: Mises.org/HAP407d
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Michael and guest co-host Ben Ahdoot talk with Ron Unz about RFK, Jr., Ron's American Prava series, the Unz Review, the Great Reset, censorship, the origins of SARS-CoV-2, and more.
David Brady Jr. discusses his recent article at Mises.org, in which he argues that the newly launched "FedNOW" system isn't a CBDC. Even so, there are dangers from FedNOW, such as exacerbating bank runs. David also explains the new Mises Apprenticeship program, of which he is a member.
David's Article on Mises.org: Mises.org/HAP406a George Selgin Cato Article on FedNow: Mises.org/HAP406b
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Michael talks with Gad Saad about evolutionary psychology and the market, the mind parasites, and his new book.
George Gammon, host of the popular Rebel Capitalist show, warns that the Fed won't have to force the public to adopt a central bank digital currency (CBDC). Instead, the public might clamor for it, being promised safe, high-interest checking accounts at the Fed, just like Jamie Dimon.
The Rebel Capitalist show: Mises.org/HAP405a
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Michael talks with Tom Woods about RFK, Jr., whether the elites are evil or just incompetent, and the secret of Tom's success.
Robbie "The Fire" Bernstein is a co-host with Dave Smith of the popular podcast Part of the Problem, as well as his own podcast Run Your Mouth. He joins Bob to walk through the shocking and hilarious moves by Biden officials to downplay recent allegations of corruption.
Find More from Robbie Including His Tour Dates: Mises.org/HAP404a $5.1M Payment to Biden Businesses: Mises.org/HAP404b Biden Attorneys on The Hunter WhatAspp Message: Mises.org/HAP404c
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Michael and Walter Block discuss the Ukrainian conflict, reparations, immigration, and the Israel-Palestine conflict.
Michael and Walter Block discuss the Ukrainian conflict, reparations, immigration, and the Israel-Palestine conflict.
Bob walks through a recent interview of MMT champion Warren Mosler, in which he claims that Fed rate hikes lead to larger government interest expenses and hence support economic growth and inflation. Bob presents both theoretical and empirical evidence against Mosler's claims.
Bob's Debate with Warren Mosler: Mises.org/HAP403a Bob's Review of Stephanie Kelton: Mises.org/HAP403b Bob's EconLib Article on Austerity: Mises.org/HAP403c Technical Article on Why the Treasury Can't Overdraft: Mises.org/HAP403d
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
The Mises Institute's Executive Editor Ryan McMaken joins Bob to discuss his latest article, in which Ryan spells out the state of the M2 money supply and possible implications for consumer prices and an impending recession.
Ryan's Mises.org article on M2: Mises.org/HAP402a Ryan's QJAE article on the inverted yield curve: Mises.org/HAP402b
Mises Institute Fellow Patrick Newman joins Bob to discuss a recent tweet from Stephanie Kelton, which argued that the government's "red ink makes our black ink possible." Patrick and Bob point out that these MMT tautologies are very misleading at best. Patrick also lays out the argument in his journal article, saying that MMT's debt monetization won't cause a boom-bust cycle, but will still reduce living standards.
Ryan and Robert Aro take a look at the Fed's unconvincing explanation of why it has chickened out on interest rate hikes. This only makes sense if the economy is much weaker than the Fed claims.
Be sure to follow the Fed Watch Podcast at Mises.org/FedPod.
John Klyczek joins Michael on the first episode of REKT. John (jakE) is the author of School World Order: The Technocratic Globalization of Corporatized Education. Topics include the behaviorist, collectivist, and eugenicist roots of public (and state-sanctioned private) education, the globalist organizations behind the stakeholder capitalism regime, and the making of "global citizens" through indoctrination and technocratic surveillance and control systems.
Get School World Order: Mises.org/Rekt1a
Find more work from John: Mises.org/Rekt1b
University of Rochester economist Steve Landsburg joins Bob to discuss the abysmal performance of ChatGPT on his undergraduate exam. They also discuss the importance of market prices in guiding behavior and the unexpected problems with the government handing out "free" goodies.
Bob's article "Superman Needs an Agent:" Mises.org/HAP400a Steven's Book The Armchair Economist: Mises.org/HAP400b More Economic brainteasers: Mises.org/HAP400c
Jonathan Newman joins The Human Action Podcast to discuss his recent Twitter controversy over the claim that market prices can be "wrong" (i.e. in disequilibrium) if they are "sticky."
Jonathan Newman's Twitter controversy on sticky prices: Mises.org/HAP399a Joe Salerno on Mises's Monetary Theory: Mises.org/HAP399b Bagus and Howden on market disequilibrium and sticky prices: Mises.org/HAP399c
Per Bylund joins Bob to discuss his new paper at the QJAE, which points out several flaws in the MMT claim that money is valued in order to pay taxes.
Per's QJAE article: Mises.org/HAP398a
On this first episode of the Fed Watch Podcast, Ryan McMaken and Senior Fellow Alex Pollock talk about how the Federal Reserve has negative cash flow. The Fed will print money to "solve" the problem.
Be sure to follow the Fed Watch Podcast at Mises.org/FedPod.
Recommended Reading"The Fed’s Capital Goes Negative" by Alex J. Pollock: Mises.org/FW_01_A
"Who Owns Federal Reserve Losses and How Will They Impact Monetary Policy?" by Alex J. Pollock and Paul H. Kupiec: Mises.org/FW_01_B
"Why the Fed Is Bankrupt and Why That Means More Inflation" by Ryan McMaken: Mises.org/FW_01_C
Heritage Fellow Peter St. Onge joins Bob to set the record straight on several popular talking points about the debt ceiling.
Bob on selling Gov't resources to reduce the National Debt: Mises.org/HAP397a
Bob originally invited Brian Albrecht (Chief Economist of the International Center for Law & Economics) to discuss the work of Armen Alchian, but on the day of recording, Robert Lucas happened to die.
Bob and Brian discuss rational expectations, real business cycle theory, and how Alchian cracked the military's top secrets.
Brian on Alchian's famous "Costs and Outputs" paper: Mises.org/HAP396a
Dr. Paul Cwik joins Bob to discuss the inverted yield curve's "signal" of an impending recession.
Dr. Cwik's dissertation on inverted yield curves and economic downturns: Mises.org/HAP395a
Bob on the link between inverted yield curves and recessions: Mises.org/HAP395b
Bob's Understanding Money Mechanics: Mises.org/Mechanics
Jonathan Newman joins Bob to critique a recent Twitter argument where some were claiming that supercomputers solved the socialist calculation problem.
The Twitter thread on AI and Socialism: Mises.org/HAP394a
Bob on Socialism and calculation vs knowledge: Mises.org/HAP394b
Karras Lambert and Tate Fegley on economic calculation and AI: Mises.org/HAP394c
Are NASA contracts propping up the private space industry? Or are Government regulations stifling the private space race?
Dr. Eli Dourado, Senior Research Fellow with the Center for Growth and Opportunity at Utah State University, joins Bob to discuss the recent "successful failure" of the exploded SpaceX launch and the differences between government and privately funded space travel.
Dr. Dourado on NASA contracting private companies to build their shuttles: Mises.org/HAP393a
Dr. Dourado on the Artemis moon program: Mises.org/HAP393b
Professor Per Bylund joins Bob to debunk the worries over AI and to question whether the latest version of chatbots should even be called "intelligent."
Per on Robots Taking your Jobs: Mises.org/HAP392a
Austrian economics recognizes change as a constant and provides guidance for adapting to it and managing it. Change is changing for business — it’s faster and more fundamental in the digital age. Austrian economics can help even more as a result of its practical and realist approach to adaptation and continuous adjustment.
Knowledge CapsuleChange is changing.Change is a constant. You can think of the market in constant flux, as Mises did, You can think in terms of VUCA — volatility, uncertainty, complexity, and ambiguity. You can think of it in terms of complexity or of absolute uncertainty. However you tune your mind and your business processes, there are always going to be more things that can happen than you can predict or prepare for.
There are some ways to think better about ceaseless change, however. One is to bucket the major themes or corridors of change, to organize your thinking and make some judgments about where and how to act and adapt. By recognizing these multiple types of change, businesses will be better prepared for adaptive action.
Our E4B guest Phil Simon has studied change in the workplace and recently published a new book titled The Nine — about nine tectonic forces that are reshaping business and the workplace where we conduct business. He advises businesses to be alert to the changing nature of change in the digital age.
People are changing.The people you hire today and the people already working at your firm are not the same people as they were just a couple of years ago. They’ve been through a new, different and challenging experience of working through the Covid-19 pandemic, and they’ve been working with new technologies, in new places (i.e., working remotely) and they’ve been questioning how they relate to work, to their colleagues, and to the firm. Don’t expect them to be unchanged in their mindsets, attitudes, and work practices. The nature of the employment relationship is different today — less formal, less rigid, less standardized. Phil Simon uses the term “empowered employees” — employers must be empathic in understanding their new mental model as it relates to work.
The workplace is changing.The workplace is no longer a physical space where people congregate to collaborate on work tasks, but a digital space of networked people, machines and software. New software and new machines are evolving all the time in this space, changing our relationship to it and to work. People are not going to go back to the office as the standard method of getting business done. If you want to have a physical space for people to meet in person, it must be reconfigured to support those business activities that can only be done in person, and not just as a standard structure of cubicles, offices and wiring. People must feel that there is more or better productivity to be enjoyed in the physical shared space than can be realized elsewhere.
The structure of work is changing.Phil’s book includes a section on fractions: the idea that firms no longer need full-time access to a necessary business skill — like finance and accounting — via contracting with individuals for 100% of their worktime. New organizational models are emerging that utilize fractional access to these skills as needed. There are fractional CFOs and CMOs and CTOs. There are highly qualified experts available via sharing platforms; they can be both the best at what they do and the best fit for your firm’s need, available for a percentage of their time, not all of it. This thinking about fractional talent and skill utilization is becoming a more integral part of organizational thinking.
Automation is universally available.Some level of automation is coming to every workplace. It’s approaching with greater speed and intensity today. It’s best to think of automation in terms of outcomes: what needs to get done and can it be done in a more automated fashion? What needs to be produced (Phil cites automated pizza making machines)? What processes are taking up people’s time (Phil cites automation in payment systems)? What jobs can be totally automated (e.g., driving trucks)? What departmental functions can be fully automated (like content moderation at Twitter)? All businesses should be reviewing all their activities at all these levels and asking where automation can eliminate waste, save time and release resources for greater productivity. Whether it’s as simple as calendaring software or as complex as robotic process automation, it’s right to examine every opportunity and find an automated solution.
A.I. Is going to help.The rapid adoption of ChatGPT has opened many eyes to the possibilities of getting smart assistance to change and improve the way work is done. ChatGPT can help develop content, make plans, find data, write code, make summaries of libraries of documents, and assist in many many more tasks — as exhibited by the many ChatGPT threads on twitter that are full of new ideas. The great breakthrough of ChatGPT lies in making available the vast majority of available knowledge on virtually all topics in a convenient, conversational way. Businesses are the results of their accumulated, shared and applied knowledge. ChatGPT and similar AI’s amplify knowledge and accelerate learning. Businesses that don’t utilize this availability will fall behind their competitors.
There will be new software environments.Software and platforms are two parts of the work environment that are changing fast. Whether we work on Zoom or Slack or Teams or Github or Salesforce, we continuously encounter new upgrades and functions as well as new alternatives. There is no alternative to earning the skills to utilize these tools to their greatest productive effect, and to keep our learning updated.
One economic function that is not improving amidst content change is trust. We can’t be sure, sometimes, about the other party we’re talking to or collaborating with, we can’t be sure of trusting data, we can’t be sure that our privacy and property rights are protected. Phil made the prediction that blockchain, as a secure record of all transactions and un-hackable repository of data and information, will play a bigger role in our business future as an arbiter of trust. For example, this may be where our individual health records might reside, which individuals would own, and which they could share and use for their own benefit in navigating the regulated opacity of the healthcare system.
Subjectivism and empathy will always play important roles.Phil made a reference to “unhealthy analytics”. His point was that we are now in a position to measure more and more human action and human behavior, but that measurement does not necessarily provide insight, and may even give rise to perverse incentives. For example, it’s possible to measure when employees checked in to the office and when they left, but it’s not equally possible to monitor their productivity or motivation. It’s possible to measure the number of hours they spend on Zoom, but a different problem to measure their remote contributions. Analytics have their place, but understanding and empathizing with employees, and carefully constructing their mental models in order to be able to appeal to them and stimulate them, remain subjective, emotionally-based skills which are still a critical component of management.
Steer into the skid.How do founders, owners, and managers deal with these changes? Phil’s expression is to steer into the skid. Reimagine work, embrace the powerful new technologies that are available, and be willing to experiment — perhaps in ways that others aren’t — to generate the active learning that moves organizations forward. It might be messy, and even feel chaotic, but it’s the right response to tectonic change. Expect some turbulence, while being open to infinite new possibilities.
Additional ResourcesThe Nine: The Tectonic Forces Reshaping the Workplace by Phil Simon: Mises.org/E4B_215_Book
PhilSimon.com — Expertise on workplace collaboration and technology
Phil Simon on LinkedIn: Mises.org/E4B_215_LinkedIn
Jonathan Newman joins Bob to dissect Paul Krugman's latest NYT op-ed, in which he derides Ron DeSantis as paranoid for thinking a central bank digital currency (CBDC) could be used to control citizens.
Krugman's op-ed in the New York Times: Mises.org/HAP391a
Bob breaking down negative interest rates: Mises.org/HAP391b
Entrepreneurship is well-defined in economics, and well-recognized as the engine that drives economic growth. That means people enjoying greater well-being, including but not limited to material prosperity. But economic growth can be uneven. Some countries, some regions, and even some firms do not generate the same levels of economic growth as others. How do we understand this variability? We look for what holds entrepreneurship back.
Knowledge CapsuleEconomic development can be a self-reinforcing cycle of continuous improvement in people’s circumstances.Greater material prosperity is a valid and worthwhile goal for economic development. But, says Shawn Ritenour, economic development goes beyond that goal: it delivers a greater variety of goods and services that individuals and businesses can use as means to achieve their own diverse ends. The production of this greater variety requires entrepreneurship in the creation of new ideas and the pursuit of new value, and it generates new entrepreneurship by supplying a greater variety of resources to work with in those pursuits.
To generate this cycle, an enabling environment is required — one that acts as a catalyst for entrepreneurship.Economic development is a multifaceted process in which several forms of human action combine in a system for economic prosperity. It’s not instructive to try to isolate financial capital or capital goods or technology or even human capital, and culture and social institutions can’t be ignored. These sources of prosperity must work together in an orderly fashion to generate the necessary synthesis.
The vital role is that of the entrepreneur.The entrepreneur is the one who undertakes production, the one who combines resources to produce a product that meets customers’ needs and enables those customers in their own economic pursuits. Entrepreneurs kick off the cycle. Firms and organizations can act entrepreneurially, but it’s fundamental to understand that individuals — sometimes working in teams or committees — are the ones behind entrepreneurial decision-making. The entrepreneur is not necessarily a single person, but entrepreneurship is always a human action.
How do we get entrepreneurship started?Entrepreneurship requires customer knowledge, technical knowledge and financial capital. Customer knowledge includes the empathic understanding of what’s needed for customers to be able to better meet their own needs. In the context of economic development, this knowledge is probably widely available to private entrepreneurs, but it may not be available to governments, whose understanding is distorted by predispositions to develop specific industries or subsidize specific economic sectors, or towards a particular technology. For these reasons, there can be no “entrepreneurial state”. Individuals with their own ideas and their own private property will provide the energy o break economic inertia.
Technical knowledge defines a sufficient understanding of the technology and technological resources to deliver the desired new value to the customer. In under-developed economies, this technical knowledge may be thin, so reinforcing the technical knowledge of entrepreneurs is appropriate, through education, injections of new technology, training, mentoring, or other forms of knowledge transfer.
With the right understanding of customer needs and the command of the right technology, the entrepreneurs involved in the development state will always need financial capital, because production takes time to organize before cash flows in to the firm from customers. In development contexts, entrepreneurs often will not have savings of their own, and there may not be an appropriate institutional infrastructure of local banks and lenders and investors.
Therefore, customer knowledge, technical knowledge and financial capital combine to provide the foundation for entrepreneurial leadership and growth. They’re integrated: it’s important for the sources of financial capital to understand and appreciate the nature of the customer and technical knowledge that is being deployed. Typically, this takes the form of venture capital or private equity.
Education is another important element in the institutional environment for entrepreneurship.Entrepreneurship as a skill or capability can not be taught — it requires a special orientation that’s more developed in some individuals and firms than others. But principles, process and tools can be taught, and experienced entrepreneurs and businesspeople who have developed market savvy can share knowledge that they have acquired. Communicating the entrepreneurial mindset and methods in all stages of education will help to create and promote an entrepreneurial community that’s supportive of economic development.
One aspect of learning is to understand the entrepreneurial ethic of sacrifice, that it takes a lot of time and effort and expenditures and extended commitment before business success can be achieved. There’s more hard work than there is magic.
Institutional elements such as property rights and sound money are important components of entrepreneurial development.Property rights and sound money may sound like abstract concepts, but they are extremely influential in economic development processes. Property rights mean that entrepreneurs can assemble and go to market with their own resources in whatever way they prefer. Sound money means that entrepreneurs can anticipate a return from their productive activities that’s not eroded away by inflation, and they’re not led into miscalculation by monetary manipulation (e.g., unanticipated escalation of future borrowing costs).
Removing obstacles to entrepreneurship is the best economic development policy.Traditional approaches to economic development favor centrally planned initiatives, government spending, and policies in the form of subsidies or special incentives. They’re not typically market-based approaches. But the right approach is the opposite of policy-making. Instead of trying to design and add new structures, development should be focused on the removal of barriers — on identifying what’s getting in the way of nurturing a rich and robust entrepreneurial culture, and focusing on the removal of those obstacles. Leave the entrepreneurs to identify the specific products and services and businesses that can flourish, and to attract the investment capital that will support those businesses, without the need for “policy”.
Additional ResourcesThe Economics of Prosperity: Rethinking Economic Growth And Development by Shawn Ritenour: Mises.org/E4B_214_Book1
The Economics Of Prosperity (Edward Elgar): Mises.org/E4B_214_Book2
Shawn Ritenour at Mises.org/Ritenour
Shawn Ritenour at Grove City College: Mises.org/E4B_214_Profile
Jeff and Bob review the history and impact of The Human Action Podcast—formerly Mises Weekends—and discuss where the podcast is headed.
Get Jeff's new book A Strange Liberty: Politics Drops Its Pretenses: Mises.org/Strange
Market research is a tool for gathering data about customers and consumers that businesses hope will lead to insights about their behaviors and preferences that can be translated into innovation, better service and better business performance. As with any dynamic system, it has changed over time, and the effects of entropy have begun to show themselves in invalid techniques, invalid data, and invalid conclusions. And as with virtually all business systems, the coming of the digital age provides businesses with the opportunity to review, revise and improve exiting practice and existing thinking.
Knowledge CapsuleTraditional models of market research are losing validity.The Economics For Business approach to market research leans to the qualitative, such as one-on-one conversations with customers and detailed ethnography whereby businesses can observe customer behavior directly. The market research industry grew up favoring quantitative research at scale for its own reasons: that’s where the money is. Sharekh Shaikh points out that a $USD 70 billion industry was built largely on large scale panels — recruited audiences adding up to hundreds or thousands of individuals, to whom the market research industry could launch survey questions (“data gathering instruments”), generating large amounts of response data for quantitative analysis and numerical reporting.
Customers of these research reports use the output for decision support. Consideration of launching, or of purchasing and installing, a software suite or platform costing millions of dollars can be justified with the results of a survey costs tens of thousands of dollars or low six-figures.
One of the planks supporting the value proposition of market research panels is the difficulty of recruiting qualified respondents, such as CIO’s or CTO’s for an enterprise software survey. Panel operators’ revenues reflect their claims to solve this problem, but Sharekh Shaikh tells us that the reliability of their claim has eroded. Panels now may include inaccurately identified respondents (wrong title or role, for example, because the respondent has changed jobs or roles), or even fraud (responses provided by others than the supposed respondent, including bots). The data from the panels is no longer as valid as it once was, and its decision-support quality no longer as high.
This general decline in the quality and reliability of traditional research is taking place in many categories, not just tech — consumer package goods, entertainment, fashion, and any industry that uses these methods.
The digital revolution brings new opportunities for change, including in traditional market research.It’s unusual to think of digitization as increasing human contact, but in research it’s the case. Sharekh’s research platform, CleverX, has effectively removed the intermediary, the market research panel operator and market research respondent recruitment agency, from the equation, so that the firm requiring research can be connected directly with the respondent with the desired experience and user perspective.
Respondents sign up to a place on the platform by supplying their personal data, career profiles, qualifications, credentials and experience. Their incentives include their desire to participate in and contribute to industry developments, as well as the compensation offered. By learning the questions that are being asked, the professionals who sign up to be respondents can gain insight into the developments that are being pursued in their industry. Being a panel member is career and professional advancement.
The firm seeking to gather data can identify their respondents and assemble their own panel, using their own criteria and specified profiles, and building a direct relationship with their respondents and customers. Moreover, they can use any data collection tool they prefer, whether that is a technical tool such as Survey Monkey, or direct one-one-one conversations on Zoom or Microsoft Teams, digital focus groups, or any other format. By integrating with calendar software, research interviews with CXO’s can be organized and calendarized. These powerful toolsets result in higher quality research being completed up to 10X faster.
Digital technology also facilitates video interviewing, so that researchers can talk directly with respondents, and develop a relationship with them. The video interviewing can be asynchronous: given a query, respondents can video-record their responses whenever convenient, TikTok-style. AI can add enhancements such as sentiment analysis, body language and facial expression interpretation.
The distinction between quantitative and qualitative research disappears and we realize qualitative data at scale.
Market research can become continuous monitoring in the adaptive entrepreneurial system.The reality of markets today is high-speed continuous change. Market research as a tool has always been at a disadvantage in delivering snapshot that take time to process, by which time the market has moved on. Now, with digital techniques, continuous monitoring is possible. Sharekh mentioned several applications:
Customer understanding of digital developments: as platforms and systems evolve, customers may not be able to keep up with the technology, or may not be taking advantage of new feature. Digital research techniques can monitor and measure customer understanding dynamically, and point to gaps in their comprehension.Dynamic product development: as developers move a product towards market, digital research techniques can expose potential customers to the development path, and help developers to integrate real-time findings.Monitoring changing lifestyles and mental models: since digital research technologies can provide a continuing connection with customers, it can measure not only their responses to queries, but also their behaviors, attitudes and thinking in general. It’s possible to develop profiles and personas and segmentations into which innovative ideas can be inserted to simulate reactions and acceptance.CleverX represents exactly the kind of knowledge recombination that can result in revolutionary change across an entire industry.A core concept in entrepreneurship is the combining of existing knowledge in new ways for new solutions. Sharekh Shaikh combines his software engineering knowledge with knowledge of the market research space and knowledge of the dissatisfaction of end users with the available research tools. His newly-launched company, CleverX, is a fast-growing new entrant in the research space as a result of providing a totally new service: the facilitation of a direct connection between researcher and respondent with digital intermediation in place of previous-generation tools. The experience for the customer is better data, at faster speeds, gathered more conveniently and faster, and, consequently, of greater use in development and innovation processes.
Additional ResourcesCleverX.com
Sharekh Shaikh on LinkedIn: Mises.org/E4B_213_LinkedIn
Peter Drucker famously identified the only two value-generating functions of the firm as innovation and marketing. We propose to differentiate brand building (or branding) from marketing, especially in this digital age. Brands are the vehicle for framing, establishing, nurturing and enhancing relationships with customers. In the digital age, marketing has become mechanized and mathematicised; it’s about numbers more than about human values and emotional bonding. Graceann Bennett is a branding expert who has devoted her career and her research agenda to furthering the science of brand building.
Knowledge CapsuleBrands are assets that drive customer value and business revenue, and they’re more valuable than ever in the digital age.Our Economics For Business entrepreneurial method emphasizes the facilitation of value for customers — it is customers who create value through their experiences, and the role of entrepreneurship is to facilitate those valuable experiences. Brands are platforms for value facilitation and conduits for value delivery. In the economic system where assets are value drivers, brands are high-capacity intangible assets. They can be developed and nurtured through various types of economic investment, with a high return on that investment because of the closeness to the customer that they can embody. The investment can be creative and intellectual and is not necessarily limited by budgets and financial resources.
Brands hold emotional and relational value, often communicated through symbols and codes.Brands have meaning for customers, and the meaning is differentiated — customers prefer one brand over another. Brands fit into their lives and connect to them emotionally - they can trust brands, rely on brands, and even love brands. Brands express the essential humanism of economics - the entrepreneurial ethic of improving others’ lives. They represent an understanding of human yearnings. They help people who are striving to be the best version of themselves. They’re a great tool for entrepreneurs.
Brands often communicate via symbols and codes: advertising, logos, package design, social media, and sales presentations. These are important, but they’re not the essence of branding. That role is reserved for the emotional connections that brands make with customers, engendering trusted relationships.
In the digital age, marketing has lost the art of branding.Brand building is an art, an engagement with customers on a psychological and philosophical plane, enhanced by creativity, design, expressive language and visualization. In the digital age, marketing is headed in a different direction. Marketing has become mathematicised. Digital marketing is all about the numbers: audience reach and likes and engagement metrics defined as clicks and views. It’s the mechanics of the engagement funnel, of clicks leading to conversions. Graceann Bennett called this approach “the attention economy rather than the emotional economy”.
Even worse, marketers are antagonizing customers with an interrupt-and-annoy approach of increasingly invasive pop-ups and intrusions and uninvited invitations in e-mail and text. Annoyingly intrusive marketing can further decay into creepiness as consumers receive offers for goods and services algorithmically triggered by their search history and e-mail conversations or voice requests to Siri or Alexa that they might not have realized were quite as available to marketers as they are.
Branding creates customer relationships through emotion and psychology.The mathematical, mechanical approach is exactly the opposite of the human approach of brand building. Branding aspires to a relationship with customers, a creative relationship of innovation and renewal that continuously improve customers’ expectations of what’s possible and their anticipation of satisfactions to come from brand usage and branded services. Entrepreneurial brand owners seek to understand the needs and wants of customers, and what they find disappointing in current experiences, with a view to making their experiences and their lives better. A lot of this initiative takes place in the realm of psychology, getting inside customers’ minds to understand their preferences and why they hold them, and their choices and why they make them.
Brandowning firms examine themselves critically to ensure that they are authentic in serving customers’ emotional and psychic needs.Graceann Bennett employs Jungian archetype analysis to clarify and channel brand approaches to customer relationships, emphasizing what’s authentic in the brand’s character and orientation that aligns best with customer psychology. While the first stage of the entrepreneurial method is a deep understanding of the customer and their needs so as to define and scale a potential market, it’s also appropriate in the solutions design stage for the brand owner to look inward to define the persona for the brand. To establish trust and build a relationship, a brand must inspire confidence on the customer’s part, and to do so must establish authenticity: when claiming to deliver a benefit and facilitate a valuable experience, the brand claims must be consistent with the brand character, the brand heritage and the brand history. A brand can’t claim to be something it’s never been before, or claim a meaning and a purpose that it has never before exhibited. It can add features and polish and update its attributes, but it can’t depart entirely from its historical, observed orientation. Brand relaunches and repositionings risk losing connection with the customer if they are not credible.
Brands should search not for novelty in presenting themselves, but depth, clarity and simplicity in establishing brand character.Ethnography is the best research technique to develop empathic engagement between brands and customers.
Ethnography is mingling with customers, talking to them, listening intently, and observing their actions and behaviors. This kind of interactive contact with customers should be primary - the analysis of digital clicks and views and followers and even purchase behavior can’t deliver the same rich emotional and psychic consumer understanding and insight. In the digital age, we’ve abandoned the art of mingling, and that’s a difference between branding and marketing.
Additional ResourcesGraceannBennett.com
Playbook Studio: Playbook.Studio
Graceann Bennett on LinkedIn: Mises.org/E4B_212_LinkedIn
With commercial banks exposed by the recent bailouts, Americans question whether “their money” is truly safe despite the promises of FDIC insurance.
Jeff and Bob walk through the mechanics of how a full reserve bank could work in a truly free market based on the concepts and taxonomy of Mises’s Theory of Money and Credit.
Mises's A Theory of Money and Credit: Mises.org/TMC
Bob's study guide to A Theory of Money and Credit: Mises.org/HAP388a
John Cochran, 'The Safest Bank the Fed Won't Sanction': Mises.org/HAP388b
This past weekend saw extraordinary actions by the Fed to address the meltdown of Silicon Valley Bank. Did the central bank break the law by effectively authorizing unsecured loans to banks based on the face value—rather than significantly lower market value—of those banks' Treasury holdings?
Bob's study guide to A Theory of Money and Credit: Mises.org/HAP387a
Progressives view all aspects of human life as a struggle against forces of oppression. Earlier this week on BBC, Professor Mariana Mazzucato suggested governments across the West should simply print money not only to help Ukraine, but also to finance other "wars" against climate change, inequality, and more. Should national treasuries essentially adopt a permanent wartime footing and print far more money, as Mazzucato and Warren Mosler recommend? Hint: Jeff and Bob say "No."
Jeff's article "A Permanent Wartime Economy": Mises.org/HAP386a
Bob's debate with Warren Mosler: Mises.org/HAP386b
Bob's article in The American Conservative on the Greenbacker movement: Mises.org/386c
With global worldwide debt now over $300 trillion and interest rates rising, the US dollar is once again a relative safe haven in a slowing economy. Currencies competing with the Dollar face a deadly race to stave off a sovereign debt crisis. Is the dollar now unbound, as the dominant political tool of the dominant nation?
The Dollar Milkshake Theory: Mises.org/HAP385a
Thorsten Polleit, The Global Currency Plot: Mises.org/HAP385b
Bob's book, Understanding Money Mechanics: Mises.org/Mechanics
Tom Woods joins the show for a look at the hottest political topic of the day, namely national divorce. This is a spirited discussion of the politics, economics, and mechanics of how America might break up.
Watch 'The Economics of National Divorce Part I' with Ryan McMaken": Mises.org/HAP352
Entrepreneurship and innovation are the keys to economic growth and higher standards of living. The USA has long enjoyed leadership status on these dimensions — people see the USA as the land of entrepreneurs and the source of new ideas and advances in business. Is the reputation still deserved? Or is it being eclipsed as part of the general decline in standards and capabilities that we observe? Lipton Matthews is a global economic and geo-political analyst who brings deep knowledge and expertise to address our concerns.
Knowledge CapsuleBorrowing a framework from the Global Innovation Index published by the World Intellectual Property Organization, we can examine the state of entrepreneurship and innovation in the US relative to both other countries and its own history, under the headings of institutions, human capital and research, infrastructure, market sophistication and business sophistication.
Institutions: The private sector institutions of the USA continue to excel for entrepreneurship and innovation.When we think of American institutions for the encouragement of entrepreneurship and innovation, we must examine private sector institutions, not those of government. Ordinary people in civil society build the institutions that promote innovation. Private scientific research is robust in responding to market signals of consumer and business needs. Financial institutions such as venture capital and angel investors support innovative development. Policymakers mistakenly believe they can conjure up a creative economy by fiat, but they’re wrong. It’s private institutions that support and cultivate innovation. Even if the public sector tries to encroach, the private sector maintains its innovative edge.
Professor Sam Gregg warned us recently that the United States of today more closely resembles a European social democracy than many Americans are willing to admit, but Lipton Matthews is confident that America is still winning the entrepreneurship contests because the forces of democratic socialism can’t overpower the higher-energy force of the private sector drive for creative innovation in return for market reward.
Human capital and research: The ability to execute overcomes any shortcomings in education.If we look through the declinist lens, it’s easy to become gravely concerned about the state of education at all levels in the US, which directly impacts the development and deployment of what economists refer to as human capital. Do we under-allocate resources to teaching schoolkids business and entrepreneurship skills and tools, and at the college level, do we turn out too many English and philosophy grads compared to market needs, and not enough engineers and STEM grads?
Lipton Matthews cautions us against worrying about the wrong things. The educational qualifications of the products of American schools and universities matters less than their executional and implementational capabilities. America is a nation of do-ers, and that type of expertise is embedded and innate, from the time of the founding fathers and early immigrants who built the America economy. We prize innovators more than inventors — the ones who successfully turn ideas into marketable products and services. Entrepreneurship is action, and American business capitalizes the talent for execution, combining scientific learning with creative action to generate innovation. Executional capacity comes more from a market orientation than from formal learning.
A concern about the research component of the Global Innovation Index’s “human capital and research” classification is, perhaps, more justified. Government-directed research dominates formal research budgets — directed to fields such as climate change — for universities in the US, and the historical evidence is clear that this pool of research is inappropriate for the support of entrepreneurship, despite European aspirations to an entrepreneurial state. Brilliant scholars and researchers who could be entrepreneurs and innovators are diverted into unproductive activities.
It’s difficult to quantify private sector R&D we must hope that it is sufficient to counter-balance the state’s diversion of research funds. In fact, Lipton Matthews points out, we must expect the state and innovators to be in competition. The former prefers control and stability versus the latter’s pursuit of disruption and change.
Infrastructure: Think local and regional, not national.We are frequently presented with stories about the crumbling of US infrastructure. That’s the wrong level of focus, according to Lipton Matthews. First we should compare US infrastructure to other countries, where the quality of engineers and engineering may be lower, and so roads, bridges and communications networks are inherently superior in the US. Second, we should focus on infrastructure in our localities and regions. Local communities can manage infrastructure well in support of local businesses. Some towns and cities will have better-managed and better-maintained infrastructure than other parts of their state, and businesses will be attracted there.
Market sophistication: capital flowing to best entrepreneurial uses.Lipton Matthews interprets the Global Innovation Index’s category of market sophistication to refer to the financing of startups, scale-ups and innovative entrepreneurial businesses. American deployment of venture capital and the widespread networked access to investment funds are examples of market sophistication in practice. Ordinary people can invest in startups and innovation, and entrepreneurs at every stage of their journey can arrange access to investors.
While these investment funding networks may not be perfect, and while we may encounter some challenges in moving capital to the bottom of the pyramid, nevertheless, the private financial sector in the US is effective in directing funds towards innovation. While there may be some erosion of purpose, from long term funding of innovation to making money via short term trading in-and-out of markets, this does not detract from America’s lead in market sophistication.
Business sophistication: The ability of business to absorb new knowledge and use it to innovate.Bart Madden called knowledge-building proficiency the central differentiating function of the successful firm. Our businesses are learning machines, continuously generating new knowledge via R&D, marketplace experiments, interactions with customers and feedback from all business activities. While it’s possible that Americans might be eclipsed by some other countries in the race to produce patents, this is not a relevant measure. Marketplace innovation is the test of business sophistication, not patent registration. Knowledge accumulation must be accompanied by knowledge application.
America’s entrepreneurial nation of doers not only engages in eternal learning but in the adaptive entrepreneurial method of act-learn-improve. The rest of the world has not fully caught up.
SummaryIn Lipton’s eyes, America was oriented for entrepreneurial success by the founding fathers and early immigrants, and will continue to innovate and grow as a result of entrepreneurship. Only if we get in our own way through excessive statism, regulation and government intervention that misdirects our energy and resources will we break the well-established historical track record.
Additional ResourcesGlobal Innovation Index: Mises.org/E4B_209_Index
"For Now, Entrepreneurship And Innovation Still Hold A High Place In The USA" by Lipton Matthews: Mises.org/E4B_209_Article
With Yale economics professor Yusuke Narita suggesting mass suicide—seppuku—as the answer to Japan's rapidly aging demographics, Jeff and Bob take a hard look at the economics and humanity of greying America.
Richard Hanania, "Gerontocracy Versus Western Civilization": Mises.org/HAP383a
Bob on opting out of Social Security: Mises.org/HAP383b
What can economics tell us about designing fulfilling jobs and productive workplaces? Quite a lot if we apply the economics of subjective value and empathy. Melissa Swift is the author of Work Here Now: Think Like A Human And Build A Powerhouse Workplace. She discusses her research on the Economics For Business podcast.
Knowledge CapsulePoorly designed jobs and workplaces are dangerous, dull, annoying, frustrating and/or confusing.The results of academic research have confirmed how alienated many workers are from their jobs, and the trends in these findings are worsening, not improving. During the pandemic, many of us had the opportunity to stand back and survey this situation, and realize that it’s a problem that we need to address.
We can do better by applying Austrian economics principles of subjective value and empathy.The economics of subjective value should point employers in the direction of asking how employees feel about their jobs and the sense of purpose and meaning they derive from them. Why do these considerations not arise, or why are they insufficiently acknowledged? Melissa Swift sees what she calls a wall between how human beings operate and how the world of work operates. We think in discrete terms about “work” on one hand, and “people” on another, and don’t integrate them well.
Managers have demonstrated a penchant for intensifying work (doing more in less time and with fewer resources) and for pressing for over-collaboration (too many reports, checkpoints, meetings and interactions and exchanges, and belonging to too many teams) with the ultimate result of detracting from an individual’s capacity to get things done. Managers don’t necessarily tie the design of work to impact delivered or value created.
In fact, much work is performative, putting on a display of work that is not necessarily productive (writing impeccable but essentially useless reports, for example).
Managers should be actively looking for and rooting out problems of bad jobs and poor work environments.Melissa Swift’s formula is to be humble and curious in asking how work feels to those who are doing it. Employees know their work better than managers do (an observation which, of course, turns management science on its head).
There are a couple of “monsters” that can be identified and tamed. One is the anxiety monster - we all feel anxiety about whether we are productive enough, or doing good enough work, or being viewed in a favorable light. Anxious managers stand over people, telling them to work harder and faster. We must shut down all the anxious stories that are in our heads.
Employees can be over-anxious about customers, too. We may tend to over-deliver on customer care and customer expectations, to the point where we train them to be so demanding that they go beyond the point where the corporation is capable of fulfilling its own promises.
Once “monster” jobs — those that generate excess anxiety — are established, there’s a tendency for the HR “copy machine” to copy-paste them throughout the company, so that more employees become stressed.
Listening for job stress and devising better ways of working is an entrepreneurial task.The entrepreneurial mindset is to listen to customers (in this case, job incumbents), to identify unmet needs, which are aways based on emotion and can never be articulated perfectly clearly, to creatively design new solutions to the customer’s felt problem, and to institute positive change using the new solution. This implies continuous adaptive change in job descriptions, performance expectations, structures, team and tasks.
The entrepreneurial approach is often hard to apply in the corporation. One reason is that incentives are lined up to favor what Melissa Swift calls “smooth”. Management incentive schemes are often designed to encourage “smooth” — no drastic changes or turns, steady progress. Yet the adaptive entrepreneurial system does not promise smooth, and can’t delver it. Innovation in response to changes in customer preferences or competition can be bumpy. And many organizations suffer from autoimmune disease — the defenses go up as soon as something unknown or unprecedented is encountered.
Good leadership can counter the auto-immune response — but it’s leadership that does less rather than more, relaxing constraints and letting those closest to customers and markets to make any needed adjustments and to respond at the rate of change that the market demands. Business school concepts of leadership have goaded executives into over-managing and over-controlling, and reversing the over-active concept of leadership is one of Melissa Swifts core prescriptions.
The HR Department is a big part of the problem.The deep history of HR is dark. The function was founded to quell violence between labor and management. HR was to stand in the middle and to keep a lid on a boiling pot, as Melissa picturesquely expressed it. Performance management — mechanically measuring humans’ output in these toxic adversarial environments — was never a warm or supportive concept. As big business became more centralized, HR simply became more empowered and widened its scope. There was never much humanism in HR.
HR departments are not typically thinking about work and how work is changing and how to make it a better experience for people. If they were, they’d be thinking differently about matching talent to jobs, thinking more deeply about how alienating and constraining automation technology can be to those who have to use it. They know they are being monitored and measured and assessed.
Melissa recommends couples therapy for technology and those who work with it — to stop each party from driving the other crazy.
Asynchronous work, deconstructed work, transparent work.Melissa’s book has 90 strategies for organizational level and team level problem solving actions and adjustments. We discussed three directions for better work.
Asynchronous work: fewer meetings, which provides greater flexibility for workers, it naturally de-intensifies (you don’t have to have the report ready for the regularly scheduled Thursday meeting), and it makes for more relaxed collaboration across time zones. Asynchronous work tends to be better documented and more permanent.
Deconstructed work: start with tasks to be done rather than job descriptions; assemble the optimum combination of humans and technology to get the tasks done; let talent flow to the work, i.e., it doesn’t matter if it is full time employees, part-timers, project specialists or gig workers or agencies or consultants doing the work, so long as the tasks get done by the best-qualified talent.
Transparent work: make all information available to all employees at all times, nothing hidden or out-of-bounds. As a result, employees and teams have all the information they need to do their jobs, with no need for hierarchical or administrative intervention. Accountability and empowerment are enhanced, and new talent may emerge when you don’t hire for information but for skill in using it.
Additional ResourcesWork Here Now: Think Like A Human And Build A Powerhouse Workplace by Melissa Swift: Mises.org/E4B_208_Book1
Bullshit Jobs: A Theory by David Graeber: Mises.org/E4B_208_Book2
Mises Institute scholar and Troy University business school Dean Allen Mendenhall is among the leading critics of woke capital. He leads a new initiative against the perverse investment practices demanded by ESG/DEI commissars, and joins Jeff Deist to discuss both the origins of "stakeholder" capitalism and what we can do to push back against ideological purity tests in capital markets and corporate America.
AllenMendenhall.com
"Troy University tackles 'woke' business practices head-on with new program": Mises.org/HAP382a
What is strategy, and is it useful for business? Business schools want you think it is the critical factor in competitive success or failure. They teach structured markets, divided up by market share, with boundaries and external and internal forces to be assessed and countered. “Where to play and how to win.” They see strategy through their lens of financialization and utilize fictitious economic calculations like discounted future cash flows and market capitalization. There’s very little Austrian flavor in their view — no acknowledgement of subjective value and the qualitative drivers of value, customer sovereignty, empathy, constantly changing customer preferences, no role for the entrepreneur in helping customers learn what they can want in an evolving world.
Our guest Erik Schön provides us with an entirely different view of strategy, which he arrives at via a synthesis of three great strategists: Sun Tzu, John Boyd, and Simon Wardley.
Knowledge CapsuleStrategy is how to survive and thrive and, for a business, the key tool is harmonization.Sun Tzu identified Purpose as the fundamental factor that keeps people united: customers, producers, suppliers, partners, owners, executives, employees, supporting each other without fear through success and failure.
In Sun Tzu, there are four more fundamental factors:
Landscape — your business environment.Climate: the forces acting on the environment.Doctrine: ways of operating.Leadership: actions, decisions, choices, and gameplays.Master all five to succeed, or else fail.
John Boyd added the dynamics of continuously changing intentions within the pursuit of the realization of purpose. (We find reflections here of Mises’ concept of constant flux — everything changing all the time.) Boyd’s definition of strategy Is a mental tapestry of changing intentions for harmonizing our efforts to realize purpose in a world that can be bewildering.
The purpose of strategy is to improve our ability to adapt: a vision that magnifies the strength and commitment of its adherents, and a grand ideal or noble philosophy providing a binding paradigm for all.
Boyd’s famous framing of the learning process to develop the ability to adapt is the OODA Loop.
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For Wardley, strategy is the art of moving in and manipulating an environment using tools such as positioning and technological innovation. Wardley’s major contribution is to visualize strategy in the form of a map where the X-axis is movement in the environment in predictable steps:
Genesis: a new technology or solution or brand is introduced; it’s unique.Custom built: a company identifies ways to serve customers with constructed products and services from the new origin.Product: move from custom built to standardization, including sourcing standard parts from suppliersCommodity: there’s nothing left that’s unique, many companies can be producers.Evolution: a new genesis emerges.
The automobile industry provides an example.
Genesis: the first internal combustion engine.Custom built: the first car brands, often from craftsmen and small workshops.Product: Many suppliers, competitive differentiation (Ford versus GM).Commodity: ICE automobiles produced in many countries (Japan, South Korea, China, Italy, etc.) with limited customer differentiation.Evolution: the beginning of the EV era.
Wardley’s approach is that all markets exhibit this evolution. It’s important to know the current landscape and predict the future landscape, moving through it with “the why of purpose” (to survive and thrive) and “the why of movement” (taking a particular action that moves you through the landscape). Everything evolves through supply and demand competition.
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The Sun Tzu, Boyd and Wardley approaches to strategy can be combined in the concept of the Strategy Cycle, Strategists move continually through the phases and components.
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The reference to these strategy masters enables businesses to move beyond business school strategy.Move beyond strategy as wars, battles and combat for market share, towards strategy as individuals, teams and organizations fulfilling their shared purpose.
Move beyond strategy for survival in competitive environments to sustainably thriving in a world with a high rate of change.
Move beyond strategy development as planning, metrics and data towards strategy development for a harmonized direction based on regular assessment of needs (especially customers’ needs) and the organization’s purpose.
Move beyond strategy development as execution and chasing targets to decisions and actions in a harmonized direction by everyone everywhere in the organization based on high situational awareness.
Move beyond business as maximizing shareholder value to business as succeeding together with customers and other stakeholders.
Move beyond leadership for managers and people in hierarchical leader roles to leadership as a service provided by all people in the organization.
Move beyond practices and principles for optimizing parts to harmonizing the whole.
The art of strategy is to succeed by securing harmony among stakeholders, and keeping competition off-balance through evolving better capabilities to influence, adapt and map.
The three strategists offer complementary views of strategic success.
Sun Tzu:Unite society rather than divide.Unite the organization rather than divide.Unite the team rather than divide.Make the organization resilient by cultivating purpose and doctrine.
Boyd:A grand ideal, overarching theme, or noble philosophy that individuals can shape and adapt to unfolding circumstances.
Wardley:Know your user — know your customers and know how to create value through meeting their needs.Set exceptional standards.Be resilient to cope with a wide variety of extremes and changes by rapidly adapting.
The great obstacle to adaptiveness in strategy is inertia in its various forms.Success breeds inertia, and inertia kills. It’s rarely a lack of innovation that kills companies, but rather inertia caused by pre-existing business models. Any past success with any component or element will tend to create a resistance to change. Inertia is a loss of capital — whether physical, human, social, or financial.
Strategists look to identify different categories of inertia and devise ways to counter them.
Category of inertiaCounterpointPeople resist disruption of past normsPast has evolved / lead the charge Write down cost of legacy, run more efficiently Building future agility Already happening in the market, falling behind Fear of transition to the newLet’s build new skills internally Develop capabilities in-house Develop relationships with new suppliers Work on adapting practices, not scrapping them Are we sure we can make the new work? Don’t seek certainty, seek learning Develop new standards, use open source Use multiple vendors, use brokers Improve supplier relationships Changing business models is hard Avoid death spiral; new approaches e.g., ecosystem Risk mitigation; spin off the old Use rewards, education, training Perfect telling the new story Leading without pressure and control.Erik uses the gardening analogy to illustrate the Sun Tzu style of leading without pressure and control. The gardener tends the garden gently, tilling and planting and watering ahead of time, and the flowers grow. Today we might call this style “self-organization”.
The three strategists are very consistent with the action-focused approach to entrepreneurship from Austrian economics. Action is learning. The path is made by walking. Try things out. Draw some Wardley maps as a trial. They’ll take you a long way.
Additional ResourcesThe Art of Strategy: Steps Towards Business Agility by Erik Schön: Mises.org/E4B_207_Book1
The Art Of Leadership: Purpose and Integrity for Sustainable Success by Erik Schön: Mises.org/E4B_207_Book2
Erik Schön on LinkedIn: Mises.org/E4B_207_LinkedIn
A Collection of Wardley Maps: Mises.org/E4B_207_Maps1
A Wardley Map of the Automobile Industry: Mises.org/E4B_207_Maps2
Back in January Jeff Deist joined the Austrian Economics Discord Server for a live event concerning trends in 2023. Jeff makes the case for viewing today's economy as quite unlike that of 2007—due to steady increases in CPI, more fiscal stimulus relative to monetary stimulus, and ongoing supply shock issues from COVID.
This is a far-ranging discussion of the landscape for the Fed, persistent inflation, and a looming recession. Includes Q and A from the audience.
Entrepreneurship is by no means exclusively American. But this country has led the way in unleashing, encouraging and elevating entrepreneurship as the creative and virtuous pathway to the creation of new value for all. As a republic, we’ve established the institutional framework in which entrepreneurship can flourish, and entrepreneurs who are successful in creating value reap — and keep — the rewards. Dr. Samuel Gregg, in his book The Next American Economy, examines how this framework was designed at the founding, and discusses what we must all do to preserve it and re-animate it despite the attacks on it from the left.
Knowledge CapsuleEntrepreneurship and the founding of America are intertwined.America remains the most entrepreneurial country in the world, even if the degree is declining. Our nation has many people willing to pursue the uncertain path of creating new economic value for customers through new products, services and businesses; and, equally importantly, people who will try and buy the new offerings.
Alexis de Tocqueville captured the entrepreneurial character in Democracy In America. He thought everyone in America was entrepreneurial. He noted that those immigrants who arrived would quickly start a business, then move on to another one. He observed the tremendous creative energy of the United States. Immigrants have already embraced change in the act of leaving one country to establish themselves in another, and business entrepreneurship is a direct expression of this same love of change.
In fact, says Dr. Gregg, America was designed by its Founding Fathers — as they plainly expressed in the Constitution, Declaration Of Independence, the Federalist papers and documents like Washington’s Farewell Address - as a commercial republic based on entrepreneurship, and not a political or military or top-down republic or mass democracy. Commerce — or what we would call business — was not viewed with disdain, as it was in aristocratic Britain, but as republican virtue. Washington’s Farewell Address refers to the importance of expanding, of national and international navigation and trading, and about the development of strong markets to give Americans an outlet for their production. Business was viewed as the height of civilizational activity. There was a commercial ethic in the vision of a commercial republic which would grow wealth for all. Economic expectations were high and political institutions were designed to be compatible with these economic expectations.
There is an increasing trend towards government and the administrative state strangling the creative energy of American entrepreneurship.The erosion of institutional integrity shift and suppresses the creative energy of entrepreneurs. A strong tradition of property rights, in which entrepreneurs can feel confident that they will not only be able to earn but also keep the reward that come from satisfying customers and meeting demand, is an important element of the incentive structure for entrepreneurship. Similarly, entrepreneurs need to feel confidence that commercial disputes will be fairly adjudicated in courts. And they also need to feel confidence that government regulation will not act as an unreversible ratchet of restrictions on their value-creation activities.
The trends in the business environment in the US are currently running in the opposite direction: the property rights of successful entrepreneurs are being increasingly questioned and squeezed, commercial interests are viewed unfavorably in courts, and the regulation ratchet is running in the direction of more, not less, restriction on commerce.
Dr. Gregg sees the anti-entrepreneurship trend beginning in the Progressive Era and gathering pace since the days of Woodrow Wilson. Progressives seek forms of control that will suppress economic uncertainty and social turbulence. The entrepreneurial embrace of change and pursuit of new value must be suppressed. If society and the economy is to conform to their design, unpredictable creativity must be excluded. The progressive control urge took expanded form in the New Deal and the Great Society and all the successive opportunistically explosive expansions of government power.
The anti-entrepreneurial tool is regulation and the administrative state.Dr. Gregg employs the term corporatism to mean legislators and elected politicians, government departments and their administrative bureaucracies working together with big corporations and NGO’s to impose control through regulation — “attempting to manage everything for everyone else”. Corporatism is very uncomfortable with freedom, and is more than willing to trade off liberty, and the capacity of markets for entrepreneurial competition, in favor of stagnation and the vision of engineering a specific economic outcome. Their preference is for a form of regulatory state capitalism that exerts control over free enterprise.
Recently developed constraints such as ESG and DEI are a manifestation of state capitalism with a particular ideological edge that emanates from left-leaning politics. Companies can no longer have a free choice in the assembly and orchestration of their human capital, which will seriously impair the capacity of the economy to deliver what consumers expect of it.
Most of the government’s regulation is not aimed at any “public good” (e.g., overall workplace safety) but at special protections for specific interest groups. Often, the businesses who are protecting their interests are the ones who, first, initiate the regulation, and second, write it, through their lobbying firms. If citizens were more habituated to asking who is the group behind any specific regulation, there’d be a greater understanding of this problem and a developing distaste for regulation.
Dr. Gregg sees the expansion of state capitalism and the regulatory state as cyclical and capable of reversal.The trends are in the wrong direction, but are not irreversible. Dr. Gregg expressed great confidence in the ability of Americans to work their way around the regulatory barriers to creative entrepreneurship. He highlighted two of the optimistic themes in his book:
Capital, capital, capital: Regulation has made it increasingly difficult to match up small entrepreneurial businesses with the capital they need. It takes lots of expensive lawyers to navigate the regulatory jungle that exists for capital acquisition in the us. Yet, American entrepreneurs are proving to be just as creative in capital acquisition as in other fields. They can find their way around the regulatory system. Inventions such as crowdsourcing are a good example of new ways to access capital. The fintech industry is entirely dedicated to freer access to capital. Angel funds, regional and local venture capital funds, new entrepreneurial communities (such as Brandjectory) and new two-sided investment platforms provide more impetus.
Deregulate, deregulate, deregulate: If we want to retain the American edge in entrepreneurship, we should focus on reducing the size and scope of the regulation at the local, state and federal level. One of Dr. Gregg’s fears is that individuals become political entrepreneurs, and their efforts are directed towards finding ways to thrive in an expanding administrative state and insufficiently on creating new and improved products. Let’s find creative ways to reduce regulations, rather than creative ways to survive.
Additional ResourcesThe Next American Economy: Nation, State And Markets In An Uncertain World by Samuel Gregg: Mises.org/E4B_206_Book
Professor Per Bylund of Oklahoma State University, author of How to Think About the Economy joins Jeff and Bob to dissect how economics went so badly wrong. A discipline rooted in theory, axioms, and deduction has devolved into statistics, models, and hard science envy. Is the economics profession doing any good, or active harm?
Per's new book How to Think About the Economy: Mises.org/Primer
Gary North and Walter Block debate "Is it Smart to Get a PhD in Economics": Mises.org/HAP380a
One of the most helpful insights of Austrian economics for business is the understanding of uncertainty. To complete a sale to a customer is to take that customer on a journey from high uncertainty to lower uncertainty — sufficiently low that they’ll make a purchase and enter into the experience of ownership or receiving service. We illustrate this principle via the market for small business insurance — a service that our guest Ryan Hanley describes as confusing, time-consuming and costly, i.e., fraught with uncertainty for customers. He addresses the problem by freely dispensing usable knowledge, and explained to Economics For Business how that revolutionizes the industry.
Knowledge CapsuleIn a market where knowledge is hard to acquire, a knowledge provider creates new economic value.
The subject of small business insurance is quite opaque for customers. The language is often arcane and the terminology is hard to understand. The type size on contracts is small. It’s often unclear to customers what coverage they need, or what coverage they have, and what coverage they need. Ryan Hanley listened to customers’ questions and requests from his time as a retail sales agent and quickly understood that the provision of easy-to-consume and easy-to-understand insurance knowledge would be immensely valuable to customers. He started writing blogposts and FAQ’s for this purpose.
Expanded experience provides the foundation to be a credible and useful knowledge provider.
Ryan Hanley has held positions in the insurance field from sales agent to VP Marketing to Chief Marketing Officer to CEO. He’s also tried entrepreneurship in other industries. He’s talked to a lot of customers to understand their issues and problems and to try to solve them. This accumulated experience gives him the foundation to be a knowledge provider. He knows what knowledge is missing, what knowledge is most useful, and what form it should take for best delivery.
Knowledge becomes even more valuable to customers when it’s delivered with high empathy.
Ryan stresses that insurance is a superb service. If a customer business experiences a shock — its premises burn down, or it suffers a criminal theft — insurance is there to make things right again. It provides sustainability for a business and reassurance for the business owner and employees. Insurance is a high-empathy service.
However, the customer interface with insurance can be low-empathy — confusing and time consuming, and highly inconvenient to navigate by reading through contracts and filling out forms. Ryan’s solution is “human optimization”: making insurance easier to understand and easier to navigate and providing human contact and the human touch to add value. He points out that the insurtech innovations from Silicon Valley, which aimed to make insurance more efficient via an all-technology / no humans approach, has resulted only in unprofitable and failed startups. Customers need humans to give them trust in a complicated field they don’t understand. Digital automation is not the entire answer.
Freely available knowledge and the human touch combined with better technology elevates the service recipe to a higher level.
Ryan recognized that the native tech for the insurance industry, that had been built up over the years but become frozen and resistant to innovation, was a contributor to customer frustration. His answer was not new digital technology to replace the old, but a clearer identification of the customer problem: the multiple insurance tech systems were not well-connected with each other and not well integrated. The solution lay in better API’s and better software integration, which is what Ryan concentrated on. So now he could bring the human touch, plus new knowledge to fight confusion and opacity, and better technology exhibited as faster flow between content modules.
The business benefit lies in customer relationships and customer retention.
The business model for insurance depends on customer retention. Selling a policy is not profitable on day 1, but becomes profitable over time as cash flows from periodic premium payments. Customer retention is the key to profit and retention reflects satisfaction. Ryan is demonstrating that setting a high standard at the front end of the contract, with a more human interface, freely dispensed knowledge, and convenient navigation of the insurance process, results in profitable revenue streams and a high cash flow ROI over time.
Listening to customers, understanding their needs, and discovering the best way to serve results in retention.
Customers are looking for a special form of reducing uncertainty.
Insurance sells protection from risk. This is math to them, a calculable probability that governs what they charge for premiums and how much capital they need on hand for payouts. For customers, insurance is relief from uncertainty, a subject value that’s not math. They worry about sustainability: will they survive the shock when there is a fire or a crime. Ryan’s approach is to help them advance from high uncertainty (I’m not sure of all the risks, I am not sure what is the right coverage for my business) to lower uncertainty (I’ve been given new knowledge, so I am more informed, I know enough to make a choice of policies and providers). Ryan’s company can customize service (including, for example, matching payments schedules to the seasonality of a customer’s business) so that the customer feels certainty that the service is matched to their need.
Knowledge is education plus creativity. The result is trust.
The kind of knowledge that Ryan dispenses about insurance is education. Recipients are learners, filling in knowledge gaps. It can come in the form of YouTube videos or blogposts or any other form. Ryan’s Rogue Risk site offers hundreds of videos and articles. He is educating the customer base.
Creativity in communication is a vital part of the recipe. Education delivered with creativity stimulates curiosity and productive conversations. Even for a potentially dull subject matter like insurance, creativity add spice and extra interest. Creativity is human, and the human component can deliver trust. Giving knowledge away rather than hoarding it is a great start towards a trusting relationship.
Jeff and Bob break down this week's Davos WEF conference and consider whether global elites really have the mechanisms to impose their plans.
Johnny Vedmore's analysis of Schwab's origins: Mises.org/HAP379a
Scott Greer says America's right-want needs to stop dwelling on Schwab: Mises.org/HAP379b
Schwab bragging about penetrating Cabinets: Mises.org/HAP379c
In economics, production and marketing are not separate concepts. Production responds to customers’ needs and marketing is the expression of those needs inside the firm. The entire customer-facing activity of the firm is marketing. Like any other business activity, there is constant flux brought to bear by changing customer preferences, competitive innovation and market evolution. Marketing must be adaptive to change, and a major shift is occurring right now. Mark Schaefer writes about it in Belonging To The Brand: Why Community Is The Last Great Marketing Strategy.
Knowledge CapsuleEstablished strategies and tactics of marketing are no longer effective.Marketing thought-leader Mark Schaefer puts it this way: marketing doesn’t work like it used to. The established techniques were biased towards outbound communication, such as advertising, PR and events. Mark classifies these techniques as “interrupt and annoy” to try to get customers to give their attention to feature and benefit of the company’s offerings. The communications environment shifted from analog to digital and from outbound to interactive, but interrupt and annoy remained the primary technique.
Finally, there’s an alternative marketing strategy.The new strategy goes by the term “community” or “community building”. As economics advises, it’s a product of customer sovereignty. People want to belong to communities that share values and interests. And in the digital age, where work-from-home and glued-to-a-screen are life conditions that can lead to profound loneliness, the need for belonging is amplified. The covid lockdown experience exacerbated the problem.
Community is an experience that is highly valued by customer, distinguished via three features:
Connection with each other. There’s a group feeling of difference that’s not shared with others who don’t belong to the community.Purpose: community members gather because they have a shared reason to do so, whether it is software development or wine appreciation or the development of technical skills. There are shared rituals and traditions and common behaviors that generate a sense of group identity and bonding through common values.Relevance: A thriving community adapt and adjusts as times and members’ needs change. Adaptability strengthens group cohesion and assures continuity and resilience.There’s a business case for community building.Community-building may replace brand-building as a primary pathway to facilitating value for customers and thereby generating strong cash flows. The technique has a viable business model.
Differentiation: when customers bond in community, they’re differentiating themselves and the brand(s) they prefer and support. It’s a lasting advantage.Market monitoring: a community is a continuing conversation, a source of insight and signals of change.High speed information: the flow of information from customers and markets to firms is another source of advantage. The behaviors and preferences of community members can be continuously polled, with the opportunity for fast response.Trust. Businesses are recognizing the importance of trust in relationships with ever-greater clarity. Brand communities are trusted by their members; trust is inherent.Advocacy. Community members become the marketer. They communicate benefits and positive experiences. User-generated content both reduces marketing costs and adds authenticity and belief.Loyalty: The most profitable customers are the most loyal customers. Community members are loyal, and, in fact, go beyond loyalty to “attachment”.Co-creation. Value is created by customers in their own experience, or it can be viewed as co-created through interactions with the firm and its products and services. In brand communities, there is community co-creation, such as in LEGO Ideas groups and the IKEA user community.Membership as a product: Some communities become the business modem as members pay both to join and maintain membership and purchase the products and services of the community.Cultural alignment: community is a trend, especially for younger people experiencing social and digital isolation.Customer data: when members freely express their values and preferences, they create a rich new first-hand data source.Purpose is the critical driver.There’s a case to be made that a brand is its purpose. A clear and compelling purpose provides inner direction for the entrepreneur and the management team throughout the entrepreneurial journey. Shared purpose can bind customers to the brand. The same is true for a brand community; Mark Schaefer talks of bold, piercing purpose that aligns every resource of the company towards the community goal. Harley-Davidson is one (well-used) example: fulfilling dreams through the experience of motorcycling. The purpose is a customer experience, aligned with their values and open to their expansive and creative interpretation.
Corporate purpose, when genuinely felt and well-expressed, Mark writes, can be existential (this is why we exist?), differentiating (how do we make a difference?), values-based (how are our founding values relevant to the world?), distinctive (what headlines will be written about us), adaptive (how is the world changing in a way that unites us with our community?) and fulfilling (how can we fulfill customers’ dreams?)
Additional ResourcesMark’s Books:
Belonging To The Brand: Why Community Is The Last Great Marketing Strategy: Mises.org/E4B_204_Book1
Marketing Rebellion: The Most Human Company Wins: Mises.org/E4B_204_Book2
The Marketing Companion podcast: Mises.org/E4B_204_Pod
Mark Schaefer website: BusinessesGrow.com
Dr. Peter Klein, professor of entrepreneurship at Baylor University and co-author of the new book Why Managers Matter, joins Jeff and Bob to explain the huge disconnect between supply and demand for labor in post-COVID America.
Dr. Klein's new book Why Managers Matter: Mises.org/HAP378a
The concept of risk provides us with an excellent opportunity to bridge between formal economic theory and personal business experience. Economics provides us with rigorous understanding of risk and uncertainty and the distinctions between them and their various types. But risk — the word that we use in everyday conversation — bring with it subjective feelings that affect how we approach it.
Knowledge CapsuleIt’s appropriate for entrepreneurs to reframe the concept of risk so that they can embrace it wholeheartedly.Risk has traditionally been framed as the downside of a choice. It’s the potential negative outcome for anything we try. But we just have to look at our own lives to see that a lot of risks we’ve taken have generated upside, whether that’s choosing a college, getting married, or taking a particular job. If we feel good about the outcome, then risk is a path to reward.
Part of the reframing of risk is to see it as a process rather than a single choice.Risk can sound like it comes at us as a single choice, or an event, or a once-and-for-all decision. It’s much better to think of risk as a process — a behavioral process rather than a decision-making threshold. The risk process is one of experimentation —taking small steps, trying different things, getting feedback from the market, making adjustments, then trying some more things.
Instead of “starting a business”, we can think of setting out on the pathway to entrepreneurship. Instead of “committing to a future new product launch”, we can think initiating an exploration with low resource commitment until we have better feedback knowledge in order to take the next step and commit more resources. We can think of a new initiative as an experience gap that we look to fill with knowledge from experts and experience from mentors or advisors who’ve done something similar.
The key to this reframed risk process is a courageous commitment to perpetual learning.Through learning, we can all redefine our understanding of risk and re-establish our relationship with it. A part of risk is the ego-bruising realization that we don’t know everything and can therefore make mistakes, or take actions that have unintended consequences.
By embracing learning, we establish a social reward for not knowing — learning is viewed positively, as a reward. Developing new knowledge is one of the primary roles of the entrepreneur. While it may take intellectual courage to own up to not knowing, the courage is rewarded with new understanding and new advantages. There’s always opportunity to learn more.
Imagination is an antidote to risk.Imagination can overcome risk. We all have the capability of imagining future achievements — “future wins”, as Angie Morgan Witkowski put it. Imagination can be an exercise in creativity, and it’s OK to let it run wild, releasing our minds from the restraints that risk can impose. Taking the time for free-thinking can be very beneficial.
The pathway to the imagined future is to marry possibility with probability. In our exercise in imagination, it’s easy to eliminate the impossible. But we shouldn’t limit the possible. We can start from the imagined possible future and then work back through probabilities about whether we can accomplish it. Angie stimulated her business imagination vi a sidewalk margarita bar in Florida and ultimately opened a successful coffee shop in Traverse City, Michigan. It was a process of working backwards from what was possible to what was more probably, given her circumstances.
Similarly, her consulting business started by imagining writing a book about a better style of leadership than is taught in business school. She contacted literary agents, who encouraged her not only to write the book but to also start a speaking business. The audience for her speaking engagements sought consulting help, and she developed a series of workshops as part of the delivery system. Her consulting business is now cross-industry, from startups to the oil-and-gas majors, and worldwide. It started with imagination.
Imagination is complemented by hard work and realistic capacity assessment.It would be wrong to think that the reframing of risk to action and perpetual learning comes additional without costs. Angie mentioned two. One is hard work. All learning pathways must be undertaken with the commitment to working as hard as it takes to advance. It requires time, effort, and continuous review. The intellectual courage that Angie highlighted is hard work in itself — the cognitive work of thinking about how to think, exercising cognitive discipline, exploring flexible options such as design thinking, that require the effort of looking at problems from many different perspectives.
The second cost Angie mentioned is the honest assessment of our capacity. We can imagine future wins and assess the probability of achieving them, but we must be honest about our capacity. Do we have the resources, do we have the skills, can we assemble the right team, are we willing to undertake the hard work?
Putting hard work and capacity together means we don’t risk an inadequate attempt to solve the target problem. As Angie put it, using Marines language, don’t be “half-assed”.
Action is more important than planning.Angie’s prescription in her book, Bet On You, is for one-third of time to be allocated to planning and two-thirds making things happen. The make-things-happen part is what generates the feedback loop and learning that is so important. Here are Economics For Business, we’d probably relegate planning to 10% or less of resource allocation, but the point is the same. Action is the more important.
There is one aspect of planning that can deliver extra value, and that’s planning for failure, or contingency planning. Our imagination should be partially applied to imagining what could go wrong. How would the contingency transpire? What would we do next if it did? We should prepare for resilience in the aftermath of a setback.
A plan, in Angie’s words (which, in turn, come from the Marines), is a reference point for change.
Ultimately, risk must feel good.If the antidote to the downside of risk is imagining future wins, then we can also benefit from a focus on the wins we experience every day. Choose the path that feels good both tomorrow and today, and that makes all efforts worthwhile.
Additional ResourcesBet On You: How To Win With Risk by Angie Morgan and Courtney Lynch: Mises.org/E4B_203_Book
Bet On You Podcast: Mises.org/E4B_203_Podcast
Angie Morgan Witkowski on LinkedIn: Mises.org/E4B_203_LinkedIn
There is no real housing market in the US. Instead, an unholy trinity of Fannie/Freddie, the US Treasury, and the Federal Reserve Bank operate to distort the market at every turn and drive home prices up dramatically. Mises Institute Senior Fellow Alex Pollock, an economist and former mortgage banker, joins Jeff to describe the reality few Americans know.
Alex Pollock's new book Surprised Again: The Covid Crisis and the New Market Bubble : Mises.org/HAP377a
Alex Pollock on how the Fed became the world's biggest S&L: Mises.org/HAP377b
Entrepreneurial business solutions can lead to better outcomes in every economic endeavor. In the field of medical care, entrepreneurship has been hampered by non-market arrangements. There’s some sense of an emerging trend towards better choices for users, a trend that we discuss with economist Dr. Murray Sabrin.
Knowledge CapsuleAll systems evolve. The current system of medical care uncoupled from private markets evolved in ways that result in higher costs and poorer outcomes.
Our economy — and the economic experience of all of us as individuals — would be improved (i.e., greater customer value would be experienced) if we could lighten the burdensome weight of government regulation and its consequent effects on the system of medical care and medical insurance.
Our homeowners insurance, our automobile insurance and our life insurance are market products that give us the experience of seeking information and making informed choices based on pricing and perceived benefits. Medical insurance has evolved differently — it’s tied to work and puts us in a medical system where prices and choices are opaque and highly constrained. The associated costs are a great burden on the economy, and they result in diversions of productive investment from better uses.
The evolution of employment-linked healthcare began in dangerous industries like forestry logging, when employers introduced on—site medical care to treat on-the-job accidents — employers understood the mutual benefit of a healthy workforce. During and after World War II, the incentives for employers shifted: wage controls prevented them from attracting workers with higher pay, and so they introduced the benefit of tax-free healthcare benefits. An industry linking employment and medical care grew by leaps and bounds.
Today, both employers and employees are beginning to understand the drawbacks of the evolved system.In the evolved medical care system today, employees feel constrained because they can’t freely choose their doctors and service providers, and healthcare treatments they might want are often made unavailable to them. They’re not made aware of pricing, and therefore unable to make informed choices.
Employers are beginning to understand the high costs for traditional indemnity insurance, and many of them are seeking alternatives. Dr. Sabrin listed a number of these emerging innovations.
- Employer self-insurance.
Instead of incurring the heavy cost of insuring via the conglomerates like Blue Cross Blue Shield, Humana, Aetna, United Healthcare and others, many employers are shifting to self-insurance, hiring an independent third-party administrator to set premiums for normal expenses, and utilizing re-insurance against the cost of catastrophic medical events.
- Medical savings accounts.
Financial innovation has opened the possibility of utilizing current savings for future medical expenses, ideally deposited tax free, appreciating tax free and withdrawn tax free (although, inevitably, there are government restrictions). It’s another component in the free-market medicine revolution.
- Medical cost sharing.
Some affinity groups take the route of medical cost sharing — groups pooling funds to pay individual medical costs. Some of these groups may create membership lifestyle qualifications — non-drinkers, non-smokers, etc. — to link healthy behaviors to lower medical care costs.
- Wellness rather than healthcare.
The realization is dawning that medical care costs are inflated by unhealthy lifestyles. Employers and employees share a mutual interest in a healthier workplace and healthier workforce. Better alignment of incentives could encourage healthier eating and drinking habits, greater levels of exercise, and generally more health-conscious behavior. The feeling of entitlement to healthcare that can result in a lowered drive to stay healthy is a moral hazard that has been induced by the current medical care system. Reducing medical care costs via a healthier workforce is a win-win for employee and employer alike.
Restoring the doctor-patient relationship via Direct Primary Care.
The primary care doctor who has a knowing and caring relationship with individual patients, and who knows their ailments and their lifestyle, and their family and economic circumstances, is a historical tradition in American life, a part of the American dream. The corporate medical care system took this relationship away in many ways, replacing it with an impersonal system of “in-network” availability of physicians with no personal relationship component.
Direct Primary Care is restoring the doctor-patient relationship following principles of entrepreneurial business design. A doctor contracts with a small number of patients — few enough to ensure availability and access — who pay a subscription fee, sufficient to provide cash flow for the doctor’s office and immediate support functions. The doctor constructs a personally curated set of network connections to specialists, such as cardiologists or urologists, and to services such as imaging and lab analysis, so that patients can be directly connected with pre-selected and approved providers for specialist needs.
Direct Primary Care can eliminate or circumnavigate much of the bureaucracy, paperwork, and creativity-stifling sclerosis of current day corporate medical care systems.
- Pricing transparency.
A parallel innovation to DPC is demonstrated in transparent pricing clinics and surgeries, the clearest example being provided by Surgery Center Of Oklahoma (SCOO) which famously provides an open price list for commonplace surgeries, with no surprise surcharges or hidden fees. These prices are often much, much lower than would be charged for the same service by corporate hospitals; the quality is often higher; the speed of getting an appointment is faster; and the most important trait is that the pricing is transparent to the end-user. Patients become consumers in the traditional sense of the word — able to make a free choice based on open pricing information.
- Better self-monitoring.
How’s your health? You may not have sufficient information for a good answer – the medical care system often makes information hard to access. One improvement is the self-monitoring that is technologically enabled today. Your Apple watch, for example, can tell you a lot about your vital signs, as can apps+devices like Kardia or a simple scale.
Consumers may also be able to find a local DPC doctor or naturopath with whom to share the data for recommendations on natural solutions for any signals they might detect. This is a decentralized approach to healthcare that’s consistent with the general trend away from restrictive top-down centralized structures and processes.
Additional ResourcesThe Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance by Murray Sabrin: Mises.org/E4B_202_Book1
From Immigrant to Public Intellectual: An American Story by Murray Sabrin: Mises.org/E4B_202_Book2
MurraySabrin.com
MurraySabrin.Substack.com
Bob and Jeff make their provocative 2023 predictions for the economy, the Fed, politics, world events, and cultural issues.
This week's show features a bare-knuckle discussion between Jeff and José Niño of "El Niño Speaks" on the biggest political, economic, and cultural events of 2022—and what they portend for 2023.
You don't want to miss Jeff's unvarnished thoughts on the Left, the Right, the economy, and what is sure to be a turbulent New Year.
Read José's Substack: josbcf.substack.com
Does 2022 America still have legitimate intellectuals? Professor Paul Gottfried joins Jeff and Bob to consider the state of real and pseudo-intellectualism.
Hunter Hastings of Economics for Business joins Jeff for a thoroughgoing discussion of how monetary and fiscal policy distort capital markets and create perverse incentives for financialization rather than real production.
Jeff Deist, "Does M&A benefit the economy?": Mises.org/HAP373-ARothbard's America's Great Depression: Mises.org/AGDThe Economics for Business Podcast: Mises.org/E4Bpod
Value for customers is the purpose of all entrepreneurial business. Firms big and small must know, follow, and adhere to the principles of value creation. This is pragmatic not theoretical — the consequence of a failure to do so is that the firm cannot survive.
Bartley J. Madden studied value creating firms as a co-founder of a successful investment research firm and then managing director of Credit Suisse HOLT. He is now an independent researcher and founder of the Madden Center For Value Creation in the College of Business at Florida Atlantic University.
He joins the Economics For Business podcast and shared a summary of a lifetime of research.
Knowledge CapsuleA systems thinking approach provides the best route to understanding value creation.The business firm is a sub-system within a bigger system, that of society. The effectiveness of the firm is tied to organizational learning and the evolution of dynamic capabilities. Bart Madden’s pragmatic theory of the firm treats it as a holistic system with a well-defined purpose. If it is successful in achieving its purpose, it will benefit the larger societal system.
The purpose of the firm is a four-fold composition of mutually reinforcing goals.Sometimes, the business literature is guilty of treating purpose as a PR statement, a catchphrase that can be communicated without it necessarily governing the firm’s behavior. Bart Madden’s view of purpose demonstrates much greater depth, appropriate for complex systems management. Purpose is 4-fold:
A vision of the value that can be realized by customers, and that can inspire and motivate employees to work for a firm committed to ethical behavior and making the world a better place through customer value. [[{"fid":"137418","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 1","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"1":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 1","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Example 1","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"1"}}]] Customers consume value by experiencing it in their interactions and relationships with the firm. The customer’s experience is dynamic within their own system of competitive offerings and alternative choices.Survive and prosper through continual gains in efficiency and sustained innovation. These are long term performance variables that depend directly on a firm’s knowledge-building proficiency. A firm must generate a return that is greater than the cost of capital, and as it matures, this return can be eroded away by competitors who offer lower prices or different features to customers. Building knowledge and translating it into new business capabilities is critical for long-term survival. [[{"fid":"137419","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 2","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"2":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 2","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Example 2","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"2"}}]]Work continuously to sustain win-win relationships in every direction. Relationships with customers are primary for value creation, and relationships with employees and managers must generate the understanding, motivation and commitment to delivering customer value, while relationships with suppliers, collaborating firms and other partners must result in their best support for value creation. It’s a way of living and doing business that engenders trust all around. Shareholders are also rewarded as a consequence of these relationships.Take care of future generations. The long-term view of the pragmatic theory of the firm as a system within the bigger system of society emphasizes thoughtful concern for the future, so that return on capital can be sustained. Paying attention to minimizing waste in the earliest product and service design stages can serve the future, and this includes minimizing pollution (a form of waste) and reducing harm to the environment.[[{"fid":"137421","view_mode":"image_no_caption","fields":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 3","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"4":{"format":"image_no_caption","alignment":"center","field_file_image_alt_text[und][0][value]":"Example 3","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"Example 3","class":"media-element file-image-no-caption media-wysiwyg-align-center","data-delta":"4"}}]]A firm that is successful in achieving its four-part purpose benefits customers, employees, partners, suppliers and shareholders, as well as society at large.
Nurturing and sustaining a knowledge-building culture is the most critical driver of long-term performance.Knowledge-building is a continuous loop:
Knowledge base, purposes and worldview: Every firm has a knowledge base that determines current perceptions or current worldview, which includes ideas and beliefs and assumptions about interacting with the world.
Perceptions: We see the world through our perceptions and construct our reality that way. We may be self-assured about some favorite ideas about the obvious way to proceed, but we may be proven wrong via future learning.
Purposeful actions and consequences: With its purpose in mind, the firm takes actions, and each action has consequences, which may or may not have been anticipated.
Feedback: Learning from actions and their consequences is consumed as feedback, a critical component of the knowledge-building loop. The knowledge base changes as a result of this learning. An existing assumption may be replaced. Humility is important when traversing the knowledge-building loop.
New understanding and new perceptions: As a result of feedback and learning we may be able to evaluate our assumptions differently and perceive the world in a new and more accurate way.
It’s hard to be skeptical about our own strongly held beliefs, and therefore a cultural commitment to experimentation — the kind that’s capable of revealing obsolete assumptions — is necessary.
Knowledge-building stems from firm culture.Knowledge-building proficiency is a culture which views everyone in the firm as a value creator and a knowledge worker who can continuously improve their own problem-solving skills. This, in turn, motivates all employees since they can take great satisfaction from their jobs.
One of the errors of the traditional command-and-control management structure is that it assumes the smartest people are “higher up”, and it takes decision-making away from those closest to the customer and to the most relevant knowledge. The higher-ups set short-term targets for the employees, which is inconsistent with treating individuals as learners and value creators.
Knowledge-building occurs, and must be nurtured, at every layer of the firm.
The correct view — and the correct measurement — of firm performance is the life cycle.All firms traverse an inevitable life cycle. Bartley J. Madden’s books and research picture it this way.
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During a period of high innovation, economic returns are high, and firms can reinvest at a high rate. This inevitably fades as competitors erode the advantage. In maturity the returns approach the cost of capital, and the business model may fade to the point where it fails to make the long-term cost of capital. That’s why firms must always be investing in long term new innovation projects for continuous refreshment and to repeat the high return stage. They must demonstrate to investors a skill in making these high return long term investments. The stock price is an appraisal of this skill.
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The life cycle components are the long-term cost of capital, the return on capital that results from knowledge-building proficiency, the fade rate and the reinvestment rate. The metrics of firm performance are those related to the life cycle.
Additional ResourcesThe Pragmatic Theory of The Firm and The Knowledge-Building Loop (PDF): Mises.org/E4B_199_PDF
Books by Bartley J. Madden:
Value Creation Principles: The Pragmatic Theory of the Firm Begins with Purpose and Ends with Sustainable Capitalism: Mises.org/E4B_199_Book1Value Creation Thinking: Mises.org/E4B_199_Book2CFROI Valuation: Mises.org/E4B_199_Book3Reconstructing Your Worldview: The Four Core Beliefs You Need to Solve Complex Business Problems: Mises.org/E4B_199_Book4Paper: "Bet on innovation, not Environmental, Social and Governance metrics, to lead the Net Zero transition" by Bartley J. Madden (PDF): Mises.org/E4B_199_Paper
Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt: Mises.org/E4B_199_Book5
Plain Talk: Lessons From A Business Maverick by Ken Iverson: Mises.org/E4B_199_Book6
Jeff and Bob break down the good, bad, and ugly behind Elon Musk's purchase of Twitter.
Brands are prized by corporations as significant value-driving economic assets. Brands help customers enjoy more valuable experiences, raising willingness-to-pay levels and thus improving cash flows — higher cash flows as a result of higher prices, faster cash flows because branded products tend to turn faster than their non-branded counterparts, longer lasting cash flows because brands have longevity in customers’ perceptions, and less volatile cash flows because brand loyalty can smooth out the effects of economic booms and busts.
For these reasons, corporations invest in brands and brand building. Catherine Kaputa makes the case that individuals should invest in themselves as brands, and makes the tools of brand-building available to individuals for personal brand-building: the brand of you.
Knowledge Capsule You are a brand, assessed subjectively by your customers. Think of yourself as a brand. Think of your customers - your boss, other leaders and decision-makers in your firm, your colleagues, your clients, your suppliers. They all have a subjective perception of you and the value to which you can contribute in any business situation. Is it the perception you want? Do people see you as the problem solver and solution designer for their problems? Like any brand owner, you can work to actively shape that perception. As Catherine Kaputa puts it: If you don’t brand yourself, others will, and they may not brand you the way you want to be branded.
The first tool in the branding toolbox is positioning. The branding community has developed the idea of brand positioning. In the perception space in which your brand operates, you seek to identify a unique, highly differentiated position. You want to be perceived as different and better. Positioning is the identification and selection of that unique space in the minds of customers and the basis of the of credibility, reputation and trust to be able to make the claim.
Importantly, positioning requires outside-in thinking. Think of your customers first, their needs, their mindset, and their perception of the other brands in the space. Your positioning must be in their minds, not yours.
Differentiation is a most important element of positioning. Typically, perception spaces are competitive. Customers looking for solutions to problems and better experiences scan the space for alternatives and make comparisons between them. Know your competitors, assess them through the eyes of your customers, and find a positioning that is both different from and better than alternatives for your customer, using their mental model and assessment criteria. Aim to “own” that unique space - meaning that the customer identifies you as the only one or the best one of their alternatives to meet a particular need.
Attach an idea to yourself. A way to pin down a perception in a customer’s mind is to attach an idea to a brand, in this case yourself as a brand, in a way that the connection is immediate and becomes automatic. The idea should be singular and highly focused. Catherine Kaputa recommends a process of subtraction to reach a singular idea — you’ll start with a multi-layered and possibly complicated idea, but if you keep subtracting the least relevant, least important and least differentiated elements, you’ll arrive at the pared-down singularity. You should be able to express it in a phrase or a sentence, one that you can keep repeating to embed it.
Her own example in her marketing career was to brand herself as “good with difficult clients”. Every marketing services company has clients or accounts or marketing challenges that are deemed to be difficult and not everyone wants to be exposed to that risk. Someone who steps up and enjoys performing well on such a stage is both differentiated and highly sought after.
Personal brand positioning strategy templates provide another tool for self-branding.
In her book The New Brand You, Catherine Kaputa provides 10 brand positioning templates as examples of how an individual might approach the process of self-branding and build their own brand.
Download "Ten Personal Brand Positioning Strategies" in PDF: Mises.org/E4B_198_PDF
These are complete templates for rigorous use and application, appropriate for individual interpretation, embellishment and nuance.
One example is the Innovator strategy. Let’s use this template as an example of the self-brand positioning process.
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What’s the customer need that the Innovator addresses? Identify your target audience and the problem they want solved. Innovators are needed to create something new, when existing strategies are failing or sales are declining or new market entrants are redefining the terms of competition. New solutions are sought, and Innovators are the ones people turn to. Innovators are recognized as the creative resource that’s required.
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What are the attributes to point to in order to claim the Innovator positioning? Catherine Kaputa lists 5:
Visionary with clear objectives: not just creative, but capable of identifying business objectives for creativity and of seizing opportunities.
Brilliant at problem-solving: full of ideas, but always directed towards solving important problems.
Bold risk-taking: when others hold back, Innovators are eager to design and run experiments from which to learn, knowing there’s no such thing as failure, just new knowledge.
Fresh thinking: not following the crowd but diverging from the norm.
Inventive: Innovators demonstrate the capacity to be first in new designs, new thinking and new ideas.
The point is to evaluate yourself against the attributes of the positioning type: is this you?
- The next step is a positioning statement. Catherine provides examples:
Sample Positioning Statement: An innovative professional in an industry beset by mergers and dynamic change positioned herself in the following way.
Draft Sentence: For senior managers, boss, clients, industry who need new products and services I stand for innovative problem solver in industries undergoing massive change.
The format to use is: For (target audience) who needs (problem you solve) I stand for (value proposition).
- Add reasons to believe. Pick three reasons and 3 keywords or phrases as to why customers should invest in your positioning statement by hiring you or giving you the project.
Innovator is just one of multiple possible strategies. Yours may be one of these or a combination of several. There’s a personal test you can take at Mises.org/E4B_198_Test for initial input to start your positioning process.
Positioning is a means not an end: there is more work to do. Catherine Kaputa follows the logic of brand positioning all the way to implementation. It’s not a theory, it’s a practice. There are actions that brand marketers take to communicate and embed their positioning. She cites three major ones: visual identity, verbal identity and brand marketing.
Commercial brands spend a lot of time, effort and resources on a brand’s look: logo design, package design, website colors and typefaces, video style, and so on. The goal is to communicate a style and an engaging and brand-appropriate visual personality. The same principles apply to personal branding - choose your look, your dress-style and fashion carefully and thoughtfully.
Verbal identity comes from the words you use, the story you tell, and how you communicate in presentations, e-mails, tweets, speeches and conversations, whether in the conference room, the auditorium or on zoom. Work on it.
Marketing your brand should be guided by your goals for your personal brand. Once you have them defined, choose your media, your message, your content, your campaign tactics and your metrics.
Additional Resources The New Brand You: How to Wow in the New World of Work by Catherine Kaputa: Mises.org/E4B_198_Book
Find your own brand positioning (Mises.org/E4B_198_Test) on SelfBrand.com
"Ten Personal Brand Positioning Strategies" (PDF): Mises.org/E4B_198_PDF
Jeff and Bob record a special Thanksgiving episode for Money Talk 1010 AM on what it really takes to fix the US economy.
Mark Thornton on the coming economic crisis: Mises.org/HAP371A
Listen to Jeff on Money Talk 1010 every Thursday at 9:00am ET: Mises.org/MoneyTalk
Business success goes beyond numbers and planning and finance acumen. There’s an emotional component to it, ranging from the courage to make decisions without knowing the outcomes in an uncertain future, to the resilience of weathering storms and coping with unanticipated crises. There is also, of course, the joy of achievement and goal-attainment. There’s a concept identified as emotional intelligence that individuals and teams can cultivate as an element of a mental model that’s well-aligned with business performance and positive business outcomes.
Knowledge Capsule The entrepreneurial method is to pursue change, but people’s natural attitude is to resist change. We have an inbuilt, biological resistance to change. It triggers fear and anxiety that get in the way of moving towards the change that we seek. In addition to this emotional resistance, we develop habits that keep us in the status quo, and present another barrier to behavioral change. We all must fight an internal battle between our old habits and desired new habits.
Entrepreneurs develop a special emotional intelligence that motivates action. Entrepreneurs are in the business of making change. They can overcome the natural emotional and behavioral barriers because they have a highly developed emotional intelligence. They have such an emotional relationship with their vision of a successful outcome for their efforts that they can overcome fearful restraints and resistance to change. They are especially highly motivated to take action. It’s their emotion that drives action, not intellect.
Emotional intelligence is much more influential in business success than IQ. A 40-year study at UC Berkeley found that EQ (emotional intelligence) is 400% more powerful than IQ in predicting which individuals would have success in their field. Private companies like PepsiCo and Apple have uncovered similar findings in their internal studies.
High emotional intelligence not only releases personal energy and creativity, but it also results in higher levels of interpersonal trust and shared engagement with others. With high emotional intelligence, we are driven to help others to enjoy better experiences as well as to advance out of our own comfort zones to access new areas of achievement.
The consequence of achieving high levels of emotional intelligence is higher levels of trust and engagement in business, and, thereby, better business results.
Everyone can improve their emotional intelligence and benefit from its compounding effect. We are pretty much born with our IQ — we can’t increase it. But everyone can raise their level of emotional intelligence. Not only that, but emotional intelligence is a compounding asset — we can raise it and raise it again and keep on raising, so long as we work at it.
Part of the equation is personal energy management. Phil Johnson identifies personal energy as the core element at the heart of the power of emotional intelligence. We “give our energy away” when we permit others to disrupt our emotional flow — make us annoyed or angry or resentful or frustrated. As a consequence, we feel the need to “steal energy from others” by getting the better of them or by exercising a command-and-control management style. The net result is strife, dissension, and misalignment — where team or corporate energy is wasted. We can avoid this waste by cultivating emotional intelligence.
There are high-ROI habits, practices and skills that help to build emotional intelligence. Happily, we can practice some of the habits and skills that develop and demonstrate emotional intelligence.
One such habit is authentic listening: when we take criticism personally, we give away energy. So, if we eliminate all personal inner-directed emotion from our reception of comments and suggestions from others, we can utilize all the experience and knowledge that’s shared with us for betterment and improvement. Don’t resist, don’t judge. Don’t let attachment to our own preferences get in the way of receiving input. Don’t raise walls. We have no personal interest in what others think of us, only in the information they can impart, which might be useful
The other side of the coin is authentic communication: be sure that all the content of our communication is factual and positively motivating and designed to be helpful to others, strengthening trust and engagement. If we develop a consistent reputation for authentic communication, we’ll raise engagement (and Gallup reports that employee engagement is at a very low level today, which is a great cost to economic productivity).
In addition to habits and practices, Phil Johnson urges us to commit to the emotional labor of recognizing our own fears, biases, and status quo preferences, and to establish an emotional distance between our motivations to action and our ego-based fear. It’s emotional labor that pays interest — it has a high ROI.
Emotional intelligence releases the power of intuition, and creates a state of flow. When we fear making decisions, we try to rationalize those decisions, to seek objectivity and lower uncertainty. When we distance ourselves from fear, we can unleash intuition — that decision-making capability that is beyond our understanding and comes from our unconscious brain. Intuition takes over more and more as we master emotional intelligence. We make choices that are not intellectual — we go beyond our intellectual ability.
Emotional intelligence takes us to a flow state. We get away from thinking and move towards intuitive doing, beyond our comfort zone beyond our fear and anxiety.
Additional Resources Phil Johnson on LinkedIn: Mises.org/E4B_197_LinkedIn
Phil Johnson’s Zoom Calendar: Mises.org/E4B_197_Zoom
Videos from alumni of Phil Johnson’s MBL (Master Of Business Leadership) Program: Mises.org/E4B_197_MBL
UC Berkeley Study, EQ>IQ: Mises.org/E4B_197_Paper
Jeff and Bob discuss whether the FTX scandal will be used to justify new "crypto" regulations or even the creation of a central bank digital currency.
Caitlin Long and Sam Bankman-Fried debating leveraging Bitcoin: Mises.org/HAP370A
Mises on circulation credit vs. commodity credit: Mises.org/HAP370B
President of the Minneapolis Fed Neel Kashkari on CBDCs: Mises.org/HAP370C
Success in business — serving customers well, and achieving growth in revenues and assets with a return on capital greater than its cost over the long term — is tied to knowledge-building, whereby everyone in the company learns more and more about specialized and advantaged methods of generating value for customers. Customer value fueled by knowledge-building flows back to the company as cash flow as a result of customers’ willingness to pay (which, itself, is a piece of knowledge to be discovered through testing and experimentation).
The uncertainty of the future means that a lot of knowledge-building must be achieved through experimentation — testing ideas to find out if they work or not. The earliest stage of this testing is bound up in the concept of criticism. Bart Vanderhaegen, a philosopher, epistemologist, and business consultant, explains the role of criticism to Economics For Business.
Knowledge Capsule There is broad agreement on the need for adaptiveness in business. It is becoming more and more accepted to view firms as operating within a complex adaptive system in which the interactions of millions of agents, and the resultant emergence of new outcomes and new system properties, require an acute sensibility regarding change — and speed of change — in the business environment and an ability to make adjustments in response or, if possible, in anticipation.
This adjustment process often goes by the name of adaptiveness.
What, exactly, is being adapted? Bart Vanderhaegen’s analysis is that it is ideas that are being adapted and adjusted. He defines idea in this business context as a goal and a plan to achieve that goal — a desired end and the associated means. It is ideas that ultimately result in changing people’s behavior, changing product and service offerings, and changing markets.
If the idea is wrong, it will fail in achieving any desired change. To establish why or how an idea is wrong requires criticism.
Criticism is an artifact of the science of knowledge. Critical rationalism views knowledge as useful information we use to solve problems we face. It can never be viewed as final — it’s conjecture about possible solutions that we are continuously challenging and criticizing to expose any error that we can subsequently correct to improve upon the solution, and to get closer to economic reality. That’s adaptation.
Firms actively seek the criticism of the market. Once ideas have been activated as products and services, firms are comfortable with the criticism of the market. As Mises observed, the customer, by buying or not buying, returns a verdict on every business’s offering. And business welcomes the criticism, in the form of sales report, or market share analysis, or market research. The market is full of feedback, and in the case of non-buying, the feedback is criticism and triggers improvements or an adaptation of the plan.
In business, there tends to be less comfort with criticism in the pre-market stage, but it’s a necessary tool for refining options and making decisions. In Bart’s way of saying it, the word criticism, when used in business, has “kind of a weird smell around it”. There’s a culture of what he calls justificationism. We are taught to project confidence bout business plans. Executives claim expertise in the domains for which they were hired. The boss is correct.
This is all misplaced. What we should be confident about is capacity to solve problems, and not be scared of making mistakes, but rather to be eager to adapt our knowledge to observed reality when it changes.
By utilizing criticism methodically, businesses can unleash its power. The proper use of criticism is to criticize ideas and not persons. We always want to celebrate the owner of an idea, and grant them autonomy to accept or reject criticism. Bart’s three step method for business criticism is:
Start with the presentation of the idea by the idea owner. There should be the opportunity for a full and reasoned presentation. Questions of clarification can be asked, but no criticism at this step.Then follows the offering of criticism. It should be high quality, constructive and specific as to what elements are in doubt and why, and what can be improved. General opposition such as “That will never be accepted here” (which could be said of any idea) is not acceptable.The criticism session is completed with a consent stage, in which the idea owner indicates which criticisms he or she finds relevant and will act on to improve the idea, whether in ends or means or both. Consent is in the discretion of the idea owner and should not be the result of any pressure by critics, whatever their rank or status. There is no “softness” in this: there is a shared and passionate commitment to improve. Successful adaptive businesses develop a positive culture of criticism. It’s important to analyze and classify the prevailing firm culture. Some cultures will discourage or reject criticism as a method for improvement, especially those that are hierarchically organized and have a tradition of authoritarianism.
The appropriate culture values truth and values adaptiveness, and celebrates the identification of error as a successful step towards improvement. Bart called this culture a “tradition of criticism”, which sounds contradictory since the word tradition is usually associated with preserving the status quo; but a tradition of criticism implies a kind of stability around the practice of criticizing. People become comfortable with it, and try to become better at it, and are proud to be part of the path to betterment through criticism.
The Amazon 6-page memo system is a good example of the tradition of criticism. Idea owners are required to prepare a detailed memo describing the idea and the business case and this is submitted to a committee of reviewers in a dedicated meeting, escalating in rank towards the most senior management as the idea is vetted, improved, and increasingly strengthened. It’s a tradition and a part of the Amazon culture.
Such a culture is not initiated with an announcement or a campaign, but emerges organically as a universal tool for everyone in the firm to utilize.
Additional Resources Pactify Management: PactifyManagement.com
Bart on Twitter: @B_Vanderhaegen
Bart’s podcast: Fallible Management (Anchor.fm/FallibleManagement)
Bart’s email: bart.vanderhaegen@pactifysoftware.com
Daniel McCarthy joins Jeff and Bob to consider the deep unseriousness of American politics and electorate.
Willmoore Kendall's The Conservative Affirmation: Mises.org/Kendall
A great benefit of the internet age is the capacity to accumulate, accelerate, and intensify connections between entrepreneurs, knowledge sources, investors, mentors, collaborators, and service providers. Businesses with a valid value proposition who are in the launch and early expansion phases can interconnect a network of powerful and qualified resources to support their growth. A good way to do so is to utilize a platform (another product of the internet age) designed for the purpose. Tom Malengo established a platform called Brandjectory to serve just this purpose for consumer packaged goods (CPG) startups.
Key Takeaways and Actionable Insights. Brandjectory’s value proposition is to solve the problem of how to build an investor-ready business. The purpose of a B2B business is to help customers achieve their own purpose. Brandjectory helps with the purpose of becoming investor-ready, the condition of qualifying for funding in the eyes of investors. The problem is multi-faceted, from having an investable value proposition, to having the systems and structure in place to qualify for investment, to overcoming the functional obstacles of expansion, to having access to investors, to having the capability to pitch effectively and persuasively. Brandjectory helps with all phases, for all stages of investable business from pre-market seed stage to post-market Series A where a proven business model and revenue stream represents the bar.
All knowledge is specialized: select and know your sector. Brandjectory focuses on consumer packaged goods businesses, often identified by the acronym CPG. It’s a sector with open-ended innovation opportunities — e.g., how to make foods and beverages and cleaning products and pet products healthier — along with an identifiable set of obstacles to overcome, such as the cost and difficulty of securing and maintaining distribution in supermarkets and other retail channels. An investable business knows the available innovation gaps and has a practical knowledge of barriers and how to overcome them.
Define value in your sector with reachable target customers. The Brandjectory system stresses the understanding of subjective value — that it’s an experience of the customer, and is defined by what they feel is important to them and how they feel a new brand will satisfy their need in that area of their life. Value demands an emotional connection, sustained over time. Too many founders, says Tom Malengo, CEO of Brandjectory, do not exhibit a full understanding of value. They are more focused on what’s new or different about their product, or on their recipe or ingredients. This is a functional perspective, and misses the emotional component. Tom’s technique in assessing a founder’s understanding of subjective value is a careful but intense questioning, driving towards a true focus on what’s important to consumers.
Value understanding must be translated into a value proposition. A value proposition is a structured template for the communication of proposed value to the consumer, enabling them to recognize it. The value proposition must capture the emotional element of value — how consumers will feel better. It’s not just about good taste, for example, but the joy of consumption, the family sharing, the feeling of contributing to health rather than undermining health.
On econ4business.com, you can read about value propositions (Mises.org/E4B_195_Value), and watch the E4B value proposition design video (Mises.org/E4B_195_Video).
Potential investors will probe for the founder’s true understanding of value propositions — it’s a qualitative rather than quantitative assessment. A founder must be skilled and effective at communicating this understanding.
Investor-readiness also implies an identification of all the challenges to growth and how to overcome them. Investor-readiness will vary by business stage. The state of readiness might encompass the capacity of the sales network, or of production processes, or the scalability, sustainability and security of the supply chain, or the strength of processes and systems, or the innovation pipeline, or the quality of the advisor group. Tom’s guidance to founders ensure that they know all the questions investors will ask, and leave nothing to chance in framing their answers.
The required knowledge-building is achieved through networking and connecting. A major benefit of the Brandjectory platform is its network of advisors, industry experts, mentors, and investors. Founders can connect to them and meet them, and not just listen but also gather knowledge through questioning and discussion. Plugging in to a powerful knowledge network is less stressful than pitching and more conducive to learning.
The members of the network have a wide range of incentives. Investors can pick up information about trends and new ideas even if they don’t invest directly. Industry experts can sense the response to their information and knowledge sharing and get market feedback. Many mentors enjoy the sense of giving back to their industry and community after years of working. All entrepreneurs can, and should, assemble a network like this. Brandjectory is a convenient way to do it for CPG entrepreneurs.
It's important to understand the role of knowledge in firm performance.
Tom Malengo says knowledge is power for entrepreneurs — the power to solve problems, address challenges and overcome obstacles. It can be a competitive advantage to gather more specialized knowledge than competitors and incumbents.
Professor Per Bylund sees specialized knowledge as solving the production problem (see Mises.org/E4B_195_Book) — the difficulty of initiating new economic production that no-one else has ever attempted, i.e., innovation.
Brandjectory takes the problem-solution approach to knowledge building. Entrepreneurs who confront a problem or issue or knowledge gap can ask the appropriate question of the appropriate expert or tap the experience of a more seasoned businessperson and benefit from the exchange, a kind of accelerated learning.
Brandjectory is a celebration of the all-American practice of entrepreneurship. Tom Malengo views entrepreneurship as the fabric of civilized society, a tradition that is especially strong in America. Our first settlers and many of our founders were entrepreneurs, and the encouragement of new ideas from any and all sources, giving everyone the chance to pursue their commercial development and experience economic success is woven into our way of life.
An entrepreneur, as Tom sees it, is someone who refuse to tolerate the existing status quo and demands better and is willing to exert their own effort and expend their own resources to bring it about — a very Misesian view. Through Brandjectory, he intends to help and support all those in pursuit of betterment in CPG. His platform concept — where the business model is to invite entrepreneurs to join for a fee, with unlimited free access to the knowledge platform and expert network, no commissions, middleman dealmaker cuts, brokerage charges, retail markups, affiliate costs or any other “bite” — is pure support for aspirational growth companies.
Additional Resources Brandjectory website: brandjectorynow.com
Tom Malengo on LinkedIn: Mises.org/E4B_195_LinkedIn
Jeff joins Chris Casey of WindRock Wealth Management for a deep analysis of next week's punishing midterm elections.
Breakthrough theory becomes effective practice when it is successful applied by real-life entrepreneurs. The E4B entrepreneurial method is actualized by Hermann and Elizabeth Morris in the very distinctive business model for their brand, The Nail Hub.
Knowledge Capsule The true purpose of a B2B business is to help your customers succeed. While outside observers focus on transactions — how much does this business sell, what are its revenues? — entrepreneurial business owners and operators focus on customers and customer relationships. Revenues follow from relationships. This insight is critical, since it guides business model development.
Business-to-business models are especially responsive to relationship strategies. When a customer feels that the relationship with a supplier makes their business performance better, they can become a customer for life. That’s a recipe for strong and sustainable growth.
First, observe the ecosystem in which you operate, and identify gap opportunities. Systems thinking is an important component of the entrepreneurial method. A firm is a component or a node in a network of interconnected services we can call an ecosystem. Hermann’s and Elizabeth’s ecosystem is the Nail Fashion industry. Nodes include salons and salon owners, the nail technicians (sometimes employees, sometimes independent contractors) who provide service to consumers in the salons, equipment manufacturers and suppliers, product manufacturers and suppliers (for nail gel, etc.), and product distributors.
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Hermann and Elizabeth were able to identify a number of gaps in the ecosystem. Many salon owners were enthusiastic about their industry but not well-trained or experienced in the basic economics of business. Many of the technicians were passionate about their trade, but not highly trained in the latest techniques and technologies and in product selection. There were aspects of marketing that were underdeveloped, such as audience segmentation. And there were inconsistencies between products in both quality and safety.
In the mind of the entrepreneur, these gaps are opportunities. The entrepreneurial question is: how best to fit in and contribute to the ecosystem. The business model response is determined by individual entrepreneurial orientation.
The beginning orientation was that of an operator. Given their knowledge of both the high potential of the industry and the gaps to be addressed / problems to solve, the Morrises’ entry point was as an operator. They embarked upon the journey to design a differentiated salon experience with superior nail technique, better products, better trained technicians. They ran the salon with better business acumen (they both came from high-level corporate positions and were able to bring sophisticated operating and financial experience). They segmented with an unusual and especially comfortable in-salon appeal, and via location.
They were successful. There was a lot of learning, which Hermann identifies as overcoming pain points.
The next growth step comes from re-orientation to larger scale. How could the Morrises scale their salon business? They thought through multiple openings (e.g., open and operate 20 salons), acquisition (acquire 20 salons), and franchising (sell franchises to multiple independent owners).
All of these alternatives would require new capability development: establishing standards and a repeatable business model, including a reliable financial model, designing a multi-unit system of supply chains, capital deployment, décor, training and location scouting, and a new kind of marketing to salon managers or franchisees.
The Morrises were reorienting to thinking as proprietors of a new kind of multi-division business. It’s a different orientation, seeing the same ecosystem from a different perspective.
Meanwhile, Elizabeth had the idea for a podcast to share her expertise and knowledge and passion for the industry. It was free business advice, free guidance, free technical training, teaching different aspects of running a salon and technical aspects for nail technicians. Its purpose was a service to consumers (better salon experiences), to technicians (better craftsmanship) and owners (better business operations). The podcast was called The Nail Hub. It generated a great positive reputation in the ecosystem and a lot of positive feedback. The knowledge that The Nail Hub podcast shared was enthusiastically welcomed.
The Nail Hub podcast feedback resulted in a further re-orientation. The Nail Hub podcast was helping salon owners and those technicians who were independent contractors renting positions in salons to improve the way they ran their businesses: better management, better understanding of customer needs and segmentation, better approaches to pricing, revenue and profits, better techniques, and better products.
What if a podcast can become a business model? Hermann and Elizabeth developed an entirely new B2B services business model which could be summarized as “educate the industry on how to operate a business, and supply them with the highest quality products to fit their business”.
Importantly, the education is free to consume. The Nail Hub YouTube channel is free to access, and offers over 140 videos on every aspect of business operations, finances, equipment, products, and techniques. The videos are expensive to produce. The model is that the investment in education will be repaid through loyal customers buying the products that The Nail Hub offers for purchase.
The curation of products itself is a service. The Nail Hub has identified a distinctive set of criteria for product selection (health, safety, non-toxic ingredients, cruelty-free) and does the research and validation so that purchasers can be confident in their choices and tin he integrity of their promises to the end-consumer.
The products are not the lowest price, they are the highest quality. Salon owners who have not fully absorbed The Nail Hub’s education on consumer segmentation, pricing, and customer experience will not be a good fit within The Nail Hub’s customer set. The Nail Hub business model has a high internal consistency and integrity.
The Nail Hub has re-oriented to B2B service provider educating an entire industry to provide superior consumer experiences, better product quality and profitable operations — i.e., re-orienting from facing those challenges to helping others to face and overcome them.
One of the cornerstones of the B2B services model is authentic subject matter expertise. The Nail Hub can help salon owners and nail technicians thrive through their independent action because Hermann and Elizabeth developed a deep subject matter expertise. They’ve been salon owners and faced all the developmental issues that owners face. They’ve trained nail technicians. They’ve evaluated salon equipment and they’ve committed their resources and time to researching high quality, innovative products that meet their highest standards. Hermann stresses that the arduous development of subject matter expertise is the necessary foundation for a trusted service business.
Another is to choose customers carefully. The Nail Hub is making a substantial investment in their customers via their free training and education. The business model that they enable is specific: the highest standards, with the best trained operators, providing a reliably superior consumer experience. The pricing model is premium, which supports the use of the highest quality products and the provision of the highest quality salon environment. Race-to-the-bottom operators who pursue the lowest prices as a competitive edge are not a good fit in The Nail Hub ecosystem, and Hermann makes this a clear element of The Nail Hub’s B2B communications. Choose your customers to match your positioning.
The evaluation of the business model does not lie in conventional metrics. When the business model is to invest in the success of customers, the conventional metrics of revenue, margins and annual profits are not the primary measures of success (although, of course, they must be acknowledged). The evaluation of the model comes via the feedback loops. Is the educational service welcomed? Does it result in better operations on the part of salon owners? Do salon owners and independent technicians become customers for life? Do product manufacturers clamor for entry into The Nail Hub’s curated product set? Are product trends — safe, non-toxic, healthy, etc. — moving in the desired direction?
This is the entrepreneurial ethic: make customers more successful, make the world a better place.
Additional Resources "Evolving The Nail Hub Business Model" E4B Graphic (PDF): Mises.org/E4B_194_PDF
The Nail Hub YouTube Channel: YouTube.com/TheNailHub
The Nail Hub Website: TheNailHub.com
Criticisms of hapless Senate candidate John Fetterman are labeled "ableist," while Elon Musk's takeover of Twitter is deemed fascist. Jeff and Bob take a hard look at the linguistic battlefield and the corruption of language as an institution.
Jeff's paper on language, "Evolution or Corruption?": Mises.org/HAP367-1 George Orwell's essay "Politics and the English Language": Mises.org/HAP367-2 Ken Smith's Junk English: Mises.org/HAP367-3 Bryan Caplan on "Privilege": Mises.org/HAP367-4
There is a threshold of diversity below which no organization can operate with complete effectiveness. Diversity in this sense does not only include the “Big 3” DEI elements of race gender and sexual orientation, but also education, experiential background, business partner diversity, learning capabilities — all of the organizational resources that Austrian economists refer to when they talk about the creative combination and recombination of heterogeneous assets. Dr. Ella F. Washington, author of the book The Necessary Journey, joins Economics For Business to make the business case for diversity.
Knowledge Capsule The business case for diversity is built on the sustainable competitive advantage in productivity that it can bring. Dr. Washington’s book is a global, multi-variable survey of the effect of diversity orchestration on business results. She describes a wide variety of business cases, in large, medium-sized and small firms, in businesses ranging from global hospitality services to IT to alcoholic beverages production and marketing, and many more. She looks at diversity not just through the “big 3” lenses of race, gender, and sexual orientation, but also educational achievement, cultural background, learning capability and interpersonal communications variables. In all cases, well-orchestrated diversity made a demonstrable and positive difference in business outcomes. Diversity is a tool for competitive advantage.
The business case is globally applicable. Dr. Washington has studied and provided consulting services to global firms and to local and regional firms in many countries. She sees diversity not as a provincial political issue but as a business tool for elevating human performance. There is a lot of hard work involved in identifying and understanding local differences, and some challenging decision-making and communications issues. Getting diversity right is not always comfortable, and many perspectives must be balanced. But it pays off in results.
Value and empathy are at the core of diversity management. Subjective value lies at the core of Austrian entrepreneurship. Subjective value is in the mind of the customer, it’s a feeling that’s experienced. When businesses deliver a valuable experience, customers engage enthusiastically. The same is true for a group of employees. An organization that can empathically feel the experiences of all its employees, and can orchestrate the environment and the culture that recognizes, caters to and enhances their felt experiences, can achieve the exciting collaborative energy of alignment and harmony. Austrian principles of subjectivism and empathy apply in all areas of business thinking.
People want to feel valued, and the feeling is personal and individual. No matter the size of the corporation, each individual counts in their own way.
Diversity policies always benefit from the free incorporation of multiple perspectives as compared to centralized mandates. Dr. Washington’s case studies consistently demonstrate that decentralization and localized management is a better tool for productive diversity that central mandates. One of her case studies concerns Sodexo, a French company specializing in food services and facilities management, employing over 420,000 people in 80 countries all over the globe.
Through the processes described by Dr. Washington, Sodexo came to realize that thinking and acting locally was the key to achieving the diversity target of collaborative productivity AND elevated human performance through valued experiences. Diversity solutions could not be formulated in the central HQ, or even country-level HQ’s, and even regional and local offices. It was the individual sites where people work together in small teams that should be the focus. A general goal was established — it was termed “Spirit Of Inclusion” — and then specific programs were resourced and implemented at the local level in ways that comported with local needs.
To quote from one of the Sodexo executives, “engagement across the organization very soon became an enabler of business growth and business success”.
Diversity has a future orientation — influencing future performance. In the US, diversity policies are often pitched as addressing past wrongs. In another case study, the President of Infosys, an India-based technology company, stressed his focus on building the services of the future. A diverse work force is, in his words, the most viable business model. Since the company would be engaged in building new services for a new future and a more diverse audience (i.e., in new countries, new situations, new circumstances), then it’s smart to try to imagine the needs of that future workforce, and how to maximize its capability for future success. A diverse workforce is better able to develop superior understanding of a diverse customer base.
One of Infosys’s diversity tactics was to extend hiring in the US to community colleges. Many tech firms focus on 4-year university graduates exclusively. Infosys felt that (a) they might not be competitive in hiring those candidates, and (b) such a focus excluded a lot of bright, trainable people from two-year community college programs. They also found out that the two-year students often exhibited greater “learnability” — they could be trained and coached in the Infosys way with outstanding results in achievement and productivity.
Another source of diverse talent is the individual making a mid-career switch. Infosys opened up its thinking and its recruitment to include this type of diversity too. Career-switchers tend to excel at learnability.
As is always the case in entrepreneurial economics, imagining a better future opens the pathway to better implementation. At the close of her case studies, Dr. Washington tells us her respondents’ answer to a question about the workplace utopia of the future. All the answers are different, but the principle is the same: conceptualizing the most productive workplace in terms of how employees feel and how the feeling can be translated into effective and consistent contribution, collaboration, and business results. How do firms awaken and stimulate the best capabilities of all their employees? That’s the business case for diversity.
Additional Resources The Necessary Journey: Making Real Progress on Equity and Inclusion by Ella F. Washington: Mises.org/E4B_193_Book
TheNecessaryJourney.com
Dr. Ella F. Washington on LinkedIn: Mises.org/E4B_193_LinkedIn
Free Markets are often criticized for producing ugly, dystopian, consumer-driven landscapes, but is this true? Jeff explains how we need more than intellectual appeal to advance the cause of liberty—we need an appeal to beauty.
Watch other talks from our 40th Anniversary Celebration: Mises.org/SS2022
When firms apply the principles of Austrian economics to business management, we call the result the Adaptive Entrepreneurial Method. It’s adaptive in that it is a continuous learning process, and it’s entrepreneurial in elevating customer value realization as the most important business purpose.
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Businesses that follow the adaptive entrepreneurial method put customer value first. Value in Austrian economics is customer value: contributing to customers’ feelings of being better off as a result of the interaction with an entrepreneurial business or service provider. A useful way to think about value is in terms of alignment and order. A value exchange is a harmonious alignment between customer and entrepreneur, in which both parties benefit and both parties’ interests are served. Order is represented by the customer’s decision, a point of clarity in a world of multiple choices, overlapping preferences and broad-based uncertainty.
Entrepreneurial businesses make value their purpose and identify it in alignment and harmony with customers. Everything else — cash flow, profits, growth — follows.
Entrepreneurial orientation enables the right interpretation of data and information for customer value realization. Mark McGrath emphasizes the powerful role of entrepreneurial orientation in business success. Orientation is a mindset — a kind of internal operating system — that guides firms to translate information from customers, partners, competitors and the market into an effective, winning vision and mission.
The essence of orientation is learning. Uncertainty is assumed, and orientation is the unique set of filters through which entrepreneurs and management teams process the quantitative and qualitative data that customers and markets present. Mises called it economic calculation: the entrepreneurial capacity for combining a constantly changing stream of information into a business decision. The decisions are always reviewable and revisable; a learning mindset makes entrepreneurs comfortable with frequent decision changes in response to changing information and feedback. Principles — such as the primacy of customer value — remain the same; it’s actions that are adjusted.
Businesses that don’t learn can get locked into models that no longer reflect the realities of the marketplace, and lose their effectiveness.
People, ideas, and things. Learning, adapting, and changing are difficult capabilities to master. Continuous change can feel disorienting absent the right mindset. How do companies achieve this mastery? Mark McGrath quotes Joh Boyd on the eternal verity of people, ideas, and things — always in that order.
The first critical component are the people engaged in and operating the business. They must be good at change, comfortable with constant flux. They must accept VUCA — volatility, uncertainty, complexity, and ambiguity — as the normal condition. At the same time, management must be conscious of how each new change or wave of change impacts people, and anticipates the effect it will have on them.
In this change-accepting environment, unlimited new ideas can emerge via the creative process. They can be tested, and marketplace results become the yardstick. When new ideas look promising in terms of the results they potentially enable, then things can be changed: capital can be redeployed in new combinations, marketing campaigns can be revised. When people are pre-prepared, smooth transitions are achievable.
Continuous Reorientation And Entrepreneurial Intent. While entrepreneurial orientation is the firm’s operating system for processing information, it is not fixed. Adaptive firms are continuously reorienting, Active reorientation supports learning, recognizing that all perceptual models are only as good as the moment they were developed. They must be renewed to stay relevant. Challenging assumptions and reframing problems must be continuous in order for firms to thrive and use change to advantage. Effective orientation looks to the future rather than the present, emphasizing agility and avoiding clinging to outdated models.
Reorientation precedes intent and reshapes it. Entrepreneurial intent can be equated to what systems thinkers call vision. A vision is shared and provides a North Star for everyone in the firm, but that doesn’t preclude adjustment in continuous alignment with customers. The vision is to serve customers, and customers are also changing and adjusting. Thinking in terms of intent (rather than, say, implementing a rigid plan) permits greater flexibility in pursuit of the vision.
Entrepreneurial judgment is decision and action. The theory of entrepreneurship emphasizes judgment — that mysterious-sounding capability of entrepreneurs to make economic calculations from a mix of data and intuition. That can sound like a kind of mulling over of options. But it’s much more active than that. The entrepreneurial method emphasizes deciding and acting. Decisions are recognized as hypotheses; it’s impossible to know exactly what to do, so action-oriented develop hypotheses about what actions could have the effect they desire. The hypotheses are carefully aligned with their intent in order to double-check the logic as far as possible. But the purpose is not to be “right” but to generate feedback information so that alignment can be better informed by reality.
Action — the implementation of decisions — is an experiment, a test of the hypothesis. Action produces interaction (with customers, with retailers, with competitors, with the changing market environment) and thereby provides new information in the form of feedback, which might indicate the need to change actions next time.
The number of hypotheses and tests can be narrowed; what’s important is that they reflect as wide a range of perspectives as possible — from those at the front line interacting with customers, whether in person or at the call center or online, from engineers and operatives, from finance and HR, and from all relevant points of view. The more diverse the range of perspectives, the more likely it is that different angles of view will provide new insights and illuminate blind spots. Make sure that internal communications are organized so as to make it possible for all perspectives — including dissenting Cassandras - to be recognized and acknowledged.
Candid self-assessment of people in business leadership roles is a good place to start the adaptive entrepreneurial journey. Some elements of the adaptive entrepreneurial model require the discarding of standard ways of managing. For example, many businesses spend considerable time and effort developing plans that lock in budgets and resource allocations, and don’t make allowance for constant adjustment and change. It’s useful to take inventory of these practices and question whether they can be abandoned or reformed in pursuit of agility.
Additional Resources The "Adaptive Entrepreneurial Method" Graphic (PDF): Mises.org/E4B_192_PDF1
"Destruction and Creation" by John Boyd (PDF): Mises.org/E4B_192_PDF2
Mark J. McGrath on LinkedIn: Mises.org/E4B_192_LinkedIn
"Orientation: Bridging The Gap In The Austrian Theory of Entrepreneurship" (AERC 2022) by Mark J. McGrath and Hunter Hastings (PDF): Mises.org/E4B_192_PDF3
Dr. Bob Murphy and Jeff Deist discuss the nauseating elevation of former Fed Chair Ben Bernanke to Nobel Prize winner.
We are living through a particularly bad moment in history for free markets and capitalism. Government, not business, is promoted as the solution to all problems. Young people have never known any other environment, and one of the consequences is the skepticism about capitalism that they learn in school, college, and university. One solution to this problem lies in better business education — shaping how young minds think about business by shedding light on the social and individual benefits of capitalism that might otherwise be deliberately shadowed by misinformation and misdirection.
Allen Mendenhall is leading the way with a new business curriculum at Troy University.
Key Takeaways and Actionable Insights There are unmerited concerns among young people today about the ethics of capitalism and business. Business is too often cast as the “bad guy” in the movie of life. Business is portrayed as exploitative and greedy, and businesspeople as self-serving. Historical scandals like Enron and WorldCom are cited as case studies. But this presentation is a caricature; there’s no evidence to support it. Business is the essential component of the capitalist system that has raised standards of living and quality of life all over the globe and especially in the West, where markets are somewhat freer.
Business didn’t have the same bad rap in the past. In the nineteenth century, there was a great celebration of the civilization-advancing commercial republic powered by the protestant work ethic. The image of the businessperson was a positive trope — it was a good role to be a businessperson creating value for others. Businesspeople were the good guys. They innovated, collaborated and served. We’ve lost that imagery.
A lot of the unmerited concern emanates from educational institutions, especially universities. Who is teaching young Americans to be skeptical about capitalism and business? A large portion of the blame goes to educational institutions, and especially universities. There’s an anti-business and anti-capitalism bias among the teaching profession in higher education that is communicated to students.
In this academic anti-business campaign, there’s a special role for economists, who have dehumanized economics by trying to make it a mathematical science. All their equations and computer models have the effect of taking humanness — the role of subjectivism, individual preference, and individualized emotion — out of economics. They try to reduce human behavior to a predictive data-driven algorithm.
The heritage of economics is humanizing. The mathematical approach to economics is not the tradition of the Austrian school approach, which embraces a humanizing perspective. Commerce cultivates virtue; the pursuit of honorable profit leads businesses to act with good faith and integrity in joining with partners to produce products and services that are valued and welcomed by customers because they serve their ends in their search for betterment in their lives.
The concept of honorable profit is often alien to students, and requires new learning: that profit is an emergent result of all the detailed interactions of individuals in a market, sending price signals to producers to indicate what society wants them to produce. Profit is a result of these signals indicating that society wants the producers to continue offering their goods and services.
Understanding value is central to understanding the ethics of capitalism. The emergence of profit is an outcome of the generation of value for customers. Value is central to the ethics of business, and Professor Mendenhall’s new course at Troy University places it squarely in the center. Value is subjectively determined by the customer, and the purpose of business is to help them realize the value they seek with the right products and services responsive to their wants, preferences and goals.
But here’s where the plot twists. The big corporate business community — representing less than 1% of businesses by count but the biggest proportion of GDP by dollar revenues - has been incentivized by Wall Street to pursue shareholder value (goosing stock prices) and stakeholder value (the diversion of value away from customers in favor of non-customer interest groups). Value for customers and even profit now takes a back seat to supposedly serving constituencies such as climate activists, victim groups, and, of course, government. Stakeholder value can act as cover for the CEO who fails to generate profit: they can claim to be focused on socially more important things.
The generation of value for customers, guided by the confirmation signal of profit, is no longer primary — except in Professor Mendenhall’s Troy University curriculum.
The perspective of entrepreneurship can help students appreciate ethical business. While young people express disdain and distrust for capitalism, they often have a more positive attitude about the concept of entrepreneurship. They realize that entrepreneurs are problem solvers, and that they add value to people’s lives. People benefit from the risks entrepreneurs take and the personal sacrifice they make. Entrepreneurial innovation makes lives better.
Students appreciate this, and can even identify some corporate CEO’s to whom they are willing to grant ethical approval — individuals such as John Mackey or Richard Branson. And many young people see entrepreneurship as aspirational — they want to start their own businesses and make a lot of money (i.e., profit!). Looking at business from an entrepreneurial perspective generates more positive attitudes, and we can show that all businesses started entrepreneurially, and are sustained by their continuing entrepreneurial performance, i.e., profitably delivering value for customers. If there are questions about corporate ethics, they relate to their non-entrepreneurial functions — such as HR (whence a lot of corporate wokeness emanates), legal (the people who write the opaque and deceptive terms and conditions that justify surveillance), finance (directing activities like stock buybacks that divert value from customers), and compliance (keeping corporations closer to government and more distant from markets).
Part of Allen’s approach to his students is to teach the entrepreneurial mindset — not just for business, but for life in general. He calls it “unleashing the inner entrepreneur” and includes what he calls “the economics of your dreams”, the secret of win-win, the creativity of the market, the entrepreneurial principles of career building, starting a profitable business, and character and leadership.
He also covers personal finance skills — developing knowledge of stocks and bonds and mutual funds and other financial instruments, insurance, retirement planning (even at age 18!), investing, spending, and, of course, personal management of student loans. It’s the entrepreneurial approach to life.
We should develop a new value proposition for business schools as humanness schools. Business schools today are part of the problem. They don’t focus enough on how business can be the catalyst for positive change. They should be committed to solving problems affecting not just business, but humanity as a whole. But reading business school leaders’ and graduates’ speeches and their books demonstrates that they’re not trying to help humanity as a whole but a few selected businesses and a few particular industries. They’re not dedicated to helping ordinary people, as they should be.
Allen’s new curriculum aims to redress that imbalance.
Additional Resources AllenMendenhall.com
"Corporate Wokeness Hurts The Groups It Purports To Help" (AEIR) by Allen Mendhall: Mises.org/E4B_191_Article1
"Troy professor: Students ‘very enthusiastic’ over anti-woke business scholars program" (Yellowhammer News) by Dylan Smith: Mises.org/E4B_191_Article2
Allen Mendenhall on Fox Business—"Ending Wokeism in the Corporate World": Mises.org/E4B_191_TV
UK entrepreneur and founder of the Cobden Centre Toby Baxendale joins Bob to discuss meeting Hayek, the history of economists supporting 100% reserve banking, and the tools central banks and governments will use to enact "financial repression."
Entrepreneurial businesses embrace adaptiveness and change, and continuous innovation enabled by flexible and responsive organizations, empowered at every level. That doesn’t mean there’s no role for managers. Inside the corporation, entrepreneurial management co-ordinates the business flow of responding to changing customer wants and preferences, so that resources are allocated and reallocated to the production activities that customers value the most. In fact, management is becoming more important, not less. Professors Peter Klein and Nicolai Foss explain entrepreneurial management in their latest book, Why Managers Matter: The Perils of the Bossless Company (Mises.org/E4B_190_Book), and Peter Klein visits Economics For Business to highlight the key points.
Key Takeaways and Actionable Insights Management co-ordinates the constant flux of entrepreneurial business. The essence of the adaptive entrepreneurial organization model is responsive change. Entrepreneurial businesses don’t lock themselves in to 5-year strategies and annual plans. They recognize that markets are in constant flux as a result of changing customer preferences, changing competitive activity, changing technologies, and changing conditions in business channels and in the economy. Change is the normal condition. It’s what Ludwig von Mises termed constant flux.
Management is required inside the firm to adapt and respond to change outside the firm. It’s not possible to manage the change in markets, but it is a necessity to manage resource allocation and productive activities inside the firm.
Management is co-ordination and orchestration, not authority and hierarchy. We might think of the concept of management in its industrial age guise of authority and hierarchy: some people “higher up” in the organization telling others “lower down” what to do. This kind of hierarchical authority can’t work in the digital network age; it’s too slow to process incoming data from the marketplace and too rigid to quickly or effectively implement newly imagined responses to those incoming data.
But in Professor Klein and Professor Foss’s analysis, management no longer equates to old-fashioned authority and hierarchy. Management is co-ordination: assembling the right resources — both human capital and complementary capital assets such as supportive technologies — in the right combinations (often referred to as “teams” in today’s management language) for the right shared task with the right shared goals. Professor Klein likened this to orchestration — there’s a conductor who guides the orchestra in playing the same symphony together, without telling the individual players how to play their instrument, and leaving the details of implementation to the individuals and their specialized skills.
Some orchestras may have better results than others because their teams have been well-recruited and well assembled and they respond better to management co-ordination. All firms and teams are complex adaptive systems, with emergent outcomes influenced by internal forces, one of which is management.
Management is culture more than authority. How do managers achieve a better outcome as a result of managing their teams? Professor Klein believes that they institute a successful culture, as opposed to designing an organizational structure. He defines culture in terms of norms, customs and practices — the accepted way (or simple rules) of “how we do things around here”. More specifically, in the customer-centric entrepreneurial firm, “here’s how we plan to facilitate value for our customers around here”. Skilled managers paint the pictures — the “vision”, if you will — in the minds of employees of the customer value standards the firm will achieve, and the customer experiences that the firm will facilitate.
Modern managers are comfortable with and quite expert at adaptation. The modern managerial culture is a far cry from traditional hierarchical managerial authority. It has the built-in flexibility for adaptiveness to the rapid rate of change in today’s digital business world. A well-functioning management process in a loosely structured organization can change internal production processes, teams and resource allocations in response to external changes in customer demand and marketplace conditions.
In fact, Professor Klein points out, through relevant case studies, such a management structure can be better at adaptation than, for example, a network of independent contractors and suppliers that would be challenged to orchestrate responsive changes to an external change, since each would have a different experience and process it through a different cultural orientation. They wouldn’t co-ordinate as well or as quickly as internally managed teams.
In certain cases, management authority can sometimes be a relevant organizational tool, so long as it is applied in a contingent fashion. The relevance and usefulness of authority varies by circumstance and business situations. Its usefulness is contingent, and managers must be sensitive as to when to apply authority and in what style.
Why Managers Matter identifies two distinct styles of managerial authority, Mark 1 authority and Mark 2 authority. Mark 1 authority is traditional command-and-control, exerted top down — superiors telling subordinates what to do.
Mark 2 authority is exercised through design rather than command: finding the right person for the task, combining the best-qualified people in teams, and giving them a goal with a wide latitude in their process and implementation in achieving the goal.
An important element of the contingent approach is to empathically identify the subjective preferences of employees. Some will respond well to flexible, open-ended direction that enables them to exercise their own initiative. Others might prefer the certainty of clear direction. One type of salesperson might be highly motivated by a 100% commission remuneration plan, another might feel more secure with a base salary with the potential for an achievement bonus upon exceeding quota.
Professor Klein identifies two broad sets of conditions for the exercise of Mark 1 and Mark 2 authority. When there is a high degree of interdependence between people, teams and tasks, such that it is critical that tasks are highly coordinated, completed at the same time and combined in a highly specific fashion, then management intervention is required and it will include Mark 1 elements. When production is more modular, when tasks and projects can be completed interdependently, then Mark 2 management can be exercised through a decentralized, flat and culturally aligned organization. (Professor Klein cited the example of the type of higher education institution where he works; all the professors can design and teach their classes, do their research, and publish their papers and books with a high degree of autonomy.)
Management is becoming more important, not less. In a rapidly changing world, where employee attitudes and experiences are very different than in the pre-digital world, and where global markets and their interconnected structures are more uncertain and cyclically unreliable, and where the pace of disruptive technological innovation is accelerating, good management is more important than ever for the success of our economy and our society. Smart managers are needed to find the right balance between operational excellence through established processes and adaptive change through adjustment and experimentation, a balance that business scholars call the ambidextrous organization. It can’t happen without management, and without managers.
Additional Resources Peter Klein’s book page: Mises.org/E4B_190_Klein
Why Managers Matter: The Perils of the Bossless Company by Peter Klein and Nicolai Foss: Mises.org/E4B_190_Book
Public Affairs book page: Mises.org/E4B_190_PA
Daniel McAdams of the Ron Paul Institute joins Jeff and Bob to discuss the economic and political ramifications of the Nord Stream 2 pipeline sabotage.
Read "The Economics of War" from Human Action: Mises.org/HAP363-1 Read a study Bob co-authored on Europe's energy crisis: Mises.org/HAP363-2
Entrepreneurs always generate new value for customers; that’s what they get paid for. It’s not always necessary to create a new market; there are many creative ways to expand the value potential of established markets and carve out a territory in the new expanded space.
James Kent, founder of the innovative apparel brand Rogue, White and Blue, talks to E4B about the entrepreneurial value creation method he pursues in growing a distinctive and differentiated brand in what might look to outsiders like a crowded market, but which to him looks like unbounded opportunity.
Key Takeaways and Actionable Insights Entrepreneurs start with what they love — it’s the first source of differentiation. James is a lover of open-air experiences — of walking and hiking and exploring trails and off-road lands, of snowboarding in the mountains, and enjoying all the freedoms of exploration and everything to do with the great American outdoors. “What do I love?” is one of the first questions an entrepreneur asks of themselves, and James is certain of his answer.
Adding knowledge and experience fortifies the entrepreneurial recipe. All experience and most knowledge are individual. What we pay attention to, and how we learn is always unique to us personally. James picked up some valuable experience by working in sporting goods retail stores, both interacting with customers in stores and working his way up the corporate ladder into management positions. This commercial experience in sporting goods was highly complementary to his love of the outdoors, and the two became a productive combination in James’ entrepreneurial approach.
James was able to gain some even more fine-tuned experience by working as the first employee of a start-up, running an office in a location removed from the head office. This provided exposure to the entrepreneurial experiences of risk-taking, autonomy, maximizing the use of limited resources and using business development tools like Google AdWords — all directly useful for a future business journey.
A third layer of relevant experience came from joining the National Guard in a patriotic spirit of service. The service ethic is fundamental to all entrepreneurial endeavors.
The stage is set: what kind of business to launch? James asked the entrepreneurial questions. What do I love? The outdoors and outdoor recreation. What do I know? Apparel and apparel retail. What are my resources? Passion, the genuineness and clarity of commitment, design ideas, and a small amount of savings. Who are my customers? People who share the same passions.
Where will differentiation come from? It came from a reservoir of genuine feeling and the combination of two streams of thought: recreational love of the outdoors and patriotic love of country. The combination became the brand Rogue, White and Blue, described by customers as “the patriotic version of Patagonia”. It’s wild and unexpected like the American landscape, and it embodies patriotic design ideas, both in visual look-and-feel and in functional attributes such as Made In America.
The commitment to a differentiated brand platform creates a differentiated supply chain, differentiated production, and differentiated presentation. Entrepreneurs design their production infrastructure and supply network backwards, starting with the brand and then identifying the system components that will bring it to life.
James had design ideas in his mind. He self-taught himself Adobe Illustrator to get them from his mind into digital documentation, occasionally hiring outside designers on Fiverr at low variable cost for some specific refinement tasks. Modern technologies ranging from design software (and the training videos and additional user content available online for new adopters) to digital printing to internet-enabled collaboration sites like Fiverr can be combined to create a complete value network with limited fixed cost investment.
The next step down the supply chain was to find screen printers and James tested alternatives until he identified the best craftspeople in that specialized profession. He made them his business partners, which enabled him to benefit from their expertise in identifying the right Made-In-America apparel manufacturers and the right high-quality fabrics. By ordering garments through the printers, he was able to give the printers a more profitable business model while offloading some risk (e.g., of misprinting) onto them. The shared value space was big enough for everyone in the network.
The integrated platform of a differentiated brand and a differentiated supply chain is the result of entrepreneurial commitment: to brand integrity, quality, style, and consistency.
Finding customers through entrepreneurial action. At the outset, there wasn’t any marketing budget for Rogue, White and Blue. How does a brand get customers in those circumstances? Not by advertising but by entrepreneurial action: by meeting customers personally. James had a good instinct for who his customers would be based on input from like-minded friends and family. So, he went out to meet similar people by setting up a sales table at selected events where they might congregate. The first one was a gun show, and then more broadly outdoors-themed events. James vividly remembers the excitement of show attendees stopping by his booth, immediately bonding with the “patriotic version of Patagonia” brand feel — they didn’t need to be told, they understood it without prompting — and paying cash for the products. Rogue, White and Blue started with a batch of 96 T-shirts which quickly sold out.
Growth is funded by cash flow and there is no shortage of growth drivers and growth ideas. Cash flow is the most important financial indicator of business performance and it’s the most important source of growth capital. Profit is an accounting notion, and debt-financed development has its own set of risks. Cash flow is a pure indication of customer approval and customer value. Therefore, it provides the best funding source for both working capital and investment capital — turning the value experienced by consumers into the funds that enable expanded and enhanced value experiences in the future.
Rogue, White and Blue has expanded into more designs, new apparel items, a strong website to drive sales, and a reinforced brand presence.
Customer feedback loops ensure continuous improvement and progress. Meeting customers face-to-face or getting their feedback via the internet — these are feedback loops that help entrepreneurs refine their offering. The feedback may concern product quality, design, or brand imagery; it’s all positive input for an entrepreneurial business that is open and not defensive whenever there is criticism.
The entrepreneurial life is exciting. How are we all going to share in the productivity of the economy? The old way was to take a job and participate as an employee, hopefully ascending the hierarchical ladder of a firm or translating increased experience and skill in a profession for higher wages.
As the digital economy unfolds, and more of the work is being performed through algorithms and A.I. and machine learning that’s translated into process automation, the traditional ways of sharing in economic production will be blocked.
The better alternative is economic participation and reward through entrepreneurship. James Kent describes the entrepreneurial life as exciting and fulfilling. It requires a thorough commitment and it’s hard work — he described the long nights he’s devoted to the Rogue, White and Blue brand — which he finds energizing and motivating. There’s a commitment and a service ethic, and a consequent freedom.
Additional Resource Use the promo code E4B for a site-wide discount at roguewhiteblue.com
Daniel McCarthy, editor of Modern Age, joins Jeff to consider the state of modern conservatism, modern libertarianism, and whether they can or cannot find common ground.
Watch Daniel's talk at the LSC 2022: Mises.org/LSC22-McCarthy Read The Conservative Affirmation: Mises.org/HAP362-1
We define entrepreneurship in terms of people working creatively to make others’ lives better. That’s a very broad statement, of course, so it’s instructive to observe how individual entrepreneurs choose to make some customers’ lives better in some specific ways by applying special skills and knowledge. Let’s call it finding an entrepreneurial focus.
Economics For Business talks to Jordan Lams, founder and CEO of Moxie, an industry pioneer in manufacturing, branding, and distributing cannabis products.
Key Takeaways and Actionable Insights. Entrepreneurs find their focus — or, sometimes, it finds them. Bruce Lee is reported to have said that the successful warrior is the average man, with laser-like focus. Entrepreneurs develop focus on particular customers, in order to understand them better, empathize with their wants, and deliver them the experiences that they value. Developing this focus may take time, or it may come early in the journey, but empathy always provides the pathway.
Jordan Lams observed the pain of a family member during a time of illness, and how cannabis products could bring some relief and comfort. From that time, he became focused on the health and medical benefits of cannabis in a broad range of personal circumstances.
From a position of focus, entrepreneurs develop the deep knowledge that becomes their marketplace advantage. Entrepreneurial focus directs research and knowledge gathering. In Jordan’s case, he gathered academic research, medical literature, and clinical studies, and he talked with medical practitioners about cannabinoid therapies. Networking brought him into contact with researchers and doctors and clinicians and product developers. He established a uniquely robust knowledge platform.
Focus plus knowledge leads to opportunity tension. Some entrepreneurial theorists have coined the term opportunity tension — that period when an entrepreneur’s focus and knowledge point to a market opportunity, but there remains unresolved risk in the process of seizing it. The entrepreneurial solution, of course, is to take the risk. Jordan executed his commitment by taking a job in the retail sector of his chosen industry — a place to meet customers one-on-one, and look backwards at the supply chain.
Customer orientation is refined by direct contact, conversation, and experience. Working in retail enabled direct customer contact and unfiltered conversations about customers’ preferences and wants, the benefits they sought compared to the benefits they experienced, and a general deepening of customer knowledge.
In addition, Jordan was able to observe the supply chain, including the interruptions and inconsistencies that detracted from customers’ experiences. Product quality was inconsistent and supply was unreliable. To an entrepreneur, this looks like opportunity.
Knowledge, experience, and customer contact provided the ingredient for a new firm and a new value proposition. Jordan sums up the firm he founded, Moxie, as knowledge + infrastructure. A status quo of incomplete knowledge, inferior and inconsistent products in unreliable supply chains can be replaced by a new market of shared and distilled knowledge delivered via consistent and trustworthy quality. Customers are able to develop trust and confidence in a brand based on knowledge (“we know what we are doing”) that brings new maturity in the form of scale and process control and quality assurance to an emerging market category.
The company’s knowledge base enables vertical integration because the knowledge is broad and not narrow, the recruitment of strong partners because shared knowledge makes for robust collaboration, and new standards of quality, adherence to which strengthens customer expectations.
The firm’s foundation supports both R&D and open innovation. All markets are changing at high rates of speed at all times. That’s why innovation is the essence of entrepreneurship. Standing still is a losing option. Jordan invests I R&D in the form of lab research (in pharmaceutical quality labs) exploring new product forms and new combinations, while also participating in the open innovation of knowledge sharing that goes on throughout the industry. R&D supports both specialization (making current offerings even better) and market expansion (new products, new forms).
Brand building will be the patient route to long term growth. While business environments change fast, one way to invest with patience in a consistent direction is to build a brand. A brand can reflect customer values — the things that matter to them — in a way that creates lasting bonds. On its website, Moxie positions its brand as a force of character: courage, grit, determination, nerve. It provides an emotional connection to customers who value self-realization and self-actualization.
Patient entrepreneurs can see the regulatory maze as a locus of opportunity, too. Moxie was the first licensed cannabis brand in California, and sees itself as a pioneer in leading institutional and regulatory progress. Instead of viewing regulators as business obstacles, Jordan employs his empathy skills to understand their position, their role, and their needs. He provides them with resources of information, industry knowledge and collaboration, and contributes where he can and where it’s appropriate to help them arrive at decisions and translate them into subsequent implementations.
As in building a company and building a brand, patience can pay off in future strength.
Additional Resources EnjoyMoxie.com
Jordan Lams on LinkedIn: Mises.org/E4B_188_LinkedIn
With Queen Elizabeth II lying in state at Westminster Hall, hereditary monarchies are under attack as archaic & absurd. Has mass democracy in the West done any better? Ryan McMaken joins Jeff and Bob to discuss.
Read Ryan's Article on Monarchs: Mises.org/HAP361-1 Read Hoppe's Democracy: Mises.org/Democracy
Business is a form of applied economics. Its purpose is to make people’s lives better. Profit is the signal from society that business is doing a good job in the customer’s estimation. This is a completely human system, a form of human action and interaction. Business schools take the approach of mainstream economics, that mathematics is the tool of choice, expressed in data analytics, accounting, financialization, and numbers-based plans and strategies. The Austrian school approach offers a very different path. Professor Per Bylund joins the Economics For Business podcast to highlight some important differences.
Key Takeaways and Actionable Insights Business logic based on understanding subjective value. The purpose of business to facilitate customer value. The pursuit of new economic value brings new firms into existence, the continuing realization of new value experiences for customers results in business growth, and recurrent refreshment of value propositions keeps businesses thriving and healthy.
Consequently, value is fundamental to business. Yet it is widely misunderstood. Sometimes it’s misconstrued as shareholder value, a function of stock price performance. Usually, it’s financialized as a set of numbers and indexes.
True value is in the mind of the customer. It’s the experience of feeling better off as result of interacting with a business — making a purchase, taking a subscription, or using a service that makes life feel better, and that feels like a superior choice compared to alternatives.
Customers decide what to value, and therefore what to purchase, and thereby decide the success of a business. All businesses must learn this value logic, and Austrian economics for business provides the understanding that points to the implications for business action.
Thinking in subjective terms. An understanding of subjective value reverses the flow of business thinking. It’s easy and conventional to think in objective terms about products and prices — what a firm produces and offers and the price the firm charges. It’s harder and somewhat counter-intuitive for businesses to think about how each individual customer feels — what’s important to them, individually and personally, about the unique ecosystem in which they make their choices (e.g., their family profile, what kind of a house they live in, or the subjective resource allocation priorities of each of the individual firm they work for).
The customer decides what is valuable to them, and that’s the basis from which business action must proceed.
Value-guided creativity. Business is a creative discipline. Because customer preferences and priorities are continuously changing, because competition is continuously aiming at making a superior customer proposition, because technology is continuously making new benefits and new customer experiences possible, and because we can’t possibly know how all this will work out in the future, businesses must always be changing, improving, adding, renewing, becoming somehow better in the future than they are today.
The only way to invent the future in this way is through creativity — new ideas, new combinations, new routes to convenience, new removal of barriers. Creativity can be random and unpredictable — we don’t know what is going to be successful out of all our creative ideas. Therefore, we apply constraints so that creativity operates within productive boundaries, and the generative constraint is customer value. If all our creative ideas are guided by the constraint of “will the customer find this more valuable”, then the opportunity for productive innovation is greater. If we place ourselves in the shoes of customers, and try to simulate what they will feel when they experience a new value proposition, we’re on the track to business success. This is value-guided creativity.
Business as a flow. Business schools emphasize planning and strategy (and strategies are often just long-term, bigger plans). These are tools of prediction and control — predict the future (we will achieve $10 million in annual revenue this year) and control how we get there (100 salespeople must sell $100,000 each). The numbers can fill a spreadsheet.
Similarly with organization design: the spreadsheet in this case is an org chart, with layers and reporting pathways and divisions and units, another exercise in statics.
The Austrian recognition of constant change results in re-thinking business as a flow. Thinking in statics is potentially disastrous because the world can change while your firm does not. Thinking dynamically opens the firm to feedback loops from the marketplace, listening to customers and monitoring when their preferences change or competition shifts, and being open to adapting and adjusting.
Organization design gives way to orchestration, the constantly changing arrangements dedicated to the improvement of the customer’s value experience.
Every business can and must act entrepreneurially. Our term for the orientation towards and capacity for constant change — constant pursuit of new customer value — is entrepreneurship.
In the popular vernacular, the word entrepreneurship has come to be associated with charismatic individuals, like Elon Musk or Jeff Bezos or Reed Hastings. They are identified as the instigators of and catalysts for new value generation. That’s fine — such individuals are important in challenging the status quo. But for effective and commercial and sustainable new value generation, the entire firm must be entrepreneurial — highly sensitive to how a particular configuration of resources and a particular business model and value proposition serves customers, and to changes in the business environment that require adjustment on the firm’s part. The firm must be flexible enough to make these adjustments. Often, the market data comes to the firm from the edge, where front line employees working directly with customers gather the inbound information about change. The entrepreneurial firm ensures that the new information flows freely and is acted upon, and gives those closest to the customer the authority to make responsive changes.
Business schools often teach static and defensive concepts such as economies of scale and competitively insulated market structures. Business for them is production management. Business from the Austrian school perspective is value discovery, value facilitation and responsive change in the form of new products, new services, and new value.
Entrepreneurial empathy as a tool. When we think of business tools highlighted in business schools, we might think of strategic planning, data analytics, accounting, process management, incentive compensation, and financialization.
The tool of choice for the entrepreneurial firm is empathy. Empathy is customer-first thinking. It focuses on identifying and understanding what customers feel is missing in their life, what they long for and wish for. There’s a gap between customers’ actual experiences and their desired experiences. They can’t articulate solutions, but they’re brilliant at identifying the potential for improvement. If the customer feels that some experiences could be better, or that they’re struggling in some capacity with an experience, that’s a signal for the creative entrepreneurial firm to experiment with new ways to deliver that betterment.
Entrepreneurial firms create better futures for their customers via empathy. They bring customers new things that they can want, that weren’t available to them in the past or of which they were not aware.
It’s not all numbers. Just as mainstream economics has been rendered irrelevant and meaningless to real people because of its insistence on the use of algebra and mathematical models instead of real world observations, so mainstream business schools have made business into a world of spreadsheets, accounting, data analysis, bar charts and graphs, and structures and formulas.
Austrian school business thinkers understand the role of qualitative assessment — understanding people as humans as opposed to statistics, understanding emergent processes, understanding feelings and subjective value, and that the things that matter to people, both employees and customers, are values not numbers.
That’s why narrative and sense-making stories are taking the place of plans and strategies. Software development provides a good example: user experience design is a narrative about how customers prefer to interact with the software they are using, rather than a focus on lines of code.
Action and feedback loops. The ultimate replacement for business school concepts of planning and strategy is action. Entrepreneurship is action. Action generates an effect — a feedback loop from the marketplace that signals the result of the action. The customer purchased or did not purchase. The rating improved or worsened. Revenue grew or declined. In the A/B test, B was preferred.
The feedback loop is processed as learning, and new decisions can be made and new actions taken based on that learning, eliminating some possibilities, and opening up others. Innovation is introduced to the market and new learning follows new innovation in a continuous loop.
In the thinking of entrepreneurial action, acting faster and sooner is better, because the effect is generated faster, the feedback loop accelerates, and the resulting new action is fresher and and more responsive to the customer’s needs. When action is bolder and more daring, the feedback loop is more informative and clearer in its signals. The future unfolds as a result of entrepreneurial action.
Entrepreneurs don’t act alone or in isolation. The unfolding of the future is the consequence of many actions on the part of many people and firms. The market, therefore, is a process. Action and reaction keep it moving in unpredictable ways — resulting in what complexity theorists call emergence.
The Austrian School is a complete system for business. We didn’t have sufficient time with Professor Bylund in the podcast format to cover the complete range of business functions, including marketing and accounting and business model design, but these are all improved and enhanced by what we can call the Austrian approach. The goal of Economics For Business is to deliver this complete system in the form of tools, posts, articles, papers, books, videos, and podcasts like this one.
Additional Resources Austrian School Versus Business School: A side-by-side comparison (PDF): Mises.org/E4B_187_PDF
How To Think About The Economy: A Primer by Per Bylund: Mises.org/Primer
Bob and Jeff unravel the corrosive and nonsensical policy of "inflationism," and consider its deep cultural effects.
Read Jeff's talk from the recent Ron Paul Institute conference: Mises.org/HAP360-1
How do new markets form? When consumers change their tastes and preferences and behaviors, how are the markets to serve them activated? The markets don’t yet exist — entrepreneurial action is required to create them. The answer to the question, of course, is that entrepreneurs — real people taking the real business risk to initiate new business experiments — provide the new energy and new initiative to create markets where previously they didn’t exist.
Jared Wall is one of these creative entrepreneurs, and thchempspot.com is his creation.
Key Takeaways and Actionable Insights. Courageous entrepreneurs lead the way into new markets as they are still forming. Entrepreneurs bring the energy that opens new markets and new pathways to economic value. New markets can emerge as the result of changing consumer tastes and preferences, new channels or platforms, new forms of delivery, new technologies or a combination of several catalysts — but the energy, initiative and drive of the entrepreneur is always the necessary ingredient for the ultimate emergence of new value and new market arrangements.
New discoveries and new innovations often provide the entrepreneur with market-opening mechanisms. Serving customers in new and different ways doesn’t always require new products and services, but it is often the case that the discovery or invention of novel combinations can lead to innovation — that is, new and better experiences for customers that were previously unknown or unavailable or narrowly distributed. In the market for consumable cannabis products, there emerged a new THC variant called Delta 8 THC, a cannabinoid that offered both different product performance and different accessibility. The emergent new ingredient provided the pathway to a whole new market opportunity.
Legislation and regulation are complications and barriers in formative markets, but often their ambiguity provides an opening for innovative entry. The courageous entrepreneurs who lead the way into formative markets often encounter legislative and regulatory barriers, since these are static drags on progress and innovation and never keep up with the changes in markets. At the same time, the regulatory thicket can sometimes be useful to the entrepreneur who can cut a new opening others can’t imagine.
In the market for consumable cannabis products, Delta 8 THC became such a new opening, which was cut when some content in a comprehensive congressional Farm Bill encouraged the commercialization of certain kinds of hemp, of which Delta 8 THC was one of the by-products. Legislators and policy authors can’t think about the future the way entrepreneurs can, and they did not envision the future world of innovation they were unlocking.
The regulatory maze is an aspect of legislation and regulation — but every maze has an exit path.
Innovation in formative markets combines and compounds. Jared Wall launched thchempspot.com to offer Delta 8 THC experiences to consumers. Those who shop at the site find a lot more innovation than just this ingredient. There are multiple new consumable forms for varied experience delivery — gummies, chocolate bars, chewing gum, soft gels, and peanut brittle, among others.
Where do these innovations come from? Not from the R&D labs of major corporations, that’s for certain. They originate in the creative minds of imaginative entrepreneurs, and they take shape in their experiments and prototypes and willingness to try new things. Will they all be big successes? Of course not. But they will all generate feedback loops of acceptance or non-acceptance, reviews and ratings and experience sharing; they’ll contribute to innovation as an ongoing cycle of learning. Society enjoys better choices because entrepreneurs unleash their creativity and don’t hold back from experimental designs.
Market infrastructure and market institutions can’t always keep up with entrepreneurial change, but new supportive services quickly appear to lubricate frictions and provide institutional arbitrage. All commerce needs infrastructure such as payment systems and institutions such as banks, and market formation can sometimes move faster than infrastructure and institutions can adapt. Jared Wall had this experience — PayPal and major banks cut off services because thchempsot.com, while serving legitimate customers with legal products, was deemed a “high risk” business, outside their terms and conditions.
Yet, in a quite inspirational way, business services emerge in these situations to navigate around the barriers of poorly adapted institutions. Jared found consultants who offer the service of connecting so-called “high risk” businesses with value-network partners willing to collaborate with them. Jared was quickly able to replace his payment system and banking infrastructure. There was a service interruption, but it was temporary. A new network of mediating services quickly formed to bypass institutional barriers.
The creation and sharing of new information is a big part of the innovation equation. Jesus Huerta De SotoJesus Huerta De Soto; Socialism, Economic Calculation, and Entrepreneurship; 2010; Chapter 2, "Entrepreneurship". identifies the creation and sharing of new information as the central activity of entrepreneurs - informing customers of new products and services and new offerings and prices. Entrepreneurs are constantly creating, updating, and improving the information resources they make available to customers. High quality information enhances value.
On thchempspot.com, Jared provides information in Q&A form, pull-down menus, and product descriptions. He’s self-published an informative e-book that’s free on the site, and he publishes an informative newsletter. We can sometimes feel unclear about the value of information, but in formative markets its importance is primary not secondary.
Journalist Jordan Schachtel joins the show to discuss Biden's escalating rhetoric against what he terms "ultra-MAGA" semi-fascists. Is America finally past any pretense of democracy?
Every business should have an exit plan in mind from Day 1. Why? Because it’s impossible to control the timing of an exit or the changes in circumstances that might precipitate it. Venture capitalists know this, and build in their exit formulas at the time of their initial funding. Entrepreneurs should think the same way. And, like any business process, selling a business is a knowledge-based process that repays an investment in learning its techniques and critical success factors. Economics For Business talked to Jessica Fialkovich, a successful business builder in her own right, who founded Exit Factor, an advisory firm that helps entrepreneurs get the most from selling their businesses.
Key Takeaways and Actionable Insights Entrepreneurship provides better career control and security than corporate life. Jessica climbed the corporate ladder, investing effort and skill into being a great employee. But she was just a name on a list when the GFC came along - a list of those to be let go when Lehman Brothers (her employer’s funder) collapsed.
She realized that entrepreneurship provided her with great security. There’s uncertainty, but the entrepreneur decides what their future is, takes responsibility for those decisions, and accepts the accountability.
She built a successful business through hard work and the discovery process of identifying target customers and finding new and better ways to bring them value. Her chosen business was in wine sales to wine-loving customers, many of whom were connoisseurs. She developed many specialized services including finding rare wines for collectors, and her clientele spanned the globe. She incorporated the latest technologies and innovated in marketing techniques. She worked long hours, talking to customers across 16 time zones from Japan to California.
Then she decided to sell.
Entrepreneurs experience a lot less support when selling a business than when building it. When you’re successfully growing a business, everyone wants to help, providing you with business services and supplies, and advice and ideas. What Jessica found when she came to sell was that she was on her own. It was hard to find expert help, or the requisite resources, or pretty much any kind of support infrastructure for a transaction of the size she was planning. For big business, there’s investment banking. For the 99.9% of businesses outside the Fortune 500, there was nothing similar. There were some so-called business brokers, but they were not dedicated specialists, not professionals in the specific process of selling, unreliable and poor at client service.
As an alert entrepreneur, Jessica understood that this finding signaled a market need. The first step to design for an under-served market is to draw on relevant experience from parallel markets.
Business development always starts with first principles: is there a market to be served, in that some potential customers feel an unmet need or have a meaningful problem to be solved? Jessica had first-hand knowledge of the problem, and talking to entrepreneurs in similar situations reinforced her confidence in the market’s potential.
The comparison market Jessica chose was investment banking, which can be thought of as selling businesses of a larger scale. There’s an established investment banking process and a timeline of steps and milestones from preparing an evaluation, to developing the pitch deck, to the identification of the best buyers and the tailoring of a marketing plan for them. Jessica’s husband had some relevant investment banking experience which enhanced the knowledge transfer from one field to another, and provided a reality check for the process design.
Business-to-business services development and execution has its own set of rules; the most important one is the nurturing of relationships. A business brokerage is a high-intensity B2B service bundle requiring a lot of in-person customized relationship management. There’s pitching the potential customers in the first place, customizing the service tom their particular business and to meet their specific needs, with a big need for staff training to deliver these specialized services. B2B service providers must be both sales experts and process experts. That requires a lot of human capital.
Jessica’s answer was to design and build a system-based model that, once in place, could be repeated and reproduced via well-trained staff with the right IT support.
She has found B2B services to be even more demanding than sourcing rare wines for connoisseurs. Selling a business is somehow more personal and individual. A client’s perception of what their business is worth may be quite different than the market’s perception. It’s the nurturing of relationships that smooths out the potential jagged edges in these transactions.
Some insights for entrepreneurs selling their business. Identify your exit options from Day 1 of your business. Since it’s impossible to control exit timing - which may be due to unforeseen changes in circumstances - it’s best to lay the runway from the start. Plan to run a salable business, as well as one that’s profitable and growing. Don’t have a fire sale or panic sale or be unprepared.Tailoring your selling process to the size and type of your business is important. There are different influences on what moves valuations up or down depending on business size, but, in all cases, it’s a process with a beginning, a middle and an end to be planned for in advance. You’ve got to know how to find buyers, how to source offers, and how to keep your business in good shape for due diligence.Conduct regular health checks for evaluation. Always know what your business is worth. Find out how businesses are valued in your industry or sector. Make sure your business shows well on the criteria that are applied in your field.EBITDA multiples are the dominant valuation metric. You may read in the Wall Street Journal about businesses being acquired for brand value, or for technology integration, or for other reasons of corporate M&A strategy. For small and medium size businesses, EBITDA multiples remain the dominant metric. There’s some art regarding what the precise multiple may turn out to be, but it’d within a range and is not going to vary wildly.There is some room for qualitative factors and subjective valuation. Jessica listed subjective factors ranging from the degree of business involvement of the owner (and the worry that their future absence might be detrimental) to the perceived quality of the brand and its imagery and reputation.The ultimate asset is a proven and scalable business model. If you can demonstrate that your business model returns increases in revenue and profit growth for additional investments in capital or people or marketing, then you are most likely to find an eager buyer. Make sure you can model your business in this way and that the data are clean and credible. Additional Resources Getting The Most For Selling Your Business by Jessica Fialkovich: Mises.org/E4B_185_Book
ExitFactor.com
Jessica on LinkedIn: Mises.org/E4B_185_LinkedIn
Clifton Duncan joins the show to discuss Joe Biden's student loan forgiveness plan, along with the broader question of whether college and student loans are still worthwhile for young people.
Jeff's Article, "Is College Worth It?": Mises.org/HAP358-1
Do the principles of customer value generation that we espouse in our Economics For Business program apply equally for both B2C and B2B businesses? The answer is emphatically yes. B2B customers are seeking subjective value and a value experience just as B2C customers are. They have a clear sense of the things that matter to them, and those include emotional and personal values as well as price and functionality and performance.
In fact, trends that begin in the B2C domain often quickly begin to influence the B2B domain, and the alert entrepreneur can track those trends in B2C and establish an early advantage by exploring them for their business customers. Rick West has done exactly that with his business services company, Field Agent.
Key Takeaways and Actionable Insights In addition to identifying a meaningful problem, and providing an effective innovative solution, entrepreneurs in today’s B2B market must offer the right service delivery platform. Rick West created a company called Field Agent to provide B2B customers with a meaningful service: monitoring their retail stores and shopper behavior and collecting in-store data about the interactions of shoppers, stores, shelves, displays and products. This kind of information is high value for both the retail operators (like Walmart) and the companies that sell products through retail stores (such as Procter and Gamble or The Coca-Cola Company). The set of services often goes by the terminology of “shopper marketing”.
Typically, such business service offerings have a long and cumbersome sales cycle. The service provider and the service client get in contact, there are meetings, prices are negotiated, and contracts are prepared and signed. Then, once the service is executed, there are more steps in analytics and preparation of presentations of findings, and another big meeting to discuss the findings and recommendations. Lots of meetings, lots of travel, lots of time, lots of lawyers.
Is this the right service delivery platform? It’s been virtually institutionalized over time. But it’s not a good fit with modern business models and the modern technology-shaped environment.
The Amazon effect. Think about purchasing on a shopping platform like amazon.com. The customer first self-educates. If there’s a complex product to buy – such as an expensive flat screen HDTV with internet connectivity and interaction with all the latest entertainment ecosystem devices like Roku and streaming services like Apple TV – the customer might search for information via google, might visit some ratings sites, do some comparison shopping, and generally collect information to get to the point where they are confident of making a purchase. They don’t need to speak to an HDTV salesperson or a “customer success manager” or to sign a paper contract.
Or think of a slightly more complex transaction such as buying a car on Vroom. There are some contracts to be signed via DocuSign, but confident shoppers are comfortable with self-educating, making their decision, committing, and experiencing the delivery of the car to their home, perhaps with the added service of taking away their old one.
This is the world of services and service delivery we live in today. Your B2B customer also has a life as a consumer and an internet shopper, and is fully aware of the efficiency, convenience, and safety of these kinds of transactions. Call it the amazon effect: customers becoming comfortable with the “click-to-cart” experience, without interpersonal interaction with a salesperson or other service personnel.
Why not in B2B services?
Click-to-cart has arrived in B2B services. Rick West’s customers for Field Agent services can purchase them on plumshop.com. A full array of shopper marketing services is offered via pull-down menus in categories such as Audits, Marketing, and Insights. Under these headings are Display Photography, Price Check, Shelf Management, Price Sensitivity Study, and dozens more, all in the language of shopper marketing that’s well understood by the knowledgeable B2B service buyer.
Clicking on any one of these takes the client to a price list and a detailed description of the service and its output, all in the colorful and engaging presentation style of an e-commerce site (like amazon.com!) The client can create an account online and make a transaction just as easily as buying a TV on amazon (and probably easier than buying a car on Vroom).
Self-educated buyers know exactly what they want, and the description and designation of the services are crisp and clear. Clients can check out testimonials, comparison shop, and take all the steps any smart B2B service purchaser would take to get themselves to the point of confidence and trust.
Some customized services will always be a client requirement, but there will be a rapid shift to more and more self-service. Some clients and some projects will always require a custom, tailored response, and Rick’s company has both custom service and automated service capabilities. One point he makes is that a first project might be customized and accompanied by in-person client service, while for the second or repeat purchase, the client will be comfortable with the click-to-cart process.
Rick’s guessing a 70:30 split for automated versus customer services over time in his field, especially as the interface software learns and becomes better and better at responding to client needs and preferences.
B2B entrepreneurs are trend-spotters in the B2C domain. People are people. Economic behaviors that we can observe in consumer shopping and buying are bound eventually to show up in business-to-business markets. They’re the same people – your B2B client is a consumer when not at work. Smart B2B entrepreneurs keep an eye open for B2C trends that can be expected to transfer to B2B and jump on them early.
Additional Resources Field Agent: FieldAgent.net
Plum: PlumShop.com/fa/shop
Rick West on LinkedIn: Mises.org/E4B_184_LinkedIn
Comic Dave Smith joins Jeff and Bob for a compelling look at the poisonous political landscape in post-goodwill America.
How do companies make decisions? Data certainly don’t make decisions, nor do analytics, nor do the computers they run on. Human begins make decisions — the human factor is crucial. Subjectivism is paramount, even in the age of big data and A.I. The key still lies with the people who are interacting with the data to generate human insights.
Ahmed Elsamadisi is one of the leading data scientists in the world. He’s worked on self-driving cars and nuclear defense and some of the biggest business challenges on earth. He believes that it is the stories we tell from data that drive business success. We are privileged to interview him at Economics For Business podcast, and he gave us a lot of useful advice we can all use every day in managing our businesses.
Key Takeaways and Actionable Insights The data community has made data and algorithmic analysis far too complex, to the point where it’s no longer useful for business. The path-dependent route to today’s complex data tables was paved with lots and lots of columns and lots and lots of rows. These data tables are leftovers from the early days of computing SQL language was designed to manipulate these rows and columns. A.I. comes along and can analyze all the possible combinations of data cells. Business executives ask their data departments to generate a lot of these combinations to search for patterns. It often takes a long time, a lot of revisions, and generates no clear answers.
Another aspect of history is the use of dashboards. We tend to design dashboards rather than formulate good business questions. The metrics on dashboards are sometimes useful for operations but they’re often not at all useful for understanding the causal connections between data points. Consequently, different people can interpret them in different ways and there is no consensus as to what they mean and what to do about it.
The purpose of data analytics is to generate good decisions that lead to action. The entrepreneurial method drives towards D and A: decisions and actions. Analytics should help to formulate the hypotheses on which to base decisions. The problem with complex dashboards and algorithmic pattern recognition is that they often don’t give clear direction on recommended action, especially when the interpretation varies depending on who is doing the interpreting.
Ahmed’s experience is that sharing a numerical dashboard with 10 executives is very likely to result in 10 different interpretations, and the resultant confusion and disagreement freezes action rather than accelerating it.
We need data to tell us stories that we can all rally around. The most powerful tool for developing consensus around action is narrative — often called storytelling. While 10 dashboard interpretations might lead to 10 different action plans, a single well-told story can align everyone who hears it, understands it, and internalizes it. We heard about the power of narrative in episode #181 (Mises.org/E4B_181) in which Brian Rivera explained the role of storytelling and sensemaking in The Flow System of management, and in episode #152 (Mises.org/E4B_152) where Derek and Laura Cabrera explained the power of aligned mental models for driving business. Stories achieve alignment.
Ahmed Elsamadisi built his service, narrator.ai, to output data analytics in the form of a story. The complexity riddle is removed and replaced with a narrative that all executives, not just data scientists, can understand. Narrator.ai re-integrates data science with the all-important human element of understanding stories.
The way to get data to tell stories is with a conversation. Ahmed says that the way we ask questions (data queries) is flawed. It’s quite a normal practice to set the A.I. to search the data tables to look for patterns to see if anything interesting emerges. This is what Ahmed calls “lazy hypothesis generation”, which is never going to yield useful actionable insights (yet many big analytics companies are taking in huge customer revenues for just this service). Clients may claim to be making data-driven decisions but that’s mis-characterizing this business behavior, typical though it may be.
Ahmed advises us to think more in terms of a conversation with data. To facilitate this, he has developed a universal data model with just three variables: an entity (such as a customer), an action, and time. Every business question is about a customer taking some action in some time period. The universal data model enables the conversation: what action did the customer take in what period of time, e.g., when did they open the email and what action did they take after opening it. This is not a database query, it’s a more thoughtful question about the customer experience and how to understand it.
Ahmed told us that training customers in this conversational mode of interaction with the universal data model results in a cultural shift in thinking. The conversation can go back and forth in several iterations until the understanding is fully honed. Clients hear the data talking to them through the stories that narrator.ai generates. The have deeper insights and a story to share to form a consensus around the action that the story suggests. Narrator.ai clients have used stories for everything from describing new product specs to updating board decks.
Great conversations with data are based on empathy and thinking about the customer experience. At Economics For Business, we elevate customer empathy a the most important business skill, in the context of an understanding of customer value as subjective, a good feeling from an enjoyable or satisfying experience.
Ahmed advises us to think in this same way when formulating conversations with data to generate insights. If we think about the customer’s experience, desired and actual, and the actions they take before and after that experience, and the time context of the experience, we’ll do well in formulating good questions. The action component of the universal data model is central to the Austrian deductive method: knowing what people do can help us deduce motivation and expectation. Knowing what they did next can shed light on the ends they had in mind. Actions like opening e-mails or repeat buying are also revealing of intent and expectations. The more we converse with the data, the more insight we can gain.
Storytelling with data is another implementation of subjective quantification — with the benefit of enhanced intuition over time. In episode #176 (Mises.org/E4B_176), Peter Lewin introduced us to the Austrian concept of subjective quantification — turning customers subjective valuations into numbers such as capital value on a balance sheet. We tested the subjective quantification term with Ahmed, and he endorsed it — with a major addition. It’s important to include the dimension of time. If, over time, we have better and better conversations with data and formulate better questions and hypotheses, we’ll get better and better at generating insights. Our intuition will improve. We’ll get a better “feel” for the data. Even our empathy can become more accurate.
Additional Resources Narrator.ai and its excellent blog, Narrator.ai/blog
"Top Ten Signs You Have A Data Modeling Problem": Mises.org/E4B_183_Blog
Ahmed Elsamadisi on LinkedIn: Mises.org/E4B_183_LinkedIn
The IRS plans to hire 87,000 new armed agents, while an FBI raid on Trump–the administration's open political rival–draws allegations of corruption. Economists and political scientists, from Mises to Robert Higgs to James Burnham to public choice scholars, explain why mission creep and abuse by state agencies is the rule rather than the exception.
Jonathan Turley on Trump being disqualified from office: Mises.org/HAP356-1 Mises on the managerial state: Mises.org/Bureaucracy James Burnham's The Managerial Revolution: Mises.org/Burnham Bob Murphy Show Episode on the FBI: Mises.org/BMS92
It’s often the case that lead users — the most sophisticated, committed, and energetic users — are an excellent source of innovation ideas. Those customers who are most engaged are thinking the most intensely and the most creatively about what they want from the usage experience. We came across a particularly instructive example: video game modders. Who are modders, what do they do, and what can we learn from them? Professor Gordon Miller has studied this important entrepreneurial phenomenon, and he joins Economics for Business to share his knowledge.
Key Takeaways and Actionable Insights. Modding is user-generated value innovation. Modding, from modifying, is the act of a changing a game, usually through computer programming, with software tools that are not part of the game. This can mean fixing bugs, modifying content to improve it, or adding content. But modding is not an activity taken on by those at game companies—developers release patches and downloadable content, not mods. Modding is instead done by players and fans of the game… Modding is more than adjusting the preferences or game settings, it is making changes that cannot be made through the game as it is.
Game producers and designers enable and encourage this user innovation. Game producers have come to recognize that the creative ideas and initiatives of the modding community can contribute new value to their businesses and franchises. Games like Minecraft enable users to explore, within a predesigned GUI, a practically endless 3-dimensional world to build innovative structures and other things like functional computers and console emulators. Minecraft also makes available code and tools for modders to create mods that are essentially new games, or major innovations within the original game. The famous DOTA (“Defense Of The Agents”) game is entirely the product of the modding community, encouraged and enabled by the developer, Valve Software.
Modding is a practical application of the theory of absorptive capacity. Absorptive capacity refers to the capability of a firm to recognize, collect, assimilate, process, transform and use external knowledge for competitive advantage in innovation, flexibility, and overall business performance. The external sources of knowledge are knowledge networks, either formal or informal or a combination of both. Formal networks might include suppliers and partners, university research departments and labs, and even industry share groups. It’s sometimes called open innovation — actively looking at and tapping into what other firms are doing.
Informal networks are those like the modder community — lead users, user groups, tinkerers, and so on. This is sometimes referred to as distributed innovation or user innovation — it’s not the producer originating the innovation, but an external informal source.
The challenge is to be able to generate awareness of these sources of knowledge, evaluate them, bring them inside to the company for evaluation and processing, and turn them into useful innovations or internal changes.
In highly dynamic industries, it is productive to tap into these knowledge networks. Professor Miller refers to the external networks of knowledge, both formal and informal, as the wisdom of the crowd. If you are operating in an environment characterized by high dynamism and rapid change, the wisdom the of crowd is an important and often decisive resource.
The wisdom of the crowd can contribute to innovation and business performance, especially in the form of idea diversity.Innovation performance improves through better firm capitalization of knowledge resources.The wisdom of the crowd offsets firm rigidity — making it more receptive to new ideas,Entrepreneurial judgment can increase innovation performance by increasing absorptive capacity.Innovation performance feeds back into absorptive capacity, creating an iterative self-improvement loop. Professor Miller proposes three areas of business development by capitalizing on external user groups. First, firms struggling to innovate due to internal rigidities may well benefit from developing communities — similar in concept to modding communities - connected to their own industries. By absorbing and incorporating the learning that occurs in such groups, they can take advantage of readily available innovative ideas for change.
Second, these communities may also provide a wellspring of talent for enhancing the firm’s absorptive capacity in useful ways. This is a pool of unique and entrepreneurial individuals with the potential to enhance the firm’s human capital and make the firm more explorative.
Third, even if the firm does not fully tap in to all the knowledge coming from the community, there is still the potential for new solutions to emerge that are stimulated by external ideas. There are always hobbyists and fans, and technology easily facilitates their interactions. Crowdsourced knowledge provides a uniquely useful tool for enhancing organizational innovation.
The wisdom of the crowd is a path to profit. Modding as an art form allows players to express what they most want games to be. This becomes a useful indicator for determining the most profitable paths to pursue. Firms seeking to enhance their innovative capabilities and remain profitable must pay attention to external sources of learning, however informal.
Additional Resources Download our free E4B PDF: "Assessing Your Firm’s Absorptive Capacity": Mises.org/E4B_182_PDF
The Invisible Hand In Virtual Worlds: The Economic Order of Video Games by Matthew McCaffrey: Mises.org/E4B_182_Book
Has economics fallen to politics? Court economists like Paul Krugman–we might call them "regime economists"–represent a profession in big trouble. Jeff and Bob discuss.
Michael Tanner, "PIketty Gets it Wrong": Mises.org/HAP355-1 Bob Murphy on the economics establishment vs. Judy Shelton: Mises.org/HAP355-2 Jeff Deist on Nancy McLean's unprofessional attacks: Mises.org/HAP355-3 Bob's article with Phillip Magness on Piketty: Mises.org/HAP355-4
The traditional approaches to the structure and management of firms are becoming barriers to customer value. The Austrian capital theory approach recognizes that all value in the corporation flows to it from the value experiences of customers. Therefore traditional organization design — centralization, hierarchies, divisions, bureaucracy, command-and-control — insofar as they are poorly aligned with customer value actually detract from the value of the firm.
There are alternative approaches to business organization, several of which we have highlighted in Economics For Business. One well-articulated alternative is The Flow System (Mises.org/E4B_181_Book). We talk to one of the authors of the concept, Brian Rivera.
Key Takeaways and Actionable Insights The first principle of all business organization is the delivery of customer value. The superiority and broad applicability of the Austrian business model emanates from its value-dominant logic. The purpose of business is to facilitate a value experience on the part of the customer. Only value matters, and all else (resources employed, raw materials used, production costs, organization, supplier partnerships, etc.) follows. Austrian capital theory enables managers to identify value drivers (i.e. what resources, raw materials, production costs, organization, partnerships result in the most value for customers).
The focus of the Flow System is to deliver the best value to the customer through FLOW: the interconnection of complexity thinking, distributed leadership, and team science.
Flow is another term for entrepreneurial judgment. In Brian Rivera’s book, The Flow System, flow is described as “a narrative of in-the-moment decision making of judgments”. It is entrepreneurial action and interaction with the environment, irrespective of structure. It’s goal-oriented adaptive and collaborative behavior of teams and firms.
The Austrian perceptions of the market as a flow, value as a flow and capital as a flow mean that the Austrian business model is perfectly consistent with The Flow System.
Mastering complexity thinking is fundamental to implementing the flow system. Many business environments exhibit high variability and uncertainty. We’ve used the term VUCA to characterize them: volatile, uncertain, complex and ambiguous. All business managers and entrepreneurs can benefit from adopting a complexity world-view, and understanding business as a complex system.
Complex adaptive systems are open, continuously dynamic, evolving, learning, and responsive to external changes. They can oscillate between order and disorder, they’re non-linear and can’t be predicted or controlled.
Brian Rivera highlights a number of techniques to manage in such an environment, including:
Sensemaking: the development of narratives or storytelling to conceptualize the complex environment and develop an appropriate set of mental models. The question to ask is, “What’s the story?” — the story that can unite the firm and its partners around a shared understanding and shared purpose.
Weak signal detection: in complexity, signals are never clear; uncertainty is the norm and errors are always a possibility. Weak signal detection is simply intensifying the scnning of the environment for insights and noticing more, so that both threats and opportunities can be detected earlier to avoid surprise.
Action: the only source of real knowledge about the world is experience, and experience results from action. Therefore, The Flow System emphasizes action — the D and the A in the OODA loop.
The Flow System employs a new definition of leadership: distributed leadership. Distributed leadership is described as leadership that extends horizontally, vertically and every place between. The tools of leadership are not structures (such as hierarchy and top-down management) but methods:
Psychological safetyActive listeningIntentShared mental modelsBias towards actionCollaborationMentoring. Perhaps the most essential factor is psychological safety among team members. It’s a group property — a shared belief in which the team is safe from interpersonal risk taking. Individuals can speak up, take risks, and experiment without fear of criticism or reprisal so long as every action fits within the shared belief framework. There is no command structure, and teams are the building blocks of the organization.
There’s a new field of team science for collaborative functioning in the workplace. Team science is multi-disciplinary. Teams are necessary for the development of solutions in many problem areas, and the research behind team science has been conducted in many fields (ecology, healthcare, organizational science, psychology and more).
A team is a collection of individuals with a shared goal, who interact and are interdependent in their tasks, who have different roles while sharing responsibility for outcomes, and constitute a social entity embedded in a larger system (a business unit or corporation) requiring them to manage relationships across organizational boundaries.
A major section of the book The Flow System is devoted to an overview of the current state of team science as it relates to business organizations, covering team size and composition, teamwork, team processes and team transitions, team culture, team effectiveness, and combining teams for multi-team scaling.
Here’s a sample concerning the functions of shared leadership in a team:
Compelling team purpose — exceeding individual goals.Members work jointly to integrate their complementary talent and skills.Outcomes are collective, joint efforts.Members adapt their working approach to each other.Mutual accountability plus individual accountability. Core principles and attributes of The Flow System. Customer firstValue is a flowComplexity thinking, distributed leadership and team science can facilitate the flow when they are interconnected and synchronized. Additional Resources E4B Knowledge Graphic — "The Flow System Guide" (PDF): Mises.org/E4B_181_PDF
theflowsystem.com
flowguides.org
The Flow System by by John Turner, Nigel Thurlow, and Brian Rivera: Mises.org/E4B_181_Book
Teams That Work: The Seven Drivers Of Tea Effectiveness by Scott Tannenbaum and Eduardo Salas: Mises.org/E4B_181_Book2
Jeff Deist and Connor Mortell host an AMA during Mises University 2022 on the topic of "What You Can Do."
Recorded at the Mises Institute in Auburn, Alabama, on 30 July 2022.
Entrepreneurship today is a movement, a welling-up of new economic creativity, combined with a great desire for economic freedom and the joys of self-reliance and discovery. The movement is newly empowered by enabling institutions that simply weren’t around a few years ago, including the internet and its digital economic platforms. Professor Raushan Gross is a great observer and great documenter of this entrepreneurial surge, and he joins the Economics For Business podcast to share some of his original and distinctive observations about the very human aspects of his new entrepreneurial studies.
Key Takeaways and Actionable Insights Let’s not over-theorize and over-professionalize entrepreneurship: it’s people finding new ways to thrive by creatively serving other people. There’s an explosion of university entrepreneurship programs, entrepreneurship research and entrepreneurship methodologies. There’s an attempt to professionalize entrepreneurship, to make it a product of business schools.
Raushan Gross sees things differently, through a humanist, subjective and ethical lens. He looks at the culture of entrepreneurship, the social movement of individuals making their way in life in a new manner, seeing new opportunities to make their lives better for themselves and their families by making life better for others.
There’s a newly emerging set of institutions and a new class of entrepreneur: the digitalpreneur. Economists take an interest in how institutions shape behavior and economic activity. They see institutions as constraints. They sometimes call them “the rules of the game”. Professor Gross has a different take. The new institutions of entrepreneurship — the internet, digital platforms, e-commerce, digitization in general — are not constraining; rather, they are openings to a new space with new possibilities. This digital space is welcoming. There’s abundant knowledge to be shared. There are new ways to think about access to resources, about production and marketing and organization. There’s a new world of price signals, much more flexible and fast-changing, and the route to cash flow and profit is faster.
Professor Gross identifies digitalpreneurs as a new economic class: not higher or lower, not defined by their origins or background, free to move at any speed and to access any place in their relentless, unbounded pursuit of entrepreneurship.
Today’s entrepreneurs are rewriting economic history: from the invisible hand to the visible hand to the digital hand. Adam Smith introduced the metaphor of the invisible hand — the concept that individual economic actors and firms entrepreneurially pursuing their own profit goals generate the economic system we call free market capitalism, with benefits for all of society. Friedrich Hayek expressed a similar idea as “spontaneous order”. The invisible hand guided the rapid growth in real standards of living of the industrial revolution.
Then the visible hand imposed itself: the concepts of management control, and of planning and centralization. Creativity, innovation, and rapid growth were suppressed, while bureaucracies expanded. We got “Bullshit Jobs”, in David Graeber’s locution, from which creativity and caring were expunged.
Professor Gross takes us beyond both the invisible hand and the visible hand to the digital hand, which gently guides digitalpreneurs to participate in or even create new markets. The digital hand is generative. It enables digitalpreneurs to operate their own digital platforms, to construct their own digital economy, to assemble their own economic knowledge and to find their own unique place in the knowledge economy. The digital hand opens up new pathways to economic freedom.
Digital entrepreneurship can be conducted at any scale, but watch out for the dead hand. Where are the corporations in their embrace of digitalpreneurs? Certainly, there are the new digital corporations like Amazon and Google who seem willing to hire members of the new class and turn them loose in creative experimentation. But what about the old economy corporations who need to make the transition to the new world? Are they hiring entrepreneurs? Are they enabling entrepreneurs, freeing them from bureaucracy and from the command-and-control hierarchy? The evidence so far is that they are not.
How to integrate the entrepreneurial orientation into a corporate organization remains an unsolved mystery. How can the corporate advantages of reach and scale be leveraged to further realize the senses of purpose and meaning that drive entrepreneurship? How can corporations shift to the entrepreneurial culture?
They need to find ways to eliminate what Professor Gross calls the Dead Hand — bureaucracy, regulation, control, risk-aversion, centralization, procedures, and rules.
But corporate culture is not the only barrier to the realization of the entrepreneurial society. There are other cultural barriers to overcome. Professor Deirdre McCloskey is famous for her analysis that the catalyst for what she calls The Great Enrichment — the 3000% increase in real standards of living in certain Western countries from 1800 to the present — was a change in how we talked about entrepreneurship. The perceptions and descriptions of the bourgeois life of commerce transitioned from scorn to admiration. Entrepreneurs came to be seen as bold and innovative, a force for good, providers of desirable services enhancing the quality of life.
Professor Gross sees a fresh need for such a change in language and cultural support for the new age of digital entrepreneurship. One example he gives is the language of venture failure. Initiatives that are concluded early or don’t hit some target or don’t attract sufficient buyers or don’t generate enough profit to be sustainable are deemed “failures”. This characterization tends to lead to erroneous conclusions about risk (as in risk of failure) and about the people who engaged in the initiatives (“failures” or, worse, “losers”).
There’s a much different and better way to frame the same data as learning, and augmenting the pool of knowledge. When we think of entrepreneurship as a flow, we can visualize how information flows from the past to the present, elevating the intelligence of every entrepreneur and every firm that’s operating today. Not only does knowledge flow, it compounds, so today’s entrepreneurs can be exponentially more informed than their predecessors.
The more we adopt this win-win cultural approach to cumulative entrepreneurial knowledge-building, as opposed to the win-lose language of failure and success, the closer we’ll come to the beneficent entrepreneurial society that Adam Smith imagined, before he was so rudely interrupted.
Additional Resources Join Economics for Business today and receive a free copy of The Emerging Institutions of Entrepreneurship eBook by Raushan Gross: Mises.org/E4B_Join
Connor Boyack, author of the new Tuttle Twins book America's History: 1215-1776, joins the show to make the Rothbardian case for de-bamboozling history.
America’s History: A Tuttle Twins Series of Stories: TuttleTwins.com/History Rothbard on Historical Revisionism: Mises.org/HAP353-1
There is an excellent, deeply researched, Austrian economics-founded theory of customer value: the value learning cycle, which we explored thoroughly in Episode #178 (Mises.org/E4B_178). How do entrepreneurs and executives apply that theory to create customers, delight them, and grow strong brands and businesses? That’s the subject of the second part of Mark Packard’s business handbook for value creation, Entrepreneurial Valuation: An Entrepreneur’s Guide To Getting Into The Minds Of Customers (Mises.org/E4B_179_Book).
Key Takeaways and Actionable Insights Entrepreneurs can’t directly access the customer’s mental model, but they can apply empathy to run simulations. Entrepreneurial empathy is the ability to see the world through the mental model of the customer. We all see the world through mental models rather than directly, and each of us has our own, unique mental model. But mental models can also be shared and aligned. A mental model is a way of thinking about real situations or about the real world. It’s quite possible to describe someone else’s mental model. We can first ask them questions (“How do you think about your current situation?” “What do you do when the car you drive gets to 50,000 miles on the odometer?”) and then run hypotheses or ideas through the model that emerges (“How do you like this?”, “How does this make you feel?”, “Would you buy this product?”)
Empathy is knowledge-based, and therefore can be practiced by any entrepreneur. It’s not the case that some people are more capable of empathy than others. Since empathy is knowledge-based, it can be learned, developed, and trained. It’s a process of filling different buckets of knowledge about your customer. There’s factual knowledge about them, as well as factual knowledge about their consumption or usage (e.g., location, frequency, any reports, or ratings they’ve provided). And then there’s experiential knowledge — what an experience felt like to them.
Only the customer has this experiential knowledge, only they can feel it. But if the entrepreneur can understand the customer’s mental model, it’s possible to simulate what that experience might feel like — feel what they feel. It’s possible to get closer and closer by experiencing it yourself: eating the food you’re offering them or the beverage you’ve designed, using their mental model rather than your own. The customer’s experiential knowledge is tacit — it can’t be communicated directly — but entrepreneurs can get closer to it through simulation, and interpret it through empathic technique.
Be aware that there is always the risk of what Mark calls interpretive loss — we listen or observe but we don’t interpret the data properly or fully. Our downloadable pdf provides direction on where interpretive loss occurs and how to safeguard against it.
There are some techniques to reinforce the accuracy of empathic investigation. Lead users: In every category, there are users who feel needs and experience unsatisfaction / dissatisfaction more intensely. Give investigative priority to them.Contextual in-depth interviews: Communication can be more productive using specific techniques from our E4B tools library. The contextual in-depth interview technique is one of our useful tools.Ethnographic deduction: Ethnography is the technique of observing users in action. It’s a better tool than a survey or questionnaire — what users do is more informative than what they say when answering surveys. Researchers deduce motivations from observation.Behavioral data: Some data streams can be the equivalent of ethnography — observing users buying or searching as an indicator of their needs, preferences, and concerns.Entrepreneurs can also learn from themselves: We are all both consumers and producers. In the categories that are most important to you, observe your own behavior as a user. Be aware of your concerns as a customer. Make your empathy channel customer-to-customer. From value propositions to innovation. Developing a value proposition is a problem-finding process. Designing an innovation is a problem-solution process.
Problem-finding is the development of knowledge of a problem to be solved from the customer’s perspective, using the experiential learning from the mental modeling exercise. A problem is not the same as a need — it’s a specific gap in the solution landscape of products and services from which the customer can choose, a gap that can be filled with a new solution yet to be identified but capable of identification.
Problem-solving is the application of resource knowledge and technical knowledge to identify a new solution. The entrepreneur must navigate multiple uncertainties to arrive at a solution — demand uncertainty (is there real demand?), technical uncertainty (will it work?), resource uncertainty (will I be able to gather the resources to get to a solution?), capability uncertainty (can I do this?), and competitive uncertainty (will someone else beat me to it?).
Mark’s book includes a multi-step process for problem-solution creativity. One of the most interesting is knowledge combining.
What’s a pancake boat? It’s a combination of two very basic words and ideas that represents the potential for something new. Perhaps a very flat-profile boat for floating under low bridges. Or a breakfast barge touring the harbor. The point is the combination. When entrepreneurs can combine technological knowledge with problem knowledge, it’s possible to invent a new solution without inventing a new technology.
Mark has two suggestions to help with knowledge combining. One is to become interested in technologies. If you are having a hard time devising a solution, it’s probably because you are not familiar enough with technologies that are already available to do so. Find tech websites that can keep you up-to-date on the latest discoveries and applications. The more you understand about the properties and capabilities of resources and technologies, the better you can leverage those properties and what they do.
The second suggestion is a specific method. List as many different resources, technologies, and skills that you know about — software skills, hardware skills, people skills, technologies you’ve worked with, processes you’ve worked with, etc. Keep the list updated.
Then turn to the problem you are trying to solve. Mentally step through all the resources on your list and bring each of them into active memory. Try to think of a possible solution using each one. Keep going through the whole list. You’re bringing technical knowledge schemas forward while holding your problem knowledge in active memory.
Do any of the solutions stand out? Are there any that are truly outside-the-box? Are any of them impossible with current technology? That’s good. Do more research. You might find a breakthrough answer.
It takes time, commitment, and resources, but when you are passionate about the entrepreneurial process the effort will pay off big time.
Entrepreneurs get inside the mind of the customer to make the world a better place. The goal of entrepreneurship is to enhance and improve the state of well-being experienced by customers. To achieve this goal, entrepreneurs aim to understand the customer’s mental model, and run creative solutions — potential futures — through it to simulate the customer’s new experience. It’s a counter-factual exercise, but entrepreneurs can improve their capacity, and their odds of success, with practice, commitment, and the use of some of the cognitive techniques Mark Packard recommends.
Additional Resources "Contextual In-depth Interview Technique" (PDF): Mises.org/E4B_179_PDF
"Interpretive Value Learning" (PPT): Mises.org/E4B_179_PPT
Entrepreneurial Valuation: An Entrepreneur’s Guide To Getting Into The Minds Of Customers by Mark Packard: Mises.org/E4B_179_Book
Lots of Americans now openly discuss the idea of National Divorce, focusing on the political, cultural, and social divisions in America. But what about the economics? How would issues like debt, entitlements, and defense be addressed if the US split into two or more new political entities?
Mises.org senior editor and economist Ryan McMaken joins Jeff to discuss.
Listen to Hoppe on centralization and secession: Mises.org/HAP352-1
Getting into the minds of customers is the universal need of everyone in business. A new book by Mark Packard, Entrepreneurial Valuation, provides a new understanding of how customers identify value in the constant, never-ending flow of the value learning cycle. Mark joins Economics For Business for a two-part episode on how entrepreneurs can better understand value in order to delight customers.
Key Takeaways and Actionable Insights Getting into the minds of customers is the universal need of everyone in business. The business world is enthusiastically adopting the insights of Austrian economics. They appreciate the unique economic perspective that can help grow and strengthen customer-facing businesses — and that means all businesses. Professor Mark Packard is presenting his insights on customers and how their minds work when choosing what to buy in a new book, Entrepreneurial Valuation, with the sub-title An Entrepreneur’s Guide To Getting Into The Minds Of Customers (Mises.org/E4B_178_Book). It’s a business book for every business and every businessperson.
The first step is to experience value as customers experience it. They learn it. The purpose of business is to create value for customers. And for customers, the pursuit of value is everything. It’s life — a never-ending process of identifying what they expect to be valuable to them and trying to weigh up their choices between alternatives. Human beings are always valuing, all the time. In fact, Mark makes the point that we should think of value as a verb, not just as a noun. Value as a noun has a specific meaning: it’s an experienced benefit that constitutes a change in well-being from a state of unwellness to a better-off state. The benefit is the experience, and it can be ascribed to something that made us feel better off, which therefore has value.
Valuing — the verb form of value — refers to human beings constantly deciding what to do and what to choose based on their valuation process. And that process is learning — learning from previous value experiences, and learning from observing others. As customers, people are always asking: what makes us and others the best off we or they can be?
Entrepreneurs must have their own, complementary, value learning process: learning what customers value and, ideally, what they will value in the future.
Customers can be unsatisfied or dissatisfied. It’s important that entrepreneurs address these value states differently. The default state for people is unsatisfied. We have unmet needs that we feel all the time. Mises called it a state of uneasiness. Needs like hunger can be satisfied in the short term, but the satisfaction degrades quickly. Needs like security or freedom or friendship may always be unsatisfied, or at least part of the time. There is always a state of greater well-being to aspire to.
Dissatisfaction is a different state. A customer may have applied their value knowledge — made a valuation — to predict a future value experience, and it falls short of their expectations. They made an error. This results in a feeling of dissatisfaction
Both states are opportunities for entrepreneurs: to meet a hitherto unmet need, or to substitute satisfaction for dissatisfaction via a new or better solution. It’s important to know the customer’s state of well-being and its source.
Customers have limited value knowledge and considerable value uncertainty, yet they must make value predictions. Customers use the value knowledge they possess, from previous value experiences or observing others in the market, to try to predict a future improvement in well-being for themselves. What choices should they make to achieve this improvement?
How do they make the prediction? They perform a mental simulation of future value experiences. They imagine themselves having a future value experience with a particular product or service. Via the simulation, they form their predictive valuation: the benefit they expect to experience in the future.
When they actually use the product or service, they assess the actual value experience and compare it with the prediction, thereby updating their value knowledge. They ascribe to the product or service the satisfaction or dissatisfaction experience they feel. Or they might ascribe it to a set of circumstances or some other context. In any case, they have a new mental model: a new experience they can ascribe and use for future predictions.
Value learning is a cycle. Self-assess to identify unsatisfaction and dissatisfaction;Search for new value propositions with new satisfaction potential;Compare the new value proposition with alternatives (and with others’ experiences);Make an economic calculation: willingness to pay;Purchase;Usage experience — including objective value experienced in consumption and subjective value experienced as degrees of feelings of satisfaction (e.g., delight at exceeding expectations versus satisfaction at meeting expectations versus disappointment at failing to meet expectations);Assess usage experience compared to value expectation;Adjust value knowledge base and revise future expectations. Austrian economics helps businesses get into the minds of customers to monitor and understand their value learning. Economics is a much better discipline than finance on which to construct an approach to growing a successful business, because economics is the science of choice: how customers choose the ends they pursue and how they choose the means they perceive as best for attaining their ends.
It’s the Austrian school of economics that is most useful. Traditional economics believes that customers seek utility — what’s useful to them. But subjective value doesn’t reside in utility, it resides in the satisfaction that comes from the feeling of making the best choices. Behavioral economists believe that customers have a tendency to make poor choices (from the economists’ point of view) because of incomplete value knowledge.
But Austrian economists accept the customer’s mind as it is. The goal is to understand how customers choose and how they experience value in their everyday lives, how they negotiate value uncertainty, how they set expectations for the future and how they compare actual experience with expectations. What goes through their minds? To know that requires getting inside their minds, which is what Professor Packard is trying to help us to do with his new book.
Additional Resources "Experiential Value Theory: How Customers Think About Value" (PPT): Mises.org_E4B_178_PPT
Entrepreneurial Valuation: An Entrepreneur’s Guide To Getting Into The Minds Of Customers by Mark Packard: Mises.org/E4B_178_Book
"Tools For The Value Learning Process" (PDF): Mises.org_E4B_178_PDF
Jeff and Bob discuss the effect of rising interest rates on Uncle Sam's ability to service debt—and promote the increasingly less radical idea that a default on Treasury debt is both inevitable and good.
Jeff's article on rising rates: Mises.org/HAP351-1 House Budget Committee report on higher interest rates and US debt service: Mises.org/HAP351-2 Rothbard on the ethics of debt repudiation: Mises.org/HAP351-3
The business-as-a-flow orientation embraces continuous adaptive change within the firm. Traditional slow-motion control mechanisms like strategy and planning are no longer appropriate. The new toolkit that entrepreneurs are developing includes the after action review (AAR), a learning tool rather than a misguided attempt at predictive control.
Key Takeaways and Actionable Insights In a VUCA world, entrepreneurial orientation embraces change and adaptation in order to reach goals. Learning fast is critical in times of accelerated change. A business firm must change at least as fast as its market and its external environment if it is to survive and thrive — ideally faster. In earlier podcasts, we’ve made reference to the OODA loop as a non-linear change management framework: Observe changing data, filter those Observations through your firm’s capabilities, culture, heritage, and experience to understand what the new data means to your firm specifically, re-Orient if it’s indicated, make new Decisions and take new Actions, and monitor the feedback loops for updated Observations. Speed of progression through the loop is a competitive advantage — make changes faster than your competitors.
One of the keys to successfully managing change is a bias for action. It’s possible that in some situations some businesses may fear taking action — they lack confidence in their own hypotheses and are concerned that their action might be “wrong”. Austrian entrepreneurship takes a different perspective. Entrepreneurial orientation and intent shape decision-making by giving it a high potential focus and, thereafter, every action is framed an experiment from which to learn. Learning enables a greater capacity for reframing. Curt Carlson, in E4B podcast #175 (Mises.org/E4B_175), told us that relentless reframing is key to success in innovation. Learning through action is paramount.
The tool for learning from action is the AAR – After Action Review. The After Action Review is a simple device that asks the questions: what did we intend would happen, what did actually happen, what can we learn from what happened, what will we change next time we take action.
Intent — What are the intended results and metrics?It’s important to continually review the shared understanding of intent among those participating in any action or project or initiative. Shared intent is the mechanism that supplies direction and thrust so that everyone is moving in the same direction. It’s sometimes called commander’s intent (in the military) or leader’s intent (in Agile team science). It’s key that every team member subscribes to and can articulate the intent.Performance — What happened? Is there a performance gap compared to intent?“What happened” can be a challenging question because observation is often subjective, and individuals in different vantage point and with different perspectives can provide different reports or estimations of what happened. Cultural factors become important – front line actors and individuals located lower in a hierarchy must be able to speak freely about what they observed without fear of contradiction or condemnation by superior. A performance gap must be viewed as a learning opportunity that is good for the entire team and the firm as a whole.Learning — What was the cause or source of any performance gap?In a high-speed learning culture, teams are eager to identify causes or issues that give rise to performance gaps. In complexity thinking, it is not always possible to identify linear cause-and-effect linkages, but it’s generally possible to identify areas for improvement as a result of experiencing a setback. It may simply be necessary to run more experiments until a better performance can be attained. It may be possible to identify obstacles that can be removed. It may be possible to identify risks that can be mitigated. In any of these cases, learning via experience (i.e., after action) advances knowledge and augments adaptiveness.One possible learning is that the intended result is not, in fact, within the capacity of the firm, leading to either a decision to augment capacity or a decision to redirect existing resources into other lines.Next Time — What should we change?Learning leads to new hypotheses which can be implemented through new action. The After Action Review identifies what changes in behavior are appropriate to try in a future action. There’s the opportunity to eliminate waste, or abandon no-longer promising trials, or experiment with improved ideas. In a learning culture, there is eagerness to return to action armed with new knowledge and to explore new potential. AAR’s can span all time periods: before action, during action, after action. When should a firm conduct AARs? All the time. In fact, there’s a role for before action reviews, during action reviews and after action reviews. All have the same structure.
What is / was / is going to be our intent?What challenges will we expect to face / are we facing / did we face?What have we learned in the past / what are we learning right now / what caused the latest gap?What will make us successful this time / what adjustments should we make right now / what will we change next time? A learning culture and orientation are critical to the successful application of AAR’s. Learning via AARs is not mechanical, it’s cultural. The culture of the firm must be that there’s no development, no progress, no improvement without learning. Mark McGrath links the learning culture to the growth mindset. The relevant assessment is not one of strengths versus weaknesses but the mindset of the firm compared to that of its competitors. Seeking growth is a mindset, and so is learning. It’s a humble mindset in which we recognize our bounded understanding and seek eagerly to augment it with new knowledge.
There are simple shared rules for individual AARs and for the learning culture: shared goals and mental models, open to every level of the organization, psychological safety, transparency, shared findings, preparation for next time. Within these rules, every firm can build a capacity for learning that becomes a capacity for growth.
Additional Resources E4B AAR template (PPT): Mises.org/E4B_177_PPT
Background reading: NextForge.com
"Orientation: Bridging The Gap In The Austrian Theory Of Entrepreneurship" by Mark McGrath and Hunter Hastings (AERC 2022 Paper): Mises.org/E4B_177_PDF1
Mark McGrath on LinkedIn: Mises.org/E4B_177_LinkedIn
OODA Loop: Mises.org/E4B_177_PDF2
When it comes to energy and the environment, Americans not only get the wrong facts, arguments, and narratives–they get the wrong philosophy. Alex Epstein, who recently published perhaps the most important book of our time, joins Jeff and Bob to explain.
Get Alex's new book Fossil Future: Mises.org/Fossil
At the core of the entrepreneurial orientation that is the engine of vibrant, growing, value-creating, customer-first businesses, we find the principles of subjectivism and subjective value. Subjective value embraces not only the value the customer seeks, but also the value that entrepreneurs establish in their companies: capital value. Once businesses master these two principles in combination, they can open new horizons of innovation and growth.
Key Takeaways and Actionable Insights A fundamental advantage of Economics For Business over traditional business schools is the understanding of subjective value. It’s hard for conventional businesses, and for the traditional instruction in business school, to fully embrace all the insights of subjectivism and the subjectivism of value. The traditional bias is towards numbers, quantification, prediction, and financial control.
Value is conflated with price and profit. Value is what customers will pay, cost is what the producer pays for inputs, and profit is the difference. Value is inherent in the thing that is produced. Finance and accounting are the numerical tools for computing these relationships.
When business embraces subjectivism, the value is not in the thing. Human minds bring value to the thing. Value comes ultimately from the consumer or end-user. They evaluate the offerings available to them and make value decisions, to part with their money (or not) to claim the value that’s offered.
Value is better thought of as a verb rather than a noun. It’s an emotional driver of decision-making.
Firms can’t impose their concepts of value on customers. A key difference for the subjectivist approach is that customers alone determine value and producers can’t create it and sell it. Value is experienced by customers and, of course, experience lies entirely with them and can’t be reproduced or projected or simulated by producers.
That doesn’t mean that there’s no role in value generation for businesses. Steve Phelan broke down the firm’s value role into 3 parts: value imagination, value delivery and value capture.
Value imagination is a belief about the future — entrepreneurs imagine (or have a “hunch” about) a future in which a target customer experiences value from the producer’s offering, the goods and/or services they make available to customers. This imagination step is a major component of the entrepreneurial journey construct we employ at econ4business.com to help businesses generate value and grow. It’s creativity at work — where value creation starts.
Value delivery is implementation of the imagined value: designing the goods / services for commercial offering, assembling all the components required for implementation (including people in team roles as well as production assets) and taking the offering to the marketplace with a price and a value communication bundle.
Value capture concerns how much of the value experienced by the customer flows back to the producer. Typically, value production takes place in a system — perhaps including retail channels, or a wholesale partner, or a bank of financial partner. How much of the value flow do they take? Or how about competition, who might copy and undercut. Or suppliers who violate contracts or under-perform on contracted services. Entrepreneurs must pay close attention to value capture.
Subjective value thinking extends to business investment decisions. Subjectivism applies not only to value but to the assets of a producing firm. The subjectivist approach understands assets as providers of potential services that customers might value. Most classes of assets (including people) can be assigned to multiple different uses and multiple configurations for the provision of different services. Entrepreneurship weighs up — evaluates — all the possibilities and assigns the assets to their greatest value generating uses.
Value calculus assesses the value-producing arrangements inside the firm. Entrepreneurial producers of value face in two directions: outward to the market and customers, and inwards to the firm and its internal organization.
Looking inwards, producers must calculate which assets — including both human capital assets and physical assets — in which combination result in the greatest value for customers at the least cost. This requires an evaluation that assesses value flowing to the customer from the firm. Since value is subjectively determined by the customer, this calculation is extremely challenging. Peter Lewin called it subjective quantification, and Steve Phelan used the term value calculus. It’s a combination of qualitative and quantitative assessments that’s learned over time. It’s highly contingent on the (changing) value preferences of customers.
Internally, managers must combine their people assets and physical assets in a way that produces most value based on this uncertain and changing value calculus. Entrepreneurs and owners can’t be the decision-makers for everyone, and so the organizational technology must be designed for greatest value generation. Instructively, that organizational technology has been changing over time — from highly structured and divisionalized organizations to today’s more open, networked, and interconnected organizations.
The tool for capturing this value calculus is EVA — economic value added. Capital is a value. In fact, Ludwig von Mises remarked that it was unfortunate that business ever coined the term capital goods, because it tends to make us think of capital as something solid and fixed. It’s not — it’s the result of the value calculus that Steve Phelan talks about.
Capital value can be measured, but not in the way that is captured on a P&L or a balance sheet — creating numbers that appear to be exact, and fixed and fully determined. Entrepreneurs must estimate capital value and the estimate is that of the valuer. They do so algorithmically — there’s a process and a routine but it’s not necessarily mathematical. It includes breaking down the asset combination into smaller and smaller components — perhaps individual people or teams, or perhaps divisions versus the entire company, or perhaps some set of components that can be thought of as an integrated grouping — and assessing their relative capital value contribution. Money values can be used since this helps the expression of relative value, but the algorithmic computation is never exact. Its validity is always in the eye of the valuer. The goal is to find costs that don’t add value, or don’t add as much value as other costs.
Accounting and finance — one looking to the past to measure what happened and one looking to the future to predict what will happen — offer objective-looking numbers, but they truly reflect the subjective value calculus of the entrepreneur in trying to allocate economic value added as accurately as possible.
Additional Resources "An Austrian Theory Of The Firm" by Peter Lewin and Steven Phelan: Mises.org/E4B_176_PDF1
Austrian Capital Theory: A Modern Survey of the Essentials by Peter Lewin and Nicolas Cachanosky: Mises.org/E4B_176_Book
"Entrepreneurship in a theory of capital and finance — Illustrating the use of subjective quantification" by Peter Lewin and Nicolas Cachanosky: Mises.org/E4B_176_PDF2
Mises.org economist and senior editor Ryan McMaken joins Jeff and Bob for a hard look at the economic reality Americans face today.
Shostak on the true definition of a recession: Mises.org/HAP349-Shostak Bob's article in the QJAE: Mises.org/HAP349-Murphy
Curt Carlson has devoted his life to value creation and innovation — VC&I as he sometimes characterizes it. He has been CEO of SRI, a “pure innovation” company where the business model was to create important new innovations that positively impacted the lives of many people. Examples of his innovations are Siri (ultimately sold to Apple) and HDTV (the technology that enables the streaming so many people enjoy today).
He started a consulting company called Practice Of Innovation, which established methods of innovation available to everyone and every firm. Now he teaches at University, aiming to develop a new generation of innovators.
He talks to Economics For Business (econ4business.com) about value creation and innovation as a life skill.
Key Takeaways and Actionable Insights Value Creation is a complex adaptive system. Value creation is a system of many agents, components, arrangements, technologies, constraints, and unpredictable emergent outcomes. There are a challenging number of variables, and there’s a requirement for highly integrated collaboration and recursive and iterative process, utilizing adaptive feedback loops and continuous readjustment. It’s hard — and quite rare — to get right and easy to get wrong.
The essential element of value creation is the mental model. The mental model for value creation is solving important and meaningful problems for others. It shouldn’t be about launching a new business or a new technology, but about helping others. And, since people don’t think in terms of “I have a problem to solve,” the value creator must also understand the customer’s mental model. They experience dissatisfactions. They wish things could be better. They make trade-offs. They can’t always articulate what they want. They have to learn what to want, and value creators can help them to understand what they can want in the future.
Mental models are fundamentally important to the creation of value. We all have mental models of the way we’d like the world to work. The value creator is able to identify — “get inside” — others’ mental models and see the world the way others see it. This perspective is vital — the critical first step in the value creation process.
The calculus of value is subjective. Value can only be defined by the individual who experiences it. Individuals make a mental calculation of value – it might include some numbers and some thoughts, feelings, preferences, and ideas. They are able to make this calculation in their own mind, even though the potential costs and benefits lay in the future.
The dimensions of value are many. When evaluating the purchase of a car, for instance, the price is part of the calculation, but so is the appearance and pride of ownership, the comfort, the gas mileage, the color of the seats, the cost of maintenance, and many, many more features and attributes and functional and emotional benefits.
Despite the difficulty and complexity, people are agile and adept at making this complex calculation. Value creators must be able to appreciate how customers make the subjective calculation — the calculus of value.
The removal of barriers to the experience of value is a good way to create it. Convenience is often highly valued by customers. It represents the removal of barriers to value – easier to operate, less time taken, less physical or mental effort required. These are all valuable. The iPhone provided a more convenient way to enter data (responsive touch screen versus traditional keypad), and this played a big part in its adoption and success. The mental model is that people want to do things that are easy to do. They don’t want the clumsiness of a tiny keyboard on a phone. They don’t want to read a 20-page user guide for a new piece of software. They don’t want packages that are difficult to open or retail stores that are crowded and hard to shop. Identifying and understanding mental models like these gives skilled value creators their competitive advantage. If barriers are perceived negatively by customers, then create value for them by getting rid of barriers.
A need is not a problem to be solved. A need is a mental model. Reframing is the tool for understanding. Curt uses the example of the slow elevator in a prestigious office tower. Residents complain. Engineers might try to solve the problem by re-engineering the elevator for greater speed. A value creator would try to identify the mental model of the complainers. That’s reframing. They are annoyed because they feel that their valuable time is being wasted; they’re bored for a few seconds. Understanding this mental model opens up the possibility for new value approaches. Add a digital screen in the elevator with a news feed so that people can use the time to catch up on the latest headlines. Or add a mirror so that they can use the time to check their clothes and hair before going into the meeting.
Most value creation challenges can be better addressed through reframing. In fact, Curt describes his innovation method as “relentless reframing”. The art of value creation is teasing out the customer’s mental model. Do it again and again, back and forth between the value creator and the customer, to get the understanding of the customer’s mental model right.
Value creation is coupled with innovation: VC&I. The definition of innovation is not just the new idea or new product or new service. It’s the sustainability of any new solution once it’s delivered into the marketplace. Customers use it and prefer it, they pay enough for it to sustain the financial business model, they repeat their purchases and provide supportive comments and assessments. To be truly sustainable, the innovation must appeal to a lot of people, not just a few early adopters. The benefits must be greater than the costs to the user, based initially on their value calculus, and subsequently on their actual experience. And the offering must be better than competition. To get customers to change from a competitive offering, Curt says the degree of superiority must be 2X to 10X.
Curt uses the N-A-B-C process tool as a methodology for innovation teams. On previous visits to the Economics For Business podcast, Curt has laid out the framework of his N-A-B-C model and how to use it. See our E4B graphic tool (Mises.org/E4B_175_PDF) and the Key Takeaways summary from the podcast #37 (Mises.org/E4E_37).
N = Need: Identifying and understanding the customer’s mental model, and perceiving the world as they perceive it, getting to their perspective of how the world can be improved. This is where relentless reframing applies.
A = Approach: Designing an innovative solution with a sustainable business model. The temptation is always to jump straight to the approach without truly understanding the Need, according to Curt. This always leads to error and requires a pivot.
B>C = Benefits Per Costs: This is the customer’s value calculus, very hard to get right as a result of its multi-dimensionality and combination of qualitative and quantitative measures.
C = Competition: What are the alternatives among which customers are choosing, whether direct or indirect - remembering that not buying anything is an alternative they’ll consider. Overcoming inertia requires a high degree of superiority.
Our econ4business.com toolkit (Mises.org/E4B_175_PDF) includes a full explanation of how to apply this tool.
Value Creation and Innovation is a life skill that can be taught to everyone. Solving others’ problems is a deeply human activity. We’re all wired to do it for each other, every day. Value creation can be taught to kids of any age in school, and it can become a life skill. It can be taught to people studying any discipline in universities and colleges, from humanities to hard sciences, so that they can apply it in their field. It can be taught in every firm, whatever the line of business.
The resultant life skill is the mental model that life is about solving meaningful problems for others. It’s about understanding and appreciating others’ mental models. Reframing is the tool for gaining this understanding. Value creation is a fundamental capacity for everyone. They can make an impact on society by solving problems that matter.
Additional Resources "N-A-B-C Innovation Process" (PDF): Mises.org/E4B_175_PDF
Curt Carlson on Innovation Champions: Mises.org/E4E_91
"Answering the Million Dollar Question (Part 1)—How Value Creation Forums Help Create Winning Research Proposals": Mises.org/E4B_175_Article
A Google engineer is in hot water for claiming the company's chatbot tech had become sentient. Meanwhile, Jerome Powell presumes to fight inflation technocratically, by raising the Fed Funds rate nearly a full percentage point. So is the engineer correct? Do technology and machine learning portend an end to scarcity and a solution to monetary policy? Jeff and Bob discuss.
Google Engineer Blake Lemoine's interview with LaMDA: Mises.org/HAP348-LaMDA Charles Haywood's on why AI is overblown: Mises.org/348-Haywood Read 'Yes, a Planned Economy Can Actually Work' at Jacobin: Mises.org/348-Jacobin Read Bureaucracy by Mises: Mises.org/Bureaucracy Bob's article on the Socialist Calculation Problem debate: Mises.org/348-Murphy
Negative feedback loops are the ultimate source of value. Mises called it “uneasiness and the image of a more satisfactory state”. Bill Gates said that “Your most unhappy customers are your greatest source of learning”. Negative feedback loops give us the opportunity to improve our service delivery capacity, and the value proposition behind it. Sterling Hawkins has identified the ultimate feedback loop for personal performance. He calls it discomfort. We should seek discomfort, analyze it, understand it, and utilize it as an ultimate tool for improvement. His book is titled Hunting Discomfort (Mises.org/E4B_174_Book) and we talk to him about it on the Economics For Business podcast.
Key Takeaways and Actionable Insights Discomfort is a feedback system. There will always be physical, mental, emotional, or even spiritual discomfort in our lives. It’s necessary and useful. It signals to us how we are interacting with our environment. It keeps us oriented. Sterling’s case is that we shouldn’t try to avoid it, we should embrace it – he recommends that we actively practice hunting discomfort. Once we find it and embrace it we work our way through it, and the result is personal growth. We get better.
First, face reality. The first discomfort Sterling outlines is facing reality. In business, we often say that it’s a great challenge to align the firm’s internal assessment of reality with what is actually going on in the external environment, especially in times of rapid change. We may just not see reality accurately. Our product may not be as well-liked by customers as our research tells us it is.
We can’t change reality, but we can change how we see it. We can change our belief structure. One way is to run many experiments where we can objectively and empirically measure results, and expand on what works and discard what doesn’t. We might find some things that work that we didn’t believe could. And we might find that we thought worked simply does not. Both represent valuable learning and provide us with a reality we can grasp.
Eliminate self-doubt. Self-doubt is mentally wrestling with questions and beliefs and insecurities. It’s the world of “I might” rather than “I will”. Sterling’s advice is that self-doubt can be a gift. It indicates an unwillingness or inability to commit. And yet commitment is often associated with entrepreneurial success. It’s part of what Professor Peter Klein calls entrepreneurial judgment: the capacity to choose which action to take and to follow through with it.
Choose your commitment as wisely as you can – which includes choosing those actions not to take. Sterling’s metaphor is Get A Tattoo. It’s an irreversible commitment everyone can see.
Some people find discomfort in exposure. If you commit, you might feel more exposure than you’re comfortable with. You might have to raise money, when it’s not your skill. You may have to make a presentation about which you’re not feeling 100& comfortable. You might be the only one expressing disagreement in a meeting full of groupthinkers.
Sterling’s recipe is to assemble a support group — he calls it your street gang. They’re supporters, subject matter experts, mentors. You’ll make your commitment to them, and they in turn will give you honest feedback, trust, and loyalty. You’ll still be committed but you won’t feel so exposed.
We take on greater and greater challenges — and that’s uncomfortable. As businesses take shape and grow, the challenges only get bigger. We might get to the point where we want to avoid some of the big challenges. But that’s the wrong viewpoint. The alternative is to turn challenges into an opportunity to find new ways to utilize our resources — to use them as a portal to advance from the status quo to a new reality. The method is reframing. What if you tried the opposite of the status quo solution? What if you looked at the challenge through someone else’s eyes, using their mental model rather than your own – what would they do? What if you change the assumptions about the way you’re addressing the challenge? There are many ways to reframe challenges, and reframing can release you and give you new energy.
The greatest discomfort is uncertainty. Economists talk endlessly about uncertainty in business. It’s a consequence of the unknowable future. But you own your own uncertainty — for entrepreneurs, it’s a feeling, not an economic concept. It’s subjective. We’re not only uncertain about outcomes, but about resources, about financing, about our capacity, about our partners. Uncertainty is multi-dimensional. It’s also guaranteed — we can’t avoid it.
Economists, therefore, say that entrepreneurs bear uncertainty. It’s what they do. It comes with the job. Sterling’s word is surrender: don’t fight or fear uncertainty, but accept it willingly as a cost. Give up resistance. Get into your discomfort zone. Entrepreneurs need to be doing hard things most of the time, however uncomfortable that might be.
Additional Resources Hunting Discomfort. How To Get Breakthrough Results In Life And Business No Matter What by Sterling Hawkins: Mises.org/E4B_174_Book
Visit SterlingHawkins.com
Today, inflation and prices are soaring. We know that Federal Reserve monetary policy is the cause. But why didn't something similar happen after the 2008 financial crash?
Bob Murphy and professor Ross McKitrick discuss the government policies, Fed actions, and banking movements that lead up to the 2008 crisis, and why the current economic situation is different.
Ross McKitrick on inflation then versus now: Mises.org/HAP-McKitrick Bob explains how Keynesians missed the latest bout of price inflation: Mises.org/HAP347-Murphy Bob's book Understanding Money Mechanics: Mises.org/Mechanics
How do we change others’ behavior? In business, it’s a challenge we face every moment. Can we persuade a customer to switch to our brand or service? Can we get the board or the C-Suite to approve our proposal? Can we convince a VC to fund our startup? The common denominator across all these tasks is influence. How do we make the case with sufficient influence? The solution lies in using tools informed by Neuroscience. Economics For Business talks with Rene Rodriguez about his book Amplify Your Influence (Mises.org/E4B_173_Book), and his research into the neuroscience behind influential interpersonal communication.
Key Takeaways and Actionable Insights. Influence is a determinant of business success. In the past, there was a classification distinction between “soft skills” in business management and the more highly respected quantitative capabilities of finance and strategic planning. Today, that is no longer the case. The ability to harness communication to change others’ behavior is fundamental to making progress in the business world, and an inability in this area means an executive or manager will be perceived as ineffective. Setting out a vision that no-one follows is fatal.
Influence is also the way to help people make better choices for themselves. Influence can be considered by some to be manipulation, but there is absolutely no need for that perspective. Influence may be exerted to help people better evaluate the choices and options open to them. Influence is providing information that may not otherwise have been available to the audience, or that had not been considered in the most appropriate light. Influence unleashes what Rene Rodriguez terms “voluntary energy”; they are pleased and delighted to be offered a better decision-making path.
There is hard science behind the soft skills of influence. Influence is applied neuroscience. Neuroscience explains how and why humans resist change. It’s a threat. The first reaction to any new information is often resistance. We don’t like to question what we believe we know, or abandon the guidelines on which we’ve been operating, or change the heuristics we use. It’s a common, shared trait.
That’s why influence is the “how” of leadership: influencing behavior change when the natural response is to resist it. It’s also the goal of marketing, teaching, managing, selling, and communicating.
It pays to learn a little bit about neuroscience for each of these actions.
The power to influence can be amplified by using three techniques. As with any business tool, there are techniques that can be perfected to improve the performance in use. Rene highlighted three:
Sequencing: The brain processes information in certain sequences. First, it looks for threats (like “change” or “new ideas”) in order to sort between danger and safety. If it perceives a threat, it shuts down – no influential communication will get through, Next it seeks value – feelings of being valued, being engaged, being inspired. The right sequence of message delivery starts with a communication of positive value (so that the brain can believe it is in a safe place), followed by communication of caring, active engagement and inspiration.
Framing: people perceive their own reality through their own framing. If your frame of reference for pizza is high calories, excessive cheesy fat and too many carbohydrates, it doesn’t matter how delicious the pizza recipe Pizza Hut presents to you, you are going to be unreceptive. In the battle for attention and shared meaning, an influencer must set and claim the frame in advance of any message presentation. Communicators and innovators practice framing and reframing to improve their skills. For example, creative innovators always create the frame of solving a problem for others, requiring them to see the problem as others see it and experience it, and enabling the future communication of the solution as a relief of unease or removal of dissatisfaction or discomfort. Framing is based on empathy - seeing from others’ perspectives and aligning with their values. That’s why the Economics For Business value proposition design tool starts from “Who is the customer?” and “What is their need?”.
The tie-down: There needs to be a close. Our target audience’s brains are flooded with information from all directions at all times. We need to make our message stick. The tie-down is a tool to make sure the audience has the chance to understand what our information will mean to them, what value it can add to their lives, and how it will help them achieve their goals.
To ensure execution of the tie-down, Rene recommends that we all have an Influence Objective in mind: the specific action, thought or behavior we are aiming to influence. The tie-down is often a summary or emphasis of benefits, or a powerful takeaway or a “magic phrase”. It ties down our message in the audience’s brain.
The art of influence lies in storytelling. Brain scans show that when we are caught up in a story told by a skilled storyteller, we stop daydreaming and become fully present. We become focused. We narrow our attention to what the storyteller is saying. There’s a response in positive brain chemistry, as well as empathy and trust — a neural coupling between the storyteller and the audience.
Stories help us organize data, discern value, and make better decisions. Influencers work hard at becoming good storytellers. Rene left us with a 10-step guide, which we provide as a free pdf.
Additional Resources Amplify Your Influence: Transform How You Communicate and Lead by Rene Rodriguez: Mises.org/E4B_173_Book
"10 Steps to Amplify Your Influence" (PDF): Mises.org/E4B_173_PDF
Jeff and Dr. Murphy discuss a recent interview with IMF economist Manmohan Singh in the context of central banks co-opting digital technology for bad ends.
Find Manmohan Singh's Interview: Mises.org/HAP-Singh Janet Yellen, "I was wrong about inflation": Mises.org/HAP-Yellen Kristoffer Hansen on the basics of central bank digital currencies: Mises.org/HAP-Hansen Block and Barnett on Maturity Mismatching: Mises.org/HAP-BlockBarnett
A strange strand of thought has emerged in European political economy circles that has been given the name of The Entrepreneurial State. The headline claim is that the state (i.e., nation state governments) can and should intervene in the economy to bring about innovation, and that, indeed, it is absolutely necessary for grand, mission-driven undertakings such as climate change amelioration and the commercial development of next-generation technologies. Economics For Business talked to Christian Sandström, co-editor with Karl Wennberg, of Questioning The Entrepreneurial State (see Mises.org/E4B_172_Book), a compendium of analysis by thirty-two leading economists (including friends of E4B such as Peter G. Klein, Samuele Murtinu, and Saras Sarasvathy) to demonstrate the fallacies of the case for an entrepreneurial state. There’s a lot of sound economics to be learned from Professor Sandström’s book.
Key Takeaways and Actionable Insights There’s a warm climate in Europe for government solutions to perceived economic problems. “The entrepreneurial state” is one of the forms these solutions take. Entrepreneurship is well-developed in Europe, and recognized as a growth accelerator. Nevertheless, since 2008-9, country-level growth rates have been below expectations.
Professor Mariana Mazzucato originated the concept of “the entrepreneurial state”, telling fellow economists that they were all wrong in expecting growth to come from private entrepreneurship. Only government has the scope and scale to act entrepreneurially at the level of lifting the growth rate of the whole economy, overcoming the barriers to the introduction and commercialization of new technologies, and tackling the great missions such as climate change amelioration. Historically, she claims, this precedence has always applied: the state leads innovation and private entrepreneurs follow to fine tune the details of marketplace adoption and implementation.
The ongoing failure of Green Deals represents just one illustration of the errors of the entrepreneurial state. One essay in Professor Sandström’s book spotlights what he calls Green Deals: directed investments in various technologies aiming at so-called sustainable development. Public funds distort incentives in the market, making it “rational” for firms to pursue technologies without long-term potential.
One of his examples is a municipality in northern Sweden that accumulated billions of Swedish Krona in debt investing in industrial plant aiming to create car fuel from cellulose, with the ambition of creating an environmentally friendly substitute for gasoline, which would also result in new jobs and a regional resurgence in competitiveness. The process of extracting ethanol from cellulose proved to be more difficult than promised, and no technological breakthroughs occurred. The 2008 recession resulted in falling prices for ethanol, yet more public money was poured in. The end result has been a high debt burden on the municipality, no new jobs, and no reindustrialization for the region.
As Professor Sandström and his co-author Carl Alm conclude, this case and other similar cases stand in stark contrast to ideas about an entrepreneurial state successfully taking on risk and pursuing new technological opportunities.
There are fundamental reasons why governments can’t act entrepreneurially. First, governments don’t operate in markets and they are not subject to market tests, like going out of business if they fail to meet customer needs. They bear no genuine entrepreneurial risk. They have no competitors and so no process of competitive refinement and improvement. Their entrepreneurial actions can’t be evaluated. In effect, they want to achieve innovation without entrepreneurship, which is an impossibility.
Governments lack the required competence for the tasks they claim to be able to undertake. Peter Klein, Samuele Murtinu and Nicolai Foss introduce and explain the economic concept of ownership competence. Entrepreneurs operating in competitive markets have strong incentives (i.e., their own property and their own funds) to allocate resources that they own or control to the most productive applications and to generating the value that the market prizes most highly. Knowing what to own, when to own it (or dispose of it), and how to create value through ownership, all under conditions of uncertainty, requires a skill set that bureaucrats and public actors don’t have and can’t exercise. Public employees can’t exercise the ultimate responsibility that comes with ownership.
Bureaucrats can’t reproduce the human factors of entrepreneurship. Saras Sarasvathy introduced us to the entrepreneurial method of business innovation in episode #131 (Mises.org/E4B_131). Entrepreneurs self-select into the role of uncertainty-bearing, and then initiate projects and advance through a process of market co-creation, making commitments and then adjusting those commitments based on feedback loops and customer responses. They develop a lived experience that enables them to identify new goals to pursue and new means for pursuing them along the pathway. Creativity and adaptability are more relevant to success than investing acumen and planning.
Governments can’t operate in this way. They place big bets, with quantitative goals and illusions of predictability of outcomes, and they pay with other people’s money. They are not capable of finding the serendipity that guides the entrepreneur.
Governments don’t understand the innovative generativity of new technologies. Professor Sandström’s book includes quite extensive examination of what is identified as the Digital Platform Economy (DPE) — the digital entrepreneurial ecosystem of platform access to markets, data, algorithms, and cloud computing capacity (There’s a useful report on the DPE provided in the book at Mises.org/E4B_172_PDF). Digital platforms are enablers for entrepreneurial creativity and business building as a consequence of the access that they give to new business tools and the interconnections to resources, both human and material. The platforms are provided by private companies, and the resulting value creation is user and customer co-generated.
Governments misunderstand the Digital Platform Economy. They see platform providers as monopolistic owners of excessive market power to be regulated and taxed, and totally miss the value generation of hyper-connectivity between buyers and sellers, the complementarity of firms on both sides of the platform, the open access and the lowered transaction costs.
These digital platforms will do much more to encourage entrepreneurial growth than any government ever could.
Governments’ errors are repeated because there is no genuine evaluation of their activities, initiatives, and “missions”. Professor Sandström investigated the way that the results of government innovation expenditures and initiatives are assessed. He found that most evaluations are conducted by consultants, paid by the hour and mindful of the opportunity for future business if their work is well-received by the government that employs them. Some other assessments are conducted by the government departments themselves.
Perhaps unsurprisingly, Professor Sandström could find only 5% of these assessments that were critical in any way (mostly simply to say that the desired results were not achieved).
Moreover, the assessments were economically incomplete. There was no identification or discussion of opportunity costs (what better uses could the funds have been put to) or of administrative costs, which are high since bureaucratic infrastructure grows with each new initiative.
The government’s best role is to remove itself as a barrier, and possibly to help remove additional barriers (for which it often bears responsibility in the first place). Is there such a thing as innovation policy? Professor Sandström says no. He does point out that, in the Austrian tradition, removing barriers to entrepreneurship can help to create the type of environment in which innovation can flourish. This might involve the elimination of legislation and regulation that gets in the way. It could also include nurturing educational institutions to bring the right kinds of thinking and learned skills into the marketplace.
Any such initiative should be general and non-selective. Picking winners should be left to markets.
Additional Resources Questioning the Entrepreneurial State: Status-quo, Pitfalls, and the Need for Credible Innovation Policy, edited by Karl Wennberg and Chris Sandström (PDF and ePub): Mises.org/E4B_172_Book
"The Digital Platform Economy Index" (PDF): Mises.org/E4B_172_PDF
Chris Sandström on Twitter: @ChrisSandstrom
Jeff and Bob take a look at the misnamed "World Economic Forum" and its conference this past week in Davos, focusing on their recently published report.
Read the WEF's Chief Economists Outlook: Mises.org/WEF22
How do businesses actually manage — rather than plan for — continuous change? The increasing adoption of systems thinking in business tells us that the world is changing very fast, and companies need to change at least as fast as their environment in order to thrive. It’s comfortable to talk about but hard and uncomfortable to do. Most people prefer to continue to do what they’re used to rather than embrace change and constant experimentation.
There’s a lot to be learned from the military where special forces are trained to specialize in rapid reaction in chaotic or VUCA (volatile, uncertain, complex and ambiguous) worlds. They face an ever-changing environment (often described as kinetic). They have a very pure evolutionary process: what wins, survives. While the military organization is hierarchical, military operations are flat so that tactical decisions can be made by the people on the ground.
While we are anti-war, we can nevertheless recognize that the military has experience and expertise in managing and organizing for continuous change. We can learn from it.
There are significant barriers to overcome to implement rapid change management in business. Certainly, the time scales are different. Companies change at an intergenerational pace, one generation of managers (or managerial techniques) learning from the last one. In hierarchical organizations, people reach managerial and executive positions by accumulating experience. By the time they get to their high position in the hierarchy, they have locked in an old mental model. They miss the signals of change and fall back on preconceived ideas and notions and methods.
In addition, there is considerable inertia to overcome — a resistance to change that acts as a blocker to agility. It’s human nature to resist change. Once a company has established a niche or a market share, it’s genuinely hard to abandon the strategy or the tooling or the products and services and the marketing that got them there.
To put it in military terms, change is a constant battle.
Situational awareness is a set of tools that are transferable from military to business to improve management of change. Situational awareness governs how well your understanding of the world maps to reality. It operates along two perspectives and 3 time frames.
Internal situational awareness concerns the orientation of your firm, resources, capacity, the capabilities of your team, morale and so on. External situational awareness concerns markets, competitors, customers, trends, technologies, and all the environmental factors that are subject to change.
The three timeframes in military terminology are tactical, operational, and strategic.
The tactical timeframe concerns people on the ground in contact with the environment. In business, this can be the sales team or customer service or engineers in direct contact with customers. They’re doing implementation work but they are also the sensing mechanism. They may have daily or even hourly cycles for intention to change, making the change, learning from the consequences of the change and moving forward to the next change. They must be empowered, trained and equipped, and confident about their freedom of action and adaptation.
The strategic timeframe is the macroeconomic scale of what the firm is trying to achieve for the customer. This frame may be months or years, and dictates how to organize, how to invest, and where to allocate resources.
The operational timeframe is between the other two. How does the firm integrate short term implementational excellence with long term strategic engagement with a changing environment? How does the firm integrate all the hourly and daily information coming from the front line with the long-term investments and resource allocation projects? In a software business for example, there may be a trade-off between building new tooling, which takes time, and rapidly delivering products from established tooling.
How to apply situational awareness. Actively use the 6-box framework (internal /external perspectives, tactical/ operational/ strategic timeframes.
To achieve better alignment of internal / external timeframes, look for mismatches across boundaries in the firm. Do the people working on the front line have the same understanding of the importance of the work as the managers and executives. Does getting thing done seem more difficult than it should be? Are the feedback loops fast? Is the information in the feedback loops spread throughout the firm, through multiple teams, divisions and silos? What’s the gap between perceived ideals and actual experience?
To implement across three time frames is an exercise in portfolio balancing and active discovery, with a high premium on sensing skills.
How much time and resource effort should a firm spend on refining its tooling (the operational timeframe) so that every produced end-product is exactly the same (the tactical timeframe) while keeping an eye out for environmental change, when a future competitor might introduce a faster cheaper product (the strategic timeframe)?
As Austrian economics always stresses, there’s no objective answer, just subjective learning from experience. For example, Netflix was part of the strategic timeframe that Blockbuster failed to manage. Blockbuster was operating its stores in a proven fashion (tactical) and adding new stores (operational), while rejecting the implications of the Netflix model. Today (May 2021), Netflix shows signs of missing some strategic signals. They made content their focus (tactical) and built original production capability (operational) but may be finding that customer tastes are changing and the appeal of their produced content is in decline (strategic).
Similarly, for the last few years, funding has been easy for startups (tactical) and so they have focused on long term market development (strategic) without hitting profit and cash flow milestones (operational). Now that funding is drying up, they are having to shore up their operational capabilities.
There are a couple of techniques that are helpful. One is Horizon Scanning: allocating some resources to identifying and picking out future external scenarios that represent potential change or strategic threats and building a response in advance. Another is red team thinking: mapping out future internal failure modes and then working backwards from them to identify the trip wires to look out for, and to nip emerging issues in the bud.
The after action review (AAR) is an important element of situational awareness. The AAR is applied not just in the military but in fast change business environments such as agile software development. It’s a tool to separate the quality of the decision you made from the outcome of the action that you took. We tend to get attached to our decisions, even if they were based on poor principles.
The components of an AAR include:
What was expected to happen?What actually happened?What went well and why?What can be improved and how? The discussion must be open and honest without hierarchy or blame. As far as possible, everyone on the team should participate so that all perspectives can be included. The focus is on results and dentification of ways to sustain what was done well as well as the development of recommendations on ways to overcome obstacles. It’s really important to identify with high fidelity what happened, because only then is there a good chance to identify new opportunities or trends with equal fidelity. In situations of uncertainty, it’s important to identify “what happened” accurately, in order to be able to identify what it means and what it implies for future actions.
AAR becomes part of disciplined execution. The Economics For Business community is familiar with the explore/expand method of managing business complexity: explore many options through experimentation and expand (by allocating more resources) those that show good results. Annika Steiber in episode 170 (Mises.org/E4B_170) called this capability “ambidexterity” — combining two logics of business in consistent and reliable execution on one hand and openness to change and exploration on the other.
Ben expands this thinking into the concept of disciplined execution. Once a process is proven and is producing reliable results, map it out carefully and then take individual steps or parts of the process and see if they can be further improved, e.g., by automation, without changing the outputs. Processes thus become more resource efficient in producing their output. Always be trying to improve what you already do well.
Similarly, once an “explore” project starts to become productive, apply the same continuous improvement standard. Map the process, examine parts that can be improved, and do so part by part so production is maintained and efficiency is increased.
All of this change dynamic should be driven from the bottom up. Process improvements, fast responses to feedback loops, experimentation and rapid change are all insurgencies — the established hierarchy and mental models will often find them hard to embrace. Insurgency is a bottom-up dynamic. When transformation is pushed from the top down, it often happens that the territory changes before the consultants have drawn the new map. The hierarchy’s role is to provide strong alignment with the orientation of the firm and its culture and vision-mission, alongside loose control of front-line action.
Additional Resources "Apply Situational Awareness To Manage Change" (PDF): Mises.org/E4B_171_PDF
Ben Ford’s website, where you’ll find his Mission Control services: MissionCtrl.dev
Ben Ford’s LinkedIn page, with a lot of presentations and recordings to learn from: Mises.org/E4B_171_LinkedIn
We spend a lot of time on this show talking about central banking. This week we talk about central bankers themselves, from Powell to Brainard to Lagarde to Greenspan. Robert Aro joins.
Innovation in organization is at least equal in importance to technological innovation and product / service innovation. It tends to get less attention, which is a great opportunity for imaginative entrepreneurs to implement change for competitive advantage. Dr. Annika Steiber has studied organizational innovation for over twenty years and is a global authority. She shares her insights with Economics For Business, including her analysis of the most dramatic organizational innovation of all, Rendanheyi.
Professor Steiber’s most recent book is Leadership For A Digital World (Mises.org/E4B_170_Book1), and is her most comprehensive guide yet for business management in the digital age. She’s the author of eleven books, including The Google Model (Mises.org/E4B_170_Book2) and The Silicon Valley Model (Mises.org/E4B_170_Book3).
Her Menlo College Rendanheyi Silicon Valley webinars are available at Menlo.edu/Webinars.
Key Takeaways and Actionable Insights Organizational innovation doesn’t get the attention it merits, even though it can contribute greatly to customer value generation. Innovation thinking tends to focus on technology innovation and product/service innovation, with the definition of innovation as the successful introduction of new customer value to markets. Organizational innovation is not often seen through that lens. But it should be. We can reframe the problem this way: does bad organizational structure subtract from the customer value experience? We can all think of ways in which it might do so: for example, poor customer service when customer-facing employees are not empowered, and layers of bureaucracy that impede responsiveness to customer needs. In those cases, organizational innovation could readily generate improved customer experiences and enhanced customer value.
Dr. Steiber had made organizational innovation her research focus for over two decades.
There are a small number of organizational innovators, and a lot of imitators. Google has been one of the originators of new organizational models. Many organizational innovations are pre-packaged — LEAN is an example — and implementers are following someone else’s lead. Others are long drawn out evolutions of incremental improvement without a great burst of innovation.
One example of what Dr. Steiber calls "an entirely new animal" in organizational innovation can be found in the early years of Google, which she studied first hand — she was embedded in Google as an independent researcher. She observed a different management model than anything she had seen before anywhere in the world. From this research, Professor Steiber developed six new management principles, published in her book The Google Model, and summarized in our free PDF (Mises.org/E4B_170_PDF).
Silicon Valley companies employed and expanded on the Google Model. Dr. Steiber studies the peers of Google in Silicon Valley and found that they all adopted the Google Model and its six principles, some more slowly than others. Interestingly, her research pointed to a DNA advantage for Silicon Valley going back to the gold rush: it was a location that attracted and was populated by innovative and entrepreneurial people who were capable of building businesses and new institutions from scratch in the late 19th Century, and in the 20th Century, it was the place where Information Technology emerged, was expanded and accelerated and first put to use in business. Knowledge and knowledge flow replaced management structures and face-to-face administration, including at early pioneers such as Hewlett-Packard.
Read "The HP Way"—an early Silicon Valley organizational innovation manifesto (Mises.org/E4B_170_PDF2).
The six management principles Dr. Steiber describes are:
Dynamic capabilities. Ability to integrate, develop, and reconfigure internal and external competencies in order to meet rapidly changing surroundings.
A continuously changing organization. Instead of waiting and springing into action after needs become pressing, a company should ensure that its organization is permeated with a proactive approach to change.
A people-centric approach. People-centric, focusing on the individual and liberating their innovative power and providing them with a setting in which they can express their creativity.
An ambidextrous organization. Two different forms of organizational logic within the same organization: daily production, which works best with a conventional planning-and-control approach, and innovation, which requires greater freedom, flexibility, and a more open attitude toward experimentation. An ambidextrous organization must successfully handle and utilize the energy inherent in the contrast between these two forms of logic.
An open organization that networks with its surroundings. Permeable boundaries and a constant and conscious exchange of information with the surroundings. Long-term survival requires that companies develop into more open networking systems.
A systems approach. A holistic view of the system and understanding that the system can spontaneously develop new characteristics that can be difficult to predict. These new characteristics can be positive, negative or a combination of the two, creating a demand for additional measures, such as decreasing the fallout from unexpected negative system effects.
We highlighted a couple of these new management principles.
A continuously changing organization The most successful companies are designed for constant renewal. They expect change all the time, and they lead its development. They aim for excellence on every dimension, applying three layers of expertise:
Be proactive: Search for change internally and externally. Embrace it and practice it.Experimentation culture: Try every initiative assuming that it could be a new opportunity. Mobilize fast.Don’t follow. Take the lead, change the standard, be disruptive rather than disrupted, practice creative destruction. These companies never lose external focus, continuously monitoring developments and competitors that could disrupt them, and constantly market-testing new initiatives. They have highly developed sensing capabilities.
An ambidextrous organization Combining the two logics of flawless daily execution for known established businesses and exploratory experimentation seeking unknown new business innovation is an organizational breakthrough. It’s a systemic view of an organization combining different kinds of leadership for the two styles, different cultural signals, different milestones, different incentives, and different evaluation criteria. One system is designed for stability and one for change.
Rendanheyi: the most radically entrepreneurial organizational innovation. True organizational innovation is very rare, but there is a new one that Professor Steiber described for E4B called Rendanheyi.
Rendanheyi is an organizational innovation for the network age in which a large company (Haier, the Chinese company that first instituted the model has 70,000 employees) splits itself into hundreds of microenterprises of averagely 60-70 people — but could be as low as 10 or so - each enterprise performing as its own entrepreneurial business with its own P&L, its own customer base, and control over hiring, budget, and distribution of profit, and over its own value-adding line of business. Defining characteristics include:
No bureaucracy, hierarchy, or pyramid forms of organization; no managers.Employees are not referred to as such — everyone can be an entrepreneur is the mantra; they choose which microenterprise to work in. The focus is on the customer or end-user and not on pleasing the manager above. Incentive systems reward all employees for value creation, and all individual employees are constantly trying to understand how to increase value for customers. Increased value creation is rewarded, and so wealth generation is democratized.Zero distance to the end-user: this is a Rendanheyi principle that brings the consumer or customer inside the microenterprise to co-create new value in the form of new products and services and solutions. Wholesalers and retailers, for example, can inject distance between a Haier micro-enterprise and its users; the enterprise might look to digital solutions to eliminate that distance. Generally, they seek to identify barriers to zero distance to the users and get rid of them.End-user is a general term, so that those micro-enterprises that are serving other businesses rather than consumers can nevertheless practice the zero distance principle. For example, there may be a marketing micro-enterprise within Haier that serves a manufacturing micro-enterprise and a sales micro-enterprise. All can be aligned with zero distance and can work to fulfill end-users’ needs.Paid-by-user. This principle focuses micro-enterprises on end-user value by emphasizing that all businesses live or die based on whether the end-user pays them for value perceived, or not. It’s Austrian customer sovereignty in action. The general tendency in paid-by-user is away from transactional relationships to extended relationships across multiple purchases in ecosystems and via subscriptions and memberships. Relationships are an important focus, and the focus is on creating life-time users.
A sports team on the playing field is a sound analogy for Rendanheyi. There is no central control, each team member is collaborating and combining specialized skills for a team result.
There is only limited call for corporate functions at the center of the Rendanheyi organization. There is a role for developing and furthering vision that crosses multiple micro-enterprises, and for portfolio decision-making as to where to invest resources. Some orchestration functions can be assigned to the center — for example, furthering ecosystem thinking whereby micro-enterprises serving a consumer domain such as the kitchen can develop multiple services including information services and integration services across multiple appliances, tasks, and problems for the kitchen ecosystem.
The result of the Rendanheyi model is the animation of a living system, a superorganism. Rendanheyi provides a genuinely new and different perspective on entrepreneurial organization at scale.
Additional Resources "Six Organizational Principles for Adaptive Entrepreneurial Models" (PDF): Mises.org/E4B_170_PDF
Rendanheyi Silicon Valley Center: Mises.org/E4B_170_Rendanheyi
Menlo College Rendanheyi Silicon Valley Webinars: Menlo.edu/Webinars
Menlo College Digital Management Courses and Webinars: Executive.Menlo.edu
Would you give up voting in exchange for no more taxes? Stephan Livera joins the show to discuss the curious distinction between economic freedom and personal or political freedoms, and how we weigh those freedoms.
The Fraser/Cato Human Freedom Index: Mises.org/HFI The Heritage Index of Economic Freedom: Mises.org/IEF
Is there any industry a passionate entrepreneur can’t improve and enhance by elevating the customer experience? The answer is clearly no. Economics For Business talks to Jeff Arnold, who finds insurance fun, exciting, and a source of inspiration, and who is advancing profitably towards the new future he’s imagining, where buying insurance is so enjoyable that customers will stop shopping on price and clamor for the new experience he is designing.
Key Takeaways and Actionable Insights Passionate, creative entrepreneurs can deliver profitable innovation to any industry, no matter how static and rigid it may seem. Jeff Arnold loves insurance. He told us he finds it fun, awesome, and exciting. Studying the intricacies of contractually trading and transferring risk for payment generated a lifetime interest and passion in him. He’s turned that passion into revenue and profit by delivering new value to customers in aspect of their life or their business that is extremely important to them.
As a good Austrian, Jeff Arnold views his industry first from the customer’s perspective. Customer-first. That’s the Austrian way of business. When Jeff thinks about insurance, he thinks from the consumers’ perspective. They pay hundreds of thousands of dollars over a lifetime for insurance of many kinds: house, automobile, business, medical care, and more. Do they know exactly what they are buying — or, perhaps more importantly, not buying because of exclusions buried deep in the small type of the appendices to an insurance policy agreement? How do they feel about the customer interface, including call center phone trees and hard-to-decipher policy documents?
From this perspective, he is able to develop design principles for an insurance business with a better customer experience:
Help customers to think about a systematic lifetime plan for all their insurances;Help them develop the knowledge required to properly understand insurance offers and alternative policies;Give them the opportunity to customize insurance products for their needs as opposed to buying a commoditized vanilla product;Help them to get the exchange value from the purchase that is right for them.Give them an interpersonal experience that’s much better than the industry norm. Jeff focuses his customers on value, not price. Most often, buyers approach an insurance purchase with a transactional frame of mind: how can I pay the lowest price. They’ll shop around to find it. Jeff wants to put an end to “price shopping”, to be replaced with a value calculation: what coverage do I need, how did I get it, and who is the best provider?
The value calculation often entails discovering and eliminating exclusions — coverages that are excluded in the fine print of the contract. These exclusions occur in home insurance (which is especially hard to read and understand) auto insurance (there are 12-14 exclusions to look for according to Jeff) and commercial or business insurance (where many coverages are automatically excluded and must be built back in item by item, with careful attention to detail).
The value solution lies in the integration of technology and personal service. Jeff’s latest business, RightSure, aims to get individuals the right insurance by using A.I. in combination with “famously friendly humans”, i.e., staff carefully selected and trained to deliver knowledge and service in an amenable way. The A.I. can provide a preliminary phone interface, a chatbot interface on the website, and can do an excellent job of matching customer needs to the right policies. Famously friendly people can patiently explain all the policy options, point out what’s covered and what’s excluded, answer customer questions, and help them to make informed decisions. They’re good at listening, exhibit high empathy, and can help customers navigate from suspicion to trust.
The combination of A.I. and famously friendly humans delivers a superior customer experience while also achieving high levels of efficiency. The return on investment in human capital is as high as the return on technology capital. The combination generates brand uniqueness.
Jeff represents entrepreneurship in action in the insurance industry. Jeff Arnold is a quintessential entrepreneur. He’s driven by a passion for his industry, where he spent a career in multiple roles before launching his current business. He gathered knowledge he learned from others and from his own experience in those various roles. He innovates by having a more highly developed customer focus than others, and commits to a better experience for his customers than they can expect elsewhere. And he knows how to combine and recombine assets and resources in new ways to deliver that better experience. He continuously monitors the customer experience and customer sentiment to keep improving.
His primary skill are empathy and imagination — understanding the experience customers prefer and designing it in his mind before bringing it to life. He doesn’t need technology expertise to bring his vision to life; he can buy that on the market. It is the human factors of empathy and imagination that lie behind his superior product.
Imagining the future drives product and service innovation. After a lifetime in the insurance industry and informed by hundreds and thousands of conversations with consumers, Jeff can accurately identify current dissatisfactions and easily imagine future products and services to address some of those satisfactions. Some of the ones he mentioned in our conversation were:
The macro policy: Why do customers have to buy home and auto and business and medical insurance I separate policies and separate transactions. What if there could be one macro policy for a family, adjustable to new needs as life goes on yet still a “one policy” solution for managing all the risks a family faces?
Expanding liability coverage: It seems like lawmakers and courts are continuously finding new things the rest of us are guilty of, like saying bad things on social media. Liabilities are expanding — Jeff called it social inflation. What if our policies could keep up without us having to adjust them in new transactions?
New payment systems: What if we bought automobile insurance by the mile instead of in a lump? Or what if we got refunds based on good driving habits (which is beginning to happen with telematics)? Generally, the payment system of lump sums for coverage over a time period can be replaced by behavioral measures of consumption.
These are the kinds of innovation Jeff is imagining, and working hard on bringing to market. Entrepreneurs make the world a better place.
Additional Resources Jeff Arnold’s author page on Amazon.com: Mises.org/E4B_169_Author
Jeff’s website, Ambassador For The Insurance Industry: JeffArnold.com
The Art Of The Insurance Deal by Jeff Arnold: Mises.org/E4B_169_Book
RightSure.com
Jeff is solo this week and hosts Tom Woods to ask a simple question: Why do social issues dominate our attention, to the detriment of economics and fiscal reality?
Read Jeff's article "Why Social Issues Dominate" Mises.org/Dominate
Markets are marvelous. They’re the poetry of economics. They are one of the most remarkable technologies humans have ever built. Beautiful businesses develop new markets both outside and inside the firm. We discuss markets with Anthony J. Evans, a business school professor who teaches that all businesspeople must become economists.
Key Takeaways and Actionable Insights A business economist is an Austrian who looks at the fields of economics and business to see how one is best applied to the other. Aim to be a good economist and a good business practitioner. Managerial economics is the application of the economic way of thinking and the insights of economics to the managerial task of creating value. It was Shlomo Maital who wrote, “Managers can’t just employ economists, they must become economists” (Mises.org/E4B_168_Book). Anthony Evans follows that direction and teaches his students at ESCP Business School that they’ll be more productive and more capable as businesspeople as a result of learning and applying economics.
Market system economics provides businesses with the best toolkit for success. Businesses are participants in the market system. Managerial economists study markets in order to find ways for businesses to use market insights, harness market mechanisms and understand the signals and information that markets provide. It’s easy for firms to overestimate their ability to affect the markets in which they are participating, and don’t sometimes they don’t fully understand or properly analyze what market prices are telling them.
Prices are the most important market signals, and they can transmit information about potential futures. They can guide firms on understanding how much value they are creating relative to competitors. They can provide signals about how to increase revenue by moving process higher or lower. They can help businesses understand opportunity costs and transaction costs.
Markets are decentralized experimentation, and if some new experiments by disruptive competitors are commanding purchases from actual buyers today, that may signal more buyers and more transactions in the future especially after prices adjust to higher transaction volumes. Monitoring prices and reading the signals must be a core managerial skill.
Market tests should be applied whenever feasible. Technology can help. Businesses should run a market test for every question that a market can answer: is this offering or initiative valued, is it preferred, can we put a price on it, will varying the price change the level of demand or acceptance, is the benefit greater than the cost, do some customers prefer a competitive offer? Run a market test — A/B test, pilot program, prototype evaluation, survey with customers, whatever is feasible.
Today’s technology provides tremendous help with low-cost digital testing methods, fast feedback loops, and efficient data processing. In fact, more and more, technology can relieve managers of the task of formulating their own understanding by automating the test procedures and the analytics and recommendations.
Markets can be brought inside the firm to improve business performance. Markets stimulate innovation, lower costs, and efficiency because customers always want better, cheaper, and faster and competing entrepreneurial firms always want to provide those benefits in the search for profits. The same effects of the market order can be sought inside the firm. What is the market value and the right price for marketing services from the marketing department, or HR services or IT services? What’s the marginal cost versus marginal benefit analysis for one more HR staff member, or the opportunity cost of one more IT system installation versus one more sales campaign? What’s the value of the knowledge flowing through the firm?
These are the kinds of questions that the market order can answer, and managers should always be asking them. Prices can be the metric for all learning.
Market economics can also guide organizational design and processes. Markets are dynamic and ever changing. Businesses must reflect and emulate this dynamism. Organizational design and structures must be flexible enough to enable dynamism and not erect barriers to change and adaptation. What are the forces that make markets grow and decline, and what are the forces that have this effect on firms? Organization should harness the forces of market growth.
Professor Evans’ suggestion is a constitutional view of the firm. Let simple rules of conduct emerge from a shared sense of vision and mission, codify them, and then let decentralized teams run the experiments that feel constitutionally right to them given their reading of market signals.
Subjective value is immeasurable, but can be gauged in market tests. The purpose of a firm is to generate subjective value, which is created by customers through their own experiences and co-created by the firms and brands and services that facilitate those experiences. Subjective value is intangible and immeasurable. But exchange value — what customers actually pay in an exchange transaction — can be a proxy in some cases.
Subjective value is a hard concept to grasp for those who have been educated or trained to think of value in objective terms, as something inherent in a product. Professor Evans finds his students, when asked to describe the value of an offering or an idea, instinctively gravitate to the product-based view, citing attributes, features and performance benefits.
Taking the customer perspective is very hard, and perhaps unnatural. The economic point of view is always to put the producer in the shoes of the customer, to take the customer’s view and identify the customer’s mental model for processing information and observation. It’s hard to do, and requires significant cognitive effort. But done well, it’s key to marketing, innovation, product improvement and competitive positioning. Empathically diagnosing subjective value is one of the greatest insights economics can give to business.
Entrepreneurs thrive in markets. Markets are the place where entrepreneurs ply their skills, and the entrepreneurial role will never diminish. Their imagination of the future and anticipation of future demand – even under conditions of uncertainty – their creativity and their judgment will always be important in the context of dynamic interactions of multiple players, offerings, and institutions within markets. The human factor is the most important.
Entrepreneurship is not an academic matter to be debated for the distinction of different nuances, but a practical matter of working and succeeding in markets. It concerns the identification of a profit opportunity via some kind of new product, service, method, or recombination of capital, and the ability to introduce this novelty into the marketplace, actively making decisions about resource allocation, cost, investment, communications and all the other elements of a business, overcoming obstacles and resolving difficult challenges. It is, as Professor Evans stated it, both ideational and implementational. Ambidextrous.
And the common backdrop for all entrepreneurs and businesses of all kinds is continuous change. In his book Economics: A Complete Guide For Business (Mises.org/E4B_168_Book), Prof Evans states that, “Economic change will disintegrate existing combinations (of capital goods) and force entrepreneurs to find new ones”. This action, which Prof Evans refers to as “recalculation”, is core to the dynamics and agility of entrepreneurs in markets. Recalculation is the creative pulse that provides the energy for generating new capital structures out of old ones.
Austrian economists have always been acutely aware of change as an economic factor. Perhaps the business world is catching up, but Austrians have always been ahead. It’s the perspective that entrepreneurs and businesses can co-ordinate with each other fruitfully in markets where change is so pervasive and so fast that no-one has complete knowledge and yet must be able to act. Austrian economics demonstrates that good outcomes are possible, even in these conditions of bounded knowledge, for everyone participating in the market, so long as entrepreneurs are free to do their work without intervention. It's a very powerful message.
People in business can be proud of acting as value generators and not feel any imposed need to “give back” or sacrifice themselves to artificially constructed restraints.
Additional Resources Economics: A Complete Guide For Business by Anthony J. Evans: Mises.org/E4B_168_Book
AnthonyJEvans.com
Our guest is Dr. Stanley Goldfarb, author of the recently-released Take Two Aspirins and Call Me By My Pronouns, a book that details the intrusion of critical race theory and identity politics into medical education and medical practice. He is a former Associate Dean for Curriculum at the University of Pennsylvania Perelman School of Medicine and returns to the show to discuss his book and the new organization that he is leading to push back against the new trend.
SHOW NOTES Stanley Goldfarb: Twitter
Do No Harm
Related Episode: Ep. 102 Curriculum Subverted: An Academic Leader Pushes Back Against Woke Medicine (with Stanley Goldfarb)
Related Episode: Ep. 140 Amy Wax on Wokeness in Medicine
Related Episode: Ep. 149 James Lindsay: Critical Race Theory, Post-Modernism, and Medicine
Watch the episode on the Accad & Koka Report YouTube channel
Johnny Vedmore is an independent journalist from Cardiff, Wales. He discusses his masterful article on Klaus Schwab's mentors, including Henry Kissinger and John Kenneth Galbraith.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewJohnny Vedmore’s article on Klaus SchwabPart 1, Part 2, Part 3, Part 4, and Part 5 of the BMS series on Klaus Schwab and the Great ResetAn evaluation of Herman Kahn’s “Year 2000” forecasts. Part 1 of John Kenneth Galbraith’s "The Age of Uncertainty"Trailer for the Kubrick film, “Dr. Strangelove”Bob’s novel, MinervaSchwab’s books The Fourth Industrial Revolution and Covid-19 and the Great Reset For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Our friend Saif, known to the world as Dr. Saifedean Ammous, joins Jeff and Bob Murphy for a demolition of the pseudo-economics behind Green energy.
Read Saif's The Fiat Standard: Mises.org/FiatStandard Saif's paper 'Energy Systems and the Knowledge Problem: The Case of Biofuels': Mises.org/SaifEnergy
There’s a lot of speculation about the future of work — what form it will take, where it will be done, and who will do it (including the robots versus humans debate). We talk to Mo Hamzian, an entrepreneur who is not only theorizing about the future of work, but building newly imagined workspaces that combine spatial design with technology and custom services, making elite workspaces available to everyone.
Entrepreneurship is now both an economic and societal trend, opening up business opportunities of its own. Entrepreneurship is now, as our guest Mo Hamzian styles it, “a thing”. It’s in the forefront of culture, it’s always in the news, it’s a lifestyle choice as well as a business choice, it’s a career, it’s a source of new heroes for our time.
Institutions of entrepreneurship are growing: schools are teaching entrepreneurship, media are covering entrepreneurship, technology is supporting entrepreneurship.Standards are emerging: tools like our own value learning process and 4 Vs value generation model, as well as processes like the Business Model Canvas are becoming standards of the entrepreneurial method.The sharing of entrepreneurial knowledge in a community is expanding via mentoring by experienced entrepreneurs. As a consequence, we see the emergence of new societal norms. An entrepreneurial society favors self-reliance over dependency, resourcefulness over entitlement, breakout achievement versus structured conformity, and creativity over formula. Entrepreneurship is understood as a journey that is never completed, and may adaptively follow many diversions in pursuit of evolving goals, rather than a predictable climb up the hierarchical ladder of the corporation. Keep thinking rather than keep climbing.
Even inside the corporation, structure is giving way to small self-organizing teams and corporate procedures are being replaced by adaptiveness and agility.
One of the implications of the growth of entrepreneurship is the trend that gets the name “The Future Of Work”. Entrepreneurship brings many significant social changes, including flexibility of time and place and methods of work. And the government’s pandemic policies of shutting down office and work spaces and encouraging work-from-home accelerated those changes. Now it is clear, more than ever, that, in the digital age, there is no need whatsoever to commute through grey suburbs on jammed roads or overcrowded trains to get to a dull and depressing cubicle farm just so that you can be in the same building with the other sad souls who are your colleagues.
Cities will empty out, commercial office markets will enter a period of secular decline, and individuals will feel liberated and empowered to do their best work in the physical location and surroundings of their choice.
One way to seize the opportunity represented by the future of work is via real estate itself — repurposed and re-imagined. Mo Hamzian is an entrepreneur who sees the opportunity in real estate for work where many might see only decline. He looks at it through a different lens, as entrepreneurs do. Can real estate provide the multi-purpose flexibility and adaptiveness required for today’s and tomorrow’s work patterns? It can if looked at creatively.
The creative lens is the customer-first lens: everyone deserves the best workplace. Business thinking that prioritizes customer sovereignty can often solve the most challenging problems. Mo Hamzian translates the unmet needs of today’s distributed workforce as seeking the best space from which to work — comfortable, well-equipped, good acoustics and conferencing technology, a place that “recognizes you” and your needs.
He developed his ideas, in part, by studying the workspaces of the business elites — the top bankers, tech executives and corporate CEO’s. These are immersive, high tech, high comfort, high style ecosystems you never want to leave. They’re available to a very few. What if they were made available to a much wider audience? This is the way many markets evolve — first, affordable at great expense only for a few, then quickly expanded to a mass audience.
This is the idea behind VEL — Mo Hamzian’s startup to bring elite workspaces to a wide audience of users on demand.
Do your best work: the VEL concept is aimed at personal productivity, encouraging the individual to achieve high quality output in a temporary workspace. This implies, of course, some responsibility and commitment on the part of the user.Achieve flow: the ultimate level of individual work is characterized by the feeling of flow — the fulfilment of experiencing how good you are and how much you are improving while doing your work. VEL’s workspace and technology are designed to support flow.Elite environment for everyone: Mo Hamzian’s study of immersive elite workplaces enables designs that bring the same experience to a temporary workspace.Technology: From wi-fi telecommunications and conferencing to (in the future) A.I. and VR and holography, there’s a lot that technology can do to support high quality and high productivity work, and VEL can provide it on demand at variable cost and affordable pricing.Flexible access: customers can rent VEL space and technology by the hour or by the day, in whatever configuration they prefer.Democratization and decentralization: VEL workspaces are available to all, with an aim to distribute them across the country for wide availability, whether urban, suburban, or rural, wherever work can be done.Customization and recognition: Ultimately, the high-tech VEL workspace will recognize the individual when they walk in and configure to their customized set of needs. The VEL concept removes frictions and barriers that might otherwise stand in the way of the future of work and the future of distributed entrepreneurship. As we advance towards a more entrepreneurial future across the entire business landscape, from big corporations operated by flexible, agile teams to individual practitioners, gig workers and small, highly specialized and highly networked companies, concepts like VEL will be an important part of the enabling infrastructure.
Additional Resources Mo’s LinkedIn page: LinkedIn.com/in/MoHamzian
Mentioned by Mo as a worthwhile mentoring site: GrowthMentor.com
VEL website: MyVEL.com
Bob critiques the economic views of Yuval Harari, who predicts “useless people” because of technological advances. Bob then showcases similar thinking from right-wingers. He ends by addressing a common critique of the Christian God.
Mentioned in the Episode and Other Links of Interest: Part 1, Part 2, Part 3, Part 4, and Part 5 of the BMS series on Klaus Schwab and the Great ResetBob’s book with Silas Barta on Understanding BitcoinSource for NWO compilationSource for World Government Summit panel on blockchainSource for Harari audioTim Pool episode featuring Michael Malice discussing NPCs (around 1:04:30)Schwab’s books The Fourth Industrial Revolution and Covid-19 and the Great Reset For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
This week Jeff is solo with very special guest Jimmy Rogers, the famed investor, Alabama native, and fan of Austrian economics.
To what extent should entrepreneurial businesspeople concern themselves with macro-economic variables? At E4B, our point of view is: not much. We don’t believe you can fully trust the data, we don’t believe you should put much credence in the interpretations of it, and we encourage businesses to concentrate on serving customers and generating value.
We made an exception this week to discuss the phenomenon of the inverted yield curve, because it might, conceivably, have some immediate effect on businesses and their customers. We talked with Dr. Murray Sabrin, author of Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide.
Key Takeaways and Actionable Insights The yield curve inverted. What does that mean? Technically, the yield curve inversion refers to short term interest rates on the 2-year treasury note doing above the interest rate on the 10-year treasury note.
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The reason this is of interest is that, historically, it’s a signal that the countdown to a recession has begun. At the human level, it means that market participants expect tighter short-term borrowing conditions, potentially making financing business activity more expensive and more difficult.
In reality, there’s no way to be certain of future conditions, and there are so many variables, from inflation to unpredictable Federal Reserve activities, that prediction is inevitably inaccurate.
Moreover, on their own terms, the Federal Reserve interest rate data are not consistent. The 3-month treasury rate remains 2% below the 10-year rate — no inversion there.
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Therefore, predictions of a recession should be taken with the proverbial grain of salt. It may be different this time.
What matters is what entrepreneurs do in the face of this uncertainty. Dr. Sabrin has a number of ideas and pieces of advice for businesses.
Examine conditions in your own sector rather than in macro-economic variables. Economic conditions and trends and outcomes vary significantly by sector. What’s happening in automobiles, housing, energy, and retailing is sector specific.
Look especially for those sectors where free markets are allowed to operate; there may be different trends there. For example, deflation (a continuous trend towards lower prices) might be anticipated from the technology sector as result of innovation and competitive striving, rather than the price inflation we are being promised from other sectors.
Similarly, pay greatest attention to your most relevant geography: neighborhood, city, and state. Economic conditions in Florida are a lot different than in California. Manhattan is different than San Diego. Your neighborhood might be different. Maybe your business operates internationally. Think about your relevant geography and not about the macro-economic headlines.
Focus first on your supply chain. Dr. Sabrin’s extensive research into the longitudinal success of entrepreneurial businesses emphasizes the important of reliable inputs. In risky economic periods, the supply chain may need bolstering — extra inventory coverage, additional suppliers in case of disruptions. This may be expensive and more expensive to finance amidst rising rates, but guarding against supply chain disruption is a primary concern. Don’t risk disappointing your customers because your supply chain breaks.
Maintain your most important lending relationships. If financing is a concern, look to bolster and strengthen lending relationships. Secure a line of credit. Nurture the relationship with your bank. And explore the newly emerging landscape of fintech lending — another example of free markets expanding the range of options and possibilities for entrepreneurs.
Here’s a financial landscape map from an earlier E4B podcast — use it to become familiar with the latest financing options: Mises.org/E4B_166_PDF
Your individual cost curve is not the same as that of the market. The current pervasive concern is with higher interest rates and higher costs. These are macro-economic variables. But the cost curve for your business does not have to be the same. Many suppliers will be lowering prices and offering promotions or special terms to maintain their business flow. You can take advantage by shopping around, rebidding contracts, and seeking out the most eager suppliers. Your micro-economics can be different than the headline macro trends.
Most importantly, seek opportunities within changing economic circumstances. An inverted yield curve is just another instance of continuous change, and change is the condition under which entrepreneurs thrive. They find opportunities in change. There are always growth sectors, there are always customers with needs, and there are always new openings, even when some doors are closing. The agile entrepreneur is alert to new possibilities.
Additional Resources Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide by Murray Sabrin: Mises.org/E4B_166_Book
"Financial Capital Options For Businesses at All Stages" (PDF): Mises.org/E4B_166_PDF
In a recent episode of “The Problem With Jon Stewart,” the former Daily Show host asks former president of the Kansas City Fed Thomas Hoenig why the Fed couldn’t have bailed out homeowners, or just “quantitative ease” away the Treasury’s debt. Hoenig gives muddy answers, so Bob tries to clarify.
Mentioned in the Episode and Other Links of Interest: Jon Stewart’s full interview with Thomas HoenigJon Stewart skewers Paul KrugmanJon Stewart interviews Kelton and Gray on MMTBob’s book Understanding Money Mechanics For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Jeff and Bob discuss the mechanics—and pain—required to put an end to inflation.
Read Bob's Understanding Money Mechanics: Mises.org/Mechanics
Bob completes his series on the elites who are literally trying to take over the world. He first explains Schwab’s connection to the Global Government Summit, and then finishes reading key excerpts from Schwab’s book on Covid-19 and the Great Reset.
Mentioned in the Episode and Other Links of Interest: Part 1, Part 2, and Part 3, and Part 4 of this seriesBob and Carlos Lara’s presentation, "How to Weather the Coming Economic Storms"Bob’s book Common Sense: The Case for an Independent TexasBob and Carlos’ book The Case for IBC and their book How Privatized Banking Really WorksThe WEF’s bio for its founder, Klaus SchwabSchwab’s books The Fourth Industrial Revolution and Covid-19 and the Great ResetSchwab’s address to Global Government SummitForbes’ article on Schwab the power broker. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
What drives customer behavior and customer choices? It’s the existential question for business; you’ve got to know the answer. But it’s a mystery, hard to unlock. The solution to this answer lies in what market researchers call insights, based on the Austrian deductive method that we summarized in episode #164 with Per Bylund (Mises.org/E4B_164). In episode #165, we talk to Darshan Mehta, a lifelong professional in the field, an advisor to global and local brands, an originator of insights technology, and a deep thinker in the field.
Key Takeaways and Actionable Insights Insights mark the road to innovation and differentiation and give businesses a competitive advantage. By definition, an insight is a deep understanding of the motivation of an individual: why they do what they do, choose what they choose, and stop doing what they used to do? What guides their behaviors, what they do with their time, and how they find betterment and ease?
These individual motivations can sometimes be exhibited as technology trends, social trends and cultural shifts. Insights help businesses understand the drivers of these shifts in the landscape, as well as how these shifts, in turn, change individual behavior. Causality works in both directions.
Insights are multi-dimensional, and businesses need to install multi-dimensional systems to generate insights. No single method and no single information or data source will deliver the deep and rich insights businesses need. Darshan Mehta recommends a multi-dimensional approach.
Conversations with customers This is the number one source of data for insights generation: deep, rich, personal, subjective, and revealing. It requires some skill development to be good at customer conversations. Empathy is a key ingredient — what Darshan calls “being a people person”, interested in how people feel, and with the curiosity to learn and the humility to understand that a lot of what is important to customer decision-making resides in the sub-conscious and is difficult to articulate. In fact, conversation helps people to learn how to describe their feelings and motivations, if the interviewer lets the conversation develop slowly and with time for self-reflection to dawn. The human-to-human connection factor is important, whether in a one-on-one conversation, a group setting (such as a focus group) or an online chat.
Whether your business is present in the conversation or not, customers are having those conversations, so it’s important to listen and take part.
There are tools on the econ4business.com website to frame in-depth interviews:
Contextual In-Depth Interview Method: Mises.org/E4B_165_Contextual and for listening with empathy:
Episode 33 "Isabel Aneyba: Listening From the Heart and the Techniques of Empathy": Mises.org/E4E_33 Behavior observation The Austrian deductive method comes into play when the data is in the form of behavior that we can actually observe — accompanied shopping, ethnography, buying data, shopping data, video data, eye-tracking, A/B testing. All of these give us information about behavior. The next step in insight generation is to deduce the drivers of the behavior. Sometimes we may have some conversational data or sentiment data (such as from surveys) to combine with the behavioral data, sometimes not.
The process of working backwards from behavior to motivation uses the question, “Why?” Why did they act that way? Why did they reject an alternative? What could possibly be behind the behavior? If they acted unexpectedly, or out-of-pattern, or differently than last time, why was that? The standard of 5 Why’s is often invoked to get to the deepest understanding. But it’s not the repetitive 5 Why’s of the child asking mom why they can’t have a piece of candy. The Why’s must be deeply thought-out, probing, significant Why’s to get to the next level of understanding.
Data analytics Analysis of so-called big data can make a contribution to multi-dimensional insights generation, especially if the data relates to behavior such as buying patterns, clickstreams, and cultural shifts in behavior (like Tik-Tok usage). Data can’t reveal drivers or deeply felt dissatisfactions, but it can reveal trends and even suggest some preferences (e.g., shifts in usage from one brand of social media to another). Data analysis algorithms don’t ask why, they ask what — especially what data patterns and pattern shifts can be observed. Bear this in mind when integrating data analytics into your multi-dimensional insights generation process.
Learn the language of dissatisfaction. The drivers of customer choice are always derived from dissatisfaction. Because they are seeking betterment, they must, logically, be dissatisfied with current conditions. It’s very tricky to identify dissatisfactions because the language of articulation is subjective and personal. Researchers and engineers and designers talk about “pain points”, but customers probably don’t. They may talk about what makes them “crazy”, or “upset”, or “frustrated”. Relative satisfaction / dissatisfaction could be revealed by brand-switching. Installing feedback loops for activation immediately after the customer’s product or service experience can help gather relevant data, especially if you can gather the feedback in the customer’s language rather than your own.
Insights are built through combination, recombination, and synthesis. “Insights lie where worlds collide” is a quote from Darshan’s book (Getting To Aha! Why Today’s Insight Are Tomorrow’s Facts). What he means by that is it’s a combination and recombination of conversational data and analytical data and trend observations and cultural shifts that ultimately generate the insight.
Blending and mixing and putting elements together to reveal new possibilities beats logic in the process of insights generation. Call it synthesis. And before synthesis can take place, the ability to break down wholes into component parts in a creative way is required. Analysis and synthesis, destruction and creation.
Ultimately, human emotion lies behind all insights and all innovation: experiences are feelings. Technically, the drivers of customer behavior change can be tracked to functional factors such as speed (faster), cost (cheaper), and / or convenience (easier). But beyond these lies emotion — the feeling that an experience is, was, or can be great. Customers buy experiences, not goods or services. A solution that evokes emotion results in (according to Darshan) a response that’s 12X stronger than one based on just faster/cheaper/easier. Therefore, an insight that evinces emotion — reveals it, brings it to light — is the most valuable of all.
It's important to understand the language of positive emotion, as well as the language of dissatisfaction. An experience evokes emotion when customers call it amazing or super-cool or use superlatives of that kind.
Customers bond most strongly to businesses that can align with their highest values. Beyond even the strongest emotional benefits lie highest values: lifetime values for which customers are always striving. Examples include family security — always a goal and never entirely realized — a sense of achievement — there’s always more to achieve — and a world of peace — we know today how elusive that is.
Brands that can associate themselves with these highest values — purpose-driven brands — or help customers attain them for themselves will be especially prized and loved in today’s markets. Humanizing brands in a digital world is a difficult standard to attain, and making the emotional connection with the customer on the subject of their highest and most strongly held values is the pathway.
Listen to the Economics For Business Podcast (Mises.org/E4BPod) on the role of highest values in business.
It's a modern expression of customer sovereignty that brand buyers are so active in evaluating products and services based on their assessment of the values exhibited by the corporations behind them, and that they seek to change the world through buying and not buying.
Better insights can help led us to a better world by identifying dissatisfactions and pointing to new solutions. Insights are visions of what makes us human, improving what connects us and unites us.
Additional Resources Getting To Aha! Why Today’s Insights Are Tomorrow’s Facts by Darshan Mehta: Mises.org/E4B_165_Book
iResearch.com
Jeff and Bob discuss whether America has its own oligarchs instead of Hoppe's "natural elites."
Hoppe's essay mises.org/Hoppe338 Jeff on the wrong elites: mises.org/WrongElites Bob on Piketty's bad inequality numbers: mises.org/Bob338
Think better, think Austrian is the mantra we have adopted for our Economics For Business project. Economics is a way of thinking. It’s conceptual, and its concepts can help businesses to make better decisions. The most important business decisions are those that pertain to the generation of value for customers, since that is the purpose of the firm. We talk with economist Dr. Per Bylund about exactly how the Austrian way of thinking helps businesspeople in every role to think better, and the business benefits that ensue.
Key takeaways and Actionable Insights. “Think Better, Think Austrian” means starting from first principles. Businesses are concerned with behavior — with action. The most important behavior is that of customers . Do they buy, or do they not buy?
The Austrian economics framework places people, and the effort to understand what they are trying to do, in the center of its analysis. First principles in Austrian economics teach us that people act to improve their circumstances—to somehow make things better for themselves. We recognize that people have a purpose in mind, and they make choices that lead them to attaining what they want or need.
It is from this first principle that business owners and entrepreneurs can work backwards to understand the motivations behind the actions of our prospective customers. We can ask why. And we should.
Thinking backwards reveals new understanding. If customers act in a way we don’t understand, or differently from the way we expect them to act, or hope they will act, we can work backwards from what we’ve learned without judgment and instead exercise empathy. They might do something “crazy” — like using a product in a very unexpected way, or buying a competitive product that we know to be “inferior” in some sense. We know that their action made sense to them, and that they believed they would be better off compared to alternative choices or actions. Working backwards from this understanding enables us to deduce their motivation, and what value they were seeking. We can learn from their “crazy” action and rethink our offering. We can choose to take their feedback, even if it doesn’t make sense to us, and offer them an alternative.
Thinking better requires a relationship with the customer. Successful business owners and entrepreneurs must develop a deep enough relationship with their customers to understand how they think, how they feel, and how they perceive things. Additionally, we must learn the context in which they are making their choices—there’s no such thing as a non-contextual choice. Per Bylund makes this clear when he explains that ice cream in summer is a different product choice than ice cream in winter, and clothes for business wear at the office are a different choice than clothes for working from home. Consider this: Whom does the consumer believe is observing and judging them and what standards are being applied? Those are important contextual factors to be taken into account.
The Austrian thinker considers all these influences on the customer and uses them to build and nurture relationships
We know that the ultimate purpose for customer action is the relief of some unease. How do consumers and customers decide what they want to spend their money on? Rather than asking ourselves what people want to buy, we can ask ourselves what decisions people make in pursuit of better circumstances. They start from a position of dissatisfaction. They feel unhappy, or disappointed, or feel let down or lacking in some way. Contented people don’t act. People whose every comfort has been seen to, and who lack nothing—people who aren’t experiencing any unease—don’t buy. Discontented people do. This never-fully-satisfied feeling of discontent on the part of the customer is the universal resource for the entrepreneur. It is never exhausted because people are never fully content or fully satisfied in all of their many needs.
Customers use this heuristic to calculate potential value, even though they likely have no idea they are doing it. They think, to what degree do I expect my choice to relieve my discontent? Satisfaction is achieved not so much via the benefit that products and services promise, but via the burdens that are taken away: less work, less difficulty, less effort, less cost to get to a feeling of less discontent or less fear or less concern or less stress.
Often, of course, customers’ concerns are social. How do others see me, how do I appear to them, how do I compare to others in appearance or competence or achievement? The relief of unease is always subjective and often the subjectivity comes in the form of the customer comparing themselves to others, or to their own assessment of others’ judgment of them.
The entrepreneur listens carefully to what customers say, and observes their actual behavior, then uses empathy to understand what process the customer is using to define their unease and ways to relieve it.
Additional Resources "Think Better, Think Austrian" How-To Guide (PDF): Mises.org/E4B_164_PDF
"Per Bylund on Opportunity Costs": Mises.org/E4E7
Jeff talks to Keith Weiner of Monetary Metals about why gold still plays a major role in the global economy.
Listen to Bob's interview with Keith at mises.org/BMS234 Find out more about Monetary Metals at monetary-metals.com
Keith Weiner is founder and CEO of Monetary Metals, an investment firm that pays interest on gold, and the founder of the Gold Standard Institute USA. Weiner’s mission is to provide entrepreneurial services and education to help restore gold as the world’s money par excellence.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewKeith Weiner’s bio at Monetary MetalsWeiner’s Forbes article on gold and silver coins not circulating For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Bob and Jeff get into the weeds of Disney's shareholders, revenues, and holdings in light of the company's recent spat with Florida Governor Ron DeSantis.
The medical care industry is so restrictive of individual freedoms — those of both of doctors and patients — that we can legitimately classify it as tyrannical. As is always the case, the solution will come from entrepreneurship, the creative and innovative response of individuals, doctors and teams and firms and their new business models to the dissatisfactions of patients and users of today’s system.
Joe Matarese is one of those innovative individuals. In episode #162 of the Economics for Business podcast, he described the nature and cause of the problem. In episode #163, he surveys the entrepreneurial solutions, some of which are beginning to emerge and some of which still lie in the future.
Key Takeaways and Actionable Insights As with all entrepreneurial solutions, the consumer is in the driving seat. The consumer — in this case, the patient — are clear in what they want, and what they don’t always get: quality care, accessible and convenient, at an affordable price.
Their definition of quality includes the alignment of interests between medical professionals and patients. Accessibility and convenience result from timely response to patient needs as opposed to lines, waiting rooms and delays. Affordable prices will arise when pricing is open as opposed to hidden behind the veil of insurance, co-pays, and healthcare-as-a-benefit rather than as an economic good.
Direct Primary Care is the business model that aligns doctor and patient interests. The new emerging model of membership-based primary care (see BigTreeMedical.com) is a doctor or a small team of doctors setting up an independent practice and recruiting a customer base of subscription-paying patients. In return for a monthly or annual subscription, the patient enjoys access, and one-on-one consultations on demand (usually via tele-medicine visits). The doctor is often networked into a pharmacy (or the practice obtain a pharmacy license) so the patients access to drugs is facilitated, and the prices of drugs to the patient can be lowered.
Most importantly, the patients are able to build a strong relationship with their primary care doctor. Health monitoring can be closer and more personalized, and early treatment — one of the most important variables in medical care efficacy — can be facilitated.
The direct primary care practice is networked into specialists and treatment centers so that the doctor and patient together can choose the treatment pathway that is best for the individual — tailored to individual circumstances and needs.
Personalized technology supplements the Direct Primary Care model, greatly enhancing the health outcome benefits for the patient. The direct primary care model and one-on-one patient-physician relationship provide the ideal conditions for the deployment of modern personalized technologies. Condition-monitoring watches and wristbands and other wearable or portable consumer electronics can provide the doctor with monitoring data and send an alert for any change in condition or abnormal reading. The doctor or patient can call for an immediate diagnostic consultation.
A direct primary care practice can be networked into an imaging center and a testing center for supplemental data acquisition — many of the new devices are mobile and can come to the patient, rather than vice versa, or can provide more immediate and convenient accessibility.
Personalized networked tech provides a new infrastructure for patient-directed monitoring and analysis (whereas the Obamacare “standard of practice” protocol predetermines what tests and diagnostics a patient can access, locked behind a bureaucratic gateway).
An entrepreneurial ecosystem of services will emerge to support the Direct Primary Care model. The opportunities for entrepreneurs in the new medical care ecosystem are, to use Joe Matarese’s word, endless. He cited, as an example, the Surgery Center Of Oklahoma (SurgeryCenterOK.com), which posts cash prices for surgeries online (no hidden fees), and can usually provide service within 24 hours. They take no insurance and patients pay cash. On a broader geographic scale, medical tourism destinations with open pricing give patients the opportunity to find best pricing and provide the latest equipment and top doctors.
There are cost sharing services such as Sedera (Sedera.com) that offer new ways for patients to pay for healthcare in a peer-to-peer sharing of large unexpected medical costs. Sedera’s Cash Pay Directory provides educational resources and shopping tools to “help members become savvy healthcare shoppers”.
There are negotiation vendors who help patients to get fair pricing on medical bills from the big hospital conglomerates. There are online pharmacy vendors, like Mark Cuban’s Cost Plus Drug Company (CostPlusDrugs.com), to help patients shop for the best drug values.
There are entrepreneurial services like Freedom Health Works (FreedomHealthWorks.com) to help Direct Primary Care doctors with billing systems, office tech and the business infrastructure for a modern practice.
In the entrepreneurial world of healthcare, entrepreneurs compete to provide the best and most affordable services ecosystem so that patients can enjoy the best healthcare.
Open pricing and cash payments are an important component of the new system. A big problem, perhaps the biggest problem, with the current medical care system is that the price system is not able to work in the way that it works in free markets. As Joe put it in episode #161, medical care system is “price-less”. Because payments are made by a third-party payer and not by the individual consumer, pricing becomes opaque to the user and economic calculation is rendered impossible. The third-party payment veil has resulted in price escalation and price manipulation and multiple prices for the same procedure at the same facility depending on whether the payments are immediate or deferred and the degree of bureaucratic and regulatory involvement.
If patients were to pay cash for treatments, they could make better decisions about exchange value. Catastrophic insurance for unexpected and rare events would make the use of insurance more like its application in car insurance and fire insurance — a properly priced optional spreading of risk for unexpected future events.
Consumers and physicians will collaborate in the creation of a parallel system for medical care. Joe Matarese believes the status quo medical care edifice is too rigid and entangled to reform. The solution lies in a parallel system. If consumers activate their demand for improvements in quality, accessibility, convenience and payments systems, entrepreneurs will respond with new market-based offerings. Customers will flock to them because of the benefits they perceive in contrast to the current system. Market feedback loops of satisfaction and dissatisfaction will rapidly fine-tune the new parallel system to a higher level of value and acceptance. Joe estimates that to will take only 5-10 years for the new system to take over.
Additional Resource "Entrepreneurial Solutions to Medical Tyranny" (PDF): Mises.org/E4B_163_PDF
Medicus Healthcare Solutions: MedicusHCS.com
Bob continues his series, this time focusing on the creepy worldview of WEF speaker Yuval Harari, and further reviews Schwab’s book on Covid-19 and the Great Reset.
Mentioned in the Episode and Other Links of Interest: Part 1 and Part 2, and Part 3 of this seriesThe WEF’s bio for its founder, Klaus SchwabSchwab’s books The Fourth Industrial Revolution and Covid-19 and the Great Reset“Awaken With JP”‘s episode on Schwab and HarariHarari’s talk on the future of humanity at the 2018 World Economic Forum conferenceBob’s article on the socialist calculation debate and Joe Salerno’s lecture on itForbes’ article on Schwab the power broker For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Jeff and Bob discuss the dynamics of the housing market in the context of a recent talk by Alex Pollock.
"Hazlitt, Hayek, and How the Fed Made Itself into the World's Biggest Savings and Loan": mises.org/PollockAERC
Medical care in the US exemplifies how the perverse effects of accumulated, self-reinforcing economic errors can render a system dysfunctional for consumers. As CEO of Medicus Healthcare Solutions, Joe Matarese has seen the current system from the inside — working and interacting with thousands of hospitals and thousands of providers, primarily doctors, around the country, dealing with processes, bureaucracies, government reimbursement procedures, and the full gamut of the producer side of the medical care system. In Part 1 of a two-part podcast series, he gives us the informed insider’s view.
Key Takeaways and Actionable Insights Many forces combine and interact to produce the medical care system we experience today. Politics: As in almost all cases of market destruction, politicians are highly responsible. They have decided that the medical care of individual citizens is an appropriate field for their interventions, and they meddle in their usual ignorant and incompetent fashion. Dr. Scott Atlas of Stamford University was one who documented some of this glaring incompetence and its resultant creation of the crisis response to the COVID-19 pandemic in his book A Plague Upon Our House. The impact of political incompetence on individuals’ experience of medical care is not limited to COVID-19, but Atlas’ book provides one excellent example.
Regulation: Politicians don’t just meddle; they legislate and regulate. The Affordable Care Act of 2011 is a particularly significant milestone. It created a regulatory environment in which it became virtually impossible for independent physician groups to function. Smaller and rural hospitals could not survive the regulatory burdens imposed, and many closed or were acquired by larger hospital groups. The resultant consolidation and anti-decentralization led to centralized decision-making (particularly evident in the COVID-19 pandemic, but much more broadly impactful than just that event) to the effect that individual doctors are told how to practice and how to treat their patients. The one-on-one doctor-patient relationship that flexibly exercises the experience of the doctor on behalf of the individual needs of the patient and their particular condition Is no longer operative. Doctors now apply a centrally designed pre-determined “standard of care” (and are even told by the AMA what “woke” language to use when interacting with their patients).
Bureaucracy: With regulation comes bureaucracy. Central to the medical care system is the CMS bureaucracy — The Centers For Medicare And Medicaid Services. (You can visit the behemoth at cms.gov — it’s instructive to see the breadth and depth of its reach.) This is the home, for example, of the code lists that govern medical care billing and payment policies. Every doctor must code every patient interaction and every procedure, and the code triggers a specific billing amount. The care that doctors can give patients is governed by these codes and standard-of-care protocols rather than the heuristics an experienced doctor uses to treat individual patients in individual circumstances.
Perverse incentives: Out of the regulatory bureaucracy comes a cascade of perverse incentives. The billing code system leads to one of them: hospitals and doctors will lean towards treatments and billing codes that result in the best billing and revenue outcome for them, rather than what is best for the patient. Similarly, with the fee-for-service model of the Affordable Health Care Act, there’s always the incentive to provide the service or procedure that generates the best fee.
Financial Engineering: The worst financial engineering of the medical care system is the tying of health insurance to employment, and the general misuse, misunderstanding and mispricing of insurance that results. Insurance is appropriate for classes of events (like car accidents or house fires) which are known to have distributed incidence but unknown in terms of where and when they will take place. Individuals pay into an insurance pool that can be drawn on when an unlucky individual encounters an incident; we all hope we will never have to draw on it. In health care insurance, individuals pay for coverage which they know they will draw on. They expect insurance to pay for routine things they should really pay for out of individual income or savings. Medical insurance coverage is appropriate for rare or catastrophic events, but not for everyday health maintenance. In fact, insurance totally obscures the market for health care.
The combined result of all these forces is the elimination of economics from medical care. No free market: Medical care is the epitome of interventionism. There are no unregulated voluntary exchanges between buyer and seller, in this case patient and doctor. Every interaction is regulated, bureaucratized, coded, and distorted by financial engineering. Most importantly, there is no free market pricing. Prices are the indispensable signaling and information exchange mechanisms of markets; when they are suppressed, markets can’t function. The medical care system is, as Joe Matarese puts it, price-less.
No entrepreneurship: The function that solves consumer problems in markets is entrepreneurship. Entrepreneurs identify customer dissatisfactions and devise and present solutions for consumers to choose from. Entrepreneurship can’t operate in regulated healthcare. It is suppressed. Joe pointed out that, in the few corners where an entrepreneurial breakout has occurred — he mentioned medical tourism, Lasik eye surgery, cosmetic surgery, and The Surgery Center Of Oklahoma (SurgeryCenterOK.com) — prices have been lowered, quality increased and value spread wider and wider in the market, reaching more and more consumers.
Repressed Innovation: A major output of freely priced entrepreneurial markets is innovation. Entrepreneurs bring improvement in the form of new services and offerings, improved processes, and the application of new scientific discoveries. The innovation process is highly repressed in US Health Care, as in, for example, the FDA’s long and arduous bureaucratic process for approving new drugs resulting in delays in their adoption costing millions of lives.
Replacing the free market is an edifice of massive, plodding, constraining entities. The top of the monstrous pile can probably be assigned to Big Pharma. The massive amount of funds flowing through the pharmaceutical companies empowers their commandeering of the medical community. Government healthcare agencies such as CMS, FDA and VA take up their entwined cronyist positions related to Big Pharma and Big Hospitals. Big Insurance is the financial engineering for the edifice. The bureaucracy regulates them all, but from a position of having been captured through the lobbying process. The patient sits at the bottom of this stack, squeezed by its weight, restricted by its rules, and constrained from receiving individualized care even though doctors and nurses are capable of providing it.
The COVID-19 experience was an instance of the negative consequences of regulated, bureaucratic, perversely incentivized and politicized medical care. The standard four pillars of a medical response to the COVID-19 pandemic would have been:
mitigationearly outpatient treatmenthospital treatmentvaccination Instead, we were bureaucratically and politically accelerated towards a mass vaccine solution, satisfying the perverse incentives of Big Pharma.
Mitigation could have embraced healthy lifestyles, nutraceuticals, and some stratifying of risk by patient age. Instead, it was botched with ridiculous and useless mask mandates and pointless (and damaging) lockdowns.
Early outpatient treatment for those infected would have recognized the “golden window” of outpatient treatment in the first two or three days of the case to reduce the need for later hospitalization, as documented by Dr. Serafino Fazio and others in a published paper (see Mises.org/E4B_162_Paper), with drugs like ivermectin and hydroxychloroquine, but these were ridiculed, and their use repressed. By the time hospital treatment is needed, the condition has changed from one of inflammation and clotting to pneumonia and lung infection, with potentially worse outcomes. The use of remdesivir was centrally authorized, and this drug is much more expensive and risks worse side effects than the early treatment drugs.
The four pillars were abandoned for the centrally planned decision of mass vaccination.
There is a pathway out of medical tyranny. Principles of Austrian economics can help us find the way out of the current situation. Some of the principles we might apply include:
Let free markets operate: The medical care edifice refutes and represses free markets and market pricing. The first step in a solution is to restore markets to medical care.
Customer sovereignty: Markets are built around the consumer as “the captain of the ship”, determining the purpose and direction of the voyage. Consumers would exercise their sovereignty in a one-on-one relationship with their primary care physician.
Decentralization: Decisions in markets are made close to the customer and not via centralized bureaucracies.
Network versus hierarchy: Austrian economics views markets as networks of specialized nodes connected by 2-way information flows and provider-consumer interactions. The medical care edifice is a hierarchy not network.
In Part 2 of "Entrepreneurial Solutions to Medical Tyranny," Joe Materese will identify some specific ways that we can build a parallel system outside the edifice to bring back consumer sovereignty and free markets.
Additional Resource "Entrepreneurial Solutions to Medical Tyranny" (PDF): Mises.org/E4B_162_PDF
Medicus Healthcare Solutions: MedicusHCS.com
Jeff and Bob Murphy talk about the state of gross economic ignorance in America today.
Lessons for The Young Economist: Mises.org/YoungEcon
Understanding Money Mechanics: Mises.org/BobMoney
Your individual experience is a business asset. Life is teaching us more than we sometimes realize. An insightful analysis of what we’ve experienced, combined with purposeful translation, can generate unique intellectual property on which to base a unique approach to business. Connie Whitman joins Economics For Business to share her experience and her development of a thriving, resilient, and adaptive coaching and training service.
Key Takeaways and Actionable Insights Experience is an asset that reveals our business superpowers. Life teaches us whether we fully realize it or not. While climbing the job ladder at a firm may seem like the pursuit of credentials and titles, it’s better understood as an accumulation of knowledge and learning that can be applied in the future in entrepreneurship.
Connie Whitman enjoyed a 20-year career in financial services up to the SVP level. It was her customers who pointed out to her what “superpowers” she was developing — a distinctive capacity to assist all parties in a complex collaborative contract to fully understand the benefits accruing to each one of them individually and all of them collectively.
We all can have these superpowers, but we don’t always realize them until a third party points them out, through asking for input or advice or seeking us out or praising us. It’s important to learn the right kind of self-assessment — and to learn to listen to others’ assessment of us — so as to be able to understand our own superpowers.
We can translate our experience into intellectual property that forms the basis for an entrepreneurial business.
Connie Whitman transformed her experience into both a brand philosophy and a scalable methodology. Connie knew from her experience in business that the function entitled “sales” is often viewed negatively: sales activities and salespeople might be accused of rapaciousness and avarice, however unjustified such accusations may be. She intended to develop a service in coaching and training in the sales field, and so it was important to distance herself from these misperceptions. Her counter was selling from a place of love: relationship selling based on love, respect, and integrity. Selling is the construction of an “everybody wins” proposition. It’s an honorable implementation of the entrepreneur’s ethic of service. Anyone using Connie’s techniques would evoke for themselves a feeling of pride and self-respect that the critics of the sales function try to deny.
She crafted a methodology for selling from a place of love in the form of a seven-step selling process. It is replete with Austrian principles of subjectiveness, empathy, and customer sovereignty.
Preparedness: Planning in advance to assemble all the knowledge and understanding available to make you informed and ready; anticipating what the customer will want to know and is likely to ask.
Connecting: Using empathy to connect on the basis of what’s important to the customer in order to establish credibility.
Exploring: Asking questions to learn as much as possible about the customer’s needs and preferences in the context of their current circumstances.
Active Listening: Connie’s phrase is “be present” — listen intently and indicate that you have heard accurately by asking follow up questions to further explore customer needs.
Presenting Solutions: Framing all value propositions as a solution — reliving customer unease.
Confirming: The process of closing the sale, actively asking the customer for their business.
Following up: Consistent, persistent, and respectful (CPR) follow up to confirm satisfaction and potentially extend the relationship.
Connie’s method has evolved and improved over the years — nothing is ever fixed, and all businesses adapt and learn. Yet this intellectual property developed from experience has proven to be solid capital generating both revenue flows and client satisfaction, not to mention word-of-mouth recommendations and references.
Business-building is a function of your network — another piece of intellectual property born of experience. You meet many people in your professional career and you make many connections. Your network is another IP asset. It’s one you should groom and keep fresh and active, turning it into another business asset.
An IP business can be lasting, but you may have to refresh the infrastructure. Connie’s in-person, face-to-face business model was challenged during the COVID pandemic. When business travel stopped, and a lot of sales training budgets were cut. The IP remained valid. The market signal was for her to digitize the business. She took classes and hired consultants to learn how to achieve domain authority. She educated herself on the technology required for digitization of her individual business model, and the processes for digital engagement that were consistent with her 7-step process and principles. The result has been further growth, and the continued fulfillment of pursuing her business goals, and realizing new ones.
Your entrepreneurial IP business can become your most fulfilling experience. Connie describes her entrepreneurial experience as immensely fulfilling — the most rewarding thing she has done in her life. It’s the realization of the value accumulated over a career, and the new value shared with clients in providing service to them. It has been tremendously hard work, of course, and has required some challenging resource allocation decisions — of both time and money — but the reward greatly exceeds the sacrifice.
Additional Resources "Connie Whitman’s Seven-Step Sales Loop" (PDF): Mises.org/E4B_161_PDF
ESP—Easy Sales Process by Connie Whitman: Mises.org/E4B_161_Book
Connie’s website: WhitmanAssoc.com
Changing The Sales Game podcast: Mises.org/E4B_161_Pod
Bob continues his series on Klaus Schwab and the Great Reset, highlighting an interesting remark in Biden's SOTU, Strobe Talbott's open support for global government, and the introduction to Schwab's book on Covid-19 and the Great Reset.
Mentioned in the Episode and Other Links of Interest: Part 1 and Part 2 of this seriesThe WEF’s bio for its founder, Klaus SchwabSchwab’s books The Fourth Industrial Revolution and Covid-19 and the Great ResetBob’s first co-hosted Human Action podcast with Jeff DeistForbes’ article on Schwab the power broker For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Entrepreneurs can realize their goal to think better, think Austrian by taking a systems thinking approach. We can ditch linearity and hierarchies in favor of distributed networks and webs of causality and create better knowledge – more aligned with the real world — and better mental models. Professors Laura and Derek Cabrera of Cabrera Research Lab and Cornell University — leading authorities on systems thinking — speak to Economic For Business on the application of systems thinking for entrepreneurs, and everyone.
Key Takeaways and Actionable Insights There’s a crisis in thinking in the business world. Laura and Derek Cabrera have conducted deep research in the field of business thinking, and they’ve identified both the problems and the solution. The problems include reductionism (we’re taught to think about parts of systems instead of the system as a whole); hierarchical organization of thinking (versus complex distributed networks); thinking in categories versus breaking down part-whole groupings; thinking in terms of liner cause-and-effect versus webs of causality; and the prevalence of bivalent logic (right/wrong, black/white) rather than the multi-valent logic of many right answers.
This way of thinking is not well-aligned with the realities around us. The solution is systems thinking — the thinking of complex adaptive systems.
Systems thinking aligns with how the real world works. Our mantra at Economics for Business is Think Better, Think Austrian. Systems thinking is better thinking (and Austrian economics fully embraces complex adaptive thinking — what Mises called constant flux and Hayek called spontaneous order and Lachmann called the market as a process of combination and recombination).
Systems thinking defines complex adaptive systems in this way:
Autonomous agents follow simple rules based on what’s happening locally around them, the collective dynamics of which lead to the emergence of the complex dynamics we see.
This description is actually a mental model of a complex adaptive system. The products of systems thinking are mental models. None are perfect representations of reality, but they help us when they are better representations of reality.
Four simple rules of systems thinking produce better mental models. By following 4 simple rules, over and over again, anyone can become a practiced and adept systems thinker. The rules are captured in the acronym DSRP.
D is for Distinctions. Systems thinkers make distinctions between different things and different ideas. We can make distinctions between different customers, different costs, different sales channels, different suppliers, different employees. We identify boundaries, what’s inside and what’s outside. We differentiate, compare, and contrast.
S is for organizing ideas into systems of parts and wholes. Every thing is a system because it contains parts. Every e-mail contains words which contain letters which are made up of pixels. We construct meaning when we organize different ideas into part-whole configurations. We split things up or lump them together in systems of context. We group, we sort, we classify, we assemble.
R is for identifying relationships between and among ideas. We can’t understand much about anything without understanding the relationships between or among the ideas or components. Relationships include causal, correlation, feedback, inputs/outputs, influence, etc. Fundamentally, relationships are action and reaction. We live in an infinite network of interactions, including between our own thoughts, feelings, and motivations. We connect, interconnect, associate and join.
P is for looking at things from different perspectives. When we make a distinction or identify parts and wholes or identify a relationship, we are always doing so from one particular perspective, made up of the point from which we are viewing and the thing or things in view. Being aware of the perspectives we take is paramount to understanding ourselves and the world around us. If we change the way we look at things, the things we look at change. We frame, we interpret, we empathize, and we negotiate from a perspective.
Systems thinking is not a set of steps but a set of rules, and from the interplay of these rules emerges the dynamics of systemic thought.
There are four types of action for systems thinkers applying the DSRP rules. 1) See Information and structure. To construct meaning and mental models, we take in information and structure it. It’s important to recognize the difference between the information and how we structure it. A good way to do this is visualization: use whiteboards or sticky notes or software to map out systems and parts (e.g., boxes within boxes on a chart) and relationships (lines between the boxes). This physical manifestation of a system can help create new knowledge and point to solutions.
Laura and Derek told the story of a large conglomerate business that, by visualizing its divisions and functions and the information flows between them, was able to identify redundancies, see where communications and information was lacking or blocked off, and design a new and improved structure.
2) Use common patterns in the structure of mental models. Laura and Derek use the term cognitive jigs: forms of information structuring that can be used again and again. A list is one type of cognitive jig. It can be used to order priorities or structure wholes into parts. Similes and metaphors are jigs. There’s another called a relationship distinction system (RDS) that can help solve silo problems in organizational design by identifying required relationships and the people responsible for them, and the resources required to operate the relationship. Excel spreadsheets and tables are jigs. Look for useful cognitive jigs and use them over and over again. They increase the efficiency and speed of thought.
3) Make structural predictions. Austrians are wary of predictions because we know the future is uncertain. Here, we are not talking about predicting the future, but predicting the possibility of new knowledge existing after restructuring information. For example, a new relationship opportunity could emerge if we change our perspective. A new understanding could emerge if we break something that we were treating as a whole into its parts. We can identify gaps in our current thinking and make a bet that there’s something positive in changing that thinking. We can create new knowledge.
4) Embrace the logic of and/both. We are taught bivalent logic: there’s right and wrong, there’s black and white, there’s X and Y. There’s an alternative: multivalent logic. There can be more than one right answer. There can be a continuum rather than fixed points.
One example of multivalent logic applies in the analysis of what customers want. They have a variety of preferences, ordered in different ways at different times and in different contexts. They are continuously learning what to want, and always making trade-offs. Bivalent logic won’t help entrepreneurs understand customers’ choices or decision-making processes.
Another example of bivalent versus multivalent logic is cause and effect compared to a web of causality. We tend to think of cause and effect as neighbors on a timeline. The cue ball of cause strikes the colored ball of effect and moves it in a designated direction. But it’s more realistic to think of the events of our lives or our business having multiple causal factors. There are so many mediating factors and external and internal variables that lead us to be more systematic in our thinking about them. Purposely look for webs of causality rather than shoehorn observed phenomena into a linear causal model that doesn’t match the reality of the world.
Systems thinking includes the recognition of individual subjective purpose and intent. The perspective of methodological individualism leads Austrians to worry about whether systems thinking is well-aligned with Austrian thinking. I asked Laura and Derek this question. The response: “I would say that’s precisely what systems thinking entails — the notion that each individual agent is following simple interaction rules with other agents, and that those interaction rules are leading to the system and its emergent properties.
An example of an interaction rule from Austrian economics: humans act in order to improve their circumstances. Another is that they use their own subjective value system to determine what is an improvement. The action axiom, subjective value, opportunity cost in choosing between alternatives, profit and loss and the context of constant change are the simple rules of Austrian economics.
Practice, practice, practice. Systems thinking is something everyone should be able to do. It can be practiced. Our brains are already building mental models about the world. It’s already in us and so it pays to be aware of it.
It’s like any exercise: more reps make us stronger. Look at anything through the DSRP lens when you are feeding your dogs or driving down the highway observing billboard advertisements. Make the neuronal pathways of DSRP second nature.
This can occur at the level of individual learning or of organizational learning. In episode #152 (Mises.org/E4B_152), we discussed the organizational model of VMCL — an organization using learning to acquire the capacity to do its mission every day to achieve its vision.
Additional Resources "How to Become A Systems Thinker" (PDF): Mises.org/E4B_160_PDF1
"Practical Systems Thinking Actions and Behaviors" (PDF): Mises.org/E4B_160_PDF2
Systems Thinking Made Simple: New Hope for Solving Wicked Problems by Derek and Laura Cabrera: Mises.org/E4B_160_Book
Cabrera Research Lab: CabreraResearch.org
Jeff and Bob discuss Biden's SOTU, the immorality of sanctions, and Fed chair Powell's pregnant comments.
This week, Jeff and Bob discuss oil prices. Why are gas prices spiking in the US, and what are D.C. politicians planning for oil companies?
In this episode of Liberty vs. Power, Dr. Patrick Newman and Tho Bishop look at the connection between the imperialism of the Jacksonians and the corruption of America as an "empire of liberty." As manifest destiny — and the annexation of Texas — brings the United States to the Pacific Ocean, and the issue of slavery heightens sectional differences in Washington, the party of Jackson and Van Buren comes to embrace many of the same policies that it was created to tame.
Recommended Reading "Shadow Imperialism: American Filibusters in Latin America" by Chris Calton — Mises.org/LP11_A
"The Folly of 1845: Texas and the Evils of Annexation" by Ryan McMaken — Mises.org/LP11_B
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Rory Sutherland, Vice-Chairman Ogilvy UK, is a peerless marketing authority, revered throughout the business world. He published a blogpost with the title Wanted — an Austrian School of Marketing. In praxeology, subjective value theory, customer sovereignty, and ordinal value stacks, he identified the building blocks of a marketing approach for our digital age. We talk about it in Economics For Business #159.
Key Takeaways and Actionable Insights Mainstream economics has the wrong narrative about capitalism and, consequently, a misconception about marketing. Mainstream economics fetishizes efficiency, and regards marketing as a cost and an add-on business activity rather than fundamental and essential. There are multiple erroneous assumptions about consumer behavior such as adhering consistently to transitive preferences, perfect trust, and knowing to the penny how much utility will be derived from every transaction. Utility is defined in a circular fashion (consumers act to maximize utility / how do economists know what utility is / it’s the value that consumers try to maximize).
The influence of mainstream economics on business is to favor a focus on what Rory terms “instrumental objective means of business growth”, such as lower prices, and wider distribution. Business becomes obsessed with quantification, and, because value is not quantifiable, looks for other outcomes that can be quantified and used to justify investments. This approach misses the key point: that the marketing tournament is played out not in the objective arena, but in the subjectivity of the consumer’s mind.
Ludwig von Mises developed the science of understanding human behavior, and provided a unique economic underpinning for marketing. Mises introduced the new method of praxeology, making Austrian economics an entirely different science than mathematics-based economics. It’s the science of human behavior, of action, and can be combined with psychology and evolutionary biology in the development of a superior mental template for understanding business.
For marketers, the most telling understanding from praxeology is the consumer’s drive to relieve uneasiness. Mises phrases it: “The incentive that impels a man to act is always some uneasiness.” Note the terms “impels” and “always”. These are powerful insights for marketers. But more is required for action: “the expectation that purposeful behavior has the power to remove ….the felt uneasiness”. This is the task of marketing: to create such an expectation.
The relief of unease is the consumer’s primary drive, and therefore the proper focus of marketing. There is no need, as Rory phrases it, for marketers to “ladle on the positives” in their communications. Removal of unease works differently. It creates the expectation that uneasiness can be removed by actions the consumer takes.
Reputation, for example, is a reassurance to customers that they won’t be disappointed, and that promises made can, with some confidence, be expected to be kept.
A strong brand is a special form of such reputational reassurance.
Investment in a costly advertising campaign with high production quality can remove unease about the credibility of a seller — someone willing to invest in advertising must be confident that there will be widespread acceptance of what they’re offering, giving the buyer a corresponding confidence of not only quality but also social endorsement.
Guarantees, samples, and easy return policies are examples of widely used and effective unease-reducing marketing initiatives.
In fact, anything that reduces the work that customers need to do to enjoy the product or service (such as, for example, home delivery) can relieve unease and increase the value experience. Economists might call this reduced opportunity cost or transaction cost. Whatever the terminology, the unease-reduction approach is the most powerful marketing method.
One example Rory cited was that of zoom. While the technology has been well-established for some time, zoom was bedeviled by the problem of social unease in the early phases of its establishment. Is an electronic meeting as effective as an in-person meeting? Will a client think less of a service provider who doesn’t fly to see them, irrespective of the quality of the remote, technology-enhanced communication?
The analysis of unease — especially the socially-contextual unease inherent in a service like zoom — is a really important element in the understanding of value generation through marketing. Austrian school marketers can develop a special understanding by asking more questions about how best to reduce unease rather than how to increase desirability. Rory used the example of range anxiety for potential buyers of electric vehicles. Their anxiety about possibly running out of power before finding a charging station might be irrational based on their physical environment and infrastructure, but the anxiety nevertheless governs purchase and usage and demands relief.
Marketing is built on an Austrian understanding of customers and their subjective heuristics of value perception. Customers’ perception of the potential for the relief of unease is subjective and emotional. The appreciation of goods and services is not merely a product of their objective characteristics. Value for consumers can be created through psychology, not just through production. Value is a consumer experience, an emotional response driven by a subjective sense of what matters to them, embedded in context, story and meaning.
Changing consumer behavior is not a function of the objective reality of product and price. Marketers who focus just on these elements are “playing with a limited deck”, in Rory’s words. The presentation of a good or service to customers is fundamental to the value proposition. It’s not an add-on or an optional extra for business. Marketing can change customer’s minds through reframing, through changing the social context, or through any one of many, many more ways to change how they look at things.
Consumers evaluate through heuristics rather than rational calculations of economic benefits and costs. The marketing power of brand or reputation is a customer heuristic: a firm that has invested in its reputation through quality and service, reliability, and consistency in keeping its marketing promises, as well as cultivating its online ratings, will be rewarded in the marketplace. Customer disappointment — resulting from a failure to consistently keep promises — will be punished. Reputation and disappointment, of course, are subjectively perceived.
Austrian marketers thrive on the feedback loops. As Rory puts it, some people like plain white bread and some will pay $10 for a sourdough olive focaccia loaf. Marketers explore all the possibilities in a market — they embrace the messiness of customer preferences and the whimsy of their choices. Perfect competition deprives customers of these whimsical choices; it commodifies what’s offered by suppliers.
If markets were designed by suppliers there’d be less variance but also less resilience (fewer options). Markets are designed by consumers and value is created in customer-initiated experiences, facilitated by suppliers who listen and respond well. Consumers get what they want via feedback loops, sending signals back to the marketer about what they want and don’t want, and what they’ll buy and won’t buy.
Brands especially welcome market feedback so that they can align more and more tightly with consumer preferences, and customize the branded experience to an ever-greater extent, reinforcing the brand-consumer bond. It is the consumer feedback loop that drives innovation. Marketing is the listening and alignment function. It’s essential to the workings of capitalism. It is the tool for synthesis of value through the imaginative redefinition of what people value, based on their signals.
It is the Austrian perspective that deals so well with the unpredictability of marketing successes. Another limitation of conventional economics and quantification-obsessed businesses is the search for one right answer. Such restricted models of reality are dangerous. What capitalism and marketing are good at is coming up with multiple answers — increasing the potential solution space for problems, and increasing the number of ways to relieve unease.
The answer to any customer demand is never one thing, it’s multiple options for different value-uncertain customers to choose from. Sometimes there are what Rory calls “opposite things” (Red Bull and Coca-Cola) or sometimes multiple different things (a wide range of single serve beverages for a wide range of consumers in a wide range of situations).
Rory is an expert on unpredictable marketing successes. In his book Alchemy, he describes the “magic” of marketing and some of its unpredictable outcomes. One of the notable ones was the success of Red bull, a beverage brand that, according to research among its own consumers, “tastes kind of disgusting”. The testing agency had never seen a worse reaction to any new product. Why is there such unpredictability? As Rory puts it:
Models of human behavior devised and promoted by (mainstream) economists and other conventionally rational people are wholly inadequate at predicting human behavior.
Red Bull “hacks the human unconscious”. It has potent associations with risk taking behavior, with myths about the power of caffeine and taurine, with perceived signaling effects, and with several more psychological placebos. These have nothing to do with product and price, and make the success of Red Bull unpredictable.
Another way to say this is to call Red Bull’s success an emergent property. The future is unpredictable, but so is the past (we can’t really explain Red Bull’s success), even though we attempt to post-rationalize. It’s just one of several possible outcomes and we don’t truly know the story and how it happened.
Austrians’ embrace of emergent outcomes in free markets with freedom of choice makes marketers perfectly comfortable with unpredicted outcomes.
Much of business success is luck, instantiated by entrepreneurship and enabled by marketing. As a consequence of this unpredictability, extraordinary business success is a function of luck and timing. Business outcomes are largely probabilistic rather than deterministic. Sadly, 80% of the effort in business is applied to pretending that it is deterministic — in the form of planning and strategy activities for example.
The time and place of “take off” for new innovations and marketing campaigns is entirely unpredictable. There are two influences that can bring a little more certainty. One is the role of the entrepreneur, who is likely to be more single-mindedly focused and more persistent in betting on a single innovation than a larger corporation that has a portfolio and a risk-averse bureaucracy.
The second is marketing, which has the capability to change customer psychology and change their frame of reference, transforming a bleeding edge concept into something inevitable and compelling. Early-stage adopters are often seen as somewhat crazy (i.e., there is limited socially contextual acceptance for the innovation), and marketing can accelerate the adoption curve by reducing or eliminating the value uncertainty of more customers more quickly.
Importantly for marketers, Austrian economics takes a process view of markets, in which people and their preferences and their individual and social behavior are constantly changing. This “constant flux”, as Mises worded it, gives energy to marketing as a stimulus for innovation, improvement, and promises of better alternatives.
Additional Resources "The Austrian School Of Marketing" (PDF): Mises.org/E4B_159_PDF
Rory Sutherland's blog post: "Wanted — an Austrian School Of Marketing": Mises.org/E4B_159_Blog
Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life: Mises.org/E4B_159_Book
Rory Sutherland on YouTube: "Praxeology: Time To Rediscover A Lost Science" (There’s a special frame at 8:10): Mises.org/E4B_159_Video
In this episode of Liberty vs. Power, Dr. Patrick Newman and Tho Bishop look at the record of the Jackson administration on trade, spending, and corporate privilege, and how it tied into a larger shift within the Anglosphere.
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Entrepreneurship-as-design is brought to life in a wonderful conversation with Mark Romera, who conceived, designed and brought to market a values-driven vision of kids having fun playing in their backyards, via an impeccably crafted brand named Spimbey.
Key Takeaways and Actionable Insights. Entrepreneurs can identify innovation opportunities even in the most established fundamental routines of everyday family life. What’s more basic than kids playing with physical toys in the family back yard, running round, having fun, connecting with others? It’s fundamental to family life in the neighborhood. Yet, kids don’t get that experience so much these days. How to bring it back? That’s an entrepreneurial question that Mark Romera answered with Spimbey, a brand new playset product he designed and launched though his company, Spimba.
First, choose your customer. Mark chose Mom. Kids are users, but Mom’s the customer. She’s part of a family with target-age kids and some backyard space. She wants her kids to have fun, play safely outside, play with others, and develop themselves physically and mentally. She worries about how much time kids spend on their digital screens, and how that affects their development.
How does an entrepreneur develop the requisite deep knowledge about Mom? Talk to her; engage her in conversation. Go where the play takes place — the back yard.
Distill a complex need into a simple solution. Already, there’s a lot of complexity. Mom, kids, families, playthings and the materials they’re made with. This brings in safety considerations and regulations, as well as design and manufacturing needs and marketing and distribution needs. The best way to get started is work backwards from the simple solution — the concept of a finished playset, easily assembled by Mom or Dad in a suburban backyard. It needs to be simple for Mom to understand and picture in her mind, and all her questions (like safety and ease of assembly and sustainability) must have simple answers.
From this simple vision, entrepreneurs work backwards in a disassembly process to identify everything they’ll need and the network design to bring it all together.
Design and assemble a flexibly networked internal and external team. Mark was a sole founder. First, he assembled his team in answer to the questions, who can help me with this journey? He also had flexibility for when and where he needed team members. For the “internal” team (not necessarily employees but performing functional management roles) he looked for process development, product development, brand development and web development. He made careful decisions about types of people, level of experience and the ability to take responsibility in an agile process. Most important was brand alignment — a premium, high quality, high integrity brand presentation requires team members of an appropriate caliber who understand reputation building and high consumer trust.
Next, he focused on assembling the external support team: design, safety experts, materials experts, testing labs and safety certifiers aligned with the appropriate regulatory regimes, manufacturing partners, external sales and customer service experts, logistics, freight and delivery partners. The entire value network must be linked, and scheduled for the right inputs at the right time, all working backwards in the calendar from the critical date, which is the high season for retail sales of playsets. Co-ordination of value network nodes and information flows with process inputs, sequences and handoffs is a complex exercise which must be programmed before any work commences.
The design process is a combination of creativity, rigor, networking and collaborative integration. As we’ve learned, much of entrepreneurship is a design process, to get from a concept that’s generated internally to a completed product or project that can meet the rigorous demands of the external world, including Mom and the safety regulators, and the guardians of the distribution channels.
The design concept must take a form that everyone involved in the design process can see and understand in an appropriate way, without contradictions or misunderstandings. Then the appropriate design parameters must be assigned: safety, durability, ease of assembly and ease of use, manufacturability, regulatory compliance, freight and packaging constraints. Many of these design inputs must be outsourced — to computer design shops, materials specialists, manufacturers who can impose their own restrictions, warehousers and freight carriers who have specific requirements.
There is a lot of iteration, adjustment, change management and process orchestration to be managed as the design concept advances towards the market and becomes more and more solid, complete and comprehensively detailed. Mark emphasizes meticulous planning, and a calm demeanor with clear communications to keep the network aligned and on the same page.
Branding is a critical element. The product is physical, but the benefits are psychological. This includes the sense of fun and easiness for the kids, and the feeling of satisfaction and safety for parents. These psychic benefits must be captured in the brand presentation, both online and in physical elements like design and color and packaging. For Mark, his brand is his philosophy, captured in communication, presentation, design, production and delivery.
Mark Romera’s personal entrepreneurial journey passed through various business roles and experiences before branching into entrepreneurship. Mark worked in growth marketing, business intelligence, new business development and as an independent consultant solving strategic problems for business clients. As his responsibilities increased, he often felt like an entrepreneur inside the corporation. In growth marketing, he learned the power of testing supported by data. Test everything, without waiting for too much discussion about the pros and cons of an idea or concept. If it works, scale it up, if it doesn’t, try to understand why based on the data you’ve collected. Testing and experimentation produce data, and data reduces uncertainty. The data cycle requires speed for success, and not conventional structures or decision-making processes that slow things down.
Entrepreneurship brings unique psychic rewards. With his growth hacking and exploit-and-expand experience, Mark felt ready and eager to step into entrepreneurship. He told us he wanted something more, because something was missing. He wanted the freedom to develop his own ideas from scratch and to create something new and cool. The psychic reward from entrepreneurship is special. It combines the challenge of immediate implementation and a successful sales season with the long term vision of building a global brand, extending a product line, and gaining acceptance in markets worldwide.
The entrepreneurial journey for Mark is immediately highly rewarding with the long term prospect of increasing achievement and success.
Additional Resources Mark Romera’s "Entrepreneurial Journey as a Design Process" (PDF): Mises.org/E4B_158_PDF
See the completion of the journey: Spimbey.com
Bob explains the friendly exchange he had with Dave Smith regarding the new Johns Hopkins study that concluded lockdowns did little to reduce mortality. Smith had tweeted that in a sane world, all those favoring lockdowns would be publicly disgraced, while Bob argues that these studies are so open-ended that people on both sides can reasonably ignore those that disagree with their preferred conclusions.
Mentioned in the Episode and Other Links of Interest: Dave Smith’s original tweet about the Johns Hopkins studyBob’s article on Nordhaus vs. the UNA Reuters “fact check” that cites Johns Hopkins experts on why lockdowns DO workA Politifact pushback on Johns Hopkins study For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
General Andrew Jackson, fresh off the election of 1828, assumes the office of the presidency, armed with a battle plan to bring down the institutions he blames for the corruption of the republic: America's National Bank.
In this episode of Liberty vs. Power, Dr. Patrick Newman and Tho Bishop look at the Jacksonians' embrace of executive power and their battle against Nicholas Biddle of the Second Bank of the United States.
Recommended Reading "Bureaucracy and the Civil Service in the United States" by Murray Rothbard — Mises.org/LP9_A
"The War on Cash: Old and New" by Louis Rouanet — Mises.org/LP9_B
A Short History of Paper Money and Banking in the United States by William Gouge — Mises.org/LP9_C
The Jacksonian Persuasion: Politics and Belief by Marvin Meyers — Mises.org/LP9_D
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Bob has Steve Patterson back on the show, to concede that Steve’s skepticism of higher mathematics was right all along. Specifically, Bob explains how his recent discovery of a theorem from Riemann showed that something is indeed rotten in the way mathematicians typically handle infinite sets.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewSteve Patterson’s website and YouTube channelSteve’s interview with NJ WildbergerA great summary of Riemann’s Rearrangement TheoremThe BMS episodes on Godel’s Incompleteness Theorems and Arrow’s Impossibility TheoremSteve’s previous appearance on the Bob Murphy Show For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
The terminology of complex adaptive systems sounds academic and abstruse, but the subject is not: it’s about the real-life, in-your-face problems and challenges that face a business every day. The secret to solving the challenges of complexity is adaptation. Luca Dellanna, a business expert on the subject, joins Economics For Business to explain how any firm and all management teams can harness the power of adaptation.
Key Takeaways and Actionable Insights Complex systems are a business’s everyday environment, and every business behavior is an adaptation. Every action a manager or leader takes should be aimed not just at its direct outcome but also for the adaptations triggered in your team, i.e. the longer term, second order future behaviors that are made more likely as a consequence of the immediate action. Take motivation as an example. Motivation results less from direct efforts (such as a “motivational speech”) but rather from the establishment of an environment in which good effort is recognized and rewarded. Your system action could be as simple as checking back with employees regarding assignments very quicky and providing feedback. This shows that their behavior is observed, appreciated and valued — a motivational environment to which they will adapt positively. A different environment can be demotivating, with negative long term consequences.
Fast, tight feedback loops are the engines of adaptive systems. Feedback is the energy of adaptive systems, and Luca urges that the feedback loops must be fast and tight. After-action feedback should be as close to immediate as possible, so that there is no uncertainty about whether action is praiseworthy or not. Dashboards and end-of-period bonuses are too delayed for motivational purposes. Similarly, feedback should be highly specific to the action in question, as opposed to a general — and, even worse, vague or unclear - evaluation. These “motivational moments” or “mission moments” can contribute to the sense of a shared mission and vision.
The opposite case can generate “motivational losses”. When a team member or colleague shifts from motivated and engaged to unmotivated and disengaged — ready to quit perhaps — it’s a motivational loss. These can be avoided. Treat these occasions as incidents, to be investigated and addressed. Usually, the best solution is productive clarity, because motivational losses usually occur in the event of unclear objectives or unclear directions. The solution to lack of clarity is to make it impossible to be misunderstood, and to do so from the very outset, so that there is never a need to be remedial.
People have mental contracts, and it’s important to understand and empathize with them. We all have two contracts, the one we sign, and the one in our mind which includes a host of intangibles that are unexpressed in the written contract. We might expect to receive promotion after an appropriate period of hard work, even though there’s nothing in the written contract to that effect, nor has anyone made us that promise. It’s an implicit contract. It’s important to identify and understand these mental contracts, and to end, through clear communications that can’t be misunderstood, all misconceptions that can lead to unfulfilled expectations.
Signaling must be clear and costly. Leadership behaviors act as signals to the rest of the organization. The signals must be clear and unambiguous. Words can be misunderstood or can be perceived as self-contradicting when there is inconsistency. Behaviors can be more clear and more consistent. Luca gave a safety example: instead of instructing individuals to wear helmets in unsafe areas, managers should go to wear the work is being done, and demonstrate the behavior. The more “costly” the signaling behavior to the manager, the more clear the signal. Luca gave the example of the founder of the Dupont explosives businesses living with his family at the factory where explosives were made. He put “skin in the game” to demonstrate the importance of safety in a notoriously unsafe industry — a costly signal, and one that had the desired effect.
How to become a systems thinker: practice adaptive thinking and apply it to yourself. Adaptive thinking can be practiced. It can become an expertise. Think through every reality to determine how other individuals are adapting to behaviors of others that concern them or affect their work. How do people adapt to the words that are spoken to them, or the instructions that are given to them? What are the likely second and third order effects? Always ask yourself, how is the system adapting?
Then apply adaptive principles to yourself. Fashion tight and specific feedback loops for yourself so that your actions generate immediate feedback. How are people adapting to your actions? Make sure you are using the right mental models. Check your assumptions.
Additional Resources Luca-Dellanna.com
"Managing Adaptive Systems" (PDF): Mises.org/E4B_157_PDF
The Power of Adaptation: A Guide to Bottom-up Growth that Lasts by Luca Dellanna: Mises.org/E4B_157_Book
Teams Are Adaptive Systems: 12 Principles For Effective Management by Luca Dellanna: Mises.org/E4B_157_Book2
Antifragile: Things That Gain from Disorder by Nassim Nicholas Taleb: Mises.org/E4B_157_Book3
A recent New York Times article featuring economist Stephanie Kelton and her (disastrously misguided) book on Modern Monetary Theory garnered criticisms, but not from the usual sources. No less than economist Larry Summers, former Treasury secretary and Harvard president, weighed in to criticize the Times for giving credence to MMT (he likened it to "quack cancer cures"). Reliably leftwing economics writer Noah Smith chimed in on substack to call MMT a "fringe ideology" and lambaste its lack of macroeconomic foundations. But a backlash ensued: several female economists claimed the criticisms of Kelton (and MMT) were rooted in sexism, bemoaning the male-dominated nature of the economics profession. And as with all academic or professional disciplines, "diversity" is now not only a buzzword but an open requirement in hiring. I asked Baylor professor and Mises Institute senior fellow Dr. Peter Klein to join the show and give us his behind-the-scenes view of the increasingly politicized economics profession.
Read the Times article: Mises.org/KeltonNY Bob Murphy's review of Kelton's book: Mises.org/KeltonBook Noah Smith's review of Kelton's Times article: Mises.org/KeltonNoah
The election of 1824 pits the Old Republicans against the entrenched interests of one-party rule in America. In this episode of Liberty vs. Power, Dr. Patrick Newman and Tho Bishop discuss the collapse of the first party system of the United States, the corrupt bargain that haunts the political career of John Quincy Adams and Henry Clay, and the rise of a new political movement inspired by Jeffersonian ideals: the Jacksonians.
Recommended Reading Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Business success is a function of knowledge — the right knowledge at the right time applied in the right way. But knowledge is always scarce and incomplete and sometimes wrong. It is best to regard knowledge as a process: continually gathering changing knowledge from a wide range of sources to integrate into decision-making and action. Austrian economics can provide that integration, helping businesspeople with sense-making in a complex, ever-changing world of knowledge. Yousif Almoayyed joins Economics For Business to share his knowledge journey and the ways in which Austrian Economics provided him with the required integrating theory.
Key Takeaways and Actionable Insights Business knowledge is gathered from multiple sources and multiple disciplines. Gathering knowledge that’s relevant for business success is a process, a journey, and an exploration. It’s not limited to business subjects. A rounded businessperson studies economics, of course, but also history, psychology, languages, culture, computer science, political science. Why are these all relevant? Because business is a social science, concerned with how people think and perceive and interact, and how they adapt to new knowledge and changes in context and changes in choices. All the knowledge disciplines impact business.
There’s an exploratory phase in every knowledge journey, where we cast our knowledge net wide. Yousif Almoayyed describes how his early years of schooling included multiple schools both in his native Bahrain and in the US and other countries. He started to gather comparative knowledge of different countries and cultures. He decided to continue the process by traveling to and studying in China. He developed an elevated capacity for the critical business skill of empathy: seeing things as others see them, through others’ eyes, or rather, through others’ mental models. People who grow up with a different cultural and philosophical and religious and linguistic and institutional background develop different mental models. The facility to discern, analyze and understand those mental models helps businesspeople in their interactions with customers, competitors, employees, partners, and suppliers.
The exploratory phase of knowledge gathering doesn’t require us to think about applying that knowledge in business at the time of gathering. It’s building up a knowledge inventory.
Different fields of knowledge can yield different business skills. Yousif told us how he studied computer science and developed a deeper understanding of the clarifying explanatory power of logic. Via the discipline of computer programming, which requires efficient navigation to an answer that is both right and elegant, he was able to gather principles of logical reasoning that are highly applicable across disciplines.
He studied history and — by combining these studies with empirical observations in China and Cambodia and Africa as well as the Middle East — he was able to develop his skills in causal reasoning. What causes can be credibly and realistically and logically linked to what outcomes? What he observed on the ground did not always comport with what is taught in history books, since historians may use flawed or biased logic or incomplete knowledge. Best to construct your own reasoning chain and your own web of causality. This skill is highly applicable in business.
Linguistics helps with understanding the meaning that people intend when they speak. It helps with nuance and idiom, and with assessing people through their spoken words — another critical business skill.
Austrian economics is the system of thought and logic and insight that can integrate all this knowledge into a cogent way of understanding and explaining the business world. Yousif felt that, even with his wide range of multidisciplinary knowledge and multicultural experiences, he still did not understand people and their decision making sufficiently for business. Yousif discovered Austrian economics by reading its definitive treatise, Human Action by Ludwig von Mises.
He told us that he found the insights in Human Action, derived from theory, were highly confirmable in the real world via observation. Anyone can make the same discovery. Over time, for example, you will be able to build more and more confidence in your understanding of how people make their decisions, as well as in your own decision-making about the future. By understanding how individuals’ value systems drive economic decision making, you will be able to interpret and anticipate their economic choices. You’ll deduce the theories or mental models through which people see the world, and analyze their actions that way.
Value systems are at work in firms, also. When a firm has a value system of trust and collaboration, there will be an alignment of interests among everyone who works there, and with suppliers and partners. If you take such a firm as a customer, you can apply the same values-based approach to building a strong business relationship.
Running your own business is an original and customized application of principles of Austrian economics. You can’t read a book about how to run your own business, Yousif told us. Your analysis, using the principles, must be original. He gave the example of applying price theory in his domestic market of Bahrain. It’s an island, so it’s possible to track price fluctuations in inbound commodities — a special economic case. There are unique seasonal business patterns. Trading in oil has a disproportionate effect on economic conditions, and the oil industry is government controlled, so oil prices affect government spending. Boom and bust cycles are very real, and there is observable monetary distortion of firm-level accounts.
Yousif is able to plug these real and highly specialized data into his command of Austrian price theory to arrive at not only price decisions, but a wider range of decisions about when to build inventory and when to deplete it, and when and how to refresh his capital base, replacing older high-maintenance machines with new high-reliability upgrades. Theory is applied in practice in a very real way and in very real decisions. The results have been impressive: a turnaround of a firm to become a growth business and a market leader.
This is our aim at Economics for Business: applying economic principles to help you to improve and accelerate your business.
Virginia's stranglehold over American politics continues with President James Monroe. While high school textbooks refer to this period of one-party rule as the "Era of Good Feelings," the reality is the Second Bank of the United States offers some of the most vulgar examples of corruption the American people have seen. In this episode, Patrick Newman and Tho Bishop discuss the Panic of 1819 and the impact it had on political alliances for decades to come.
Recommended Reading The Panic of 1819: Reactions and Policies by Murray Rothbard — Mises.org/LP7_A
A Short History of Paper Money and Banking in the United States by William Gouge — Mises.org/LP7_B
"The Scandal of Smith and Buchanan: The Skeletons in the McCulloch vs. Maryland Closet" by David Bogen (PDF) — Mises.org/LP7_C
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
We all seek progress: at the individual level, the team level, and the company level. Flow is the term for the experience that we feel when we are making progress on challenging activities through our own actions. Flow is high productivity and high achievement. It is the sensation you have when making progress is “winning” over being distracted or frustrated. Organizational structure is often a barrier to flow. Bart Vanderhaegen tells Economics For Business how to transcend the barrier.
Key Takeaways and Actionable Insights Learning and change are good for people and organizations, but very hard to implement. Management books, management gurus and consultants are all for change to established ways of doing things. But the business landscape is littered with failed change and transformation projects. It’s not people who resist change, it’s processes and established practices and organizational structure. In many ways, structure is the biggest barrier to change, and the enemy of learning. Even when change projects re-make a business’s structure, it’s still there, just in a different configuration.
What if it were possible to transcend structure?
The secret lies in motivation. Austrian economics reveals the secret of motivation: every individual seeks better circumstances for themselves, trading one set of conditions that’s unsatisfactory for another set that they prefer. That’s an intrinsic motivation — it comes from inside the individual.
Most business systems rely on extrinsic motivations, what Bart Vanderhaegen calls carrot and stick. The firm metes out rewards in the form of awards and bonuses and promotions for behavior it wants to encourage, and withholds them when there is unapproved behavior. The firm takes a positivist or behaviorist view of the world: people can be “nudged” into approved behavior patterns.
Rewards have many flaws. They rely on predictions — setting future targets — that can never be reliable. These predictions are often fixed, unresponsive to changes in the environment, and usually set without much discussion with the individual who is to be motivated by the target. If the target is met or not, the individual finds it hard to know exactly how their actions contributed to the result.
There is a third kind of motivation: FLOW. It is possible to harness a third kind of motivation that is neither carrot nor stick, and relies on neither reward nor punishment. It can provide autonomy and freedom to individuals to pursue what they find valuable. They can see their own activity as a contribution to a greater end or purpose for themselves. This kind of motivation comes from FLOW.
FLOW is your absorption into an activity performed well. It’s the enjoyment of performing an activity to the extent that you are actually experiencing that you are good at it, while you ae doing it. The activity itself creates the motivation for it. FLOW easily wins the internal competition between getting distracted or diverted versus making progress on the activity.
We are progress-seeking creatures, and FLOW gives us the greatest sense of progress.
FLOW is practical, and can be harnessed, practiced, and linked to work and organization. There are three conditions for being in FLOW, or getting back to FLOW when you fall out of it.
1) A clear and specific goal for the activity.
This is not to be confused with aspirational goals like a corporate vision, or target goals like the year-end sales volume target. This goal is at the level of action. For the specific activity, what represents completion? In what time specific frame? What problem will have been solved when the action is complete?
2) Capture immediate feedback from the activity.
The activity tells you if you are making progress. Measurement is in the activity itself — there is no outside judge. If you’re not making progress, the activity can steer you back to it. Bart Vanderhaegen uses a tennis analogy: if your shots are going in, you’re making progress; if not, you can adjust your action.
3) The activity must have a challenging but solvable level of difficulty.
To make progress requires taking on challenges that can elevate our skills. FLOW requires overcoming difficulties (an insight that is contrary to the old adage of “keep it simple”).
For those who are quantitatively minded, Mihaly Csikszentmihalyi, the founder of FLOW studies, measured the appropriate degree of difficulty as 10-12% harder than one’s current ability — a kind of Goldilocks number of not too hard and not too easy.
This has profound implications for organizations engaged in motivation. They must present ever-increasing levels of difficulty to their employees and teams, as they learn to perform better and better in the flow of taking on challenging tasks.
4) Organizational structure is a barrier to FLOW and to its power to solve complex business problems.
FLOW can solve complex problems. When the overarching problem to solve is how to deliver customer value — which is a problem that cuts across all elements of corporate structure — a FLOWing team can succeed, because value is a clear goal, and learning by taking on difficult challenges provides a pathway to the goal. The customer doesn’t care how the firm is structured.
Internal structures of departments and functions and conflicting goals and rules can present a major barrier to FLOW and to customer value generation. A problem-solving team representing many departments and focused on the goal of customer value can transcend the barrier, and transcend corporate structure.
Therefore, Bart Vanderhaegen recommends not to spend time and effort creating a new structure when the current one is problematic. Create FLOW over structure.
5) How to put FLOW into action.
Like everything that has value, FLOW is a subjective experience. But there are some application actions that can help to generate team FLOW.
Organize a problem-solving network on top of the structural layer.
It’s an organic network that crosses departments and regions and functions and all other structural boundaries.
Give each team in the network a mandate.
A mandate is a problem to solve without specific direction on how to solve it. The team figures out what the solution will look like and how to get there.
Make the problems as open as possible.
The problem may be to define what are the most important problems to solve.
Create transparency (via a software platform) on the problems, ideas and progress.
Everyone “taking the pen” themselves.
Make sure the goals are linked to actions.
For the most open problems, goals can be set for a small number of steps: let’s get to the next milestone in 30 days (e.g., generating a first set of preliminary ideas).
Through criticism and testing, teams will be able to FLOW to new levels of comfort in solving the most difficult of problems. They become more and more capable. And the problem-solving network is scalable: it can become bigger and bigger and solve harder and harder problems.
Additional Resources "The Value-Creating FLOW Process for Business Problem-Solving" (PDF): Mises.org/E4B_155_PDF
Bart Vanderhaegen’s TED Talk: Mises.org/E4B_155_Video
PactifyManagement.com
The Pactify Podcast: Anchor.fm/Pactify
FLOW: The Psychology of Optimal Experience by Mihalyi Csikszentmihalyi: Mises.org/E4B_155_Book1
Creativity: Flow and the Psychology of Discovery and Invention by Mihalyi Csikszentmihalyi: Mises.org/E4B_155_Book2
Bob starts a series looking into Klaus Schwab, founder of the World Economic Forum and, along with Prince Charles, proponent of the “Great Reset.”
Mentioned in the Episode and Other Links of Interest: Klaus Schwab and Prince Charles promoting the “Great Reset”The World Economic Forum’s page on the Great ResetAn example of a session from the WEF’s Davos Agenda 2021 conferenceThe WEF’s bio for its founder, Klaus SchwabSchwab’s books The Fourth Industrial Revolution and Covid-19 and the Great ResetThe video of Schwab explaining his connection to KissingerThe “red pill” documentary Wake Up CallMurphy’s new book from the Mises Institute, Understanding Money Mechanics For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Bob continues his series on Klaus Schwab, explaining the WEF’s plans for redesigning the world, and providing quotes from Schwab’s book on the fourth industrial revolution.
Mentioned in the Episode and Other Links of Interest: Part 1 of this seriesThe WEF’s bio for its founder, Klaus SchwabSchwab’s books The Fourth Industrial Revolution and Covid-19 and the Great ResetThe WEF’s Global Redesign Summit and the Global Redesign InitiativeNick Buxton’s article on Davos and the danger to democracyForbes’ article on Schwab the power brokerFEE article on the socialist roots of fascism1983 article in Harper’s on the Bank of International Settlements (BIS) For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
The transformation of Jeffersonians into National Republicans continues under President James Madison. Following the Louisiana Purchase, the new administration sets its eyes on Florida and Canada for new American expansion. The result is the disastrous War of 1812 and the rise of a new central bank.
Recommended Reading "The Feds Before the Fed" by Scott Trask — Mises.org/LP6_A
"Our Oligarchs Can Thank James Madison" by Ryan McMaken — Mises.org/LP6_B
"Why James Madison Hated Democracy" by Ryan McMaken — Mises.org/LP6_C
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Bob critiques a Guardian article from an economist favoring price controls, and explains his argument with Joe Weisenthal about the social benefit of saving actual cash.
Mentioned in the Episode and Other Links of Interest: Dr. Keith Smith (of the Surgery Center of Oklahoma) contact page.The Guardian article advocating price controls.Murphy Mises.org critique of Weisenthal.Murphy article on the 1920-21 depression.Mises essay calling inflationary war finance “undemocratic.”BMS series on Bohm-Bawerk (1, 2, and 3). For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
For entrepreneurs, design is not just lines and shapes and colors and decoration, and it’s not just the look and functioning of a website or a building or another object. It’s a process of advancing from an idea or concept to marketplace realization as a customer-desired new service PR product. In fact, according to Professor Henrik Berglund, entrepreneurship is design.
Key Takeaways and Actionable Insights Entrepreneurs advance from idea to implementation via a process of design. How do entrepreneurs exercise judgment? How do they advance from an imagined idea or business concept or anticipated value to implementing their project in the marketplace and making sales to customers?
It’s a creative process. Some call the domain design science, although we Austrians would think of it in a more subjective framework as human design. In general terms, design provides the bridge from the internal environment of the firm (its capital, its capacity, its skills, its resources, etc.) to the external world of customers and the marketplace. Design facilitates the fit between the two. It’s a goal-driven process of getting to the right design: a value proposition design that attracts customers, an effective value network design for assembling all the components, a business model designed to deliver the value, and pricing and cost choices that result in profit.
The steps in the design process take the form of design artifacts. Design is not abstract. It’s action. The action takes the form of constructing design artifacts: things like sketches and flow chart diagrams and network maps and templated value propositions and business model designs and business plan spreadsheets, prototypes, landing pages and A/B tests.
There is a design pathway from more abstract and conceptual to more substantial and closer and closer to a marketable product, service, or business. The artifacts are not arranged in any specific order, but they are characterized by the progress from abstract to functional and detailed.
Most importantly, the design artifacts are measurable and testable, so that entrepreneurs can get more and more information about how well the design fits with the real world — customer assessments and feedback, simulations, beta tests and other feedback loops serve to make the design more substantial and the entrepreneur’s level of confidence higher.
Experimentation is one kind of design pathway. Professor Berglund described experimentation as a design interaction with an existing real-world situation, where the testing process is to assess how well the entrepreneurial vision works in that world. Is there demand? Will customers find the proposition useful, and will they buy? Through repeated and experimental testing, entrepreneurs measure their way to the best-fit adaptation of their concept to the market.
He used as an example of experimentation an early step in the development of Dropbox, in the form of a video that carefully described its function and benefits, and sought feedback from the market in the form of requests to join a beta test. The video was successful in attracting a beta test audience, reassuring the designers of the potential use case.
Transformation requires a different kind of design approach. Transformative ideas do not have an existing market — a “real world” — in which to experiment. There is no identifiable demand at the outset. The process is co-creation, with potential users and customers, of a new world or a transformed world. The design path is not the use of carefully constructed measurable artifacts, but of another kind, which Prof Berglund describes as mutable and transformable.
He used the example of the iPhone, transforming from the functionality of a phone — with a use case of intermittent 2-way communication events - to the concept of a handheld device with continuous use for a multiplicity of purposes aided by integration with software apps and internet connectivity. The vision was never precise, as it can be with experimentation. Apple outlined a more vague vision of possibilities and soft boundaries, and invited individuals and communities of software developers to join, collaborate, make specialized local contributions, and synthesize a new, emergent system over time.
Firms will typically employ a mixture of experimentation and transformation in a portfolio of projects. Experimentation and transformation are “ideal types” of design, not always as clearly differentiated in the real world as they are in theory. Nevertheless, it’s important for entrepreneurs to differentiate between them, and to maintain a portfolio of projects that instantiates both types.
Professor Berglund and Chalmers are engaged in a new synthesis of entrepreneurial theory and practice. Prof Berglund observes in a book chapter called "The Artifacts of Entrepreneurial Practice," that entrepreneurship scholarship has not always been very useful or helpful to practicing entrepreneurs. Now this is changing as researchers move closer to "the real time doings and sayings of practitioners involved in entrepreneurship". In the spirit of transformation, there’s a new synthesis of theory and practice that is being co-created. That synthesis is one of our guides at Economics For Business; we hope to gather from business entrepreneurs their evaluations about which elements of theory and research are of most use in practice.
Additional Resources "Opportunities as Artifacts and Entrepreneurship as Design" by Henrik Berglund, Marouane Bousfiha, and Yashar Mansoori (PDF): Mises.org/E4B_154_Paper1
"The Artifacts of Entrepreneurial Practice" by Henrik Berglund and Vern L. Glaser (PDF): Mises.org/E4B_154_Paper2
HenrikBerglund.com
Chalmers.se
The Revolution of 1800 removed the Hamiltonians from power, and in Jefferson's first term, America witnessed a major reduction of federal power. In his second term, however, an offer by French Emperor Napoleon to purchase the Louisiana territory would mark the fall of the Old Republicans.
In this episode, Patrick and Tho look at how dreams of conquest in Canada, Spanish Florida, Mexico, and beyond have had tragic consequences for Americans' liberty.
Recommended Reading "The Louisiana Purchase: Jefferson's Constitutional Crisis that Risked Dissolving the Union" by Dave Benner — Mises.org/LP5_A
"Was Thomas Jefferson a Great President?" by Scott Trask — Mises.org/LP5_B
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Design & Assembly is the second pin (after Imagination) in the Economics For Business GPS system — the toolset to help entrepreneurs navigate their business environment. We talk to Brett Lindell, CEO of Pantheon Holdings (which includes Aegis Exteriors and Fortress Roofing) about his Design & Assembly approach that has helped him build a fast-growing business from scratch in the crowded, competitive, and demanding field of regional house construction. His advice: there are plenty of resources available; if you assemble the right resources to fit a system of assuring and delivering the best customer service, there’s a lot of growth to be harvested, whatever the industry.
Key Takeaways and Actionable Insights The entrepreneurial method uses currently available means to create the possibility of new future outcomes. The entrepreneurial method is not to try to control outcomes but to put available resources to use to explore possibilities. Brett Lindell used the method for his business launching pad:
Who am I? Experienced as a US Marine, a college student and a corporate executive in learning, planning, doing, and relationship building.
What do I know? A lot. How Marine Corps plan complex missions, and how they train inexperienced young people to implement amidst on-the-ground chaos. How the system of a global corporation puts the highly engineered products of a worldwide manufacturing web in the hands of construction site workers equipped with nothing more than hammers to produce sturdy and beautiful houses. How sandy beaches and a good climate attract residents who want to buy homes.
Whom do I know? There are companies in the construction industry craving nothing more than simple, reliable good service — which is scarce. There are young people graduating college in my region with limited job prospects who are enthusiastic and highly trainable.
Controlled downside: The entrepreneurial method controls downsides, and doesn’t pretend to control outcomes. Brett’s controlled downside was public commitment to starting, with the consequent specter of public shame if he didn’t succeed, knowing he hated the very possibility of shame.
Design is the series of steps from idea to a working system. Brett Lindell set out to design and assemble a system of systems to achieve his mission.
Geography/Market system: A magnet for homeowners (beaches, ocean, climate, beauty, great place to live) and therefore for developers and builders. Not dominated by cities and so the construction market is highly dispersed.
Labor resource system: Young people graduating college in the area face limited employment opportunities combined with high enthusiasm to stay in the area.
Organizational system: Integrate geography and labor resources via decentralized command that locates tools and decision-making autonomy in the hands of front-line customer-facing employees.
Service system: Basic research (talking to potential customers) revealed that the addressable market is for reliable service: answer the phone when they call, be on time for deliveries and appointments, keep the promises you make. Brett’s system is classic system design of simple rules: employees must (1) tell the truth, (2) pick up the phone when it rings, (3) return all phone calls, (4) customers in all directions — i.e., treat everyone like a customer and serve them as they want to be served whether they’re suppliers, colleagues, or anyone else in the system. (And for Brett, his employees are his most important customers.)
Rich knowledge encoding: Brett believes in handbooks — a belief he learned from the Marines. Handbooks encode all the knowledge of the firm on how to follow every process and implement every task. Every employee can thereby benefit from all the accumulated knowledge and experience in the firm, and the handbooks are continuously updated via new experiences and new knowledge.
Tech systems: In a relatively low-tech industry, Brett’s firm is a high-tech leader because he is always looking for and evaluating the latest technology for automation, work-reduction, and control. The technology can be in the form of apps or software or hardware, and is especially valuable when it can all be integrated together in end-to-end systems or sub-systems such as inquiry-to-order and order-to-cash. Technology integration for these sub-systems speeds up cash flow, reduces labor costs, and increases transparency, thereby enabling quick fixes and improvements. Brett would rather have too much technology than too little.
A plan: While planning can never predict or control the future, it can be an integrating theme for system design. Brett’s plans are a brief and compressed (one page) set of numbers, and those numbers are shorthand for a lot of detail. For example, if Brett’s company is to have the capacity to provide construction components and services for 50 homes in the current year and 500 the next year, then systems of procurement, logistics, sales and marketing, finance and technology must be designed to scale to handle more volume and more complexity without impeding growth. Time, resources, and personnel must be deployed appropriately.
Assembly embraces and harnesses the human element of the business system. A system combined with the right people, suitably trained, and equipped, and with the right mindset, produces the right results. When individual employees are oriented to independent problem solving and autonomous goal-driven creativity rather than central planning, the firm can cope with — and, in fact, generate — dynamic change.
Brett has injected as much humanity as he possibly can. Seeing his hires get promoted and take leadership and realize personal goals is his greatest reward. He has created a family-friendly firm where people can get home to their kids before they go to bed, and take the family on vacation without worrying about the office or the job site, knowing that the system will manage the absence. He creates jobs and makes people’s lives better. That’s the entrepreneurial society.
Additional Resources "Designing and Assembling a System for Entrepreneurial Growth" (PDF): Mises.org/E4B_153_PDF1
"The Entrepreneurial Method" (PDF): Mises.org/E4B_153_PDF2
Reach Brett at brett@aegisext.com
To kick off the New Year, Jeff recently had the opportunity to address a Discord channel dedicated to Austrian Economics. His talk focused on the state of economics generally, whether the profession is serving society, how economists failed us throughout the Covid hysteria, and especially the health and relevance of the Austrian school. This is a great survey of the role economics (and economists) should play in society.
Also includes questions from the audience, emceed by channel host JW Rich.
In this episode of Liberty vs. Power, Patrick and Tho look at the success of the Jeffersonians following the corruption of Hamilton's Federalist Party. With the support of Treasury Secretary Albert Gallatin, the Jeffersonian Administration is able to slash the size of the federal bureaucracy. Unfortunately, the influence of Republican moderates — like James Madison — undermined a true restoration of old republican ideals.
Recommended Reading "Jefferson's Philosophy" by Murray Rothbard — Mises.org/LP4_A
"Jefferson as President: His Judicial Blunders" by Scott Trask — Mises.org/LP4_B
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Why do entrepreneurs start businesses in the first place? They have a vision for the future and seek to work with other people to bring it about. Those other people may be colleagues and employees, directors and investors, suppliers, and customers. Organizing this multivalent work is hard. Thinking of your organization as a complex adaptive system yields new understanding and a new approach to organizing that results in improved goal achievement.
Laura and Derek Cabrera of Cabrera Research Lab are dedicated to sharing research findings that enhance the capability of any organization to reach business goals. They join the Economics For Business podcast to do some sharing with the E4B community.
Key Takeaways and Actionable Insights Systems Thinking resolves the mismatch between the way the real world works and the way firms think it works. World hunger is a wicked problem, yet there is enough food to feed the world. We don’t have the right mental model to account for all the social, economic, political, motivational, and cultural issues that shape the problem.
In the same vein, systems thinking in business is about building mental models that better align with the real world. Laura and Derek Cabrera provide an introduction in Systems Thinking Made Simple, and they mentioned some of the important changes in thinking that businesses must embrace to enter the new world of possibilities that systems thinking opens up. The first step is to recognize that LAMO thinking is inappropriate for a VUCA world.
The real world is agnostic about human endeavors
VUCA World
LAMO Thinking
The real world is non-linear
but we think in linear ways.
yet we tend to look sat things through a human-centered (anthropocentric) lens.
yet we tend to look sat things through a human-centered (anthropocentric) lens.The real world is adaptive and organic
yet we tend to think mechanistically and the metaphors we use reference machines (e.g., a universe like clockwork; mind is a computer).
The real world is networked and complex with a sprinkling of randomness
yet we think of things in ordered categories and hierarchies.
All businesses are complex adaptive systems. We have no choice in the matter. An organization is a living, breathing thing, organic — lots of individuals dynamically making decisions that roll up into the complex system. It’s not a machine.
An implication is that business executives and managers can’t operate on outcomes directly (e.g., via business “planning” or business “strategy”). Outcomes are emergent from the system and can be worked on only indirectly.
The traditional mental model for business organization is flawed. Laura and Derek capture the traditional mental model for organizational management in the acronym PCCU: Plan, Command, Control, Utilize.
Plan: Businesses create plans for the future, often in great detail, with rigorous discipline, and lots of numbers and projections. But the real world is changing too fast, and outlining detailed steps to reach a goal amidst rapid change introduces biases that can occlude opportunities for rapid and profitable adaptation to change.
Command: Hierarchical organization designs assume a military metaphor of command. Organizations are much more organic in the real world, tempered by social influence, compliance, resistance, and rebellion. Better to think of then organization as a network and a culture.
Control: Management likes to feel like it is in control, but the control paradigm is both unrealistic and unresponsive to organic change.
Utilize: The most detrimental organizational construct is the Human Resources department. Treating people like resources to be utilized is unsustainable. People are independent agents in the system who wish to co-evolve to a place where their individual goals and those of the organization are well-aligned.
The mental model for how complex adaptive systems work is Simple Rules. The great insight from complex adaptive systems thinking is that organizational behavior isn’t directed by leaders, but driven by followers. What are they following? Simple rules.
We can think of an organization as a superorganism. It self-organizes by following simple rules that guide the actions of individual agents in variable contexts. Autonomous agents follow simple rules based on what’s happening locally (that is, around them), the collective dynamics of which lead to the emergence of the complex, system-level behavior we observe: adaptiveness and robustness.
The simple rules for successful adaptive organizations are summed up as V-M-C-L. Vision: A seeing thing. Something we all see in the future, where we are headed. Not a tagline, not a statement on a website, not a corporate word salad. A vision is a shared mental model that everyone in the organization can see and articulate and align with. It’s in their hearts and minds. It gets employees excited and connected.
Mission: A doing thing. A mission is something that you do repeatedly over and over again to bring about the vision. It directs the work in the organization, with clarity about who does what. It’s clear, concise, easily understood and measurable.
Capacity: The organization must have the capacity to do the mission: the energy, the resources, the skills. Capacity is a system of systems all connected and working together, focused on, and directed towards doing the mission.
Learning: Learning is critical to expand capacity, reinforce mission and refine vision. It is the adaptive function. Organizations must love learning – seeking unvarnished feedback from the outside world as input into making the changes that are needed for improvement. This means loving reality and being brutally honest about the current state. Learning means improving mental models, and embracing the possibility that your current model is wrong.
In their book Flock Not Clock (see Mises.org/E4B_152_Book), where there is a detailed exposition and explanation of V-M-C-L, Laura and Derek cite the example of the app My Fitness Pal.
Vision: Healthy living is the new normal
Mission: Facilitate and motivate healthy behavior choices
Capacity: Build mission-critical systems: design, engineering, R&D, sales, and marketing, etc.
Learning: Feedback on whether living healthy is getting easier, whether more people are making healthy choices, whether more people are feeling joyful and powerful as a result.
Think of the elements of V-M-C-L as a pyramid you can construct from first principles: Thinking drives Learning, which drives Capacity, which drives Mission, which brings about Vision.
The emergent result of V-M-C-L is culture. Laura and Derek talk about training people to think in order to be able to learn. The first step is often unlearning the misleading mental models we’ve been taught to believe. When people start to think about mental models, they can recognize their own and those of others, and make comparisons, make changes, and find common ground.
If your mental model about your current situation is real — "brutally honest," as Derek put it — then the chance of changing that situation for the better is good. You’ll be able to identify a path out.
Culture can be built around the simple rules of vision, mission, capacity, and learning, by purposely constructing the four mental models of V-M-C-L. There is enormous organizational and economic power in the new understanding of complex adaptive systems and how they work in getting a group of disparate people to work together towards a goal as if they are a single unified organism.
Additional Resources Sign up for Laura and Derek’s Vision-Mission Bootcamp: Go.CabreraResearch.org/VMBootcamp
Visit Cabrera Research Lab online at CabreraResearch.org and on LinkedIn (Mises.org/E4B_152_LinkedIn).
"20-Point V-M-C-L Checklist" (PDF): Mises.org/E4B_152_PDF1
"Constructing the VMCL System" (PDF): Mises.org/E4B_152_PDF2
Flock Not Clock: Align People, Processes and Systems to Achieve Your Vision by Derek and Laura Cabrera: Mises.org/E4B_152_Book
With the Constitution in place and George Washington made president, Treasury Secretary Alexander Hamilton was empowered to make the new government in his image. Unsurprisingly, a man who celebrated the corruption of the old European order was quick to install a regime inspired by mercantilists like Jean-Baptiste Colbert.
In this episode, Patrick and Tho pinpoint the special interest that benefitted most from the Hamiltonian era, and how its failings sowed the seeds for the Jeffersonian Revolution of 1800.
Recommended Reading "The Founding Father of Crony Capitalism" by Thomas DiLorenzo — Mises.org/LP3_A
"Alexander Hamilton: Centralist and Nationalist" by Daren A. Wiseley — Mises.org/LP3_B
"Central Banking as an Engine of Corruption" by Thomas DiLorenzo — Mises.org/LP3_C
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
Hamilton's Curse: How Jefferson's Arch Enemy Betrayed the American Revolution—and What It Means for Americans Today by Thomas J. DiLorenzo — Mises.org/LP_Curse
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Imagination is the first stage of any value generation journey — starting a development project, enhancing the customer experience, embarking on innovation, or building a business for the next year or the next decade. Imagination might sound like a fuzzy concept, but it’s a robust business tool, the engine of the entrepreneurial design process. Mark Packard joins the E4B podcast to put imagination into a business context and describe the possibilities it opens up.
Key Takeaways and Actionable Insights Imagination is central to entrepreneurs and entrepreneurship, and to innovation and advance in all aspects of business. We see business through mental models, as a kind of a movie our minds play for us. In this movie, we remember result and experiences from the past (which requires imagination) and we create images of what might have been, or, in the future, what might be. We know these images are not real, but they play through our mental model of business reality. They inform our plans and projects. We imagine cause-and-effect relationships between imagined concepts and ideas, and between actions and outcomes.
From new product development to efficient administrative processes, every aspect of business involves — and requires — imagination.
We can use imagination in simulating possible results. Not only do we employ imagination in our regular business activity, we also use it for advanced complex modeling. We add new inputs to what we have constructed in our imagination — in the form of “what if” queries - to create a new mental model that’s different from the current one: a prospective reality that we can plan for and try to achieve.
As we try to achieve that prospective reality, we receive feedback in various forms, which we use adaptively to further adjust and improve the mental model we hold in our imagination. Imagination is dynamic, always changing.
Customers are also imagining, and entrepreneurs must imagine what they are imagining. We’ve highlighted in earlier episodes, the Value Learning Cycle that customers complete in the process of learning what to want and what to value (see Mises.org/E4E_44). The cycle begins with predictive valuation — consumers predicting to themselves how much value they’ll experience from the product or service a business is pitching to them. That’s imagination at work. If they buy and consume, value is an experience that results — and experience is a mental representation that includes imagination. Then in their post-experience valuation, customers adjust their mental model based on their new value knowledge. Future predictive valuations will be imagined with this updated knowledge.
Imagination is central to customer expectations of value and to customers’ decision-making.
Businesses use three kinds of imagination to make a value proposition. Businesses develop value propositions for customers, utilizing 3 kinds of imagination: creative imagination (imagining the design of a future product or service that will deliver a valued customer experience); empathic imagination (imagining how the customer will feel as a result of the experience); and predictive simulation (imagining what the world will be like after pursuing the contemplated action).
Creative imagination is a combination of needs knowledge (what customers want) and technical knowledge (what can be produced with available resources). In both cases, more knowledge is an aid to the imaginative process.
Similarly, empathic imagination can benefit from more knowledge about the customer’s mental model, developed through relationships and conversations.
Predictive simulation is aided by rapid learning from testing and prototyping and developing design artifacts (like landing pages and A/B tests) that enable interim simulations of customer responses.
Imagination can’t be shared but visions can. When we work on a team or in a firm, it’s productive to be aligned on the imagined future at which the group is aiming and is working towards. Strictly speaking, we can’t share imagination. Everyone’s imagination is subjective and individual. You can’t imagine what I’m imagining.
What can be shared is a vision, because it can be described in words developed from a shared language. Of course, every individual may interpret the meaning of the words differently, but with repetition, explanation and persuasive presentation, the group can get closer and closer to shared meaning. The vision becomes a cultural artifact — how we think in this firm, what we aim for in this firm, how we see the future in (and of) this firm.
Similarly, in selling value propositions to customers, businesses are trying to get those customers to share a vision. We persuade them with storytelling, whether it’s in the form of advertising, or PR or social media or the words printed on a package.
Rhetorical skills — being able to communicate in a way that enable other people to see and share a vision, and to adapt it to their own vision — are key to successful entrepreneurship.
Some people are better at imagination than others — but you can work on the skill set. Many business icons are or have been symbols of great imagination at work, such as Steve Jobs in the past and Elon Musk today. They’re better at seeing the future than others.
But everyone who understands imagination at the foundational level, as Mark Packard explained it in the podcast, can get better at it, and train others to get better at it, too.
Imagination is a simulation run through our mental model based on knowledge we possess. One important step is to improve the knowledge set available for the simulation — better quality knowledge, more accurate knowledge, more detailed or intimate knowledge.
More needs knowledge and more technical knowledge will improve creative imagination. Keep up with new technologies and with consumer trends and marketplace developments.
More customer knowledge will enhance empathic imagination. Spend more time with customers. Use qualitative research (such as the E4B contextual in-depth interview: Mises.org/E4B_151_PDF) to understand their mental model better, so that the empathic simulations you run through that mental model will improve.
Predictive simulation is an act of imagination that improves with learning about what works and what doesn’t. Run more tests and new kinds of explorations. Explore, explore, and explore more. Don’t take your own predictions too seriously; rather, expect to be wrong in ways you never imagined. Be humble, be adaptive, be agile, and recognize that you do have to predict in order to act. Triangulate with what others are doing because they’re imagining too, and they may have more and better knowledge than you. Try to reconstruct their mental models and assess whether they’d be helpful for you.
Additional Resources Elon Musk’s Imagination (Video): Mises.org/E4B_151_Video
"Subjective Value in Entrepreneurship" by Mark Packard and Per Bylund (PDF): Mises.org/E4B_151_Paper
"Empathy for Entrepreneurs: How to Understand and Identify Customer Needs and Wants from Their Perspective" (PDF): Mises.org/E4B_151_PDF
"Mark Packard on The Value Learning Process" (Episode): Mises.org/E4E_44
Our guest is Tracy Høeg, MD, PhD, who has made remarkable research contributions pertaining to SARS-COV2 transmission in schools and to vaccine-related myocarditis. She has published her findings in the CDC’s MMWR and has given oral testimony to Congress.
SHOW NOTES Tracy Høeg, MD, PhD: Twitter
Watch the episode on the Accad & Koka Report YouTube channel
The Human Action Podcast wraps up the year with none other than the venerable Professor Paul Gottfried!
This is our final show focused on the Old Right, the early 20th century political tradition which animated later libertarian figures like Murray Rothbard. How was this great legacy of peace and freedom on the Right—the Old Republic—lost to Cold Warriors and neoconservatives? Nobody is a better sociologist of American conservatism than Dr. Gottfried, and nobody is more compelling and erudite when it comes explaining how the Right went so horribly wrong (hint: former Commies). Lots of great names discussed, from Rothbard and Nock to Kirk, Strauss, Jaffa, Buckley, Meyer, and even Gore Vidal.
Don't miss this show!
Additional Resources Read Professor Gottfried's work on Conservatism: Mises.org/Gottfried-Book
How did a handful of colonies created by the European Old Order establish a unique nation conceived in liberty? In Episode 2 of the Liberty vs. Power Podcast, Patrick Newman and Tho Bishop discuss the lasting tension between the Spirit of 1776 and the Constitution of 1787. The results of America's successful war for independence is one of the most important victories for the cause of liberty, but the forces of power adapted to new opportunities.
Patrick and Tho also discuss the career of the infamous Robert Morris, and follow the rise of two men who are determined to mold America into the European nationalist tradition: Alexander Hamilton and James Madison.
Articles "America's Libertarian Revolution" by Murray Rothbard — Mises.org/LP2_A
"Bacon's Rebellion" by Murray Rothbard — Mises.org/LP2_B
"How the Constitutional Convention Vastly Expanded the Powers of the President" by Murray Rothbard — Mises.org/LP2_C
"The Founding Fathers' Coup d'État" by Albert Jay Nock — Mises.org/LP2_D
"Economic Determinism, Ideology, and the American Revolution" by Murray Rothbard — Mises.org/LP2_E
"Liberty and Property: the Levellers and Locke" by Murray Rothbard — Mises.org/LP2_F
Books Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP_Crony
Conceived in Liberty, Volumes I-IV by Murray Rothbard — Mises.org/LP2_G
Conceived in Liberty, Volume V by Murray Rothbard, Edited by Patrick Newman — Mises.org/LP2_H
Movie The Patriot — Mises.org/LP2_J
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
We’re highlighting six of our 2021 podcasts that have special value for value creators. We invite you to listen to the special year-end podcast, and to sample each of those we’ve highlighted here, review the Key Takeaways we provide as a summary for each one, and download the free tools that accompany each podcast.
Per Bylund explains that all successful entrepreneurs are Austrians.Episode #143: Mises.org/E4B_143Resource: "Explore and Realize (and Keep Exploring): How Austrian Entrepreneurs Generate Value on the Path to Business Success" (PowerPoint): Mises.org/E4B_143_PPT
Mark Packard joins Per Bylund to explain how Austrian Value theory enables entrepreneurs to radically re-shape business thinking for greater value generation.Episode #108: Mises.org/E4B_108Resource: "The Value Generation Business Model" (Video) Mises.org/E4B_108_Video
Matt McCaffrey outlines the Austrian approach to business strategy: emergent not planned.Episode #127: Mises.org/E4B_127Resource: "Emergent Strategy Process Map" (PDF) Mises.org/E4B_127_PDF
Mark McGrath orients entrepreneurs to purposeful adaptation to emergence via the OODA loop.Episode #138: Mises.org/E4B_138Resource: John Boyd's "OODA Loop Graphic" (PPT) Mises.org/E4B_138_PPT
Ulrich Moeller provides the organization design model for the adaptive entrepreneurial firm: it’s boss-less.Episode #133: Mises.org/E4B_133Resource: "The Future Of Organization Design" (PDF) Mises.org/E4B_133_PDF
Saras Sarasvathy pulls it all together in the form of The Entrepreneurial Method.Episode #131: Mises.org/E4B_131Resource: "Better Lives and a Better Society" (PDF) Mises.org/E4B_131_PDF
In the first episode of the Liberty vs. Power Podcast, Tho Bishop and Patrick Newman take a deep dive into the intellectual framework of Rothbardian historical analysis. This includes looking at the "conspiracy analyst" as a praxeologist, identifying what personal incentives may motivate individual actors that directly influence government policy.
Tho and Patrick also discuss the importance of history as a vital tool in what Murray Rothbard considered "the science of liberty," and look at how battles over issues like Critical Race Theory highlight the ways the progressive left have leveraged historical narrative to strengthen their political agenda.
Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman — Mises.org/LP1_Crony
Important Links "The Conspiracy Theory of History Revisited" by Murray Rothbard — Mises.org/LP1_A
"Murray Rothbard and Jacksonian Banking" by Leonard Liggio — Mises.org/LP1_B
"Coming of Age With Murray" by Hans Hermann Hoppe — Mises.org/LP1_C
"The Forgotten Greatness of Rothbard’s Preface to Theory and History" by George Pickering — Mises.org/LP1_D
"The Fight over Economics Is a Fight over Culture" by Ryan McMaken — Mises.org/LP1_E
"How to Do Economic History" by Joseph T. Salerno — Mises.org/LP1_F
"The Case for Revisionism (and Against A Priori History)" by Murray N. Rothbard — Mises.org/LP1_J
Additional Reading Theory and History: An Interpretation of Social and Economic Evolution by Ludwig von Mises — Mises.org/LP1_G
The Economic Mind in American Civilization: 1606-1865, Volume One by Joseph Dorfman — Mises.org/LP1_H
To subscribe to the Liberty vs. Power Podcast on your favorite platform, visit Mises.org/LvP.
Human action lies at the core of the application of Austrian economics to business: how do people act and how can we develop the best understanding of why they act that way. We apply that thinking to customers, and we can also apply it to business organizations. If we are able to answer these questions well, we can develop a profitable business model and an effective management model. Our guest Diana Jones has a distinctive perspective about the management model that’s based on understanding people’s personal and private experiences rather than their place in the hierarchy or their formal role in the process.
Key Takeaways and Actionable Insights Relationships are fundamental to all systems thinking, and to all business management. Sociometry is a tool to measure relationships. Sociometry measures relationships between people and within groups. The unit of measure is distance. People can feel close to each other and other group members, and this closeness results in certain types of behavior. People can feel distant from each other, resulting in a different kind of behavior. They can also feel close or distant to concepts, like the company mission or the annual plan, and to institutions, like the Board of Directors or the HR department or a firm’s way of pursuing innovation. They can feel close or distant to colleagues in a meeting, or to the meeting purpose and agenda. Measuring and understanding relationship distance contribute directly to performance management.
Sociometry reveals the disproportionate importance of informal structures over formal structures. It’s easy to think of the formal organization chart as the model for managing a firm. Planning descends from higher levels to lower levels, along with instructions on how to implement and what to do. It’s not how companies function in reality.
What makes companies work is relationships. People form bonds with each other, and the bonds they form shape the work that they do and how they do it. The bonds are often forged via sharing of knowledge and experiences that are private and personal rather than business and process knowledge. Productivity comes from people connecting on shared experiences, so that these personal and private relationships become more relevant to business operations than the formal structures, such as hierarchy. When relationships change, behaviors change, and vice versa. When relationships shift, the whole business system shifts.
Formal structures don’t work, at least not in the way top management thinks. And the titles associated with hierarchical position can be alienating and toxic to relationships, symbolizing and reinforcing distance rather than closeness.
Sociometry helps to focus on these informal relationships and especially on the most important ones that make a big difference: for example, to improve customer service.
There’s a role for leadership in this system of informal relationships, but it’s not the one that generally taught or written about. Leadership can emerge amidst informal relationships, but it doesn’t come from authority. Leadership is not to be confused with position in the hierarchy. Leadership entails the communication of vision and helping people understand it, share it, and do the right things to achieve it.
The informal structure and its relationships make the formal structure work. The formal structure produces cynicism, anxiety, and reactionary behavior. The informal structure can eliminate these negative tendencies, unleashing untapped talent and enabling and refreshing the firm.
Leaders help people as guardians of these informal relationships: monitoring, empathizing, and nurturing.
Many people need help working in groups. It’s typical practice in business management to assign people to groups: agile teams, project teams, product development teams, functional teams, and so on. It’s seldom questioned whether or not individuals understand how to work in groups. Usually, they don’t. They’re unsure whether to speak up or be compliant, or whether conflict is valued to arrive at consensus or is to be avoided.
This is one more element of Diana Jones’ thinking and method that tells us that the traditional thinking of business organization and management process is mostly wrong. Hierarchy and formal organizational models don’t work, titles and authoritative roles are counter-productive, and reporting relationships are irrelevant when compared to relationship distance / closeness. There’s a lot of the traditional management model blueprint we need to scrap.
The better route to exceptional team participation and team results is via empathy. In Economics For Business, which is the application of the principles of Austrian economics to business management, we allocate great importance to the use of empathy as a tool, usually in the relationship between a business or brand and its customer. For example, we use empathic diagnosis to understand a customer’s dissatisfactions and unmet wants.
In Diana Jones’s model, empathy is an internal organizational tool. She deploys it in a sophisticated way that identifies four different types of application.
Cognitive empathy: imagining and understanding how a person feels and what they might be thinking.Emotional empathy: accurately reading and sharing the feelings of another person, and reflecting on those feelings in a way that helps everyone involved.Compassionate empathy: going beyond understanding to taking action that helps people deal practically with difficult situations about which they’re emotional.Group empathy: the capacity to read the emotional tone of a group that’s sharing a challenging experience. The core competency is the ability to read people and their emotional tone or state. Diana Jones gives the skill a name: interpersonal perception. It’s a skill that can be developed in a learning loop of experience, experimentation, curiosity, and intuition.
Additional Resources "Trust-Distance Matrix: Assessing the Cost of Distance in Business Relationships" (PDF): Mises.org/E4B_148_PDF
Leadership Levers: Releasing The Power Of Relationships For Exceptional Participation, Alignment, and Team Results by Diana Jones: Mises.org/E4B_148_Book
Diana-Jones.com
Entrepreneurship is fulfilling and exciting and inspiring. It’s fun. It’s learning. It’s a sense of achievement. It’s a journey. Economics For Business loves to spotlight individual journeys to illustrate what’s possible, provide learning about how to create and grow opportunities, and to inspire new entrepreneurship. This week, we are joined by Victor Chor, who leads us on a journey from a hobby of flipping on eBay to creating a brand and orchestrating a high-energy global value generation community.
Key Takeaways and Actionable Insights The journey starts with action — develop your “doing skills”. Victor Chor started his journey via “flipping” on eBay: sourcing items to offer for sale, and using sales feedback (what sells, what doesn’t) to determine future offerings. He developed the “doing skill” (as opposed to a “knowing skill” that comes from formal business education) as he made more and more sales. Flipping was a hobby that became a business.
What’s the benefit? Well, it’s fun. There’s money profit. There’s a sense of achievement. And there’s learning.
Experimentation is at the heart of entrepreneurial success. How do you find out what works? You experiment. Try this, try that. Learning results. Victor learned the products that sell best. He learned scaling, as a repeatable process yielding increasing returns. He learned the best feedback loops for adaptiveness — in his case inventory management and how to keep it low through accelerated sales.
Experimentation is a learning loop: experiment, gather feedback, learn, improve, run more experiments.
Adopting customer centricity is a further advance on the journey. To a large extent, Amazon, with its “customer obsession”, led the way in making customer centricity the norm for e-commerce and internet selling. They not only continuously raise the bar for customer service excellence in terms of quality, speed, convenience, availability, and range of choice, they also introduced wide ranging competition between 3rd party sellers on their platform. Competition is a virtuous circle for customer satisfaction: if one firm establishes an advantage or a superior offering to which customers flock, then competitors must improve their offering even more to re-qualify for customer acceptability.
In this environment, entrepreneurs learn about continuous improvement and the need to create a unique customer experience that can establish some sustainable advantage. The ability to grow in sales revenues morphs into the design of unique customer experiences.
A further advance in the mastery of customer centricity is to engage customers in product and service development — what we’ve been calling co-creation of value. Through surveys and e-mail marketing and just hanging out and talking with customers, Victor’s team has developed an acute understanding of customer wants, needs and preferences.
And the technology field lets us all think like customers. Victor points out that he and his team are all customers for the products they take to market. They’re all looking for quality and convenience and technological excellence, all experiencing what inconveniences customers, and therefore even better able to serve their market.
The next level of advance on the journey is brand building — imagining, designing, assembling, and marketing a differentiated branded offering. There is a transition point where a project can become a brand. A project to develop and deliver a high-function technology product can cross into the branded perception and branded experience area. Branding is the ultimate power in delivering uniqueness. A brand can establish a sustainable and unassailable perception.
Victor Chor advanced into brand building through building his community. The people he hired into his growing business has ideas for establishing and growing a brand. Wholesaling and distribution and manufacturing partners contributed both ideas and capacity. Victor developed a very original concept of a brand as a representation of all the people involved together in the venture. His image for a brand is that “it’s a ballroom”: set it up and throw a party in which many can participate and all are welcome to help shape new products and the future of the brand.
Infinacore is the brand name around which Victor and his team have assembled their community. It’s focused on wireless charging and related high-tech convenience: the brand mission refers to “making the wonderful world we live in as simple as plug and play”. This is a brand platform with unlimited future potential, based on how customers define simplicity and plug-and-play in the future, and how they judge what they find to be wonderful.
Reaching out more and more widely expands opportunity and opens up new avenues. Early in his journey, Victor utilized the services offered via Alibaba. He made contacts, built up a buddy list, engaged in chat on the platform, and used the network to source products. Many of his contacts in manufacturing and trading companies stayed in touch over time. Some of them started their own venture and their own factories. Long term relationships developed, and links to capability and capacity multiplied and grew stronger.
Everyone in this network is on their own journey, feeling what Victor called the “shared vibe” of connection and collaboration.
Alibaba proved to be a catalyst for learning — for example, learning a shared language, learning to negotiate, learning to communicate, and learning working practices like minimum order quantities — and an opening of new avenues, such as contacts with factories that could provide white labeling opportunities and technology improvements for original products.
Ultimately, Victor was able to develop a leadership skill in entrepreneurial orchestration: pulling together and integrating resources, people and processes in a value network dedicated to the shared pursuit of high-tech brand building.
The journey is arriving at a new peak, but never ends. There’s a new product / wireless charging system launch coming up for Infinacore. It represents a new peak in both technology and brand, a unique original design with new benefits. The Infinacore community has advanced to a new higher level.
The company has refined its vision and mission, not simply as communication, but as a picture of the future around which everyone in the community can gather and in which all can invest their effort and emotional energy. It’s ingrained. There‘s shared passion and shared emotion.
This is the step that removes the anxiety of uncertainty. When the vision is shared and the mission — what the community does repeatedly every day to make progress towards the vision — is clear, then the future is not a scary unknown, but a goal towards which there is continuous advance. There’s no fear.
Additional Resources "The Evolution Of A Global High-Tech Brand" (PDF): Mises.org/E4B_149_PDF
Visit Infinacore.com
Follow Infinacore on Instagram: @Infinacore
We continue our look at leading figures from the Old Right with guest Tom Woods, who helped publish the late Murray Rothbard's The Betrayal of the American Right. Rothbard admired the courageous and revisionist voices promoting the Old Republic, and shared their antagonism for war and economic intervention. Tom and Jeff discuss great essays like Albert J. Nock's "Isaiah's Job" and Frank Chodorov's "The Ethic of the Peddler Class;" the latter a rousing defense of the merchant class against both bureaucrats and the country-club conservatism which would emerge under William F. Buckley. The old antiwar and anti-New Deal works of figures like Menken, Hazlitt, Howard Buffett, Chodorov, and Nock deserve far wider consideration, especially as the "New Right" spirals into the worst of Buckleyite foreign policy and know-nothing economics. You owe it to yourself to explore this great but underappreciated tradition.
Additional Resources Read Rothbard's important work: Mises.org/Betrayal
Albert J. Nock's "Isaiah's Job:" Mises.org/HAPNock
Frank Chodorov's "The Ethic of the Peddler Class:" Mises.org/HAPChodorov
Jeff Leskovar on "The Psychology of Human Action:" Mises.org/HAPLeskova
Strategic management theories and entrepreneurship theories have diverged in academia. One perspective can’t recognize the other. Yet the most promising and successful new business approaches demonstrate an agile combination of both sets of theories. Professor Mohammad Keyhani joins Economics For Business to explain this phenomenon and help us point the way to the future of strategic entrepreneurship.
Key Takeaways and Actionable Insights. In business school thinking, there is a dichotomy between strategic management and entrepreneurship. In management scholarship, strategic management and entrepreneurship are distinct fields of study. Professor Keyhani calls them “two logics” of business.
Both logics have gained legitimacy from their origins in economics. As business theories, they base their arguments on models from the field of economics, which, of course, is older and more mature. By importing thinking from economics, these business disciplines are able to construct generalizable theories (as opposed to, for example, a case study approach). The most famous generalizable theory in strategic management is Michael Porter’s five forces framework, which borrowed from industrial organization economics. Most strategic management theories have been based on general equilibrium models of neo-classical economics. Strategic management became a theory of structures and constraints, and of imperfections in equilibrium (such as the concept of competitive advantage).
The entrepreneurship discipline has been more varied and diverse and less dominated by economic models. Entrepreneurship scholars look to Austrian economics, which is based on verbal logic rather than mathematical models. But Professor Keyhani, in his Ph.D. dissertation, found an integration route between strategic management and entrepreneurship using the framework of game theory, adding elements of time and dynamics (both critical in Austrian theory) and adding the innovation of computer simulation (to which more and more Austrian economists are open as a way of adding computable algorithmic rigor to verbal logic).
He established a way for strategic management and entrepreneurship to communicate with each other.
Strategic management is a theory of competitive structures. Strategic management models are based on models of competition among players with similar value propositions, maybe with slightly different cost structures and other small differences, but all considered as competitors to each other. The models look at the nature of the competition, the structure of the competition, and seek insights into why some companies may have advantages over others.
Strategy becomes an approach of identifying and building on strengths, about sustaining and managing an existing system, about operations rather than innovation, and about control and prediction.
The consequence is a series of blind spots, mostly to do with the dynamics of action over time, the uncertainty that accompanies action, and the learning that results.
Entrepreneurship is a theory of dynamic value creation. The question in entrepreneurship is how to create value and how to build a value creation system in the first place. The entrepreneur faces the questions, “Am I creating any value at all? Is anyone going to pay for this innovation and be happy with it? And will I be able to get more customers?” These questions precede the models that strategy and strategic management theory have been based on. Those models start off with the entrepreneur’s questions having been answered, so they are not useful at the value creation stage.
Based on Austrian economics, the entrepreneurship literature has provided mental tools and mental models for entrepreneurial thinking and an entrepreneurial approach to business. These include the emphasis on subjective value and customer sovereignty, and on uncertainty and unpredictability in business. There is value in action in the face of uncertainty, because it creates new information, which can support better decision-making. That mechanism is totally lacking in the equilibrium models of strategy.
Theories of entrepreneurial action to generate learning are useful not only for startups but also for larger companies, to help them think and act more entrepreneurially, and to counter the defensive and anti-innovative thinking of building on strengths and defending position. Managing an existing value generation system can result in losing the long-term perspective of innovation, adding new product lines, taking advantage of opportunities, and potentially building new strengths.
“Do both!” The best approach combines strategy and entrepreneurship. Professor Keyhani argues that, ideally, firms think strategically and act entrepreneurially, and he recognizes that, in the real world of practitioners, this is what businesses do.
He uses blockchain as an example. No company can say that they have an existing strength in blockchain because it’s a new technology and the business concepts that utilize it are only just emerging. It’s a level playing field.
Are there any advantages a company could have? Maybe a company has a lot of computer scientists and mathematicians. That might be a slight strength. But getting into blockchain businesses is an entrepreneurial action, largely different than building on strengths.
The approach to innovation we support here at Economics For Business is “Explore And Expand”, and Professor Keyhani sees a good match between the explore-expand dichotomy and the entrepreneurship-strategy dichotomy. Exploration is a blind spot in strategic management theory and modeling — there is pretty much no exploration in the five forces framework or the RBV (resource-based view) framework. Exploration — acting for the learning value to open up options for more things that can be done in the future — is the entrepreneurial way of thinking.
Effectuation (covered in episode #131: Mises.org/E4B_131) is another form of entrepreneurial logic. It recognizes that the entrepreneur faces so much uncertainty that it may not be possible to set specific objectives. But the entrepreneur knows that they want to do something, that they have knowledge and resources and relationships, and that they may be able to create some value from them. Effectuation is the “fuzzy front end” of value creation.
Another way to combine entrepreneurship and strategy is speed of learning. The general capability to be more adaptive than competition, to go through the learning cycle faster, is a dynamic capability that can be strategic.
Competitive moats in the software world. Is the structure-and-constraints approach of strategic management useless in the digital era we live in? Sustainable competitive advantage seems to be inapplicable when anyone can write software (or download it from Github), and access hosting and storage at scale from AWS.
But in fact, software entrepreneurs do think in terms of competitive advantage. The modern term for it is “moats”. Venture capitalists look favorably on businesses that can surround themselves with a moat to keep out competition.
The most discussed moat is network effects. This concept did not come from the neo-classical economics equilibrium models, but from the dynamic analysis of more users coming in to join existing users. The five forces framework suggests that advantages lie either in cost or differentiation, but a network effects advantage can be both.
Two-sided platforms with two-sided network effects add even more complexity. It’s strategic to achieve that status, but the theory did not emanate from traditional strategic management thinking.
Professor Keyhani introduces the next entrepreneurial strategy breakthrough: generativity. We talked in episode #104 (see Mises.org/E4B_104) about the new phenomenon of digital businesses identified by Professor Keyhani: generativity. Achieving generativity confers significant competitive advantage for any entrepreneurial firms who can develop it through technology. It’s an advantage that is not identified by existing strategy theories.
Generativity can be thought of as the automation of open innovation. Products and services can be designed to offer features that enable outsiders to innovate with them, and these outside innovations benefit the company. For example, the Google Pixel smartphone and the Apple iPhone are generative products or generative systems. With the tools these firms provide in the phones, outside developers can create new apps, that they offer on the Pixel or iPhone platform for other outsiders to use. The app developers make money, and so do Google and Apple, both from sales of outsider-developed apps in their app stores, and from in-app purchases. Google and Apple are not utilizing their own knowledge — they don’t know the problem the app is solving, or even who developed it or where they are. They don’t have to make the solution, don’t have to take the risk, and don’t have to pay salaries or development costs. Yet they profit from the innovation. It’s a huge competitive advantage for these two entrepreneurial companies.
Additional Resources "The Strategic Management Model versus the Entrepreneurial Model" (PDF): Mises.org/E4B_147_PDF
"The Logic Of Strategic Entrepreneurship" by Mohammad Keyhani: Mises.org/E4B_147_Paper1
"Was Hayek an ACE?" by Nicolaas J. Vriend: Mises.org/E4B_147_Paper2
The ultimate list of tools for entrepreneurs—"Entrepreneur Tools" by Mohammad Keyhani: Mises.org/E4B_147_Tools
HL Mencken is the writer you need to read immediately. He was savagely brilliant, caustic, and witty, but also prolific across genres in ways almost unthinkable of journalists today. His skill with the English language was virtually unmatched in the 20th century, as was his deep and abiding contempt for utopian statism in any form. And his broadsides against two world wars were incredibly courageous at the time.
Our great friend Jim Bovard joins the show to discuss Mencken's work, his complicated elitism, his Old Right politics and social views, and the magnificent pleasure of reading this master.
"H.L. Mencken, The Joyous Libertarian" by Murray N. Rothbard: Mises.org/Joyous
Mencken Wikiquote: Mises.org/HLQ
Patrick Newman is a fellow at the Mises Institute who have just published his new book. He talks about Rothbard's approach to history, whether the US revolution was libertarian, and the proper way to interpret Andrew Jackson.
Mentioned in the Episode and Other Links of Interest: Patrick Newman’s new book Cronyism: Liberty vs. Power in Early America, 1607-1849Patrick’s previous appearance on ep. 49 of the Bob Murphy ShowDan Sanchez’s article on Andrew Jackson’s fight with Nicholas Biddle over the Second Bank of the United StatesBob’s review of MMT (including Andrew Jackson’s payoff of the federal debt)The YouTube version of this interview For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Our guest is Ben Recht, Associate Professor of Electrical Engineering and Computer Science at UC Berkeley, who recently got hold of and analyzed the raw data from the Bangladesh cluster randomized control trial of masking which made headlines in September.
SHOW NOTES Ben Recht: Twitter and webpage
Ben Recht’s recent blog post: Revisiting the Bangladesh Mask RCT
Michel Accad Why N-of-1 is Enough
Ep. 97 with Peter Klein on “Evidence-Based Economics: What the Doctor Ordered?“
Watch the episode on the Accad & Koka Report YouTube channel
Our guest is Jenin Younes, a Litigation Counsel for the New Civil Liberties Alliance. She joins us to discuss her involvement in advocacy and in legal challenges against vaccine mandates. She holds a B.A. degree from Cornell University and a J.D. from New York University School of Law. She has been featured on several national media outlets for her commentary and she recently penned an op-ed in the Wall Street Journal building the case against mandatory vaccination in children.
SHOW NOTES Jenin Younes: Twitter and webpage
Watch the episode on the Accad & Koka Report YouTube channel
Ceaseless flux. Those are words Ludwig von Mises used to describe the perpetual change in business conditions that entrepreneurs experience. The consequent need, he told us, is for a process of constant adjustment. The current word for that process is adaptation. Economics For Business talks to Luca Dellanna, a leading business expert who advises companies of all sizes on managing the challenge of continuous adaptation.
Key Takeaways and Actionable Insights Adaptation is a necessary capacity of all businesses. Adaptation is a necessity. The marketplace changes, customers change, technology changes. Change is the norm. Firms that don’t adapt will suffer and potentially die, so adaptation must become the norm for business. In complex systems theory, adaptation is the selection of strategies or actions that enhance survival or any other measure of success (or fitness, as its sometimes called) amidst swirling change. In business, adaptation means choosing your degree and pace of change.
Change will be externally imposed if it is not internally embraced. Businesses can influence the level of change impact. They can critically examine their mental models, and assess their products, processes, beliefs, and people, to evaluate their fitness for adapting to market change. To avoid change being imposed from outside the firm — to avoid negative natural selection, in the evolutionary metaphor – all layers of the firm must embrace change, and proactively adapt. Eliminate unfit products and processes, pursue the development of new ones that are better adapted, and upgrade people resources through thoughtful hiring and active learning.
Adaptation is different than responsiveness — it’s embracing harm. We talk a lot about a business’s responsiveness to customer wants and preferences, especially when those preferences are fluid and incompletely articulated and require interpretation. Responsiveness is critical — but it’s different from adaptation. It’s response to an external signal. Adaptiveness is embracing change inside the firm.
Luca Dellanna has a striking way of communicating this: he advises his clients to deliberately expose themselves to what he calls “harm” — new problems never before encountered. The exposure must not be to a problem that could overwhelm the firm, but one that can be addressed at a subsidiary level or component level or via adjustment in a shared mental model. Luca calls this “small harm” — specific problems (e.g., the price of a product or service compared to the customer’s willingness to pay). Proactively probe the problem, e.g., in a high pricing test, generate feedback and actively use the learning to adapt. Another word for “small harm” is stressors: situations that put stress on the firm. Set up systems to seek out these stressors so that adaptation is deliberate, and can be enculturated, rather than wait for a crisis that requires an emergency response.
Lack of discomfort is a problem to avoid.
Identify the leading indicators that describe the conditions that will change the future. Lagging indicators — such as revenue — are metrics that describe the past. There are leading indicators available such as number of customer contacts (describing what the pipeline might look like in the future), and satisfaction scores (describing future repeat sales). Luca recommends pairing one lagging indicator with one leading indicator to develop a metrics system.
This is not the same as popular consultant-proposed metrics systems such as OKR (Objectives and Key Results). Objectives are not leading indicators. The best leading indicators are behaviors, because these can be easily adjusted if observed to be in need of change. Falling behind on objectives does not yield an actionable response if not linked to a causal factor. Inadequate behaviors (e.g., conducting a sales call without following the proven process) can be addressed, especially if they are clearly linked to positive outcomes.
This is the same principle as Amazon’s focus on what they call controllable inputs, and Amazon knows a lot about driving business growth.
There are several strategies to pursue adaptation. Redundancy (having more than needed): A focus on efficiency and “no waste” can be detrimental to adaptation if it leaves no resources for experimentation and exploration. Employees need time to work on new things, not just on current tasks and issues.
Bottom-up initiatives: Central command and control can’t run everything, anticipate every harm, or plan every experiment. Ensure entrepreneurial empowerment of front-line employees and functions so that they can initiate learning.
Avoid game-over: In experimenting, calibrate the risk to ensure that a negative result is not overwhelming, and, in regular operations, be aware of any possibility of a major crisis — a Black Swan event — and be sure that it will not destroy the firm or deliver a setback from which it will be hard to recover.
Never stop exploring, in a culture of anti-fragility.
Nassim Nicholas Taleb famously coined the term “anti-fragile”. The company that has the most well-developed capacity to learn from problems and harm is the most anti-fragile. The culture of anti-fragility is always to surface problems when they are encountered and address them at the source. Luca stresses that culture is built when everyone in the company can see a consistent set of actions in which the trade-offs of addressing problems are consistent with the stated vision. For example, a culture of safe operations will be reinforced when safety precautions are taken even when the cost, in time or money or both, is high.
The leading indicator is that every individual and every operation and sub-operation is following safe practices, and that the company readily commits resources when a new safety procedure or installation is proven to be effective. If the trade-off is made that the new procedure is effective but too expensive to install, the culture will be punctured because the company has acted contrary to its declared vision.
Additional Resources "The Power Of Adaptation" (PDF): Mises.org/E4B_146_PDF
Read Luca Dellanna’s book, The Power Of Adaptation: Mises.org/E4B_146_Book
Another application of adaptation, Teams Are Adaptive Systems: 12 Principles For Effective Management by Luca Dellanna: Mises.org/E4B_146_Book2
Visit Luca Dellanna’s website to find more resources: Luca-Dellanna.com
E-mail Luca at luca@luca-dellanna.com
Garet Garrett was among the most important figures from the literary, political, and laissez-faire economic traditions of the Old Right, but his name is hardly known today. In 1938 he penned "The Revolution Was," a remarkable essay about FDR's revolutionary New Deal and, more importantly, how it was accomplished. FDR's revolution had already happened, though few Americans understood it or grasped what the triumph of an administrative state would mean. The New Deal was a revolution "with the form," because the old trappings of constitutionalism and separation of powers remained intact. What had changed was the substance of American government, engineered through skillful propaganda and marked by radically increased control over the nation's capital and businesses. This essay is entirely relevant to our current politics, and explains with tremendous clarity the the ongoing revolution happening under our noses today. Ryan McMaken joins Jeff Deist for a deep exploration of the essay and its lessons for us today.
You owe it to yourself to read this masterpiece.
Read Garet Garrett's prescient essay: Mises.org/GaretWas
The field of medical care is so ripe for new entrepreneurial solutions. As is always the case, solution design begins with understanding subjective value, both for customers (patients) and providers (doctors) Christopher Habig of Freedom Healthworks (FreedomHealthworks.com) joins Economics For Business to explain how an Austrian, subjective-value focused approach is bringing market freedoms to medical care.
Key Takeaways and Actionable Insights Step 1: Like many entrepreneurs, Chris Habig started a revolutionary business from a place of familiarity and existing knowledge. The so-called effectual process in entrepreneurship begins with two straightforward questions: what do I know and who do I know? Chris Habig grew up in a family where both parents are physicians. This vantage point gave him the opportunity to observe the critical doctor-patient relationship first hand, as well as the way in which modern bureaucratized medicine imposes obstacles and complexities that strangle the value generation potential of that relationship.
Step 2: Assessing the subjective value gap. From his Austrian analytical perspective, Chris was able to identify the subjective value gap. For customers (patients) it is the loss of the positive feelings that they associate with the doctor-patient relationship. Chris summarizes them as advocacy, access and affordability: my doctor is on my side and looking out for me; my doctor is always available to me; I will not be excluded for economic reasons. These feelings are negated by bureaucratic medicine.
There’s a subjective value gap on the physician side, too. Research shows that doctors are stressed, and no longer find fulfilment in their work. Their mental health declines and there is an increasing rate of defection (leaving the industry) and even suicide. It’s a sign of a dysfunctional system to exert such an effect on its human capacity.
Step 3: Identifying the barriers to remove. Value generation often consists in the removal of barriers to the realization of the desired experience. Chris identified two major barriers: insurance and government. The current approach to medical insurance actually hampers the market for what customers truly desire, which is the positive feelings of the doctor-patient relationship. Now it’s a patient-insurer relationship: will my visit / test / procedure be covered? Will there be a big bill in the mail?
And, of course, the participation of government to enforce the current system through legislation and regulation perpetuates the barriers.
Step 4: The entrepreneurial solution. The solution is to free the system from its constraints through entrepreneurship. The physician is the entrepreneur on the supply side. Via a new business model called Direct Primary Care (DPC), the physician-entrepreneur creates a new value proposition for customers. Access is provided via a subscription model, and this financial innovation enables the thriving of a practice composed of a small number of patients to whom the physician can devote more time per visit, more attention, and more personal and individualized care. The physician is networked into a web of complementary secondary and specialist services that can be orchestrated for the individual patient’s need. All the associated business services are clustered around the DPC practice, and the physician does not need to be bound by a hospital system bureaucracy.
The new financial model enables the customer to take charge of their medical expenses, paying cash for current needs and reserving insurance for catastrophic events, which is the way it should be used. Consumer prices are lowered throughout the system.
Lives are improved on both sides of the doctor-patient relationship.
Step 5: The support system for the entrepreneurial model. We live in an age in which distributed entrepreneurship can be embedded in an enabling system of digital infrastructure. Part of the innovation that Freedom Healthworks brings to the renaissance of the doctor-patient relationship is the platform on which the DPC business model can run.
Chris has identified 158 steps for the set-up, operation, and maintenance of a DPC business model. These can all be hosted, enabled, and implemented on the physician’s behalf. Finance, technology, operations, marketing, and vendor relationships can all be systematized and partially or fully automated. The doctor can focus on the relationship component of interacting with patients.
Step 6: Scaling. Can entrepreneurs build out a fully-functioning cash-based direct care system to rival and ultimately replace the government-insurance company nexus? It’s already happening. As each DPC practice proves itself, more entrepreneurial physicians will make the transition and momentum will build.
DPC is an important example of the future of entrepreneurial economics.
Additional Resources "Enabling A Direct Primary Care Practice" (PDF): Mises.org/E4B_145_PDF1
"FreedomDoc Launch Process" (PDF): Mises.org/E4B_145_PDF2
Healthcare Americana podcast: Mises.org/E4B_145_Pod
Visit FreedomHealthworks.com and FreedomDoc.care
Tho Bishop, guest-hosting A Neighbor's Choice, interviews Jonathan Newman, author of The Broken Window.
Tho and Jonathan discuss the supposedly transitory aspect of inflation, the overshadowing of economics by central planning, Keynesian economics, and more.
Purchase The Broken Window online at Mises.org/BWindow.
Every company starts as an innovation. Thereafter, the unceasing challenge is to keep innovating because the market continues to change, technology continues to advance and, crucially, customer expectations continue to rise. Economics For Business speaks with Joe Matarese, Executive Chairman of Medicus Healthcare Solutions, about how to build the culture of continuous innovation and overcome the countervailing forces of the status quo.
How to understand consumer expectations and build organizational culture that rewards continuous innovation: Mises.org/E4B_144_PDF.
Key Takeaways And Actionable Insights Every company starts as an innovation. The challenge is to continue — and ideally accelerate — innovation without pause. As Joe Matarese puts it, innovation gets you into the game. It’s how every company starts. There’s the identification of a gap in the marketplace and the operationalizing of a new innovation to fill the gap, better than any other competitor or rival entrant.
Innovation is seldom a great new invention or unprecedented leap. It’s more often the day-to-day incremental changes and improvements in products and processes to meet customers’ changing expectations.
The great challenge is to continue or even accelerate innovation as the company grows and expands.
Continuous innovation combines mindset, processes, technology, empathy, and organizational empowerment. The world is complex and ever-changing. Innovation is necessary for all businesses to keep up or even move ahead. Innovation is not simple, and it’s not easy — in fact it’s a continuous struggle against opposing forces. Joe Matarese has directed innovation from three vantage points: big corporate, startup, and large growth company. To achieve the goal of continuous innovation requires attention to multiple factors:
Mindset: Innovation must be the commitment for everyone in the company. That means always asking the question, “How can we do better?” Such a mindset requires both tolerance of discomfort — since there’s never any rest — and humility in the face of feedback. Innovative companies hire people with these characteristics and cultivate constant vigilance throughout the firm.
Processes: Things get done through the implementation of processes. Innovative are always seeking to improve their processes — make them faster, lower cost, and more efficient in their use of inputs, especially the use of people’s time. Innovation itself is a process, and process improvement is a form of innovation.
Technology: Irrespective of how innovative any one company may be, technology is progressing at an increasing rate of change with potential to render all processes faster, lower cost, and capable of higher quality and fewer errors. One way to ensure continuous innovation is the rapid adoption and early implementation of new technologies as they become available.
Empathy: Even more powerful than technology is the capacity to tap in to customers’ expectations. This is the source of knowledge about future requirements. Customers are experiencing new technology, are absorbing innovation from other firms in the market (whether they are firms that are competitive to yours or simply adjacent), are experiencing change, and their expectations are changing and becoming more demanding by the moment. By sensing their changing expectations, the innovative firm is in position to be a first responder or an innovator before the expectation has even hardened or matured. Being ahead of expectations is a powerful place to be.
Empowerment: People in front line sales and service functions are closest to customers and their expectations. Line operatives are closest to process implementation. Supply chain managers are closest to business partners and vendors. It is these front-line positions that are best placed to deliver information about expectations and what’s changing. They are also best placed to sense dissatisfaction and unease, and to make real-time changes and adjustments. If they are empowered to make changes and to both suggest and implement improvements — even if what they try doesn’t work — they will be more highly motivated and more likely to serve as an internal engine of innovation.
Tools: Joe shares how his company, Medicus, has developed tools for innovation. Internally, all employees have access to communications tools that ensure the customer data they collect, and the ideas they generate as a result, are widely circulated and responded to. Externally, doctor whom Medicus reimburses for services have access to a tool to record their time that is administratively simple and generates fast payment, addressing two measures of unease.
Our Econ4Business.com platform curates many tools for entrepreneurs. One example relevant to this episode is the "Continuous Customer Expectations Monitor" (see Mises.org/E4B_144_PDF2). It guides entrepreneurs through the continuous process of tracking and keeping up with changing customer expectations.
There is a constant counterforce to innovation that the innovative company must recognize and overcome. There is an innate human resistance to innovation and change. Consider this from a leading brain scientist and psychologist:
When information streams in through our sensory systems, it first stops off at our amygdalae, which are there to ask the question, “Am I safe?” We feel safe in the world when enough of the sensory stimulation coming in feels familiar. When something does not feel familiar, however, our amygdalae tend to label that unfamiliar thing as dangerous, and they respond by triggering our fight-flight-or-play-dead fear response. —Jill Bolte Taylor, Ph.D., Whole Brain Living (Mises.org/E4B_144_Book)
It’s natural in humans to resist change. It may not be safe. It may threaten my job, or my comfortable routine, or generate unwanted uncertainty. Fear of change is real. The function that exercises the fear response in companies is bureaucracy. Bureaucracy exists to ensure compliance with existing rules, and their consistent and uniform implementation. Bureaucracy is anti-innovation.
When a business leader commits to improving a product or process, he or she is undoing what someone else in the firm had championed and nurtured and maintained. It’s a constant battle that must be waged between change and the maintenance of the status quo.
The adoption of new technologies is an effective technique of innovation, but it can also trigger a fear response. Technology is the continuous innovator’s weapon. It advances at its own pace, as a form of evolutionary advance. Every technological innovation spurs new applications in the marketplace. The adoption of these new technology applications is a catalyst for continuous innovation in the firm, supporting both product and service improvements and the incremental efficiency of processes — faster, leaner, lower cost.
The fear mechanism exhibits itself as employees worrying about their jobs. Perhaps the application of technology will reduce the number of people supporting a particular process from 5 to 4 to 3 or 2 or even one or none. They fear that progress will punish them. They adopt a defensive mindset. The innovator’s goal is to change the mindset to one of anticipation of rewards for progress.
Basic economics tells us that resources which are no longer utilized in a process that is rendered more efficient are thereby released for higher and more productive uses. Innovation leaders can communicate that, and make sure employees know they will be rewarded for progress via new and better opportunities for them to contribute more through the higher productivity that innovation brings.
The greatest resource for continuous innovation comes from customer intimacy and empathy that senses customers’ escalating expectations. When we talk about a changing marketplace, we are really talking about customer expectations. Innovation elevates customer expectations and thereby triggers the next round of innovation in a never-ending cycle.
For example, now that many people carry iPhones and other smartphones, they’ve become used to unprecedented levels of convenience, interconnection, functionality, and intuitiveness. Their expectations for every other piece of technology they encounter, and every interface they navigate, are raised to a new level. There’s a marketplace of expectations and every new technology raises the bar.
The way to keep pace, and to have any chance of anticipating and meeting the next level of raised expectations is to get as close to the customer as possible, to be with them when they’re using your product or service or technology and listen and empathize when they express a wish (or expectation) that the experience could be easier, better, faster, less frustrating, more enabling. “I wish it were as easy as my iPhone” is the expression of an expectation that everything should be as easy as the iPhone.
Innovating firms build in mechanisms that make continuous innovation not only possible but likely. There’s a quote in the book Working Backward, about continuous innovation at amazon, to the effect that “Good intentions don’t work, mechanisms do”. The intent to improve a process or product is not enough; people already had good intentions in the first place. Mechanisms turn intentions into actions and achievements. Some of the mechanisms Joe Matarese recommended are:
Mechanisms for taking in data from and about customers: Customer intimacy has a mechanism, in the form of frictionless and unstructured data collection. Give front line employees and the technology they use the unfiltered capacity to gather customer information about their dissatisfactions and report it back.
Let people experiment: The E4B technique of explore and expand applies to everyone in the organization. Elevate experimentation over compliance. That’s the way learning happens.
Eliminate bureaucracy that is not mission-supportive: Every company eventually builds bureaucracies in order to support consistent application of business rules. Innovators differentiate between bureaucracy that is mission-supportive and bureaucracy that is mission-obstructive. HR is often a department where bureaucracy grows. If HR is helping to recruit talented people who will contribute to innovation, then the bureaucracy is mission-supportive. If HR imposes rules that unnecessarily impede innovation, then that part of the bureaucracy should be shut down. The goal is to liberate the value-generating creativity of everyone in the organization, and not to impede it.
Decentralization and entrepreneurial empowerment: Decentralization is a mechanism of innovation. The goal is for your organization to consist of hundreds of individuals thinking creatively and solving problems for customers. You want them all to think and to learn! They must know that the firm cheers them on for doing so.
Additional Resources "Designing An Organization For Continuous Innovation" (PDF): Mises.org/E4B_144_PDF
"Continuous Customer Expectations Monitor" (PDF): Mises.org/E4B_144_PDF2
Medicus Healthcare Solutions: MedicusHCS.com
Econ4Business.com
Whole Brain Living: The Anatomy of Choice and the Four Characters That Drive Our Life by Jill Bolte Taylor: Mises.org/E4B_144_Book
This week's show features a panel discussion recorded in late October at our annual Supporters Summit. Panelists Ryan McMaken, Jeff Deist, Mike Maharrey, and Tho Bishop lay out real strategies for achieving decentralization.
Includes an introduction by Joey Clark. Recorded in St. Petersburg, Florida on October 22, 2021.
On the latest Free Man beyond the Wall podcast, Pete Quiñones, Patrick Newman, and Tho Bishop discuss Andrew Jackson and his cadre who fought against central banks—and cronyism in general. What can libertarians learn from the strategy they deployed and the power they were willing to wield?
Additional Resources Cronyism: Liberty versus Power in Early America, 1607–1849 by Patrick Newman
"Cronyism from the Constitution to the Mexican-American War": Pete Quiñones interviews Patrick Newman
Successful entrepreneurs are Austrians, they just don’t know it yet. This is a famous assertion from Dr. Per Bylund, and we dissect its meaning in the latest Economics For Business podcast.
Key Takeaways and Actionable Insights Success starts from a deep understanding of subjective value (see Mises.org/E4B_143_PPT). What’s the value of a successfully completed Google search? What’s the value of the feeling of satisfaction that results from having cooked an excellent meal enjoyed by your family? What’s the value of the PowerPoint template you utilized to make a well-received boardroom presentation that may boost your corporate career?
Austrian entrepreneurs know not to ask the question in that form. First, value is not measurable; it’s a feeling or experience in the mental domain. It may have great intensity, it may have long duration, but it can’t be measured in dollars or with any other number.
Yet the generation of customer value is the entrepreneur’s goal. How can the goal be achieved when the understanding of value is so challenging and its measurement is impossible? This is the brilliant advantage of the Austrian entrepreneur.
The customer learns what a value experience feels like. A customer can’t describe the value they are seeking or what goods and services will deliver it. The value process is not one of demand and supply. As Ludwig von Mises understood, customers feel a sense of unease — “things could be better” — and begin to explore possible avenues to relieving their unease. Of course, this exploration takes place within a complex system of needs: individual and personal goals, family comfort and security, job success and economic status. Customers sort through possibilities with incomplete information and in the context of uncertainty. The gap between feeling unease and finding the best good or service to address it is large. They might try multiple potential solutions with varied cost/benefit profiles before they arrive at one that seems best, or better than alternatives. In other words, they learn: value is a learning process.
The entrepreneur helps their customers to learn. The customer’s value thinking is constrained: in the present, they can’t imagine a solution that they haven’t yet tried or that has not been available to them. The entrepreneur innovates around the constraint, by providing and communicating new means that the customer could utilize in the future.
Entrepreneurs can’t directly shape the customer’s choice. It’s a fallacy to believe that advertising or promotions or presentation of features and benefits can accomplish that. The customer’s context is too complex for such a simple mechanism to work. The entrepreneur creates a tomorrow in which the customer will feel better off, and provides the means to facilitate the experience, a means for the customer to learn what a better tomorrow feels like. They meet customers in a market that doesn’t yet exist.
Austrian entrepreneurs have a unique value generation tool. The complexity of the customer’s value system — all the components of value interacting and changing in time — can be simplified with the use of a key that Austrians call the hierarchy of values. Every individual has a set of goals or values they pursue in life. Some of these are more important than others — we call them the highest values. For example, people who engage in sport and athletic activities may have several values for doing so: for fitness and health, for social reasons, for self-improvement, and so on. One value may be the most important in their own individual hierarchy — for many people it is the sense of achievement. By improving their speed or time of running or bicycling, by winning a tournament or a league or playing on a winning team, the individual can experience a sense of personal achievement that is rare, valuable, and fulfilling.
It is a commercially strong behavior to appeal to this highest value among customers. Nike does this for example with its “Just do it” appeal. To simply undertake the athletic activity is achievement: you’ve done something. And, of course, Nike wearables help the process of experiencing the highest value.
All entrepreneurs can appeal to customers’ highest values, and the Austrian entrepreneur has deeper insight into this action.
Austrian humility is a success factor. So much of business success is projected as heroic implementation of superior strategy. Austrian entrepreneurs do not suffer from such hubris. They take a humble approach to business, understanding that the customer is often engaged in searching and learning without a clear outcome in mind, and that, therefore, the entrepreneurial business cannot be certain of any future results. Entrepreneurs humbly follow, letting the searching customer take the lead, and accepting the customer’s terms of service.
This is how entrepreneurs learn how to facilitate value — often from the harms they suffer from getting their value proposition out of alignment with the customer’s preferences. If the value proposition is wrong, or the price is too high, or the convenience not to the customer’s liking, then no transaction is made, and the entrepreneur must — humbly — adjust. The most successful entrepreneurs are able to maintain their attitude of humility at all points in the value cycle.
Austrian entrepreneurs take the role of fitting in to the customer’s value system. It’s a flow, not a plan. Conventional business planning is anathema to Austrian entrepreneurs. The linear process of producing and selling to generate transactions with the goal of meeting a targeted volume or revenue in a fixed period of time is not appropriate for the humble, learning, exploring business of entrepreneurship.
Entrepreneurial success stems not from good planning but from adaptively fitting in to the evolving value system we call the market — a system that is different for every individual customer, and into which many overlapping and competing entrepreneurial value propositions are also trying to fit.
Planning is not a good tool for this purpose. Creativity, imagination, and adaptiveness are called for. The dynamic of learning from the customer and adjusting to changing signals calls for responsiveness not plans. The entrepreneurial journey with the customer is a flow, sometimes through white water. In this context, the Silicon Valley concept of pivoting is appropriate, although not quite as the West Coast gurus see it. Their pivot is a one-time major shift in direction, perhaps to a new business model when the original one proves inadequate. The Austrian pivot is continuous and flowing, adjusting the boat to the subtle and frequent signals sent by customers.
Explore, Realize, Then Keep Exploring. We’ve talked in the past about an “explore and expand” model for entrepreneurial value generation. The entrepreneur co-explores various paths to value with the customer, and when one emerges as productive of significant value, the entrepreneur can expand the allocation of resources to that path and drive revenue growth, through selling more to the same customers, or recruiting new customers or both.
Professor Bylund added some nuance to this: the entrepreneur never stops exploring. When an exploration results in substantial value realized, there remains a lot of further exploration to understand the value experience of the customer in greater depth and detail, and continuous monitoring of changes and adjustments in the customer’s system and value network. The entrepreneur is continuously tested.
The entrepreneurial ethic is an ethic of service; profit is a shared outcome of consumer and producer choices. Entrepreneurial firms are in business to serve customers. This principle may be appropriately expressed via mission statements and expressions of purpose; it remains the core of all entrepreneurship. Profit is an outcome of two collaborative choices: the exchange price the consumer is willing to pay for the value they anticipate receiving, and the choice of costs the entrepreneur considers proportionate to the value he or she expects to generate for the customer. There are many entrepreneurs in the market for resources bidding on costs at the same time, and so the individual entrepreneur’s choices are conditioned by those made by others. Profits emerge from this system.
Cash flow is a better indicator of the capacity of the entrepreneur’s business model to convert resources into exchange value for customers (although not the artificial cash flows of engineered P&L’s — rather, the true cash flow of the customer’s eagerness to exchange for the newly produced offerings from the entrepreneur).
There’s a distinctly Austrian approach to entrepreneurial business. In a famous paper called "Inversions of Service-Dominant Logic," (see Mises.org/E4B_143_PDF) professors Stephen Vargo and Robert Lusch called for inverting “old enterprise economics or neoclassical economics” in favor of a new perspective. One of their proposals was an inversion of “entrepreneurship and the view that value creation is an unfolding, emergent process” to a position “superordinate to management”. Business schools, they stated, teach a management discipline rooted in the industrial revolution. There’s an emphasis on centralized control and planning. Vargo and Lusch sought to replace this approach with value creation as “an emergent process within an ever-changing context, including ever-changing resources; it is, by necessity, an entrepreneurial process”.
The distinctive Austrian entrepreneurship approach captures and expresses the emergent process, and provides entrepreneurs (and managers) with the tools and methods to help them shape thriving businesses as they discover new solutions to relieve customer unease.
Additional Resources "Explore and Realize (and Keep Exploring): How Austrian Entrepreneurs Generate Value on the Path to Business Success" (PowerPoint): Mises.org/E4B_143_PPT
"Inversions of Service-Dominant Logic" by Stephen L. Vargo and Robert F. Lusch (PDF): Mises.org/E4B_143_PDF
Entrepreneurial businesses acknowledge and understand the inevitability of boom-bust cycles in the Fed-manipulated economy. But they refuse to be defeated or even deterred. They find the profitable pathway through both the boom and the bust. Murray Sabrin has compiled a guide in his latest book, Navigating The Boom/Bust Cycle, An Entrepreneur’s Survival Guide (Mises.org/E4B_142_Book).
Key Takeaways and Actionable Insights So long as we have central banking, entrepreneurs will experience boom-bust cycles. They adapt to this reality. Entrepreneurship is, in its essence, focused on the generation of new value, producing betterment, growth, and improvement. While customer preferences and the nature of competitive offerings may change, and conditions such as pricing and contracts may vary, entrepreneurs work towards continuous enhancement of markets.
Their efforts are thwarted by governments, who can’t leave markets alone to function smoothly, and especially to central banks who aim overtly at manipulating markets through artificial credit creation. Austrian entrepreneurs are acutely conscious of this problem, since they understand Austrian business cycle theory. But they must nevertheless adapt to the boom-bust problems the central bankers bring about.
The first tool of adaptiveness is the recognition that there is the private economy and the public economy are different and separate. Some economists talk of a mixed economy, but, as Mises pointed out, such middle-of-the-road thinking is socialist. The public economy is where the government trades, including trading in money, debt, and credit manipulation, and in the regulations that governments use as their management tool.
Entrepreneurs seek to establish a private economy where the government does not trade. The most important part of the market where the government is absent is the creation of customer value, especially in the form of innovation. Governments destroy value and deny innovation. When entrepreneurs can operate in the light of value generation, leaving governments in the dark, there’s room for profitable operations.
Entrepreneurs can further protect their safe haven with good anticipatory timing of the boom-bust cycle. There are signals that help. Murray Sabrin’s book provides a long list of websites and links where relevant data is published that can help entrepreneurs watch the trend that might signal the timing of the boom-bust cycle.
The first signal is the so-called inversion yield curve, when short term interest rates start to elevate, and even get to higher levels than longer term rates. This is unnatural, implying that there is greater uncertainty in the short term than the long term. It can only happen when markets are fearful of the short-term consequences of government policies and interventions, even though they are confident of entrepreneurially-induced growth and improvement in the long run.
As a rule of thumb, according to Murray, the beginning of a recession can be anticipated roughly one year from the inversion of the yield curve. Of course, other factors can intervene, such as the government’s idiotic shutting down of businesses over the fake COVID-19 pandemic. Nevertheless, entrepreneurs should pay attention to the yield curve signal. They can monitor it at Mises.org/E4B_142_Fred.
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Another signal for entrepreneurs to monitor in the overall economy is the unemployment rate. This rate declines during the boom, and actually starts declining as the recession is ending or a few months afterwards. There are variations in the pattern by industry, which Murray describes in detail in the book. He provides a list of 12 St. Louis Fed employment data series to monitor, covering sectors such as manufacturing, durable consumer goods, finance and insurance, and construction.
He offers many more signals — such as homebuilder stock prices — to monitor boom-bust timing. There is plenty of data for the savvy entrepreneur.
Strengthening value effectiveness and value security beats managing for efficiency. The economics profession has been guilty of misguiding entrepreneurs with its focus on efficiency, i.e., managing for fewer inputs per unit of output, and eliminating “waste”. It can cause fragility, impede value generation, and slow down innovation and responsiveness to change.
One example is the management of supply chains. Managing them for maximum efficiency can also make them insecure, if, for example, there are no ready supplier replacements when one slips up. We are experiencing the impacts of supply chain fragility right now in the US. It’s for reasons extraneous to regular business operations, but the effects serve to highlight the need to keep supply chains secure under attack from government interventions. Entrepreneurial businesses that develop the strongest possible upstream supplier relationships and cultivate a richly connected value network may be able to perform better when boom-bust hits the supply chain.
Entrepreneurs fight the Fed on inflation. The Federal Reserve insists on maintaining its 2 percent inflation target, which is economically destructive in many ways (see "Why the Fed's 2 Percent Inflation Standard Is So Bad" by Ryan McMaken: Mises.org/E4B_142_Article). Entrepreneurs pursue deflation, always aiming to deliver better quality at lower prices. Why? Because it’s what customers want, and entrepreneurs are in business to serve customer needs. Entrepreneurs bring abundance. The Federal Reserve, taking the position that higher prices are good for the economy, promotes scarcity.
Entrepreneurs make their workforce a strong resource, rather than a source of cost-cutting in economic downturns. The purveyors of so-called efficient management traditionally see the workforce as a cost, and urges entrepreneurs to cut costs by firing people in economic downturns. Entrepreneurs focus on effectiveness instead, and see their workforce as a resource and a source of ideas and initiatives for improvement and adaptation in all environments. A motivated frontline workforce is closest to customers and can bring back information, ideas, and new initiatives to make the business more responsive to customer needs and more capable of delivering desired customer experiences. This is the case whatever the state of the Fed-manipulated economic cycle.
Growth entrepreneurs think expansively at all times. Entrepreneurs create new value for customers, and they don’t call a halt to their pursuit of value just because of the macro-economic data that’s being reported in the mainstream media.
They understand that customer preferences, or the order of those preferences, may well change in a boom or a bust time, and they maintain their vigilance in monitoring and responding to these changes. These are the signals to which they respond, not the economic headlines. Entrepreneurs look for the opportunity to introduce new goods and services at all times, and not just at the “right” moments in the economic cycle. They’re always looking for new ways to deliver more value. Perhaps, in a downturn, there’s a greater call for service and repairs on existing equipment than for buying new equipment. Entrepreneurs can adjust and recombine their assets to provide more repair work and thus make up for lost sales revenue.
Entrepreneurs are great cash flow managers, and tend to keep cash on hand or available for those times when this level of money can be utilized for expansion. One potential application in this book is the acquisition of assets from other businesses in a downturn, when business operators who are less savvy run out of cash and offer assets for sale at low cost. Murray calls this “picking up the pieces”.
There may also be the opportunity to expand geographically into new regions. There’s always growth somewhere.
In sum, the answer to the boom-bust cycle is value agility. In the 4Vs business model on the Economics For Business platform, the fourth phase of the value cycle is value agility. We use this term to indicate the speed of responsiveness that successful entrepreneurs exhibit in response to customer feedback. Murray Sabrin uses the same term in his book, and defines it as “a process where entrepreneurs... adapt and adjust to continue to meet consumers’ perceptions of value your business delivers” (p. 111).
He asks, “do entrepreneurs stick it out when the economy is in a slump or wave the white flag and close the doors?” Mastering value agility means never being faced with that agonizing decision.
Additional Resources Purchase Navigating The Boom/Bust Cycle, An Entrepreneur’s Survival Guide at Mises.org/E4B_142_Book. Use promo code BOOM20 for 20% off.
See a preview of Murray Sabrin's book at Mises.org/E4B_142_Preview (PDF).
"The 4Vs Business Model" (Video): Mises.org/E4B_142_Video
The Economics For Business platform: Econ4Business.com
"Why the Fed's 2 Percent Inflation Standard Is So Bad" by Ryan McMaken: Mises.org/E4B_142_Article
10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity (Chart): Mises.org/E4B_142_Fred
Daniel McAdams of the Ron Paul Institute joins the show to discuss what might be termed the Ron Paul Doctrine: a combination of laissez-faire at home, decentralized domestic political power (up to and including secession), robust free trade, and strict non-intervention abroad, This doctrine—which mirrors Mises's prescription for a liberal society—makes no phony distinctions between foreign and domestic policy, or between military and economic interventions. It places peace and property at the center of a free society, and calls for humility rather than hubris in politics. Daniel also gives his thoughts on Dr. Paul's doctrine as it applies today to China, Turkey, Russia, and Iran.
All value is subjective. But often, when an exchange is to be made, a numerical value is required. It’s a special kind of economic calculation, what Bharat Kanodia terms “a subjective opinion based on objective facts”.
Bharat has built a career on valuations, from 2-founder garage start-ups to the Eiffel Tower. He shares his knowledge, experience, and insights with the Economics For Business podcast.
Key Takeaways And Actionable Insights Valuations start with a “what?” and a “why?” What is the subject of the valuation? Is it a building but not the land it’s sitting on? Is it a patent? Is it a monetized patent or just an approved patent? Is it the assets of a business or is the going business? All these definitions and classifications of what’s being valued clearly make a big difference to the outcome.
What is the purpose of making a valuation? It might be a step in buying a business. Or in selling a business. It may be a valuation of an asset for insurance purposes, or for estate tax estimation. The valuation may be a tool for raising capital, or an assessment following a capital raise. The same asset can have different valuations for different purposes.
That’s why it’s important to start with the what and the why.
The most challenging business valuation is for a start-up. Two founders working from a garage have a business idea and some code but no customers and no revenue. The business needs a valuation in order to raise capital. It makes no sense to value it on the basis of discounted future projected cash flows. They’re imaginary.
The business is going to be valued based on the story the founders tell, and a rule of thumb valuation that works backwards from the percentage of the business the founders are willing to give to a seed investor.
Most 2-founder garage pre-revenue businesses are deemed worthy of a $1 million valuation, because an investor can be given 20% of the business for a $200,000 investment, which are reasonable heuristics for both parties. Bharat advises founders not to haggle too much over this valuation stage — if the business is successful, this initial financial structure is largely irrelevant for the founders.
In subsequent post-revenue investment rounds, operations have more impact on valuation than future revenue projections. Even once there’s revenue and a validated business model, projected future revenues are seldom the basis for valuation. There’s usually a hockey stick projection, or a long list of unverifiable assumptions. It’s more important to investors — and valuers — to examine operations, and specifically whether the business owners have a valid, detailed, and convincing plan to scale up. This kind of operations planning demands great rigor, both for purposes of implementation and for convincing investors.
Often, it’s the quality of storytelling that underpins the valuation. With a detailed operations plan in place, the selling business founder or proprietor can build a persuasive story about future growth and potential. Here, emotion plays a big part. Can the business owner communicate how intensely the need is felt by potential customers? Can he or she communicate the passion they feel to deliver a solution to those customers? And the deep emotional commitment to the years of hard work it will take to attain appropriately ambitious goals?
The story, well-executed, validates the valuation.
For businesses like CPA firms, medical practices, and construction, 2 major factors have an outsize influence on valuations. When an investor buys a mature service business, especially a local one, they are generally seeking hassle-free cash flow. They’re not looking to buy problems to fix.
Two factors stand out for these kinds of buyers. One is reliable recurring revenue from loyal customers. It must be revenues that are fully attributable to the service, and unlikely to be cut when there is a change of ownership.
The second is automation or established smooth-running and self-maintaining operations mechanisms. Bharat’s advice to sellers of these kinds of businesses is to automate everything you can, with reliable control software wherever possible.
These kinds of service businesses may have high levels of reputation and trust based on surveys and qualitative data, but those intangibles must be backed up with the behavioral reliability of the customer base.
In today’s markets, followers are a highly valued asset. In many ways, recurring revenue is a metric to quantify followership. Ryan Reynolds has a followership. Nike has a followership. Tom Cruise has a followership. These followers are all monetizable as buyers of goods or services or movie tickets associated with these personalities and brands. Your personal brand has value if you have followers and if the followership can be monetized.
Every asset can be assigned a valuation — even the State of Hawaii and the Brooklyn Bridge. Bharat has been called upon to give valuations of the Brooklyn Bridge, the Atlanta airport, and the state of Hawaii, among many other famous places or things. Sometimes, the valuation is for insurance purposes, sometimes for accounting. In all cases, there’s a number (or a range).
Once the what and the why are established, there is a mechanism for valuation that can be applied to any asset or stock or flow.
Additional Resources "Pathways To Business Valuation" (PDF): Mises.org/E4B_141_PDF
"How to Double Valuation?" (Video): Mises.org/E4B_141_Video1
"What’s Pre-IPO Worth?" (Video): Mises.org/E4B_141_Video2
We wrap up our look at Murray Rothbard's sprawling two volume An Austrian Perspective on the History of Economic Thought with Dr. Joe Salerno, Rothbard's friend and colleague. This show covers the second volume exclusively, starting with the Frenchman JB Say and working through Ricardo, the British Currency School, John Stuart Mill, and finally Karl Marx. Salerno has penetrating insights about all of these thinkers, from Say's understanding of production to Ricardo's erroneous systemization of Adam Smith. He also has great background regarding Mises and the Currency School vs. Banking School debate, on free banking and full reserve banking, and on Mill's deep misconception of money. The show ends with a thorough look at Rothbard's treatment of Marx over more than 100 pages: Marx's sick view of man as a collective, his hatred for the division of labor, his absurd and deterministic "laws of history," his materialism as a replacement for spiritualism, and the underlying folly of "superabundant production."
You don't want to miss this show!
Additional Resources Read Rothbard's important work: Mises.org/APHET
Family businesses play a major role in the US economy. According to the Conway Center, family businesses comprise 90% of the business ventures in the US, generate 62% of the employment in the nation, and deliver 64% of US GDP.
And, they’re good at venture capital. Samuele Murtinu, Professor of Law, Economics, and Governance at Utrecht University, visits the Economics For Business podcast to share the findings and insights (see Mises.org/E4B_140_PDF) from his very recent analysis of venture capital databases.
Key Takeaways and Actionable Insights Corporate venture capital is a special animal. There are many types of venture capital. Professor Murtinu focused first on the distinction between traditional or independent venture capital (IVC) and corporate venture capital (CVC). Independent venture capital funds are structured with a general partner in the operational, decision-making role, and investors in the role of limited partner.
Corporate venture capital funds are fully owned and managed by their parent corporation. The CEO or CFO of the corporation typically appoints a corporate venture capital manager, who selects targets, conducts due diligence and so on from a subordinate position in the corporate hierarchy.
The important difference between IVC and CVC lies in objectives and goals. IVC goals are purely financial — the highest capital gain in the shortest possible time. CVC funds often have strategic goals in addition to, or substituting for, financial goals. These strategic goals might include augmenting internal R&D capabilities and performance, and accessing new technologies and new innovations, or entering new markets.
Another form of CVC licenses patented technologies to startups in cases where the corporate firm does not have the capacity to exploit the IP, but can oversee the implementation at the startup with a view to further future investment or acquisition. This is the method of Microsoft’s IP Ventures arm, for example.
Typically, IVC investments are easy to measure against financial performance benchmarks or targets. CVC’s strategic investments are harder to measure. Goals such as technology integration are too non-specific to measure, and normal VC guardrails like specified duration of investments are not typically in place and so can’t be used as benchmarks. On the other hand, CVC investments often expand beyond the financial into strategic support via corporate assets such as brand, sales and distribution channels and systems.
Corporate venture capital out-performs traditional venture capital in overall economic performance. Professor Murtinu’s performance metric in his data analysis was total factor productivity — performance over and above what’s attributable to the additions to capital and labor inputs. IVC’s performance for its investments was measured in the +40% range, and CVC’s was measured at roughly +50%. IVC performs better in the short term, while CVC performs better in the longer term. This difference reflects the lower time preference of CVC. It extends to IPO’s: corporate venture capital funds stay longer in the equity capital of their portfolio companies in comparison to independent venture capital.
Family CVC is another animal again — and even higher performing than non-family CVC. Professor Murtinu separated out family-owned firms (based on a percentage of equity held) with corporate venture capital funds for analysis. Some of his findings include:
They prefer to maintain longer and more stable involvement in the companies in which they invest.They prefer to maintain control over time (as opposed to exiting for financial gain).They look to gains beyond purely financial returns, including technology acquisition / integration into the parent company and/or learning new processes.They are more likely to syndicate with other investors, for purposes of portfolio risk mitigation.They target venture investments that are “close to home” both in geographic terms and in terms of industries closely related to their core business. The resultant outcomes are superior: a higher likelihood of successful exits (IPO or sale to another entity), and a greater long term value effect on the sold company after the IPO or exit. Further, there is evidence from the data of a higher innovation effect for Family CVC holdings, as measured by the post-exit value of the patent portfolio held by the ventures.
Family CVC is resilient in economic downturns. During the last economic downturn, family CVC invested at double the amount of corporate venture capital, reflecting family businesses’ preference for long-term investing and for control.
The lower time preference of family businesses and family CVC is crucial for the achievement of superior financial performance, especially in the longer term. Family CVC’s lower time preference and longer investment time horizons result in beneficial effects. Ownership in the venture companies is more stable, and the value effect after IPO (when family CVC stability continues because these funds stay in the post-IPO company longer) is significant.
Professor Murtinu relates this phenomenon to Austrian economics. The longer time horizon permits a closer relationship between investor and entrepreneur — it develops over time — and their subjective judgment about the future state become more aligned. Frictions and information asymmetries are reduced, and a shared view of the future emerges. This stability can scale up to the industry level and national level when there are more family CVC funds at work. Instead of pursuing unicorns and gazelles, an environment more conducive to duration and resilience is created.
Additional Resources "Types of Venture Capital" (PDF): Mises.org/E4B_140_PDF
"Families In Corporate Venture Capital" by Samuele Murtinu, Mario Daniele Amore, and Valerio Pelucco (PDF): Mises.org/E4B_140_Paper
Bob provides a running refutation of Stephanie Kelton's recent TED talk on Modern Monetary Theory (MMT).
Mentioned in the Episode and Other Links of Interest: Stephanie Kelton’s TED TalkBob’s review of Kelton’s book explaining MMTBob’s article on opting out of Social SecurityKelton’s intro to MMT, The Deficit MythBob’s interview of a founder of MMT, Warren Mosler. Then Bob’s analysis of that episodeBob’s Mises.org critique of a popular identity (equation) in the MMT literature. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Entrepreneurship is a method, and it’s also a mindset. Fabrice Testa has written a book that brilliantly integrates the two: he calls the integration "Super Entrepreneurship," and his book title is therefore Super Entrepreneurship Decoded (Mises.org/E4B_139_Book). He has the appropriate credentials as a proven super-entrepreneur who has created and nurtured numerous great companies (and successfully sold a couple of them).
Fabrice knows the true meaning of the phrase, “The day before something is a breakthrough, it’s a crazy idea”.
Entrepreneurs are animated by their purpose. Super entrepreneurs embrace a massive transformative purpose. The motivation for entrepreneurs is to help others — to solve problems for others, as we sometimes phrase it. Super entrepreneurs, in Fabrice Testa’s language, are those who choose to dedicate their businesses to solving the biggest problems. By setting big goals, they attract many like-minded partners, collaborators, and employees. By targeting transformation, they aim to change the world in a significant way.
In making this choice, super entrepreneurs are delving deeply into their own personal story to understand their own drivers and their own passionate commitment. There’s a major self-discovery component.
Having set their MTP, super entrepreneurs develop a systematic approach to the pursuit of their goal. Fabrice Testa recommends that super entrepreneurs combine what he calls CRAZY thinking with a relentless sense of purpose. CRAZY is an acronym for elements of entrepreneurship that Testa calls the Five Secrets. We agreed not to give them away, but they add up to a five-step method entrepreneurs can follow, and a checklist that they can use to assess the market power of their own concepts and business models.
The context for the 5-step method is the exponential rate of growth of available and applicable technologies for entrepreneurship, and the convergence of those technologies that results in a compounding of productivity. When, for example, sensor-based data collection can be combined with A.I. and robotics, whole new fields of automation open up, potentially helping billions of people.
A relentless sense of purpose is a major element in the super entrepreneurial mix. Super entrepreneurs are highly motivated. They display high levels of ambition and drive, and they generate strong momentum. They seek change, and aim for breakthroughs. They love to set the bar high.
There is a spirit to super entrepreneurship, an intangible spark of super energy and boldness that sets the best entrepreneurs apart and powers them to unusual levels of achievement.
There’s a plan, but it’s not fixed. Fabrice Testa identifies a master plan for the activities of high-achieving entrepreneurs, but it’s not the restrictive plan of the business school strategist. One term he used was Roadmap: there’s a goal to get from A to B, but it’s OK to visit C, D and E along the way, and to learn and double back and embrace recursive procedures to reach the targeted end-results. The key to success is keeping the goal in mind with flexibility on the route to get there.
Let the customer be the guide. Testa subscribes to the protocol of involving the customer early and often in the process of designing and building a product or service or a company. Entrepreneurs are always working with assumptions, and, at minimum, must validate them with customers.
He introduced us to the “Starbucks method” of customer validation. Park yourself in Starbucks, order a beverage of your choice, then look around for likely-looking people who might be open to a brief conversation about your idea or proposal or even prototype. It’s easy to engage people, they’re willing to help, and you can offer to buy them a coffee to lubricate the relationship. A few hours investment of your time and a few dollars invested in coffee will result in a deep, broad and rich set of reactions and responses and a meaningful feedback loop.
Success is more about fitting in than it is about timing. When writers and historians are trying to analyze the unusual success of a particular business, they often attribute a lot of the cause of the outcome to timing — the product or service or technology came along at just the right time. This is a misinterpretation. The happy correspondence of a new offering with a receptive context is not timing but fitting in.
According to Fabrice, to fit in in a big way is to fit in with the zeitgeist of the era. The dictionary definition of zeitgeist is the general intellectual, moral, and cultural climate of an era. What Fabrice is pointing towards is a heightened ability to sense the movement of the time, and the direction of its flow, and to step into that river at the right point.
Entrepreneurship is everywhere, and can be achieved at multiple scales. Super entrepreneurship is not limited by the scale of resources, but it can certainly be augmented wherever resources are abundant. That’s why we seek to encourage entrepreneurship for individuals, teams, and firms of all size, including the largest corporations. Big companies under-perform at entrepreneurship for two reasons. First, they spawn bureaucracy, which is a form of organization that is counter-entrepreneurial. Second, they have existing businesses to defend and fear the consequences of self-disruption.
The solution is to change the purpose of big corporations so that they can become super-entrepreneurial. The purpose would be to create new businesses with no bureaucracy and separated from the defense mechanisms of existing business units or divisions.
Additional Resources Super-Entrepreneurship Decoded: 5 Secret Keys to Create Breakthrough Businesses that Change the World by Fabrice Testa: Mises.org/E4B_139_Book
"Super Entrepreneurship" (PDF): Mises.org/E4B_139_PDF
Our guest is Jay Bhattacharya, Professor of Medicine and Health Policy at Stanford University. Professor Bhattacharya is also research associate at the National Bureau of Economics Research, a senior fellow at the Stanford Institute for Economic Policy Research, and director of the Stanford Center on the Demography of Health and Aging.
Dr. Bhattacharya gained international prominence during the COVID pandemic for his contributions to determining the infection fatality rate of the virus, and for his criticism on broad coercive lockdown policies and vaccine mandates. Along with colleagues Martin Kulldorff and Sunetra Gupta, he wrote the Great Barrington Declaration of focused protection which has garnered 860,000 signatures to date.
SHOW NOTES Jay Bhattacharya: Twitter and Stanford page
Watch the episode on our YouTube channel
This special virtual seminar for donors to our fall campaign was livestreamed on October 8th, 2021.
Jeff Deist and Bob Murphy discuss Mises's views on interventionism and their continued relevance today, particularly after the last year and a half of economic intervention resulting from covid tyranny.
"[Interventionism] preserves some of the labels and the outward appearance of capitalism. It maintains, seemingly and nominally, private ownership of the means of production, prices, wages, interest rates, and profits. In fact, however, nothing counts but the government’s unrestricted autocracy... This is socialism in the outward guise of capitalism. It is the Zwangswirtschaft of Hitler’s German Reich" —Ludwig von Mises, The Middle of the Road Leads to Socialism
Read the full text from Mises here.
We continue our look at Murray Rothbard's two volume An Austrian Perspective on the History of Economic Thought with a show focused on Adam Smith. Rothbard attacked him mercilessly as a plagiarist who set economic theory back decades with his muddled views on value and price. But was this criticism justified, or was Smith actually an early and valiant proponent of laissez-faire?
Our guest Hunter Hastings defends Smith in this rollicking discussion, while Professor Jonathan Newman is not so sure. They also discuss the Scottish Enlightenment and Smithian thinkers like Bentham and Malthus, and even tackle the contentious question of whether Smith produced Marx. Don't miss this!
Additional Resources Read Rothbard's important work: Mises.org/APHET
Austrian economics is distinctive in its recognition and, indeed, embrace of continuous change: customer preferences change, competitors’ actions change, markets change, technology changes, prices change, business methods change. New knowledge is continuously created and accumulated. And Austrian economics equally recognizes that entrepreneurial businesses must change in response: capital combinations change, supplier and customer relationships change, organization structure changes, business portfolios and value propositions change. Continuous change is required — which is something business has not traditionally been designed for. How do businesses manage continuous change?
In the current digital age, the rate of change in the external business environment is accelerating, largely as a consequence of rapid technological evolution and the ways in which customer behavior and preferences change in response. We plan to cover the issue of continuous change from multiple angles in the coming weeks and months.
This week, Mark McGrath joins us to review a tool for value creation amidst continuous, roiling change. It has been around for a while and so is proven in multiple arenas and situations. It goes by the name of OODA.
Key Takeaways and Actionable Insights The OODA loop is a deeply sourced tool that draws on eastern philosophy, western science, and aligns with Austrian economics. When a firm as a network of individuals, knowledge, ideas, tools, processes and resources works with clients and customers and their systems, all should be better off as a result of their co-ordinated action. The better the capacity to learn and make adjustments together, the better the capability to recognize and seize opportunities, and to act at co-ordinated speed. Those who can handle the rate of change fastest will be the most successful.
The originator of the OODA loop model, John Boyd, synthesized thinking from multiple sources about this problem. In business, we can call it the Adaptive Entrepreneurial Method.
The loop is triggered by uncertainty, or what is referred to in the model as VUCA:
Volatility — circumstances change abruptly and unpredictably;
Uncertainty — knowledge is incomplete and the future is indeterminate;
Complexity — we are individuals in a dynamic interconnected whole with emergent outcomes;
Ambiguity — multiple interpretations from multiple observers, and multiple conclusions.
VUCA enters the OODA loop as unfolding interaction with the ever-changing external environment or market, as information and data coming into the company, and as unfolding circumstances, whether these are the company’s own sales trends and customer relationships or the activities of competitors.
VUCA is the state of the universe. It’s the normal condition that entrepreneurs should assume as the basis for action. It also creates an exciting state of opportunity in which dynamically adaptive entrepreneurial businesses can thrive.
OODA is a feedback loop. OODA stands for observing, orienting, deciding, acting — a continuous process.
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Orientation is critical to successful operation of the model. For a firm or for an individual entrepreneur, orientation is a mélange of inputs: mindset, personality, our way of thinking and interpreting, previous experiences and how we’ve processed them, our ability to process new information, our ability to handle change, our ability to analyze and break things down while simultaneously piecing things together and synthesizing them into an insight or construct that never existed before.
Orientation houses all our biases, and all our cognitive models. It’s how we perceive and how we experience the world. It determines how we process all the information we observe.
Decisions are hypotheses. From our orientation-determined analysis and synthesis of incoming data, we envision a future state: what could happen if we did something? In Misesian terms, we imagine what it would be like in the future if we were able to address our own uneasiness — if we were to change our current state and trade it for another one. Any action that follows must be preceded by a decision, a hypothesis of what we think might happen.
Action is an experiment to test the hypothesis. In applying the OODA loop, entrepreneurs demonstrate a bias for learning and a bias for action. We learn by testing what happens when we act and making new observations of the outcomes of the action. These outcomes will give us new signals to employ in re-orienting to ensure that our decisions and actions are well-aligned with reality.
The OODA loop model is consistent with the Explore and Expand approach to business strategy. At Economics For Business, we have frequently urged entrepreneurial firms to abandon business school strategic thinking and replace it with an Explore-And-Expand approach, running many fast, low-cost exploratory experiments and quickly expanding investment in those that work, discarding others. In OODA loop, experiments are decisions and actions, and re-orientation results in expanding application of the successful ones.
In OODA, we continuously build and re-build our perception of the VUCA world and attempt to match our perception with reality through exploration and expansion. We aim to ensure our orientation is attuned to the way the world is and not to the way we want it to be or imagine it to be.
The more we learn, the more we build and re-build, the faster we can advance. Speed of learning is important, so long as it is based on well-processed information.
Guidance and control. In the OODA loop graphic, there are two areas designated “implicit guidance and control”: our actions and our observations. Our orientation implicitly guides and controls both. Our orientation as entrepreneurs or as economists will always affect how we perceive things. Where some might see an obstacle, others see an opportunity. That’s orientation at work. On the action side, orientation implicitly guides and controls our actions. There are some things we can do automatically, employing heuristics or procedures that we don’t stop to think about. This also is orientation at work — and at speed.
Continuous testing. The OODA loop, processing VUCA information into decisions and action via continuous reorientation, is a test. An entrepreneur is always being tested. As time moves unstoppably forward, new challenges continuously emerge. It’s the ceaseless flux of human affairs, as Mises put it in Human Action.
If we maintain an open and flexible or agile approach or orientation to this continuous testing, we’ll avoid failure.
Focusing on a well-understood purpose will eliminate wasted time and wasted action. The Adaptive Entrepreneurial Model has three major elements: VUCA, the way the world is; OODA, as described above; and IOT. IOT stands for In Order To: the purpose or mission. As we deal with VUCA, and continuously change our orientation as we learn from our decisions and experiments, quickly finding out what works and what doesn’t, we must never lose sight of our purpose and our intent. What are we trying to accomplish?
Everyone in our firm, or on our team, must share the same purpose and be able to articulate it in the same way. When that’s the case, creative and co-ordinating action can move forward without instruction: we don’t have to tell people what to do when they’re in the middle of VUCA so long as they have the same shared purpose in mind. Everyone focuses on what needs to happen and why. There’s never action for action’s sake; it’s always with a shared purpose. If team members do not share the same understanding of purpose, then they’re creating more VUCA. If they do share understanding, the orchestration of their individual efforts produces harmony.
People, ideas, things — in that order. All action is human action, all decisions are human decisions, all teams are human teams. When orientations are aligned, harmonious co-ordinated action is possible. There’s a high priority on relationships — with teammates, colleagues, customers, vendors, partners.
In a business utilizing the OODA model, people always come first because they are the ones who act. Ideas follow, judged through the lens of helping people to decide and act. Things — technology, property, money — are at the third priority level to ensure they support people and enable their ideas.
"A sound understanding in application of these comments will yield geometric results." Improved results are the repayment for the effort expended to study the Adaptive Entrepreneurial Method.
Additional Resources "The Adaptive Entrepreneurial Model — Core Thesis" (PDF): Mises.org/E4B_138_PDF
John Boyd's "OODA Loop Graphic" (PPT): Mises.org/E4B_138_PPT
"The Epistemology of the OODA Loop" (PDF): Mises.org/E4B_138_PDF2
"Destruction And Creation" by John R. Boyd (PDF): Mises.org/E4B_138_Boyd
The Theory Of Dynamic Efficiency by Jesús Huerta De Soto: Mises.org/E4B_138_deSoto
The Ultimate Foundation Of Economic Science by Ludwig von Mises: Mises.org/E4B_138_Mises
Bob covers some of the key points in his new pamphlet on restoring the Republic of Texas.
Mentioned in the Episode and Other Links of Interest: Bob’s new pamphlet, COMMON SENSE: The Case for an Independent TexasBob’s recent appearance on Tim Pool’s showBob’s article on opting out of Social Security For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Was Adam Smith the founder of modern economics? Not so, says Murray Rothbard in his staggering two-volume An Austrian Perspective on the History of Economic Thought. Dr. Patrick Newman joins the show for a look at Rothbard's treatment of economics before Smith—from the Ancient Greeks all the way to the Scottish Enlightenment—and his take no prisoners revisionist approach. Jeff Deist and Dr. Newman cover Aristotle and Plato, Aquinas, Protestants and Catholics in the Middle Ages, Spanish Scholastics, Mercantilists, French Physiocrats and Turgot, and the criminally underappreciated Richard Cantillon. If you're a fan of economics and non-bowdlerized history, don't miss this!
Additional Resources Read Rothbard's important work: Mises.org/APHET
Find out more about Dr. Newman's new book: Mises.org/CronyismBook
Using a recent Paul Krugman column as the jumping off point, the Mises Institute Academic Vice President Joe Salerno explains and defends Austrian business cycle theory.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewBob’s response to Krugman’s NYT pieceJoe Salerno’s 2012 QJAE article responding to ABCT criticsJoe Salerno’s previous appearance on the Bob Murphy Show ep. 16Bob’s critique of Selgin on Canadian fractional reserve banking For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Entrepreneurs solve problems for customers. There are few problems bigger than the horribly perverse medical care system under which patients suffer in the US. The system has evolved over time, with the stimulus of bad decisions, bad actors, and bad incentives. Entrepreneurship can solve the system problem with specific actions at the component level, each of which are practical and do-able, and can interact to create a new outcome at the system level.
Murray Sabrin has studied both the system and the component solutions, and he joins the Economics For Business podcast to enumerate his proposed actions.
Key Takeaways and Actionable Insights Healthcare is a consumer good, and a consumer responsibility. Medical care is a provider proposition. Consumer sovereignty is a cornerstone concept in Austrian economic theory. Consumers determine what is produced as a result of their buying or not buying. Does this principle apply in healthcare?
To answer requires us to differentiate between healthcare and medical care. Healthcare is an individual choice and a personal responsibility: we do everything we can to maintain a healthy lifestyle of eating and drinking, exercise and sound physical and mental health practices. In the internet age, there is plenty of knowledge available to help us in our decision-making. Medical care is what we turn to when sound healthcare proves to be insufficient to keep us off medication and out of hospital.
How do consumers realize value from medical care providers? To do so is very challenging due to (among other barriers) price fixing, price opacity, price inflation, monopolistic and duopolistic market structures, the misuse of insurance, bureaucratic management, perverse incentives, government intervention, and barriers to entrepreneurial entry.
Are there potential solutions in the face of this systemic dysfunction? Yes: solutions that come from the best countervailing source — entrepreneurship.
Entrepreneurial Solution #1: Direct Primary Care — Restoring the doctor-patient relationship. Murray Sabrin recalled the $5 doctor visit of the past, characterized by a personal relationship with no bureaucracy or insurance forms. Entrepreneurs are now re-establishing that relationship via Direct Primary Care. DPC is retainer fee-based access to unlimited doctor visits, including office-based testing and additional services, with no insurance forms. DPC doctors have fewer patients in their practice and can consequently provide more time and attention. Stronger relationships are built, which is the essence of entrepreneurial value-generation.
Entrepreneurial Solution #2: Transparent versus distorted pricing. Pricing is one of the most important bulwarks of free markets. In medical care, pricing is opaque to the point of invisibility, distorted, and inflated. It is unresponsive to the normal choice-based supply-demand mechanisms, and not indicative of value.
Some entrepreneurs are acting to change these pricing conditions via what is termed fee-for-service: transparent pricing for specific services. An often-cited example is Surgery Center of Oklahoma, where specific prices for specific surgical services are openly posted on their website. Other members of the Free Market Medical Association provide similar price transparency.
One of the results is revelatory price comparison: Murray told the story of a DPC practice patient who identified a 75% price reduction at Surgery Center of Oklahoma compared to a local South Florida hospital.
Entrepreneurial Solution # 3: One stop shopping at local non-profit clinics. Murray described the launch and success of several non-profit local and regional clinics, including one for which he was the founding trustee. These are philanthropically established and funded local clinics with volunteer staff, providing a range of services. Equipment and pharmaceuticals may be fully or partially donated by the manufacturing companies. The combination of direct primary care doctors and specialists can make these clinics one-stop shopping solutions for patients seeking quality medical care. With a little philanthropic assistance, they could eliminate the need for Medicaid.
Entrepreneurial Solution #4: Direct Contracting. Insurance companies purposefully inflate medical care prices to fund their business model. Murray told the story of a large (4-500 employees) company that contracted directly with a service that brought a vehicle with an MRI machine to the employers location, and charged $400 per MRI to the employees. The same vehicle was utilized by a nearby hospital that charged $6,000 for the same MRI. Direct contracting saved $5400 per unit cost, or 90%.
Direct contracting has the potential to significantly reduce costs in the Medical Care system, while opening access and increasing convenience.
Entrepreneurial Solution #5: The 3-tier household medical care budget system. Murray has a well-constructed and eminently practical household medical care budget system. There’s a version for families with at least on member in employment and an alternative for those on Medicare today. There are three elements:
Direct Primary Care for a monthly fee, covering unlimited office visits and routine tests.A Health Savings Account to cover costs of specialists, prescription drugs, medical equipment, major tests and brief hospitalizations.Catastrophic insurance coverage for major operations and hospitalizations and long term care. Greater detail is provided in Murray’s book, Universal Medical Care From Conception To End Of Life.
Download our corresponding PDF, which features an adapted table from Murray’s book: Mises.org/E4B_137_PDF
In a system of personal responsibility, we would all manage our household medical care budgets with these kinds of tools.
Entrepreneurial Solution #6: Voluntarism And Mutualism. Voluntarism has a long tradition in America. Mutual aid societies were prevalent before the New Deal. Ethnic, religious and trade groups joined together for mutual support. The Federal Government co-opted these functions and now people look to Washington DC to solve their problems.
But young people today are more interested in voluntarism and non-political social activism. 30 years ago in the Wall Street Journal, Peter Drucker argued for the non-profit sector to replace the welfare state. Creative and innovative people find ways to surmount institutionally-erected barriers in all phases of life, and medical care is certainly one of those. There’s a liberating and energizing sense of acting as the custodian of one’s own life and helping others who need it. It’s the entrepreneurial ethic.
Entrepreneurial Solution #7: Distributed Knowledge. There is so much available knowledge today about healthy life habits and about the symptoms and characteristics of various medical conditions, and about options for treatment. We as individuals are free to explore, and responsible for gathering our own store of knowledge. The outcome of the research may not be definitive, and we may find ourselves making a choice between alternatives. But doctors and hospital administrators make choices too, and they are not infallible. It may be possible for an individual to gather more knowledge about their own specific condition from the internet than any single doctor can know, simply as a consequence of concentrated effort. Each of us can take responsibility for our own life.
Summing up: Murray Sabrin’s prescription: Eliminate employer-based insurance.Make a single exception for the case in which the employer pays the direct primary care fee for the patient.The resultant employer savings are deposited in employees’ health savings accounts.Employees determine their best medical care options.Phase out Medicare and Medicaid.Let young people create super health savings accounts so that they don’t need Medicare in the future.Hospitals price at realistic market pricing, not insurance-inflated prices.All prices are transparent.Get the government out of medical care — it’s none of their business.Free up resources from the medical-pharmaceutical-insurance complex and redirect them to savings, investment and philanthropy. Additional Resources Read Murray’s book, Universal Medical Care from Conception to End of Life: The Case for A Single-Payer System: Mises.org/E4B_137_Book It’s self-published and all proceeds go to charity and non-profits.
"Individual Single-Payer Alternative For Employer-Based Insurance" (PDF): Mises.org/E4B_137_PDF
Surgery Center Of Oklahoma: surgerycenterok.com
Forward: goforward.com
Direct Primary Care Coalition: dpcare.org
Volunteers in America: vimamerica.org
Just a few years prior to his death, Murray Rothbard started one of his most ambitious writing projects: a full-fledged, three volume history of economic thought from a uniquely Austrian perspective. Unfortunately he never wrote the third volume, intended to span the post-Marx marginal revolution all the way through the mid-20th century. But the two existing volumes, over 1000 pages, start with ancient Greece and make their way to Adam Smith, Bentham, JS Mill, Ricardo, and Marx. As always, Rothbard is both compelling and radically revisionist. Contra most economic historians, he believed the proto-economists before Smith had much to offer. Both the Spanish Scholastics and French Physiocrats, for example, showed an understanding of value and subjectivism well before Smith developed his muddled cost theory.
These two volumes (free here in pdf!) are a must read for any student of economics, and Dr. Patrick Newman is the perfect guest to bring them to life. Don't miss this first in a series of episodes on An Austrian Perspective on the History of Economic Thought.
Additional Resources Read Rothbard's important work: Mises.org/APHET
Find out more about Dr. Newman's upcoming book: Mises.org/CronyismBook
Entrepreneurs are developing a new world of innovative business models far from regulated markets, crony capitalism, and corporate control. It’s a new world of cyber security, free software, value-for-value exchange, integrated with bitcoin. Max Hillebrand operates in this new world, and he shares both his vision and his expertise on the Economics For Business podcast.
Key Takeaways and Actionable Insights The praxeology of cyberspace. Praxeology is timeless, with equal application in this era of cyberspace and the internet as in any other era. Individuals are in a state of unease, and they can perceive a better future in which their unease is relieved. They allocate resources to achieve that end.
Those resources can be scarce or non-scarce. Non-scarce goods are non-rivalrous; I can share them with you and not give them up for myself. Information goods are non-scarce. They are patterns of words and symbols that can be shared. This is the world of free software.
It’s also the world of cyber security. Cryptography is just a math formula. If I wish to express myself freely to one other person or a small group of people, I can enable my non-scarce expression for only that small group, giving them the private key to decrypt the message.
The value of free software: scratch your own itch. A growing cadre and movement of internet entrepreneurs is engaged in the preparation and distribution of free software. Free doesn’t mean it’s not valuable. New technologies and new free software are created to solve customer problems more efficiently and more effectively. One of the beautiful attributes of free software is that it is open to user contribution — anyone who can read the software can change the software and publish those changes, so that future users can enjoy an even better experience. Everyone in the free software community — producers and consumers — is incentivized to ensure that the tools that they all use are running at their best.
This is sometimes referred to as the “scratch your own itch” ethos. The creators of the software are also the users of the software. Customers know the problems that they want to have solved, and give the ultimate feedback of fixing it themselves.
Free software in business. Producers of free software create the highest quality technology tools. Entrepreneurs looking for the best technology have an incentive to seek out these producers and their products. There is no lack of demand. How do the producers get paid for their development efforts?
One way is via a service exchange. Users of free software often like to add customization, personalization and locally specific integration features to free software that they use. Producers can be contracted and compensated for these customization services. Red Hat followed this business model of servicing Linux users all the way to a $US34 billion valuation in an acquisition transaction with IBM.
Value-for-value exchange: a new business model? The second way to get revenue from free software production is via donations — users recognize the value of the experience of using the product and voluntarily send payment to the producer, even though no “price” was asked.
This emergent concept of voluntary payments made for freely distributed valuable content and products is beginning to bloom into a new form of exchange, which has been given the name of the value-for-value (VFV) model. It’s especially prevalent on the blockchain and on bitcoin networks.
Take a freely distributed podcast as an example. The producer can put a Bitcoin lightning network public key in the RSS feed and listeners can voluntarily send any amount of bitcoin back for every minute they are listening to the podcast. This happens automatically in the background when the listener hits Play and stops when he or she hits Pause or Stop. One-time payments can be made as well, if preferred. Payment can be boosted if the listener here’s something they deem especially valuable to them and wish to extend an extra reward. It’s the ultimate market feedback mechanism.
Bitcoin as free software Bitcoin is another tool of cyberspace, engineered and designed to solve the problem of money. Many innovators over time have made attempts to create digital money to make internet transactions fast, infinitely cheap, stable and private. But none of the attempt, until bitcoin, were able to solve the problem of verification of transactions and enforcement of rules without a trusted third party. Bitcoin solves the important problems, not just of verification but of “who verifies?”
Verification is always and ultimately human. Bitcoin entrains entrepreneurs who download the bitcoin software and confirm they are running the agreed monetary rules on their own hardware. When another entrepreneur connects and asks for rules-based verifications of valid transactions, bitcoin merchants on the network are running the software and checking the transactions of others. They are entrepreneurs producing verification according to established and agreed rules. It’s an entrepreneurial merchant network.
Get paid in bitcoin, hold bitcoin, invest with bitcoin. Max emphasizes 3 aspects of the bitcoin enabled life that can insulate and protect entrepreneurs from the inflationary fiat future.
Get paid in bitcoin To get paid in bitcoin means to have a “censorship resistant” method of receiving payment from customers. People who do not have access to a bank account can become entrepreneurs. People whose bank accounts might get shut down can remain entrepreneurs. Anyone who fears for the future of the fiat system can insulate themselves against future payment system uncertainty.
Hold cash reserves in bitcoin Saving should mean holding an asset without counterparty risk. Bitcoin serves that purpose — it’s counterparty risk-free money. Holding a reserve without counterparty risk frees the individual to make a trade with an entrepreneur at any time in the future. There I no risk of inflation. Your saving can’t be diluted.
Denominate your contracts in bitcoin When more and more entrepreneurs denominate their contracts in bitcoin, a stable monetary asset that cannot be inflated, the detrimental cycles identified by Austrian Business Cycle Theory can be eliminated. This is the exciting long term prospect of bitcoin.
It may be a long path, and it will take time and courage to complete the journey, but it is possible. There are entrepreneurs today (Max is one) who get paid exclusively in bitcoin and hold their cash reserve in bitcoin.
Additional Resources Max’s website: TowardsLiberty.com
Some examples of free software tools:
btcpayserver.orgwasabiwallet.iovalue4value.io Professor Mohammad Keyhani’s Entrepreneur Tools: Mises.org/E4B_136_Tools
Cryptoeconomics: Fundamental Principles of Bitcoin by Eric Voskuil: Mises.org/E4B_136_Book
Our guest is Euzebiusz (Zeb) Jamrozik, MD, PhD, a practicing internal medicine physician and fellow in ethics and infectious diseases at the Wellcome Centre for Ethics and Humanities at the University of Oxford. He is head of the Monash-WHO Collaborating Centre for bioethics at the Monash Bioethics Centre. His academic work on infectious disease ethics is focused on vaccines, vector-borne disease, and drug resistance. Dr Jamrozik is lead author of the report of a Wellcome Trust funded project on ethical and regulatory issues related to human challenge studies in endemic settings.
SHOW NOTES Zeb Jamrozik, MD, PhD: Twitter and Webpage
Jamrozik E and Heriot G. “Imagination and remembrance: What rolw should historical epidemiology play in a world bewitched by mathematical modelling of COVID-19 and other epidemics.” (In History and Philosophy of the Life Sciences free text available)
Jamrozik E and Heriot G. “Not in my backyard: COVID-19 vaccine development requires someone to be infected somewhere.” (In The Medical Journal of Australia free text available)
Euzebiusz Jamrozik and Michael Seldeling. Human Challenge Studies in Endemic Settings: Ethical and Regulatory Issues (Springer, 2020, free text available)
Watch the episode on our YouTube channel
Entrepreneurial action occurs in time. This brings uncertainty, because of continuous change. We can’t know what will be our future result, yet we must produce now in order to discover it. Are there answers to this conundrum? Yes. They’re found in action, and the timing of action (see Mises.org/E4B_135_PDF1). Mark Packard joins the Economics For Business podcast to share his research.
Kay Takeaways and Actionable Insights There are three ways we can think about time. Eternalism: Time goes back in the past to infinity and forward in the future to infinity. It’s a real thing, e.g., we can identify “points” in time. This is the time of physics.
Presentism: Past time does not exist, it is a memory pattern; the future is undetermined, it’s just a mental image. The only time that exists, and is real, is now. This is the time of Austrian economics.
Growing tree: The past is real, it has been determined, and there is one real historical truth (think roots and branches). The present is real and unfolding (new leaves growing every day). The future is undetermined.
Presentism is the view of time that best aligns with Austrian entrepreneurship and subjectivism. Entrepreneurs act based on their own sense of time, which can be both objective (the clock is ticking) and subjective (how I act in time and how I feel about it).
Entrepreneurial action occurs in time, which brings uncertainty. Why must entrepreneurs deal with uncertainty? Because production takes time, and there is continuous change, so the outcomes of the production process in the future can’t be known. Even if the entrepreneur knows what demand is today, it can change over time, and can’t be known in the future. Businesses choose entrepreneurial action long before they know how it is going to turn out. Entrepreneurial uncertainty is a consequence of the existence of time.
Time is scarce, but it’s not a resource. We can legitimately refer to time as being scarce. We often feel as though there is not “enough” of it. We’d like to be able to try to pack more effort and action into the time available to us.
When we talk in terms of scarcity, it’s tempting to think that time is a resource, akin to other scarce resources. We manage those other resources, we allocate them, we combine them, we use them efficiently.
We’d like to think the same way about managing time. But we don’t have control of it. Time just flows. It’s not at our disposal to use and allocate as we see fit. We can’t defer judgement on how to allocate our time, for example, because time keeps flowing and by deferring judgement we just did allocate some present time to not acting.
The resource over which we do have control is our effort. We can choose how to allocate our efforts in time. Our efforts are not scarce in the same way that time is scarce. Our efforts are limitless; we can put effort into a wide range of applications. It’s because time is scarce that effort must be allocated as if it were scarce.
As time flows, customers’ perception of value changes, and entrepreneurs must follow this change process closely. The effects of the flow of time are not exclusively limited to the allocation of entrepreneurial effort. They are also manifested in the customer’s Value Learning Process. (Mark Packard describes this in detail, and gives us some management tools: Mises.org/E4E_44, Mises.org/E4E_55, Mises.org/E4E_62, and Mises.org/E4E_73).
As a result of the flow of time, customer value is a process. Customers prefer the best satisfaction they can presently identify. As time flows, and they gain more knowledge and experience, what they value changes. Their preferences are different in the future than in the present. There is continuous change.
Since consumers are sovereign to the entrepreneur, it is mandatory to keep up with these changes. The continuous process of value learning never stops, and entrepreneurs must follow closely, gathering feedback, empathically interacting with this feedback, and making adaptive changes in their value propositions in response.
Sometimes, customer preferences may stabilize. Entrepreneurs may come to believe that there is a loyal cadre of reliable customers, and may invest in nurturing this loyalty and in relationship building. But they can not permit themselves to become too comfortable in these relationships. Customers are not loyal to a product or service or brand or supplier. They always seek the best satisfaction, and once new knowledge is available to them, they will change their behavior.
All entrepreneurial choices about action are made in the context of time, with significant consequences for outcomes. Because customer preferences are continuously changing through time, entrepreneurs are faced with an uncertain decision about when to act. At what point in time do they have enough knowledge to go to market with a new value proposition, or a new or improved product or service? They know that, as soon as they act, customer preferences are going to change further (perhaps as a consequence of the action). If the entrepreneur decides that acting as the first mover in introducing an innovation gives them an advantage, they also know that competitors have an opportunity to process the new changes and overtrump that advantage as a second mover. Both are competing over the customer’s shifting sense of greater satisfaction.
When does the entrepreneur know enough? How does a business identify the narrow window in the customer’s value learning process that provides a signal to act? Timing is a big, important piece in the entrepreneurial puzzle.
There are several areas of time management where entrepreneurs can improve their skills. While time isn’t a resource to be allocated, it provides a context for action in which entrepreneurs can subjectively make changes for the better.
Recalibration Is your internal clock moving too fast or too slow? Do you find that you are always running late, or, alternatively, arriving too early and consequently “wasting” time (i.e., burdened with time periods you can’t fill with appropriate action)? If so, it’s time to recalibrate. Change the pace at which you do things. The world proceeds objectively at clock time, but your internal clock is subjective. You may need to align the clocks better. Change your schedule or rearrange your tasks to make your internal clock better aligned with real clock time.
Better time planning Sometimes we simply err in assessing how much time to allocate to each of our various tasks. Each one takes longer than we planned, and by the end of the day, we’re several tasks “behind” and some will remain undone. If that happens over and over again, if there is regularity in your mistiming, you should change your mode of planning. Allocate different — more realistic — amounts of time to the completion of each task. Allow for delays. Don’t “lose track of time”.
Fix your prospective memory Do you put tasks on your to-do list for the future and then forget them? This is a failure of prospective memory — your memory of the future. Prospective memory is your recall of the schedule you had planned out for yourself. One answer is to use mechanical or digital aids. Write down your to-do’s on a calendar. Enter them into your phone. Set an alarm as reminder.
Whatever, happens, don’t be the bottleneck. Time management is not trivial. For entrepreneurs, being late, missing meetings, missing deadlines, or experiencing delays is likely going to cost you dearly.
Don’t be the bottleneck, don’t be the one causing the problems, for your colleagues, your partners, your customers, or any collaborators. Fix your own timing issues.
Additional Resources "How to Master Time" (PDF): Mises.org/E4B_135_PDF1
"Value is a Learning Process" (PDF): Mises.org/E4B_135_PDF2
Bob reviews Mark Spitznagel's latest book, Safe Haven: Investing for Financial Storms, on which he was a consultant. Bob explains that Spitznagel rejects the alleged dichotomy between risk and return, and then gives a numerical example to illustrate the two schools of thought.
Mentioned in the Episode and Other Links of Interest: Bob’s appearance on Jordan Peterson‘s podcastBob’s surprisingly high ranking among influential economistsHis episode with Winston Ewert (who helped design the AI that produced the ranking)Mark Spitznagel’s new book Safe Haven: Investing for Financial Storms and his previous book, The Dao of Capital For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Our guests are Thomas Wingert, a patient, Bogdan Enache, an electrophysiologist at Centre Hospitalier Princesse Grace in Monaco, and Saurabh Jha, an Associate Professor of Radiology at the Perelman School of Medicine and the University of Pennsylvania.
SHOW NOTES Point/Counterpoint on Halting the Implantation of Subcutaneous ICD. Editorial by B. Enache and J. Mandrola in JACC Electrophysiology.
Watch the episode on our YouTube channel
On the heels of Biden's vaccine mandate announcement, Dr. Murray Sabrin joins the show to discuss his new book on escaping the state's medical fascism. Universal Medical Care from Conception to End of Life lays out the sobering reality of our unsustainable "health care" system. It explains the ruinous policies which changed doctors from respected guardians of patients to functionaries for government and third party insurance companies—and the unsustainability of our current path. But the book also shows us the way out. The model for market medicine is simple enough: patients pay cash for basic services, have high-deductible catastrophic insurance for emergencies (priced according to actuarial realities), while charitable hospitals and clinics serve the truly poor and indigent.
Heroic entrepreneurial doctors already operate in this cash-only marketplace, and Sabrin's book gives us a road map for delivering better and cheaper medical care to millions of Americans.
Additional Resources Watch the Mises Institute's Medical Freedom Summit held in June: Mises.org/Med21
Order Dr. Sabrin's fascinating new book: Mises.org/SabrinBook
SurgeryCenterOK.com
Understanding The Unrealized requires us as entrepreneurial businesspeople to think better, and to resist settling for what is merely feasible in a regulated, risk-mitigated world. We must ask what could be possible in a different world, and act on that basis. Sound economics supports such action. Per Bylund takes us through his thinking about The Unrealized.
Key Takeaways and Actionable Insights First, see beyond what’s there. From Bastiat’s famous parable about the broken window comes the economist’s instinct to think about 2nd, 3rd, and Nth order consequences of actions. These are typically unseen by those who don’t think like economists, and never even considered by politicians.
Entrepreneurs always have 2nd or 3rd alternative actions in mind if the consequences of their first choice are unexpected, and they will always adjust further if required by customer feedback, with the constant aim of producing high customer value and satisfaction. They see beyond what’s there.
Government regulators and legislators make promises on the basis of forecast 1st order consequences only. Regulators promise that the consequences of their actions will be beneficial, at least to some groups. For example, in minimum wage legislation, they promise a pay raise for the lowest paid workers. What is not seen are all the jobs that disappear — are never offered — as a 2nd order consequence of making minimum wage labor unaffordable to the profit seeking entrepreneurs, the ones who create jobs.
Beyond the unseen is The Unrealized. In reality, regulations are not what politicians promise. They are not actions to help people. They are restrictions on entrepreneurs’ economic behavior. Entrepreneurs are aiming at satisfying customer wants as much as possible. Regulations aim to restrict this customer-satisfying action by forbidding certain innovations, or declaring that they must be designed and implemented in ways that have value for the regulator and not for the customer or entrepreneur.
Entrepreneurs are forced to abandon some of their efforts to generate new value by satisfying customers, or to redirect their efforts into less value-producing channels. The potential output of their creativity goes Unrealized.
Society accumulates and compounds losses when entrepreneurial creativity is curtailed. What could have been the case if entrepreneurs were unbound, if the regulatory chains were cast off? We can’t know. But we can know that The Unrealized is a cost to society.
And the cost is cumulative. Technology and innovation thrive and grow in response to observations of how customers experience value from it. Entrepreneurs introduce a new application of technology by building on what’s available today and adding to the value experience that they observe customers enjoying today. If innovation is restricted by regulation (or any other barrier), these observations can’t take place. The next big thing that builds on today’s big thing won’t happen. We keep falling behind what is possible because of these regulatory restraints. Consumers become cumulatively worse off. Society is permanently and increasingly damaged.
We are placed on a different value trajectory — one that limits our options. What if Henry Ford had been restricted from introducing assembly line manufacturing of automobiles? It’s not hard to imagine such a case in the OSHA environment of today. What if the innovation cloud of new roads, better engines, gas stations with coffee and hot dogs, and all the other ancillary results of assembly line manufacturing had not been allowed to form?
Such a thought experiment demonstrates how regulation places society on a different trajectory than what is possible from unlimited entrepreneurial innovation. Will Uber’s technology launch us on a trajectory of ever-more-ingenious applications of on-demand service, stimulated by consumers’ unlimited imagination of greater and greater convenience? Or will taxi medallion regulation permanently limit that imagination to keep it within the boundaries of bureaucratic compliance and control?
Per Bylund’s term for the effects of bureaucratic control is limited optionality. Quality of life is elevated when we have greater optionality. Regulators don’t want us to have that experience. Less optionality means less value.
Continuous reinvention can’t be planned. The second and third and Nth order consequences of unrestricted entrepreneurial creativity and consumer imagination are not subject to planning. Emergent new inventions and innovations are not predictable. The probability of positive outcomes from the creative process can be enhanced by entrepreneurial intent and aspiration and effort. But on the other hand, the range of positive probabilities is greatly reduced by restrictions on that intent and aspiration. What could be is bounded by what is attempted, and regulations narrow the field in which attempts are made.
Make sure you do not restrict your own creativity with self-imposed regulation-like limitations. Regulation limits innovative possibilities. What if the same is true of your own entrepreneurial practice? What if The Unrealized is concealing itself in your own business? Are you sure that your imagination about possible futures based on your understanding of customer wants is expansive enough? Are you sure that you have considered all possible approaches to satisfying those wants, even the ones that are most unlikely? Have you examined every possible pathway to a unique position in the marketplace? Have you found every possible way to cut out cost and time from your production process? Are all your processes designed and engineered to remove all barriers to successful outcomes?
If you are inside a corporation, are there corporate restrictions that act like regulations, channeling your creativity into pre-ordained pathways and towards pre-selected attractors? Are there unnecessary constraints on emergence?
The Unrealized lurks everywhere. The entrepreneurial task is to root it out.
Additional Resources Per Bylund's book, The Seen, The Unseen, And The Unrealized: Mises.org/E4B_134_Book
Mises U 2021 presentation, "The Seen, The Unseen And The Unrealized": Mises.org/E4B_134_Lecture
"The Broken Window Fallacy" by Robert P. Murphy: Mises.org/E4B_134_Article1
"Compounding Shortfalls in Innovation" by Hunter Hastings: Mises.org/E4B_134_Article2
"Mark Spitznagel: At What Price Safety?" — another take on The Unrealized from an investing perspective: Mises.org/E4B_134_Article3
Having branched to our first novel with All Quiet on the Western Front, the Human Action Podcast begs your indulgence for one of the works of 20th century British satire. Lucky Jim is the late Kingsley Amis's seminal send-up of campus life, and it's among your host's favorite books. The book takes place in 1951, and England is trying but failing to lose its class distinctions. The protagonist Jim Dixon is singularly unfit for the academic life he's chosen, and the opportunities for Amis to skewer both the academy and English society are manifest.
Allen Mendenhall of Troy University joins the show to discuss the academic pretenses and foibles punctured by Amis, along with great insights about Amis's background and political views. If you like satire, don't miss this show or this book!
Austrian economics has a lot to say about how to organize firms for maximum value generation. Austrian principles point to the delegation of entrepreneurial judgement to the front-line employees who interact directly with those who actually create value: users.
The military organization models of the twentieth century, involving command-and-control in hierarchical structures, are slow to change, and the management literature evidences an unwillingness to abandon the hierarchy. But there is a fast-growing industry that’s the locus of prodigious value generation where the hierarchy has already been abandoned and flat networks of distributed judgement are taking its place. Ulrich Möller is one of several Austrian economists who are studying the firms in the video game industry and demonstrating how their findings can bring positive organizational change to the rest of the business world (see our E4B Knowledge Graphic at Mises.org/E4B_133_PDF).
Key Takeaways and Actionable Insights Organizational innovation has a long and successful track record in the video game industry. A lot of value has been generated in the video game industry in a short period of time. Video games surpass movies and music in revenue. Without a long history of corporate hierarchies and bureaucracy to shed, firms in the industry embraced the organizational innovations of open source software, including anonymous collaboration among highly distributed self-organized teams, peer review systems, and agile processes.
In addition, the industry created its own laboratory for testing revolutionary organizational theories in virtual economies set in virtual worlds.
Valve is a company in the video game industry that took organizational innovation to its logical conclusion: the end of hierarchy. Valve — a very successful, industry-leading company — pursued a value-generation logic to frame its approach to organization:
Creativity is our core resource — the most important skill in game development.Creative employees are key to our capabilities.Creative people are most productive when left to express their own creativity in their own way.Hierarchy blocks creativity, as do planning and routine.How do we design a company to attract and retain the sort of people who are able to take the boldest creative steps? The answer? Let employees decide what to work on. Let them exercise entrepreneurial judgement. Let them, in effect, do both strategy and implementation. Give them all the decision rights. Let them identify customer preferences — since they know the customer best; let them decide how best to address those preferences; let them decide how to achieve competitive differentiation; let them allocate resources, choose costs, and manage profitability; let them control quality and decide when software is ready to ship.
Employees work in self-organizing teams, and are free to migrate from team to team, and free to change their roles. There are no fixed job descriptions.
In place of command-and-control, a few simple rules or constraints have emerged for the exercise of governance. F.A. Hayek wrote about norms that emerge in social groups to shape behavior. These are not legislation, i.e., written formal restrictions. They are what he called rules, constraints that everyone accepts in the shared commitment to collaboration and the pursuit of the most favorable outcomes.
The most significant of these rules at Valve is the “Rule Of Three”, a simple agreement that at least three individuals must agree on the initiation of a new project, or on other major decision points. The emergent standard was that this is just enough to prevent maverick behavior, and a low enough number to facilitate agile action that’s not bureaucratically constrained.
Another rule or constraint goes by the name of Social Proof. This is a broader and looser peer review standard. If the original team wishes to recruit more members, they must persuade others of the value generating potential of the project (in competition with other projects in the firm); successfully doing so constitutes “social proof” of value.
Rules-based peer review process replaces management structure. Conventional approaches to organizational design focus on structure. This might be command-and-control hierarchy, or structured networks, or strategic business units or functional departments. Valve abandoned structural thinking and replaced it with flow analysis. How can we attract the most creative people to our venture? How can we encourage the most productive flows of bold creative thinking? How can teams best assemble and collaborate for the most productive output? How can we integrate with the user community in the best way? How can the most value-generative projects attract the best resources?
These are all questions about flow. Austrian economists are distinctive in viewing capital as a flow rather than a structure, and this view holds true for human capital just as much as physical capital. Emergent rules for self-organizing human systems can perform all the managerial functions that were historically left to control structures.
Actionable Insight Summary Design your organization for flow not structure.Design to attract the most entrepreneurial people in the most entrepreneurial roles (self-selection).Let them self-organize.Let rules and value codes emerge.Teams as business units.Eliminate the boundaries between the firm and customers and other partners. Additional Resources "The Future of Organizational Design" — our E4B Knowledge Graphic (PDF): Mises.org/E4B_133_PDF
"Levels without Bosses? Entrepreneurship and Valve’s Organizational Design" by Ulrich Möller and Matthew McCaffrey: Mises.org/E4B_133_Paper1
"Entrepreneurship and Firm Strategy: Integrating Resources, Capabilities, and Judgment through an Austrian Framework" by Ulrich Möller and Matthew McCaffrey: Mises.org/E4B_133_Paper2
Bob gives a brief history of money in the United States, explaining that the dollar was much “harder” in, say, 1810 than it was in 1910. This explains why there was significant consumer price inflation even in 1970, the year before Richard Nixon officially severed the dollar’s link to gold.
Mentioned in the Episode and Other Links of Interest: Bob’s chapter in the new book, Understanding Money Mechanics, discussing the history of the US gold/silver standardsHis chapter on Mises’ theory of the business cycleBob’s articles discussing the 50th anniversary of Nixon closing the gold window: (1) Basic intro, (2) discussing the different regimes of the US gold standard, and (3) explaining the different inflation rates and the connection to Austrian business cycle theory [Note that this third article hadn’t posted as of the original publication of the podcast episode; this link will be updated when available.]Bob’s article in the Quarterly Journal of Austrian Economics on Mises’ theory of the business cycle. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Saifedean Ammous is a knowledge entrepreneur. He creates new knowledge that’s valued by his customers, because it helps them to think better and better informs their actions. He carefully appraises the knowledge provided by great thinkers of the past, and re-presents in a newly compelling fashion. He develops effective memes and ideas. He innovates in channels and distribution. He demonstrates how knowledge entrepreneurship can work in the 21st Century's globally-connected and digitally-connected economy. He joins the Economics For Business podcast to share some of his learnings and experiences
Key Takeaways and Actionable Insights. Collect available knowledge then develop a new perspective. Saifedean took degrees in economics and engineering, at bachelor’s, master’s and Ph.D. levels. His accumulated knowledge was valid for the university professor track. Then his spontaneous knowledge accumulation efforts took him to Austrian economics and a new perspective: that the economics he had learned to date didn’t make any sense, and that regime higher education was best understood as just another malinvestment. Most importantly, regime higher education was customer-less: it did not provide value for customers, because that was not its purpose. From that point on, Saifedean followed the path of customer sovereignty and of exploring what customers identified as valuable.
Teaching is value generation. Saifedean’s first customers were students in his university classes. He was able to generate value for his students by teaching them the economics they wanted to learn, along with giving them the optionality of seeing the knowledge through his distinctive perspective. When students engage and say thank you, it’s a signal of value.
A transformative event precipitated a shift into independent knowledge entrepreneurship. In Saifedean’s case, the transformative event was Bitcoin, the study of which opened up a deeper understanding of hard money and low time preference. He “upgraded” to the Bitcoin Standard by exiting academic teaching and switching to entrepreneurial knowledge sharing. The first step was writing and publishing a book called the Bitcoin Standard (conventionally published by Wiley) and then leaving academia for the joys of hard money.
He switched his platform for teaching from the university to the internet, and now is able to reach many more customers — citizens of the world who want to learn more about Austrian economics and to understand Bitcoin and hard money. How did he know they were out there? They self-selected via Saifedean’s twitter feed.
The “factory” for knowledge production and distribution is a website. A fairly basic website (i.e., not requiring any technological expertise or gear that is not available to everyone) is the platform for the new level of knowledge entrepreneurship. At saifedean.com, customers have been able to:
Receive and read book chapters as they are written;Access video and audio online courses in Austrian economics;Buy books;Subscribe to podcasts (which he runs like a seminar);Find a “complete central bank replacement pack”. Saifedean told us he is just getting started, and there are more knowledge innovations in the pipeline.
The Entrepreneurial Method. This unfolding timeline is an excellent example of the entrepreneurial method at work.
Start with what you know.Find motivation in what you are passionate about.Utilize available resources.Let collaborators and customers self-select in.Use networking and influencers rather than conventional advertising and marketing to drive expansion.Let spontaneous order unfold. In addition, Saifedean associates the Austrian concept of lowering time preference with entrepreneurial success. Low time preference — willingness to save/sacrifice in the short terms for benefit in the longer term — is an essential part of the entrepreneurial method. One of the entrepreneur’s “bird-in-the-hand” resources is their individual utilization and allocation of their personal time and effort.
A new age of entrepreneurship is emerging and surging. In The Bitcoin Standard, Saifedean looks back to the nineteenth and early twentieth century as a period of technological innovation by entrepreneurs under the gold standard, bringing us indoor plumbing, electricity, the internal combustion engine, airplanes and elevators, among many more. Entrepreneurs were able to accumulate capital in the form of wealth stored in hard money to finance their innovations.
He believes that the emerging Bitcoin Standard era will precipitate a new entrepreneurial flourishing, further accelerated by free software, network access, blockchain and hard money savings.
Our goal at Economics For Business is to be a knowledge and tools provider for this entrepreneurial surge.
Some knowledge links: "Knowledge Entrepreneurship" — our E4B Process Map (PDF): Mises.org/E4B_132_PDF
Saifedean.com
The Bitcoin Standard (in over 20 language translations): Mises.org/E4B_132_Book1
Principles of Economics: Mises.org/E4B_132_Book2
The Fiat Standard: Mises.org/E4B_132_Book3
Twitter for Saifedean.com: @Saifedean
Twitter for Saifedean Ammous: @SaifedeanAmmou6
The scientific method has served us well to date. The entrepreneurial method, informed by the principles of Austrian economics, can take society much further. Dr. Saras Sarasvathy joins the Economics For Business podcast to distill the essence of the value generating and wealth producing method.
Download our knowledge graphic for the Entrepreneurial Method: Mises.org/E4B_131_PDF
There is an entrepreneurial method — a systematic way to achieve the unpredictable. The scientific method aims to discover universal laws that make the future predictable. If we have enough scientific understanding we can, for example, build bridges that we can predict will not collapse. We can construct an entire scientific infrastructure in our society.
The entrepreneurial method aims higher, at human flourishing. It aims at discovering how we can all work together to achieve our human purpose, including new purposes that we all agree are worth achieving. We can construct an entrepreneurial structure to build a better human life and a better society.
Entrepreneurs choose a control strategy that’s appropriate to uncertainty. Some people fear entrepreneurship because its outcomes are uncertain. But this is worrying about the wrong things: outcomes are outside your control. Entrepreneurs are more discerning about what can be controlled: means.
Dr. Sarasvathy lists several control strategies:
The Bird-In-The-Hand Principle: work with what you’ve got and can control, which she sums up in the questions: Who Am I? What Do I Know? Whom Do I Know? What resources do I own or control now? This is the first principle of control.
Affordable Loss Principle: Entrepreneurs can control their downside, making it affordable and limiting uncertainty, by asking “What one value generation project would I undertake even if I risk losing everything I invest In it?”
Crazy Quilt Principle: How do entrepreneurs control the uncertain process of identifying the right partners, including hiring the right people? They don’t try to predict the results of hiring and pitching. Instead, don’t hire, don’t ask. Just talk to people — those who fit best will self-select into your project.
Lemonade Principle: Don’t fear the unexpected. Welcome surprises. All unexpected happenings are opportunities and can become resources. Leverage contingency, and make lemonade out of lemons.
The Pilot Is The Plane Principle: Everyone on the plane is a pilot, co-engaged in shaping history. The plane will reach a destination, the exact nature of which is unclear, and everyone on the plane contributes to getting there.
There are some guidelines that entrepreneurs have established over time.
Non-Predictive Action Is The Driver Everything in the entrepreneurial method is driven by action. Or, more completely, action, interaction and reaction. Things you care about, things you can actually do, things we can do together, and how we handle surprises. Interacting with the environment with a sense of purpose, and thereby changing it in some way.
Even-If Thinking Our aspirations and the outcomes we experience may not be symmetrical. Not succeeding is not the same as failing. Even if a new idea does not work out, what is the worst that can happen? We shouldn’t make decisions just because we can’t predict the future. Embrace the unpredictable but make sure the downside is under your control.
Intersubjectivity The great productivity of entrepreneurship comes from intersubjectivity — two or more people can interact and come up with something neither one had actually thought about or dealt with or considered or contemplated before. Intersubjectivity is more than interpersonal and beyond negotiation. It’s a question: “I am doing this. What do you think?”
The Entrepreneurial Method leads to social good and a new role for business in society. A side effect of everyone in society learning the scientific method was the emergence of the middle class, defined by income. Science brought productivity which enabled a large swath of society to earn enough money to escape poverty. Everyone was able to harness science.
Let’s teach everyone the entrepreneurial method. Let everyone start companies, grow companies, invest in companies, all with no thought of prediction. A middle class of business will emerge, defined not by income but by venturing. This middle class will produce more jobs and more enduring, more stable companies, embedded in strong communities, with greater well-being and less churn. The fruits of creativity take root in endurance and durability — not in Schumpeterian creative destruction — and contribute to stability and the taking on of bigger challenges. Decade after decade, the middle class of business will generate value and produce wealth, employing lots of people and educating successive generations to take the entrepreneurial method with them into a better future.
Additional Resources "The Entrepreneurial Method" (PDF): Mises.org/E4B_131_PDF
Among the innovations planned for the Economics For Business platform is a series of encapsulations of important research papers. Here is a sample:
"The World-Making Scope Of The Entrepreneurial Method — An Encapsulation" By Gabriele Marasti (Original paper: "The Middle Class Of Business"): Mises.org/E4B_131_PDF2
Some links:
Effectual Entrepreneurship (PDF): Mises.org/E4B_131_Book
"What Makes Entrepreneurs Entrepreneurial?" (PDF) Mises.org/E4B_131_Paper
"Entrepreneurship As Method: Open Questions for an Entrepreneurial Future" (PDF): Mises.org/E4B_131_Article
Fans of Austrian economics know hedge fund manager Mark Spitznagel as a brilliant thinker thoroughly steeped in Menger, Böhm-Bawerk, Mises, and Rothbard. His excellent 2013 book The Dao of Capital was rooted in Austrian capital theory and "roundaboutness," and his application of of that theory has proven highly beneficial for his investors.
Now Spitznagel is back with a new book that directly challenges our understanding of risk. Safe Haven asks, and answers, a fundamental question: Can mitigating risk actually add to the bottom line? Can safe havens be truly cost-effective, by adding to CAGR? Mises Institute Senior Fellow Robert Murphy, who consulted on the book, joins the show for a fascinating look at Spitznagel's penetrating and contrarian thesis. If you're interested in the intersection of investing and Austrian economics, don't miss this episode!
Mark Spitznagel's Safe Haven: Investing for Financial Storms on Amazon: Mises.org/SafeHaven
And, Spitznagel's 2013 book The Dao of Capital: Austrian Investing in a Distorted World on Amazon: Mises.org/Dao
Jeff Deist hosts a solo show to discuss one of his favorite novels from childhood, All Quiet on the Western Front. Its young protagonist Paul Bäumer, barely out of adolescence, narrates the horrors of trench warfare from the perspective only a grunt soldier can provide. Bäumer and his mates lose their innocence, along with various limbs and often their lives. But what makes the book so compelling is not simply the description of wartime savagery, but the dialogue between the men: stripped of any illusions, they see the futility of killing and maiming simply to capture a few more feet of no-man's land. The dialogue in Chapter 9 between the men, arguing about whether states or "people" go to war, is masterful. This is a book every passionate antiwar advocate needs to read time and again.
All Quiet on the Western Front on Amazon: Mises.org/AllQuiet Jeff Deist's review of They Shall not Grow Old: Mises.org/ShallNot
Bob reviews the "Unbreakable" movie trilogy, arguing that M. Night Shyamalan knows we need to awaken the superheroes among us. They might not even know who they are—yet.
Mentioned in the Episode and Other Links of Interest: The YouTube trailer for “Unbreakable,” the first movie in the trilogy under discussion For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Entrepreneurship is the great force for social good — in fact, the greatest force for good in the history of civilization. It’s the system of continuously improving the lives of others so we can improve our own lives. Through entrepreneurship, we can achieve greater and greater levels of community, collaboration and societal advance. Eamonn Butler, Co-Founder and Director of the Adam Smith Institute, has written what he calls a Primer for understanding and appreciating the wonderful institution of entrepreneurship (Mises.org/E4B_130_Book1). He highlights some of the key points on the Economics For Business podcast.
Innovation and improvement. To continuously improve people’s lives, we need new things. We need people to invent things that haven’t been thought of before. And we need innovators, people who improve those things and find new purposes for them or new ways of producing and distributing them. And we need entrepreneurship, the marshalling of resources to produce these better things faster and more efficiently and get them into more people’s hands.
Entrepreneurs are those unique people who organize the marshalling of resources, and who risk their own capital and their investors’ capital in this pursuit of a better future for all.
Cascading Development. When entrepreneurs undertake this act of discovery, and especially when they succeed, they trigger cascading development. One innovation and entrepreneurial initiative leads to another. They are all aimed at making people’s lives better — easier, healthier, more convenient, more affordable, more efficient. And, eventually, knowledge spreads, and people’s lives are transformed, so that Indian peasant farmers can check produce prices on their smartphone and get the best offer from the market. Development cascades from individual to individual, firm to firm, market to market and country to country. It’s never-ending improvement.
Long-termism and ethical behavior. The outcome is long term uplift and benefit for all. Entrepreneurs are long term thinkers. They are focused on the lifetime of their company and their products, and perhaps to passing them on to the next generation (Politicians are the opposite — they can only think in election cycles).
Entrepreneurs don’t want to just make a short term profit and then leave the market. They want long term revenues and long term profits. That means creating reliable, returning customers who love the entrepreneur’s product. That requires delighting those customers, serving them impeccably, never letting them down or breaking a promise. There are few other, if any, institutions that are constituted in this way.
This Long-termism is ethical. Entrepreneurship is ethically driven.
Internationalism A small firm can trade on a global stage, and if they can, they will. It’s easier than ever before in the digital era. New and better ideas quickly spread around the world. But it has always been the case, since the earliest of times. Politicians establish borders to divide people, and then violate them in invasions and wars. Entrepreneurs see no borders between people. Political borders can’t divide markets.
Social good. Entrepreneurship achieves more for social good than any other institution. Entrepreneurial innovation in goods and services enhances life and opens up new possibilities. Customers flock to entrepreneurs because of the tremendous service they deliver. The constant improvement delivered by entrepreneurs constitutes civilizational progress. The competitive pressure to improve quality and utilize resources more efficiently generates more and more value for the world.
It’s an error to see business as extractive — extracting and using up resources. Business is generative, putting life-changing inventions at the disposal of the global population. What’s seen is the dirt and smoke left over from mining or manufacturing. What’s not seen, and is often unappreciated, is the huge amount of good that comes into the world via entrepreneurship.
Entrepreneurship is the application of property rights at every scale. It’s another error to think of entrepreneurship as small business or young and immature business. Ray Kroc of McDonald’s was a great example of an entrepreneur who worked out how to operate a hamburger restaurant at global scale with continuous improvement. Entrepreneurship requires property rights; people need to have control over their property in order to transform it into marketable innovations and services. But that does not limit the scale of entrepreneurship. Property rights are a principle that supports global scaling.
The entrepreneurial method. Probably the best way to define entrepreneurship is as a process or a method. It’s akin to — and as important to civilization as — the scientific method, but different. They both involve trial-and-success, coming up with ideas and testing them. The scientist tests against reality, looking for a law, a repeatable outcome that will never vary. The entrepreneur tests against consumer approval, looking for acceptance that might be repeatable until conditions change, such as new competition arriving. Entrepreneurs can’t predict the future as scientists can, and they can’t exert control in the form of unchanging laboratory conditions. Yet they still are challenged to build a business that lasts.
Can we nurture this institution? Yes. In school, via literacy and entrepreneurially-oriented education, teaching young people about profit, and uncertainty and the requirement for supportive environmental elements such as property rights and flexible labor laws, and the value of trying multiple different initiatives before discovering a winning proposition. We might not be able to teach successful entrepreneurship, but we can create the conditions for learning.
A selection of books by Eamonn Butler Entrepreneurship: A Primer: Mises.org/E4B_130_Book1
Austrian Economics: A Primer: Mises.org/E4B_130_Book2
Classical Liberalism — A Primer: Mises.org/E4B_130_Book3
Ludwig von Mises — A Primer: Mises.org/E4B_130_Book4
Friedrich Hayek: The Ideas and Influence of the Libertarian Economist: Mises.org/E4B_130_Book5
The Condensed Wealth of Nations: Mises.org/E4B_130_Book6
Bob unveils a new recurring series, in which he gives the context of infamous quotations. In this episode, he covers two allegedly shocking quotes from John Lennon, John Maynard Keynes' "in the long run we're all dead," Trump on Nazis being very fine people, Dan Quayle misspelling potato, Obama's "you didn't build that," and Bohm-Bawerk on Karl Marx.
Mentioned in the Episode and Other Links of Interest: Wikipedia entry on John Lennon’s “more popular than Jesus” comment. Lyrics to “Revolution.”Bob and the Music City Friends of Liberty cover “Come Together.”Video for Trump’s “very fine people” remark. Video of Obama’s “you didn’t build that.”Nancy Pelosi on “We have to pass the bill to find out what’s in it.”Bohm-Bawerk’s Karl Marx and the Close of His System. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Per Bylund is Associate Professor of Entrepreneurship at Oklahoma State University. He discusses three of his current book projects, all touching on various aspects of the Austrian School and its continued importance.
Mentioned in the Episode and Other Links of Interest: Per Bylund’s page at Oklahoma State UniversityThe Mises Institute’s description of Per Bylund’s upcoming primer on Austrian EconomicsBob’s debate with David Friedman on economic methodBob Murphy Show episode on intelligent designBob’s article critiquing Eugene Fama’s denial of the housing bubble For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
In a May 2021 essay, Curtis Yarvin (aka Mencius Moldbug) argues that the American economy runs on an inflation machine. Yarvin claims that the best way to measure the amount of inflation is to look at the change in aggregate personal net worth over a given period. Murphy explains why this is wrongheaded.
Mentioned in the Episode and Other Links of Interest: Curtis Yarvin (aka Mencius Moldbug)’s essay on The Inflation EconomyEric Weinstein tells Lex Fridman his wariness For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Governments would like to take credit for the level of entrepreneurship in their countries. Entrepreneurship leads to value creation (happier voters) and economic growth (more to tax). But, as Per Bylund points out in the Seen, The Unseen And The Unrealized (Mises.org/E4B_129_Video), governments’ actions restrain entrepreneurship.
Dr. Samuele Murtinu joins the Economics For Business podcast to explain both how and why governments fail in their best efforts to help entrepreneurial businesses succeed.
Key Takeaways And Actionable Insights Europe has an entrepreneurship problem. European economies exhibit lower growth rates than the US. At the firm level, there are fewer unicorns, and fewer new technology-based firms or innovative startups and innovative ventures in general. Venture capital markets are very thin, and most venture financing is debt, which is (as Sergio Alberich described in Episode #123: Mises.org/E4B_123), a poorer choice for startups and young firms than equity.
Consequently, European countries see a lower level of innovative startup behavior. Existing firms have low levels of R&D spending. And, generally, there is an inability to turn the innovative inputs that are available into innovative outputs — new markets and industries tend not to emerge in Europe first.
And the European mindset tends to favor the idea of the entrepreneurial state — the state is thought to be where good ideas and good initiatives come from.
Governments see launching their own venture capital funds as a new means. The key idea of the entrepreneurial state is deep involvement in economic affairs, including funding basic research, financing, shaping and directing R&D investments, and thereby creating new markets. The centrally coordinated state is seen as the driving force for the development of innovation and technological progress. For this mindset, government venture capital seems to be an available means. So governments start and implement venture capital funds — the terminology is Public Venture Capital.
These are companies and funds that are fully owned, fully funded (no limited partner structure) and fully managed by government bureaucrats, with the purpose of investing in innovative startups.
Firstly, Governments get the concept wrong at a fundamental level: they have the wrong goals. Private venture capital funds and even hybrids like sovereign wealth funds have clear goals: rapid, high-level capital appreciation by investing in startups at an early stage and exiting as quickly as possible in a liquidity event such as a commercial sale or an IPO.
Government venture capital may have “social” goals such as encouraging industry sectors, favoring regional technological development, boosting economic growth, and providing jobs. These are vague and unclear, and may contradict individual company business plans (such as automation and minimization of labor costs). With the wrong goals, it’s impossible to succeed.
For example, the selection process for private VCs choosing firms for fund portfolios is rigorously goal-directed and VC firms have honed their candidate identification and due diligence processes in order to maximize their chances of winning from the very first steps in the investment process. Government funds lack this clarity and therefore can’t develop the requisite expertise.
Governments have difficulty letting go of control. Private VC’s have also honed the role of the contract between them and the firms in which they invest, and with the limited partners who provide the investment capital. The contract with the startup firms is as “hands-off” as possible (see, for example, the SAFE contract — Simple Agreement For Future Equity — available for free download and free use from the Y-Combinator website: YCombinator.com/Documents) and the contract with Limited Partners gives them no role in the management of the fund. Private VC’s understand that high levels of control are not appropriate to the adaptive management of immature firms in rapidly changing environments.
Government bureaucrats directing investments in startups are averse to this kind of hands-off management.
Governments can’t get incentives right, and consequently can’t hire the best executives. Private VC managers are highly incentivized. In the largest and most successful funds, they receive high salaries and a 20% participation in fund appreciation. The best individuals from the most prestigious business schools are hired to compete with their peers for promotions and partnerships. The most successful funds attract the most capital from the deepest pocketed sources, and the cycle of success rolls on.
Public VCs can’t attract the same quality of human capital. Typically, managers are paid a fixed salary, which can’t be seen as out-of-bounds from the perspective of bureaucratic rules and standards. If there are bonuses, they are calculated in what Professor Murtinu called a “gloomy” way. No-one is going to break any income-equity norms.
Professor Murtinu’s rigorous data-rich analysis proves beyond any doubt the failure of Public Venture Capital. In order to analyze Public Venture Capital performance, Professor Murtinu utilized the VICO database, a comprehensive data set about venture capital backed companies in high tech industries in seven European countries. He reinforced it with additional data sources, and was able to run a comparison of the performance of firms that received public venture capital backing and those that received no venture capital. The data sets covered 25 years.
The result: no statistical difference between the performance of the two sets of firms. Public Venture Capital had no effect. It was a waste. This was true across all possible variables: productivity, whether total factor productivity or partial factor productivity like labor or capital, sales growth, employment growth, innovation outcomes, exits.
The opposite is the case for private venture capital backed firms. In the same kind of analysis, private venture backed firms are statistically superior on every dimension. The overall impact of private venture capital is very clear and highly positive.
There is one possible step in the right direction: government becomes a limited investor. Public venture capital can syndicate with private venture capital, and so long as the investment is less than 50% of the fund total, and has no say on selection of investments, on due diligence, on governance, on monitoring, and on timing or type of exits, it is possible that the investment outcome can be positive. The European Commission is currently considering this role for Public Venture Capital.
Additional Resource "Public vs. Private Venture Capital" (PDF): Mises.org/E4B_129_PDF
Professor Bradley Birzer from Hillsdale College joins the show to dissect Russell Kirk's famous 1981 essay condemning libertarians. Is libertarianism necessarily utopian and unworkable, as Kirk suggests? Is it hubris to imagine we don't need the state—or even God—to prevent social chaos? Do libertarians have more in common with Communists than conservatives? Or was Kirk simply attacking an absurd strawman of the atomistic individual, with Rothbard as the particular (unstated) target of his ire? Dr. Birzer is a thoroughgoing scholar of Kirk, and provides great insights into the context and thinking behind this critique.
Russel Kirk's "Libertarians, The Chirping Sectaries": Mises.org/Kirk Rothbard's "Myth and Truth About Libertarianism": Mises.org/HAP77a Dr. Birzer's "Kirk and the Libertarians": Mises.org/HAP77b Hornberger's "An Open Letter to Russell Kirk": Mises.org/HAP77c
Austrian economics helps entrepreneurs to develop and implement more effective business strategies, and to open up streams of continuous innovation. As Joe Matarese, CEO of Medicus Healthcare Solutions, said about Austrian economics in relation to business: It just works (see Mises.org/E4B_126).
In episode #127 (Mises.org/E4B_127), Matt McCaffrey outlined the Austrian strategy process of Explore and Expand, and its logic development. This week, he helps us dig deeper to identify the principles of Austrian economics that underpin our distinctive approach to business strategy.
Key Takeaways and Actionable Insights Realism: real people, real markets, real entrepreneurs in real firms. Mainstream economics has never been able to help business, because of its focus on math, models, and prediction. Real people and their decisions and interactions and motivations and emotions can not be captured in equations and mathematical functions.
Austrian economics has carved out a particular area of focus in the behavior of real people in its study of entrepreneurs and entrepreneurship. Austrians examine real entrepreneurial decision making day-to-day; they highlight real people experiencing value and entrepreneurs’ role in generating that value. From this base, Austrian economics investigates how individual actions and choices and interactions lead to the formation of markets.
Dynamism: The market is a process. Austrian realism sees the market as a dynamic process, continuously unfolding in interaction and innovation and change. Mainstream economics, with its preference for the greater mathematical tractability that comes with abstraction, has no capability of dealing with this real world dynamism. The embrace and study of dynamic processes gives Austrian economics much of its applicability in business. The business world is never static. It can’t be understood in abstractions. It’s real and messy and changeable and unpredictable.
Uncertainty and complexity: embrace emergence.
Uncertainty is a keyword for Austrian economists. It’s a term that describes the real world in which entrepreneurial businesses operate. They can never know for sure what comes next; they can’t anticipate all of the interactions between competitors, changing customer preferences, technological advances and social and economic trends. There is no sure-footed way to plan for the future. Austrians recognize uncertainty, and help businesses think about how to cope with it, how to narrow it, how to accumulate knowledge to lighten it, how to weigh decisions in the environment of uncertainty.
The new scientific term for uncertainty is complexity: in any system, the interactions are so many and their results are so unpredictable that modeling and forecasting are impossible, and outcomes are defined as emergent (i.e., outputs happen in a way that is not predicted by merely combining inputs). Austrian economics helps businesses deal with emergence.
Subjectivism: People are people, both as consumers and as providers. One of the realistic principles of Austrian economics is to deal with people as people: we are all subjective in our valuations and judgments and emotions. We are not homo economicus: perfectly rational (in the mainstream economists’ definition of rational) in objectively weighing benefits and their opportunity costs. If all we are doing in producing goods and services for consumption is trashing the planet, then we can’t be rational, in their eyes.
In order to understand business and understand entrepreneurship, it is absolutely necessary to begin with subjectivism. Consumers’ subjective values ultimately determine what is produced; if consumers don’t value something, producers won’t make it. On the producer side, entrepreneurs’ subjective valuations of the resources they have available to them to assemble in a production process affect the value of their business.
It is entrepreneurs’ subjective evaluation that results in the identification of new uses for a resource, and the introduction of new innovations. Subjective values lie underneath every new business relationship with customers, from streaming movies to google searches to online travel booking. Subjectivism is everywhere in the economy and in business.
Time: How to plan in the present to satisfy customers in the future. Austrians are unique in their understanding of the economic role of time in business. Entrepreneurs deal in future time. They imagine better futures in which customers enjoy greater satisfaction, and then they imagine how to bring it about and act on their imagination. Production — getting from imagination to consumption — takes time. Entrepreneurs are dealing with buying decisions in the present (such as hiring and buying inputs) for selling decisions in the future. They can’t know future prices or future customer preferences, so it’s a bet.
The consumption decisions customers make today reflect entrepreneurial decisions that were made weeks, months, years or decades in the past. Austrian economics helps entrepreneurs manage the contingencies of time.
Time makes the customer the boss.
Austrians utilize the concept of consumer sovereignty as an analytical tool. It means that consumers are the ultimate decision-makers in all economic systems, because what they buy or don’t buy determines what is produced. Their power is a result of the time it takes to produce. The value of resources that entrepreneurs assemble today depends on what consumers think and feel in the future.
Forecasting is tricky and best avoided, but patterns can be recognized. A consequence of time and consumer sovereignty is the fragility and inaccuracy of forecasts. How is it possible to forecast consumer tastes in the future? There are some exceptional entrepreneurs who get it right. What’s their secret? Austrians’ understanding of dynamics and complexity can help point to the processes most likely to be associated with success, without attempting to forecast it.
One alternative to forecasting is pattern recognition. Jeff Bezos said that consumers are unlikely in the future to ask for higher prices, lower quality or slower delivery. That’s pattern recognition. It’s generalized and broad based and lacking in precision and specificity. But there is a consistency to some patterns that entrepreneurs can recognize and act upon, adding their own idiosyncratic insights and guesses to shape the actual value propositions they will make to consumers.
Out of all this emerges the Austrian entrepreneurial method. We’ve all been educated in the scientific method. It’s utopian: experiments conducted with strict controls will yield the truth.
The entrepreneurial method is different, but with equal status, and greater applicability in open — i.e., human — systems where control is not an option.
It’s a bit messy and hard to characterize with precision, but it’s nonetheless real. It starts with imagination — imagining a future in which customer dissatisfactions are addressed and resolved. Their world is made better. This is proactive creativity on the entrepreneur’s part, triggered by existing highly dispersed knowledge, including tacit knowledge, held by the entrepreneur and others.
The entrepreneur designs a business model that might be able to resolve the identified customer dissatisfactions in the future and assembles resources that he or she believes, in the right combination, could accomplish the task. There’s no correct way; the entrepreneur draws on the realism of Austrian economics to best understand the challenges and how to address them.
The entrepreneur then advances with her or his own form of experiment. It’s not controlled in a closed environment. It’s a hard commitment of resources in a definite format to make a value proposition to customers. The experiment consists in ascertaining the customer’s response: like or dislike, buy or not buy, use and enjoy or use and reject? The experiment does not end there. It is continuous — receive the result, decide on how or whether to change the proposition, and try again.
Gut feeling or intuition or personal subjective heuristics all have roles to play in entrepreneurial decision making. Austrian economics captures these phenomena in the concept of judgment under conditions of uncertainty.
Organizing for the exercise of judgment. Since judgment is the ultimate generative energy in producing value for customers, and since it’s personal and individual, how do firms grow? If judgement rests with a single entrepreneur, such as a founder, growth can’t scale, and will quickly reach its limits. Austrians have the organizational design solution: delegated judgment. Austrian leaders are able to design and implement non-hierarchical organizations in which every employee is empowered to exercise entrepreneurial judgment.
They do so by substituting value codes for authority. Value codes are the unwritten codes (although they might be found in the employee handbook) and conventions of “how we do things around here”, how we generate value for customers, the mission and purpose and internal methods of the firm.
Additional Resources "Austrian Entrepreneurial Principles" (PDF): Mises.org/E4B_128_PDF
Austrian Perspectives on Entrepreneurship, Strategy, and Organization by Nicolai J. Foss, Peter G. Klein, and Matthew McCaffrey: Mises.org/E4B_127_Book
Recorded live at Mises University on 24 July 2021.
Find Startup Stories: Lessons for Everyday Entrepreneurs at: Mises.org/Startup
Strategy is not the formulation of a plan. It is emergent from a process of exploration and discovery. Austrian economics is the best guide for entrepreneurial firms to put in place the methods and organization that unleash the power of emergence. Matt McCaffrey joins Economics For Business for a detailed exposition of the Austrian approach to Business Strategy.
Key Takeaways and Actionable Insights A firm is a vehicle for entrepreneurial action to generate value. All businesses and all firms are entrepreneurial. They start from — and continue with — an aspiration to generate value for both customers and the firm, and they act on this intention by assembling assets (resources, people, cash, machines, software, etc.) that are required to realize and deliver value. The goal is to bring a good or service to market that is valued by others. Value is the ultimate goal.
There are clear conditions for this action to take place. There must be a decision-making authority for the firm, because someone (or some collaborative group) must decide how to select and assemble just the right combination of resources and make a specific product or service from the assembly. We call that decision-making authority the entrepreneur.
A second condition is that someone or some group must bear the uncertainty of the action. It may not turn out the way that was expected. It may not be profitable. Less value may be generated, or none at all. This bearing of uncertainty is also the role of the entrepreneur.
It's hard to get the operations of the firm just right, because of complexity and change. Why is all this so hard, and the outcome so uncertain? Two reasons: change and complexity. The subjective valuations of customers, who decide what is more valuable and what is less valuable, are changing and reshuffling continuously, depending on situation, mood, the choices of others, and a myriad of other influences. These changes can become trends, fads, segments, and competitive advantages and disadvantages.
Continuous change contributes to the complexity of the resource assembly puzzle: there are innumerable ways in which resources can be combined and recombined in a firm, and getting the assembly just right is a difficult challenge that is never perfectly resolved.
Therefore, the Austrian view of capital as a flow is a fundamental contribution to rethinking firm strategy. The resources assembled in an entrepreneurial firm are not valuable in themselves, but because they produce a good or service that the customer values and is willing to pay for. This value — translated into revenue through the customer’s willingness to pay — flows back to the firm as income. The flow of income is affected by each element in the firm’s capital combination and by the degree to which the combination is well-integrated for the value generation task. Customers drive the capital formation task. The entrepreneur is engaged in a never-ending process of combining different capital goods to find the combination that is the most serviceable in generating value. Treating capital as a value generating flow helps entrepreneurs in practice to manage the persistent process of applying resource combinations in the market to ascertain what value they generate. It’s dynamic process with no pauses.
There are four implications for firm strategy — and they all contrast starkly with the traditional business school view of strategy. The business school view of strategy takes the form of sophisticated data-fueled top down planning models. Only a few special minds can take on this intellectually and computationally difficult challenge. Historically, the list of models has included Michael Porter’s Five Forces Model (a model of industry structure and how to create barriers to entry and competition); SWOT analysis (a model of strengths, weaknesses, opportunities and threats from the firm’s point of view, with strategic implications for the management of each element); PESTEL analysis of the business environment (political, economic, social, technological, environmental, legal factors) and how they affect firm performance. The common thread for these models is that they are implemented top-down: the strategists apply the tools, draw conclusions, and instruct the rest of the organization how to act.
Matt McCaffrey’s contrasted this top-down strategy approach to the Austrian strategy approach across four dimensions.
Learning versus Rational Design The top-down models attempt rationalization: they view strategy as a rational design problem, to shape a distinctive internal competence to seize an external opportunity and evade external threats.
This approach overlooks the crucial problem of learning. In circumstances of uncertainty, unpredictability, complexity and change, learning is the essential method of making progress. Changing conditions can never be known fully enough or fast enough by people at the center (in the strategic planning department) compared to front line employees. Firms must find a way to make use of this front line knowledge, through learning.
Dispersion versus Centralization To enable the freedom to learn and to apply learning, decision making must be dispersed through the organization. A single mind or single planning unit can not centralize all the knowledge and can’t centralize decision making. A strategic plan is not feasible. Organizational design and decision-making processes must be decentralized and dispersed.
Implementation versus Formulation. A comprehensive plan is impossible. Firms must seek a more adaptive framework. Processes and methods and forms of organization must be capable of adaptation to unforeseen events and new information. Continuous deliberate adjustments must be made in the light of new circumstances, which may arise every day. Therefore, Austrians see strategy as emergent not formulated via a planning process. Adaptive firms implement entrepreneurial actions, and then adapt to the learning, new knowledge and new circumstances that present themselves as a consequence.
Structure versus Strategy The business school approach is that strategy must be fully formulated, and only then can it be used to shape the structure and processes of an organization. Austrians take the opposite approach: the structure of the firm (its organization, processes and interfaces with the external environment) shapes strategy. Hayek used the term “structure of production”. This structure can be changed, but not instantly or seamlessly. Structure and strategy influence each other to some extent, but business schools tend to make strategy prior: that a firm is organized in response to the CEO’s vision. Austrians understand that this is not realistic because it’s not possible to restructure an existing organization every time a new vision comes along. There’s a high cost to structural change, and strategy must adjust.
Emergent strategy is based on business rules. What, then, replaces top-down strategic planning? Austrians use the term “rules”. Rules are an internal device to help managers and employees make decisions on the spot in response to learning and new knowledge. Matt McCaffrey gave an example: whenever there is a break in the supply chain, repurpose old capital goods and bring them into the production process as a low cost way to fill the gap. It’s a broad and simple rule, and it enables decision making to go forward at the point of the supply chain break. People close to the action can use their local knowledge to solve the problem within the guideline of the rule.
Another example was given by Bob Luddy, CEO of CaptiveAire, who set the rule for his firm to always have the best price in the marketplace. It’s a simple rule that requires tremendous local knowledge about prices of systems and components, of competitive offerings, and about turnaround time (a cost element of price) among many others. Sales and marketing people as well as engineers can make decisions following this rule.
Rules sustain firm uniqueness. Business school strategists often focus on competitive advantage as the goal of strategy. But the concept of competitive advantage comes from neoclassical economics and the depiction of markets as bounded cage-fights for market share between similarly-resourced rivals.
Austrian strategy focuses more on firm uniqueness. A firm’s distinctive rules can result in a unique mode of delivering value, and a unique perception in the eyes of customers. A brand is a set of rules that generates such a unique perception.
The ultimate distinction: strategy is exploration. Strategy is emergent, not planned. Strategy is entrepreneurial. It’s a continuous process of learning through action and discovery. Sometimes, firms discover things they really wish they hadn’t. That’s part of the process through which, eventually, strategy evolves. It’s emergent. Over time, a firm can adopt some simple rules that seem to bring some order, but adaptation to new circumstances is always required. Profit is the signal that adaptation is successful.
We use the term explore and expand to capture the Austrian approach to strategy. Firms are always exploring, seeking ways to improve performance. When some experiments yield promising results, they can be expanded. Explore and expand is a trade-off: how much of the available resources should be allocated to each type of activity. Entrepreneurs manage the trade-off in order to succeed. There’s no strategic plan from on high to make the trade-off for them.
Additional Resources "Emergent Strategy Process Map" (PDF): Mises.org/E4B_127_PDF
Austrian Perspectives on Entrepreneurship, Strategy, and Organization by Nicolai J. Foss, Peter G. Klein, and Matthew McCaffrey: Mises.org/E4B_127_Book
"Entrepreneurship and Firm Strategy: Integrating Resources, Capabilities, and Judgment through an Austrian Framework" by Matthew McCaffrey and Ulrich Möller (PDF): Mises.org/E4B_127_Paper1
"'When Harry Met Fritz': Rules as Organizational Frameworks for Emergent Strategy Process" by Nicolai J. Foss, Matthew C. McCaffrey, and Carmen Elena Dorobăț (PDF): Mises.org/E4B_127_Paper2
Saifedean Ammous, famous for The Bitcoin Standard, has a remarkable new book detailing the effects of fiat money on virtually every aspect of society. In the tradition of Guido Hülsmann's The Ethics of Money Production, Ammous returns with The Fiat Standard. From a framework of Austrian economics, this book explains the sordid history of central banks severing currencies from gold redemption—both to finance war and enjoy the political benefits of default. But it also considers the far-ranging effects of inflation on civilization: as time preference increases, everything gets worse. Education, food, architecture, family, and science all suffer, as inflation makes us live today at the expense of tomorrow.
On the 50th anniversary of Nixon's gold shock, The Fiat Standard is an amazing explication of how the West fell to its current state. You don't want to miss this show, especially Saifedean's epic takedown of fiat academia at the end!
Firms that can unlock the deep secrets of subjective value can unleash powerful, long-lasting value streams. When these flow in a confluence with well-identified market drivers, revenue and profit growth can be greatly accelerated.
Joe Matarese tells Economics For Business how he conjoined these two forces for his medical staffing service firm (MedicusHCS.com), creating a dynamic market leader from a three-person startup.
Key Takeaways and Actionable Insights Market Drivers are strong, lasting forces capable of projection. Austrians are skeptical about prediction, but it is reasonable to project some forces into the future. Demographics is one — the progression of age cohorts through the demography of a country can be mapped quite accurately. Increasing longevity is another, based on ongoing increased investment in health care and advances in the associated technologies. When Joe Matarese identified a shortage of doctors, he was able to confidently assume the shortage would continue.
When customer problems result from these forces, a market segment opens for solutions. One customer problem fed by these forces is staffing for critical roles in hospitals — doctors, anesthesiologists, nurses, etc. Staffing complements need to be assembled, absences caused by holidays, maternity leave, etc. need to be covered, and the natural churn of individuals taking new jobs, retiring, or moving requires flexible response. Not only staffing but scheduling is required — the right medical team for the specific operation at the appointed time.
The problem-to-solve is functional. The deep value is subjective and intense. Joe’s core insight was about the intense emotional need, not just the functional need. He observed his client — an operations executive in a busy hospital system — stressing out about the problem. Operating room staffing is life-and-death. Unfilled team roles would often arise at the last minute, threatening the healthcare mission of the hospital.
Temporary staffing service providers would sometimes fail to deliver the scheduled stand-in. Stress for the executive intensified.
The solution for a deep-seated and intensely felt emotional need is to transfer the burden to the service provider. Think of the intense burden the administrative executive bears when she’s not confident that her staffing plans are secure, and her routines and methods are not foolproof. What if there is a failure at the time of a scheduled operation and it can’t go forward? Or patients can’t get nursing care because of under-staffing? How much value is there in a service that can relieve the stress?
Joe Matarese conceived of the emotional solution: take the responsibility off the shoulders of the executive and take it on as a service of his firm. How is that achieved? Bulletproof processes and routines. Comprehensive databases of people and their skills and attributes, and of client facilities and their needs. The latest technology for profile matching and precision scheduling. Impeccable implementation. And, most importantly, intense listening to continuously monitor customer feelings, combined with the responsiveness to act on those feelings.
Growth follows when these market drivers, functional drivers and emotional drivers are aligned. Medicus Healthcare Solutions quickly gained market share in its initial geography. Growth comes from adding new customers, expanding territory and the underlying forces of an aging population consuming more healthcare.
But growth is a management challenge. One area of great challenge is managing people. Those who signed on for the early stages of growth and development may not have the skills — or the interest — for the later stage tasks of management like strengthening processes and systems. Making sure the team is perfectly tuned to the demands of the current stage is difficult but critical.
Further acceleration of growth is driven by innovation. Medicus Healthcare Solutions has always grown faster than the market. How? Through an intense search for new knowledge and its application in the form of unrelenting innovation — never resting in the search for better ways to provide client service. For example, in addition to continuous improvement in precision tailored scheduling, Medicus added a consulting service. Scheduling solves the client’s immediate short term problem, and does so again and again. Consulting can examine the client’s systems and solve the problem in the long term by designing and installing internal systems as good as Medicus’.
Joe has a long experience with innovation and how to manage it, and promised to come back to the Economics For Business podcast in the future to share his knowledge.
Additional Resources "Driving Growth With Core Customer Value Insights" (PDF): Mises.org/E4B_126_PDF
"Medical Staffing and the Revolutionary Innovations We Need," presented by Joe Matarese at the Mises Institute's Medical Freedom Summit: Mises.org/E4B_126_Video
Medicus Healthcare Solutions: MedicusHCS.com
Murray Rothbard's seminal 1965 essay "Left and Right: The Prospects for Liberty" reads every bit as well today as it did 50 years ago. Rothbard defines liberalism and conservatism against the backdrop of the European Old Order, and skewers the incoherence of both in their modern forms. This brief work, steeped in history and full of optimism, shows Rothbard as a careful and strategic thinker about ideological and political movements. Mises.org editors Tho Bishop and Ryan McMaken join the show to explain the tremendous descriptive power of this essay, and why we need Rothbard as much as Burnham, Machiavelli, or Sun Tzu when it comes to strategy.
Mentioned in this Episode "Left and Right: The Prospects for Liberty": Mises.org/LeftRight
Entrepreneurs seek to provide markets with new value through innovation wherever they can identify an opportunity. Their vision is broad enough to include free market institutions such as contracting, where they identify new and better ways to expand the mutuality of value and better relationship models than those in the traditional legal approach.
Key Takeaways and Actionable Insights Traditional contracting starts from an adversarial mindset. Traditional contracts are written in anticipation of conflict. They aim to anticipate everything that can go wrong. Then they try to put every contingency in black-and-white. Clauses are inserted to give one party the upper hand over the other. This approach fosters negative behaviors that undermine the relationship and the contract itself. Often, little room is left for flexibility when conditions change in unexpected ways, leading to costly problems like litigation, mediation/arbitration, renegotiation, churn, and shading (withdrawal of effort by one party due to lack of trust).
A new form of contract called a relational contract aims to address the problem. A relational contract approaches negotiation not from a transactional perspective but from a relational perspective: what are the best provisions to ensure a lasting and mutually beneficial relationship between the two contracting parties? Instead of focusing on how the value pie is divided between two parties, the shared goal is to maximize the total amount of value that can emerge from the partnership. There is a genuine good faith effort to align the two parties’ interests and to develop a fair and flexible framework to handle unexpected changes and events in the future.
The relational contract is designed to try to solve what economists call the hold-up problem. Contracts refer to future events, and specifics (such as delivery times) can never be determined with certainty beforehand. The contract is said to be incomplete — not every contingency can be specified. The hold-up problem occurs when one party uses this situation to extract concessions from the other party, knowing that it would be costly for that party to change the arrangement.
Defense contractors, for example, are notorious for under-bidding costs and then adding to their revenue and profits via change orders. A contract may call for “best efforts” but this can never be defined specifically or completely.
The new approach is said to produce healthier and more sustainable partnerships. In the article A New Approach To Contracts, the authors call for a “what’s in it for we” partnership mentality in contracting, where both parties have a vested interest in the other party’s success. Included relationship-building elements such as shared vision, guiding principles, and “robust governance structures” to keep the parties’ expectations and interests aligned.
Our guest, Steve Phelan, has written extensively about expectations management in negotiations (see Mises.org/E4E_22), and concurs that contracts can perform as instruments of expectations management. However, they can’t be perfect, and the authors’ integration of trust building mechanisms into contracts (e.g., regular scheduled trust-building meetings) seemed to him to be a bit artificial.
A better approach is to focus on identifying good faith actors — those who work hard to follow both the letter and the spirit of the agreement. As is always underlined by the “Think Austrian” approach, subjectivism (in this case good faith actors) brings better business solutions than hard and fast rules and mechanisms regarding how to build contractual trust.
It’s important to get there by the best route, since trust lowers transaction costs.
The new approach to contracting extends to psychological contracts. Psychological contracts are unwritten relationships in which an individual holds a belief in mutual obligations between themselves and another party. An often-cited example is an employment relationship. There may be a written employment contract but, beyond that, an employee may have tacit expectations about job security, personal development, recognition, promotion, growth, personal well-being and respect. If these are not met, they may withdraw effort. Employers are well-advised to empathize with the unwritten expectations of the psychological contract in order to optimize employee motivation.
A brand promise can be a similar psychological contract. Brand make overt promises regarding the benefits they claim to bring to users. In turn, users create their own expectations — as we always emphasize, value is subjective and customers engage in a value learning process when they interact with brands. Their subjectively-defined expectations undergo continuous change, especially as they make comparisons with alternative offers and alternative sources of satisfaction. It’s imperative for brand owners to monitor the evolution of customer-perceived mutual obligations. Customers hold a strong perception of how much consumption work they have to do to receive the benefits that the brand promised, and if the equation gets out of balance, they’ll withdraw their effort.
Additional Resources "Contracting In The New Economy" (PDF): Mises.org/E4B_125_PDF1
"A New Approach To Contracts" (PDF): Mises.org/E4B_125_PDF2
Financial journalist John Tamny has written the definitive book on the disastrous political mismanagement of Covid-19—and the resulting (still unfolding) calamities. When Politicians Panicked is a superb analysis of the economic tradeoffs ignored by alarmist Covid policymakers, and a blow by blow account of their bungling in the early months of 2020. But this is also a book about economic growth, employment, markets and prosperity, with well-supported arguments written in Tamny's clear prose. Tamny helps readers See the Unseen, namely that terrible consequences of lockdowns far exceed any danger posed by the virus.
Let's hope the experts he skewers in this book take notice.
Mentioned in this Episode When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason by John Tamny: Mises.org/Panicked
JohnTamny.com
Our guest is Ted Okon, a nationally recognized expert on the policy and politics of cancer care. Mr. Okon has testified before Congress on cancer issues and is frequently on Capitol Hill discussing the nation’s cancer care delivery system.
SHOW NOTES Ted Okon: Twitter and Community Oncology Alliance website
Watch the episode on our YouTube channel
Value-as-experience is an insight from Austrian economics. Value is not inherent in objects or even in services. Value is not derived from functional use, but is the good feeling the consumer experiences during consumption. Consistent with the Austrian understanding of the market as a process, value is a process. It plays out in time in the consumer’s mind. Consumers learn what is valuable to them in the process of choosing and consuming and evaluating.
These insights add some under-appreciated marketing considerations to a firm’s capabilities, such as an appreciation of situational traits and of the importance of context. Irene Ng provides the E4B podcast audience with a set of contemporary tools to design new experiences and even create new markets in the era of the "Internet of Things" (IoT).
Key Takeaways and Actionable Insights. To design experiences, start by thinking in terms of ecosystems. Ecosystem thinking pays attention to how knowledge, people, technology, processes and the environment are connected and work together. Systems awareness is becoming wider and wider, observing the interaction and value creation among multiple service systems. Consumers’ value experience occurs within a service system, and thus the service ecosystem worldview is increasingly important for entrepreneurs in an ever more connected, digital and data-driven world.
The subjectivist viewpoint is fundamental to designing consumer experiences. We are taught from the youngest age to have an object view of the world. We describe situations using nouns: for example, in a room, there is a chair and a piano. Meaning and purpose are identified via the nouns we use. Economics shares some of this noun-based view of the world: assets, knowledge, material things, property.
For the design of consumer experiences, verbs are more relevant, not just as descriptions but as connections between objects and people and behavior and thinking. If I play the piano or drink tea, I am connecting objects and people in action. The world becomes a matrix of verbs and interactions. What individuals do impacts on objects and on other individuals. Design becomes a matter of what a system of objects and people and connections and actions and flows can do.
IoT brings new capacities and new affordances to service ecosystems. Irene listed 4 new capacities of IoT that contribute to new ways to design experiences:
Liquefy information: A physical object’s information can be sent across space and time. When several information flows are combined for greater information density (e.g., from multiple objects in a kitchen used during cooking) we have more knowledge on which to base an experience design.Turn objects digital: Software and sensors embedded in an object give that object new capability. For example, a running jacket can communicate location and speed, measure temperature and heart rate, and provide programmability.Assemble individual objects into a service system: Objects and devices connected and working together exhibit abilities that they don’t have individually. A door lock plus a camera plus a tablet plus the internet can perform as a remotely monitored security system.Enable transactions between separate task spaces: A task network (such as cooking in a kitchen) can be linked to another task network (e.g., grocery shopping) and a transaction between the two enabled (deliver fill-up ingredients when inventory runs low). Now a designer can think about a new set of affordances: properties of a system that show users what actions they can take. Ideally, the consumer will perceive the new affordances without the need for complex instruction.
Marketing changes its focus from consumers’ personal traits and segmentation to situations and contexts. The design of an experience shifts from the use of objects to connected things with information flows in a system. A customer’s perception of the experience within the system may be affected less by their personal traits (as is often assumed in segmentations such as “early adopters” or “social approbation seekers”) and more by situational traits and context.
For example, the situation of “taking my morning coffee” affects an individual’s perception of how well a coffee mug meets their needs (how well does it fit under the spout of the coffee maker), along with a chair to sit in or a news service (paper or digital?) to read. How well do all these artifacts and services work together in this situation?
Similarly, context affects system perception. An individual might like a certain style of streaming music at home, consumed through a sound system while eating dinner, and an entirely different style for working out in the gym, consumed through a portable digital device and earpods.
The design of experiences considers situation and context, and can potentially accommodate a very broad range of people through personalization rather than cater to a narrow market segment.
The human being remains the best sensor in the system, and all design must support and enhance this role. There may be a temptation for digital designers and technicians to become immersed in the capabilities of an IoT system and forget that it is the human who judges the value of the system through the experience it enables and supports. The human is not outside the system, but is the master sensor, providing both inputs, outputs and judgment. IoT systems provide support, using data to enhance the human experience. Empathy is still the designer’s number one tool to identify the market drivers — the dissatisfactions to be addressed — that underpin favorable human perceptions of the value of IoT systems.
Additional Resources "Designing New Consumer Experiences in the Era of IoT" (PDF): Mises.org/E4B_124_PDF
"The Internet of Things: Review and Research Directions" by Irene Ng and Susan Wakenshaw" (PDF): Mises.org/E4B_124_Paper1
"Service Ecosystems: A Timely Worldview" by Irene Ng (PDF): Mises.org/E4B_124_Paper2
"Mimicking Firms: Future of Work and Theory of the Firm in a Digital Age" by Irene Ng (PDF): Mises.org/E4B_124_Paper3
Value & Worth: Creating New Markets in the Digital Economy by Irene Ng: Mises.org/E4B_124_Book
Bob concludes his series on areas where he’s changed his mind. This episode covers the economics of climate change, fractional reserve banking, the US gold standard, his notorious inflation bets, Nelson Nash’s Infinite Banking Concept, and the God of the Bible.
Mentioned in the Episode and Other Links of Interest: Bob’s chapter on the gold standardMises’ plan to put the USD back on goldBob’s blog post, “Why I Know There Is a God"Bob’s full interview on the Free Born podcastThe Foundation of IBC video seriesThe documentary, “This Is Nelson Nash.” For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Matt McCaffrey is an Austrian economist who is currently associate professor of entrepreneurship at the University of Manchester. He talks with Bob about American economist Frank Fetter, before moving on to a staple of his research: the connection between Chinese military history and entrepreneurship.
Mentioned in the Episode and Other Links of Interest: Matt McCaffrey’s paper on Chinese military history and on Frank FetterHoppe on economic method For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Professor Roberta Modugno joins the show to finish our look at Rothbard's seminal treatise on normative libertarianism, The Ethics of Liberty. Dr. Modugno elaborates on Rothbard's disagreements with Mises regarding ethical justifications for a free society, and defends his uncompromising views on the nature of the state.
Mentioned in the Episode and Other Links of Interest: Rothbard's The Ethics of LibertyDr. Modugno's Rothbard vs. The PhilosophersDr. Modugno's "How I Discovered Murray Rothbard"
The proper selection of a firm’s financial source does not guarantee its success, but the wrong one assures its failure.
Austrian capital theory delivers actionable insights for business. Austrian theory emphasizes capital’s economic role in generating customer revenue flows. Since these flows are variable, entrepreneurial capital must exhibit a capacity for agile and flexible combination and re-combination to keep revenue flows refreshed and current, Since capital structure plays an important role in entrepreneurial judgment, decisions, and action, it must support fast, flexible and unconstrained decision making. Businesses can benefit from their understanding of capital through this Austrian lens. Sergio Alberich helps the Economics For Business podcast listeners, and business practitioners in all kinds of businesses at all stages for their development (see Mises.org/E4B_123_PDF1), to Think Austrian in matters of capital structure.
Key Takeaways And Actionable Insights. Entrepreneurs designing a firm’s capital structure should view their choices through the twin lenses of ownership and control. Ownership and control are tradeable assets for the entrepreneurial firm. In order to obtain capital financing, one or the other or both might be offered up by the entrepreneur or requested by the financier.
How will shared ownership play out now and in the future? Will ownership imply only a share in any future returns? How great a share is the entrepreneur willing to trade? What will it feel like to receive only a portion of the return the entrepreneur worked for? How much more ownership will be given up in future financing rounds?
Can ownership be traded without any loss of control over decision-making and future investments? Alternatively, how much control should be traded? A board seat? An investment committee? The financier wants the entrepreneur to be free to make the decisions for which he or she is best-informed and most capable, and yet wants to be protected from managerial error.
There are many factors that can stand in the way of capital flexibility, and organizational issues of ownership and control become paramount.
Debt and equity are the basic choices as building blocks of capital structure. Debt and equity are basically different kinds of contracts between the individuals managing / operating a project and those funding it. Debt is a fixed claim with a known annual return to the debt holder. Typically, the debt holder has no control over management decisions and is not involved in managing the company (although there are some covenants that can be written to provide some distant control).
The return on equity for the financial investor is residual, after debt repayments are made, leaving entrepreneurs relatively free to allocate costs and direct operations. But equity holders typically hold voting rights, and can therefore exercise some control in some circumstances. They may also exert strong influence on management decisions based on relationships. For example, family and friends investors may exert special relationship influence.
There are some debt-equity hybrids — most notably convertible notes, debt that is convertible into equity at some future stage or event. The negotiation of this instrument brings more complexity to the ownership-control debate, while giving the entrepreneur leeway to consider issues of valuation in the future rather than at the current financing.
Entrepreneurs must also consider human factors, especially the number of people in the capital structure. Another major consideration for entrepreneurs is whether to raise debt or equity from a few people or many (e.g., via IPO or a bond that hedge fund investors can buy). Raising capital from large numbers of investors creates categorically different situations for the entrepreneur. An IPO, for example, can not be a highly tailored instrument. Institutional conventions and regulatory rules impose many requirements about how entrepreneurs and their managers communicate, how they frame financial risk, and about the nature of widespread shareholder engagement they take on. Just think of the interaction of Elon Musk on Twitter, with the SEC, and with short sellers.
In general, the fewer the number of investors, the greater the operating flexibility for the entrepreneur. There are fewer people to convince when business seeks to make a major change, or to pivot.
Sergio Alberich outlined 4 levels of consideration for the financial investor providing capital to the entrepreneurial firm. Level 1: How are the factors of production combined in the firm, and how might the combination change in the future? Elements of this level of consideration include the stage of business in its growth journey and the assessed maturity of its business model, industry, and competitive set; the nature of the business’s relationship with partners, suppliers, channels and customers; and the state of knowledge regarding product, service and market development.
Level 2: What is the nature and scale of cash flows now and in the future? Are there mature, reliable cash flows? Is one part of the business a drain on cash resources? Is cash coming in from investments for operating expenses (which are not really flexible).
Layer 3: What are the possibilities for returns? Both entrepreneurs and investors seek profit - not just accounting profit on the P&L but returns on equity. At an early stage, a company may worry about generating future cash flows and less about the cost of equity (in terms of sacrificed future returns) to finance growth. A more mature company with cash flows in the present pays much more attention to the cost of equity, and to cost of capital in general, seeking to preserve as much return as possible.
It is often the case that entrepreneurs give up too much equity in order to secure early stage venture capital funding, whether directly of via convertible loans. To keep the entrepreneur motivated with equity that promises future returns, it is best for them to deal with just a few investors who understand this motivation.
Organizational design is relevant, too. For example, a law firm with 100 partners, each of whom own 1 share, and limit their business model collaboration to sharing real estate costs and IT expenses, while effectively running 100 projects, might be creating a politicized nest of vipers. A partnership with shared equity in one business, where everyone stands to lose a lot if there is a bad decision, is likely to be much more collaborative, conducting a unified business, rather than acting as a co-operative of individuals sharing costs.
In the end, subjectivism in entrepreneurship prevails. As we emphasized in episode #108 (see Mises.org/E4B_108), businesses perform best when entrepreneurs are free to make subjective decisions. The proper source of capital is one that most enables this subjective freedom, which may not be the optimum source based on spreadsheet calculations. Subjectivity and entrepreneurial judgement are not math. The best economic role of capital finance lies in helping entrepreneurs make better human subjective decisions. This is the essence of the means-ends calculation for both entrepreneurs and investors. Austrian economics gives by far the best guidance on this economic role of capital.
Additional Resources "Austrian Capital Financing" (PDF): Mises.org/E4B_123_PDF1
"Austrian School vs. Neoclassical School" (PDF): Mises.org/E4B_123_PDF2
There’s a middle class of businesses that are the backbone of the economy. Professor Saras Sarasvathy coined that term, and we’re pleased to adopt it.
These businesses sit between the big corporations of the major stock indexes and the VC-funded gazelles and unicorns of Silicon Valley and Silicon Hills. The watchwords for these backbone businesses are duration and durability. They last and prosper because they are well-run, following the entrepreneurial method.
Entrepreneurship is usually portrayed from the perspective of ends: identifying unmet customer needs, creating new and innovative solutions, taking them to market, making a success.
That’s all true. However, there is another perspective that comes from actually running a business, ensuring that operations are smooth and efficient, monitoring daily cash flows and monthly P&Ls, and managing people’s performance.
Often, running a business requires an intensified focus on means. Cash flow, operations, employee performance — these are means, and running a business is a science of managing means. Business advisor Andrew Frazier helped us focus on means in this week’s Economics For Business podcast.
Key Takeaways And Actionable Insights Knowledge is an entrepreneurs most important means. Accumulate it purposefully (but not by losing money). The more you know, the more you grow. That’s a mantra from Andrew Frazier. He advises thoughtful accumulation of knowledge. One way to learn is to lose money — you learn what doesn’t work, and what not to do. Avoid this form of learning by purposive knowledge gathering. This includes truly knowing your purpose — at least part of which is to build the business resiliency that delivers durability and duration.
Knowing your numbers is a critical component of durability and duration, and of shepherding your means. In his advisory and consulting roles, Andrew encounters many business owners who don’t know their own numbers intimately — their daily cash inflows and outflows, the precise identification of fixed and variable expenses, the condition of the P&L and the balance sheet. Some, he says, fear the numbers. They delegate accounting to an outside service, or even to an internal “back room” employee. Don’t delegate “knowing your numbers” to anyone. Be on top of them every day. They tell you your means.
Sales and marketing are the most important means of lasting business growth, and not necessarily expensive. There is no business without the sales and marketing activities that identify the right customer niche and tell your story to those customers in a credible, warm and persuasive fashion. Many business owners and entrepreneurs see sales and marketing as an expense to be incurred only if there is cash leftover from other variable and fixed costs that take precedence. This is wrong-way thinking. Sales and marketing are job #1.
Hiring employees is the biggest change you will make to your business and to your role in it. You want to hire employees for the growth of your business. As you do so, you are changing your business. You change its structure: it now needs organizational design. You change your role: you are now a leader. You change the business’s operational flow because it now needs detailed processes and systems. You change the culture: it becomes more indeterminate and therefore requires more of your attention. You stop working in your business and start working on it.
Duration and durability require sacrifices from you. One aspect of the entrepreneurial ethic is personal sacrifice today for market reward in the future. Sacrifice is part of your means. You’ll work harder and longer hours. Your business and social and family lives will become inextricably intertwined. Your business will become your identity. Realize this and embrace it.
A lasting business requires an exit plan. A business that prospers over an extended period needs an exit plan for its owner or founding entrepreneur. This can range from an IPO or sale to an acquirer to leaving it to your kids or turning it over to employees. Whatever the case, the owner needs to plan ahead for exit, almost from the beginning. For example, if you have a professional services business, what will make it saleable when you want to exit? Is there asset value over and above revenue flow? Will customers stay after you leave? Are your kids even interested?
Additional Resources "Running Your Business" (PDF): Mises.org/E4B_122_PDF1
Visit Andrew Frazier’s Website: RunningYourSmallBusinessLikeAPro.com
Running Your Small Business Like A Pro by Andrew Frazier: Mises.org/E4B_122_Book
"The Masterpreneur Playbook Summary" (PDF): Mises.org/E4B_122_PDF2
Mises.org editor Ryan McMaken joins the show to tackle some of the toughest and most controversial chapters of Rothbard's groundbreaking treatise The Ethics of Liberty. McMaken and Jeff Deist cover abortion, the rights of children, defamation, and all the "what-ifs" contained in lifeboat situations. They also move into part III of the book, where Rothbard pulls no punches concerning the nature of the state, its internal contradictions, its anarchic relationship to other states, and its inescapable role as predator and parasite. This is a can't-miss episode for anyone who questions the role of government in society.
Mentioned in the Episode and Other Links of Interest: Rothbard's The Ethics of LibertyJeff Deist: "A Tort Law Approach to Fight Big Tech?"Ryan McMaken: How Defamation Suits are Used to Stifle Free Speech
Scott Sumner is a monetary economist with the Mercatus Center. He famously argued in late 2008 that the Fed was too tight with monetary policy, and eventually he has convinced many economists of his views. In this episode he explains why interest rates and even monetary aggregates are not good indicators of the stance of monetary policy, whereas NGDP growth is much better.
Mentioned in the Episode and Other Links of Interest: Scott Sumner’s Mercatus page and his blog, The Money IllusionScott argues the Fed through 2012 had been tightScott’s older book The Midas ParadoxScott’s forthcoming book The Money IllusionBob’s review of The Midas Paradox and his assessment of Market MonetarismEconTalk interview with Michael Belongia (which brings up Milton Friedman’s critical comments about NGDP targeting) For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Jeff Deist and David Gornoski talk about some of the recent news and relevant topics such as the buying up of homes by Black Rock; the federal reserve’s connection to big corporations; the out of control state of the Fed’s reverse REPO market; and what the average person can do to protect themselves from government interference in the market.
Find more from David Gornoski on A Neighbor's Choice.
Our guest is Professor David Heymann, an American physician and epidemiologist based at the London School of Hygiene and Tropical Medicine. He has held leading positions at the WHO for more than 20 years, coordinating global responses to epidemics such as Ebola, AIDS, polio, and SARS. He also served as Chairman of Public Health England from 2009 until 2017. Professor Heymann shares his perspectives on post-pandemic life and on opportunities for the public health sector.
SHOW NOTES David Heymann: Professional page and Wikipedia page
Related Episode: Ep. 140. Gabriela Gomes: Why Herd Immunity May Be At Hand
Related Episode: Ep. 148. Herd Immunity Models and Realities, with David Heymann and Paul Fine
Watch the episode on our YouTube channel
Value facilitation is a creative act of imagination, design, assembly, communication and agile responsiveness. Our Economics For Business model applies these actions in the pursuit of new economic value. Bill Sanders, an expert in contract negotiation in business, applies them in dealmaking and business relationship management. His book, Creative Conflict: A Practical Guide For Business Negotiators (Mises.org/E4B_121_Book), provides a highly actionable model for value facilitation in contract negotiations.
Key Takeaways and Actionable Insights Business negotiations are searches for shared value. Both parties in any negotiation are seeking value, and specifically subjective value. Each sees the eventual agreement on contract terms as a source of future value. Contract negotiation has often traditionally been viewed as a struggle for one side to capture the most value at the expense of the other.
But value facilitators view it differently. They first try to identify the total amount of value in a potential agreement, before thinking about the division of value.
Divergent thinking is a source of value. In his book, Sanders refers to Creative Conflict as a positive, to be embraced. There’s no predetermined solution, and no absolutely perfect price. There are many possible solutions, and good negotiators are able and willing to continue exploring the ambiguity, and welcoming contending ideas. They are open to uncertainty. It may lead to a solution that neither party might have seen on its own.
Value potential can be mapped in preparation for negotiation. Sanders introduces the concept of value mapping. Economists are somewhat familiar with this approach at the market level, but perhaps not at the level of individual exchange. Value mapping in contract negotiation is the mental connection of one side’s assets to the other side’s needs. The value map would include a list of concessions desired from the other side (with a subjective estimate of their importance) and a list of what can be given up by your side to generate more value for the other party. In some cases, the values can be quantified.
When presented, these lists become a value proposition for the shared outcome of the negotiation. Sanders provides a value mapping checklist as a tool to help negotiators think about all the assets they might have to bring to the negotiation, and all the areas where concessions might be sought in return.
Value mapping points to the productive end of the negotiation continuum. Bill Sanders presents types of negotiations on a continuum (see Mises.org/E4B_121_PDF2). On the left-hand end is bargaining, the traditional zero-sum exercise to capture value, a purely distributive process. At the midpoint is creative dealmaking, where value mapping is applied (see Mises.org/E4B_121_PDF1) to surface extra value so that both sides feel they gain more than they relinquish. On the right-hand end is relationship building, where the two parties enter into a partnership in which each works hard for the other party to succeed. The spectrum is one of ascending creativity from left to right.
Austrian economics has a big role to play. Many of the techniques Sanders proffers in Creative Conflict are firmly based in Austrian economics, as he himself emphasizes. Some of the relevant concepts are:
Subjective Value: Each party experiences value in their own mind, and anticipates future value in the form of expectations, based on their own evaluative criteria. While subjective value can’t be quantified, the concept of an expanding pool of value can be considered by both sides, each from their own unique perspective.
Empathy: The tool for understanding the other party’s mental model for evaluation is empathy, the exercise of which we often stress as the entrepreneur’s primary value facilitation skill. This is as true in contract negotiation as in any other exchange.
Trust: Negotiation takes time and requires the declaration of parties’ wants and needs, preferences, capabilities and capacities, and the full functioning of the goods and services being traded. Trust is the required underpinning for these declarations.
Distributed knowledge: There are always things that the seller knows that the buyer doesn’t, and vice-versa. This is the normal (non-equilibrium) position, to be recognized and welcomed.
Uncertainty: Uncertainty is the quintessential condition of entrepreneurship. The future is unknowable. Sanders recommends the full recognition of uncertainty and indeterminism in contract negotiations. Explore possibilities rather than imposing mandatory conditions.
Heterogeneity: Negotiators are different, firms are different and have different priorities, every deal is different. There is no standard way of business negotiations. Sanders does not try to lay down “rules”.
Real time: Time is the context in which change takes place. Every advance in time brings new knowledge and more change. Since negotiation takes time, it must be flexible enough to accommodate change and avoid rigidity.
Processual perspective: The market is a process, value is a process and negotiation is a process. Austrian economics recognizes the role and influence of time — time as the context of change — at a high level of impact. Contract negotiators take the same perspective, using the time taken for the process to unfold as a means of facilitating greater value whenever possible.
Additional Resources E4B Tool: The Negotiation Value Mapping Checklist (PDF): Mises.org/E4B_121_PDF1
E4B Knowledge Map: The Negotiating Continuum (PDF): Mises.org/E4B_121_PDF2
Bill’s Book Creative Conflict: A Practical Guide For Business Negotiators: Mises.org/E4B_121_Book
In response to a listener request, Bob continues a 3-part series explaining areas where his views have changed. In this episode, he covers government debt and future generations, accuracy in polemical writing, the Fed being a private corporation, whether nice guys finish last, and mainstream utility theory.
Mentioned in the Episode and Other Links of Interest: Bob’s “The Economist Zone” article with links to the original contributions to the Great Debt Debate. Bob’s Mises University lecture on the topicBob’s link for Tom Woods’ Liberty Classroom (which features a lecture on government debt burdens)Bob’s FEE article on the origin of public schoolsBob’s essay on advice for single Christian menBryan Caplan’s “Why I Am Not an Austrian Economist For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Economists recognize the phenomenon of increasing returns. Knowledge markets such as those for software, operating systems and platforms, tend to tilt in favor of a product or service or brand that gets ahead, even to the point of lock-in. There is a growing body of theory — often under the heading of complexity theory, and supported by computational simulation — underpinning the concept of increasing returns.
Mark Schaefer is expert at bringing economic theories of this kind into vibrant contemporary life. He coined the term Cumulative Advantage, and wants all entrepreneurs to know how to harness it (see Mises.org/E4B_120_PDF).
First of all, it’s not new. It’s in the Bible: For whoever has will be given more. Sociologist Robert K. Merton therefore called it The Matthew Effect.
How can entrepreneurs and their firms take advantage of increasing returns to achieve cumulative advantage? Consistent with the processual approach to value of Austrian economics, Mark has a five-step process.
Key Takeaways And Actionable Insights Identify an initial advantage. How do entrepreneurs identify a small initial advantage that sets momentum in motion? There are unlimited sources within complex economic systems. Mark tells us to look for collisions of events, ideas, people and circumstances from which entrepreneurs can derive their unique advantage. He calls them “click moments”. They are happy, random, emergent phenomena. He gives the example of Bill Bowerman’s experiment with latex in a waffle iron to create a new type of running shoe — the click moment for Nike.
Importantly, these random outcomes are spurred by action — acting on curiosity, and pursuing an energetic quest to establish how ideas and imagination can be exploited to solve customers’ problems.
Discover a seam of timely opportunity. Mark rejects the concepts of strategy and planning. Business success can’t result from 50-page documents and elaborate spreadsheets. Momentum is a consequence of action. Entrepreneurs replace strategy with their own subjectively defined opportunity to exploit speed, time and space. A seam is a fracture in the status quo through which the entrepreneur sprints. Relentless searching for an open seam is the core activity of entrepreneurship. Seams are always opening as a result of the continuing, ongoing change of business and the economy, best understood through the dynamic lens provided by Austrian economics. Often the timing of the opening is the key factor in the success of an entrepreneurial initiative. Timing cannot be predicted, and so continuous experimentation is the best approach, to create the maximum possibility for “click moments”.
Create significant awareness through a “sonic boom” of social proof. Once a business has entered a seam, it’s the occasion to search for amplification. Mark Schaefer proposes the leverage available through influence and influencers, those who can provide social proof to a broader audience that a new entrepreneurial offering is sufficiently worthy to command widespread demand. The customer is the marketer in this construct of social proof — which is a development, of course, of the Austrian theory of consumer sovereignty. People believe each other more than they believe advertising, promotion or PR.
Gain access to a higher orbit by reaching out and up to powerful partners and allies. Once awareness and social proof of the entrepreneurial offering begin to build, the next process step is to seek partners and allies who can provide access to higher-level resources: powerful connections, better channels, financial capital, value-multiplying alliances. Network theory applies: denser and more active connections through bigger and more strategic network nodes can result in accelerated business expansion.
Maybe it’s distribution in Walmart or Target, or endorsement by a celebrity athlete, or presence on a FinTech trading platform, or access to new resources. Reaching up is an exercise in finding partners to expand an entrepreneur’s market potential.
Build momentum through constancy of purpose. Ultimately, says Mark, the killer app is constancy of purpose. Discipline, resilience, purpose and persistence accompany entrepreneurs on the path to achievement. There’s flexibility and adaptiveness and agility of course, and these can bring changes in direction, but the goal and the purpose always retain their primary role in the narrative of success.
Additional Resources "Cumulative Advantage — The Theory of Increasing Returns" (PDF): Mises.org/E4B_120_PDF
Cumulative Advantage: How to Build Momentum for your Ideas, Business and Life Against All Odds by Mark Schaefer: Mises.org/E4B_120_Book
Mark Schaefer’s website: BusinessesGrow.com
B Squared Media: BSquared.media
Lawyer and legal theorist Stephan Kinsella joins the show as we dive into Part II of Rothbard's The Ethics of Liberty, grappling with the foundational issues of crime, proportionality, and contract. When is property justly held? When may injuries to a person or property be addressed with force, and how much force? How do we deal with one another contractually, in terms of promises and expectation? How do we resolve disputes privately? Rothbard presents a remarkable exposition of a theory of liberty, a normative justification for laissez-faire which was sorely lacking. Kinsella does a remarkable job of explaining Rothbard's concepts with force and clarity, so you won't want to miss this episode!
Mentioned in the Episode and Other Links of Interest: Rothbard's The Ethics of LibertyRothbard on the “Original Sin” in Land Titles: 1969 vs. 1974 (Nov. 5, 2014)KOL146 | Interview of Williamson Evers on the Title-Transfer Theory of ContractA Libertarian Theory of Contract: Title Transfer, Binding Promises, and Inalienability, Journal of Libertarian Studies 17, no. 2 (Spring 2003): 11-37A Libertarian Theory of Punishment and Rights, 30 Loy. L.A. L. Rev. 607-45 (1997)Fraud, Restitution, and Retaliation: The Libertarian ApproachKOL197 | Tom Woods Show: The Central Rothbard Contribution I Overlooked, and Why It Matters: The Rothbard-Evers Title-Transfer Theory of ContractJustice and Property Rights: Rothbard on Scarcity, Property, Contracts…KOL004 | Interview with Walter Block on Voluntary Slavery
Cronyism is not Capitalism We often hear that capitalism is under fire: in contemporary politics, in journalism, in popular discourse, and even in some business schools and among some management scholars and their students. But the criticism, upon examination, is not about capitalism but cronyism. The two are entirely separate systems, and the corruption and corporate political activities of cronyism are not exhibited in capitalism, and will never appear if we can adhere to capitalism’s purest form, entrepreneurship.
I had a great conversation with @petergklein on the absolute distinction between cronyism and capitalism - one that not all management scholars are willing to make. Listen to @econ4business podcast tomorrow May 25, 2021 to hear the entire conversation. pic.twitter.com/dGCxWTgLva
— Hunter Hastings (@hhhastings) May 24, 2021 Defining Capitalism Capitalism is a system in which factors of production are privately owned, resources are allocated through markets, i.e., voluntary co-operation among individuals, and individuals and groups are free to engage in economic activity without centralized control or interference from the state.
Capitalism includes the monetary system that enables entrepreneurs to engage in economic calculation, and the institutions that support property rights, and the rule of law. There are high levels of individual freedom of people to form groups and act without state coercion or compulsion.
Defining Cronyism Cronyism is a system in which the state takes charge of, or has a high degree of influence in, allocating resources to firms, and some firms derive advantages over other firms based on their relationship with and influence with government officials, rather than their ability to satisfy customer wants via superior capabilities. The supporting ideology favors high levels of state interference in the allocation of economic resources, with institutions and practices favoring the manipulation of public policy as a strategy for increasing profits.
The benefits of capitalism and the vices of cronyism The advocacy for capitalism in the paper we discuss with Professor Klein in this episode of the Economics For Business podcast ("Capitalism, Cronyism, And Management Scholarship: A Call For Clarity": Mises.org/E4B_119_Paper) is not pure theory, but rather the greater benefits for everyone in society that result from capitalism compared to alternative systems.
Current critics vent their dissatisfaction with some aspects of the status quo, such as issues related to the natural environment or reactions to measurements of income inequality. It is not only an illogical leap to believe that taking decision authority away from private individuals and firms and giving it to government will result in greater benefits for society. It is also moving the system towards cronyism, so that unscrupulous people, whether they be executives, investors, labor unions, politicians or government bureaucrats can benefit themselves at society’s expense.
The nuances of cronyism and the maleficent influence of size Bribery, blackmail, extortion and other forms of criminality are widely deemed inappropriate. The problem of cronyism lies in practices that are legal and encouraged by the intelligentsia and business school academics as sources of commercial advantage via the manipulation of the political system. These include activities such as lobbying, political contributions, or awarding board seats to retired government officials.
Peter Klein noted that there was a time when Microsoft, as an up-and-coming high growth tech company, did not even have a Washington DC office. Politicians couldn’t help them and didn’t understand their business. But the politicians reminded Microsoft who was really in charge, via an expensive, threatening and long drawn out anti-trust suit. Now Microsoft and the rest of the mature high tech industry have extensive Washington DC offices and very large lobbying budgets. Levels of cronyism parallel the scale of the modern corporation.
The costs of cronyism The costs of cronyism are both direct and indirect. The direct costs are misallocation of resources and the production of goods and services that the free market would not want but politicians favor. The skills of executives and managers are applied to the influencing of government officials rather than to seeking the rewards of the marketplace via consumer acceptance and consumer value. Firms develop in much different ways than they would under capitalism.
Some of the misallocation of resources are most highly visible in the build-up of bureaucracy in corporations. Bureaucrats are not strategic decision makers and not producers of goods and services. They are devoted to compliance, government relations, and working with regulators and lawyers. Their salaries and office space and equipment are all misallocations of resources.
An indirect cost of cronyism is the undermining of institutions. A well-functioning market has institutions for integrity of contracts, resolving disputes, and protecting private property. The institutions are neutral: they enforce general rules that apply to all. The effect of cronyism — its whole point, in effect — is to override general rules in favor of privileging those in power over those who lack power. Confidence in institutions consequently erodes.
Business schools and management scholars are part of the problem Trendy developments in management practice such as stakeholder capitalism, ESG (Environmental, Social, and Governance considerations for investment) and DEI (Diversity, Equity, and Inclusion requirements) are forms of cronyism, diverting business activities away from meeting the wants of customers in voluntary free-market exchanges to aligning with government directives, some current and some anticipated.
Business schools have been party to encouraging this non-market behavior, and to developing the associated indexes and scales and processes, all of which are murky and ambiguous, as well as very costly to implement. Executives welcome the ambiguity that makes accountability more difficult.
Business schools and universities are, in fact, vulnerable to the practices and measures they have encouraged, and their staffs are now bloated with middle managers, administrators and compliance departments. It’s all highly costly and a waste of resources.
Corporations exhibit similarly destructive economic behavior with their “woke” advertising campaigns and corporate training programs. Gramsci’s long march through the institutions seems to have reached the corporate HR departments who are the source of much of this uneconomic, anti-capitalist behavior.
Entrepreneurship is the pathway to lead us out of the cronyist morass The budding entrepreneurial movement is the way out of cronyism and corporatism. Entrepreneurial businesses focused on consumers and customers, on innovation and betterment, and on producing ever-improving goods and services, have no time for cronyism. They are not looking for political protection.
Newer firms, newer business models, and those harnessing newer technologies are less invested in lobbying and corporate political activity. They don’t have the time or the resources for it, and slow and sclerotically reactive government can only get in the way.
Entrepreneurial innovation can trigger the separation of business from government and reverse the processes of cronyism, encouraging an open, dynamic, vibrant economy in which firms of all sizes engage in the full-time pursuit of innovation and new economic value, and devote no resources to lobbying or government relations.
Additional Resources "Capitalism, Cronyism, And Management Scholarship: A Call For Clarity" (forthcoming in Academy Of Management Perspectives) by Peter Klein, Michael Holmes, Nicolai Foss, Siri Terjesen, and Justin Pepe (PDF): Mises.org/E4B_119_Paper
In response to a listener request, Bob starts a 3-part series explaining areas where his views have changed. In this episode, he covers trade deficits, justice vs. mercy, the 2000 election, WMDs in Iraq, and Arrow’s Theorem.
Mentioned in the Episode and Other Links of Interest: Bob’s article on why free traders should be more careful when defending trade deficitsBob’s article explaining the capital account in reference to trade deficits, in the context of criticizing Peter Schiff. Then Bob’s mea culpaBob’s article on Robert MundellBMS episode explaining Arrow’s TheoremSteve Landsburg’s The Armchair EconomistBob’s link for Tom Woods’ Liberty Classroom (which features a lecture on Arrow’s Theorem) For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Murray Rothbard's The Ethics of Liberty is a sweeping treatise which creates nothing short of a normative political philosophy of liberty. Contra Hume, Rothbard attempts to derive an "ought" from an "is," using natural law precepts and rigorous logic. Professor Walter Block joins the show to discuss the first section of the book, and gives us his unstinting (and always deontological!) take on Rothbard's vitally important treatment of natural law philosophy as the foundation for a free society. There are also lots of great Blockean anecdotes you'll want to hear!
The Audiobook version of The Ethics of Liberty is available at Mises.org/EthicsAudio Read Hans-Hermann Hoppe's introduction to the 1998 edition work at Mises.org/EthicsHoppe Find David Hume's A Treatise on Nature at Mises.org/Hume
What use is economic theory in business? It’s indispensable. It’s the necessary starting point for all businesses, brands and projects. Only when you have mastered theory can you master the navigation of specific situations, and be confident in your good decision-making and judgment. Per Bylund explains.
Key Takeaways And Actionable Insights Good business starts with good theory. Any type of study of people — how they act, how they interact, what they are trying to achieve, how they make decisions — requires a theory. That includes business, by definition. There must be a conception of what it means to be a human actor in the marketplace, what it means to act and to choose. We can’t understand merely through observation. Businesses must, therefore, have a theory of human action.
Austrian economics provides that theory in the action axiom: human action is purposeful behavior. Via action, human beings are trying to accomplish something. When they choose means to achieve that accomplishment, we can observe their choice. But we need theory to understand the ends they have in mind. Since they don’t always succeed, we can’t always observe the ends. Theory provides us with a framework of understanding: we can interpret what they were trying to accomplish, and why they went about it the way they did, and the situational variables influencing their action, and how they might respond to the outcome.
Empirical observations and measurements are not only often impractical, they can also be deceiving. We can’t always know what people are aiming for. Moreover, theory tells us that they are acting with respect to whatever they are perceiving — i.e., subjectively — which is not observable to a third party. It’s the same phenomenon if we try to observe the actions of a firm, perhaps a competitor, because firms are not observable. Institutions are not observable.
Yet, there are patterns of behavior that can be deduced from theory. And that is the great power of Austrian economics for business: to uncover what is actually happening that observation can’t tell us.
With a framework of theory in place, businesses can add data to explain specific situations. Theory can’t fully explain any specific situation. And pure inductive observation of data can’t provide any understanding without theory. Therefore, a balance between those two is called for.
This was the advice of economist Frank H. Knight, and Per Bylund calls the balanced position between pure theory and pure data “Frank’s Way”. There’s a continuum from pure theory to pure history (i.e. facts only). Pure history starts from facts and tries to make sense of them. Pure theory explains the structure of a market or the economy and then fits actual phenomena into the theoretical structure in order to understand them.
The balanced position between the two extremes applies particularly to entrepreneurial economics. Entrepreneurial economics aims at an understanding both of customer choices and actions and of entrepreneurs acting on their own judgment. It’s not abstract. Entrepreneurs develop a theory so as to be able to apply it effectively in order to build business, and they judge the sufficiency of the theory by business results.
Entrepreneurs have an Austrian understanding of how the market works. They have a good theory — subjective value theory (see Mises.org/E4E_13) — about what customers value, and how they determine that value. Entrepreneurs have an Austrian understanding of capital as a flexible and variable source of consumer revenue streams. There are several more components of entrepreneurial theory that we cover in the Economics For Business series (see Mises.org/E4B_113_PDF2).
With their theory in place, entrepreneurs gather feedback from customers in specific situations. They gather responses to a value proposition. They test different prices to apply the theory of Exchange Value. Business is not a theory. It’s based on theory, applied in a specific situation, and it is the specific situation that must be well-managed in order to make a profit.
A sampling of some theories of entrepreneurial economics. The Means-Ends Chain. Customers choose means to achieve ends. Different customers have different ends. Means-ends theory (see Mises.org/E4E_01_PDF) helps entrepreneurs understand the ends their customers aim at. Some customers in the car market seek admiration of others by signaling social success. They might choose a Ferrari or Bentley as their means. A construction company owner might be seeking efficacy and efficiency in hauling materials, and chooses a pick-up truck. Both customers make choices via the same means-ends model, and their specific situations point to different choices on their respective routes.Diminishing Marginal Utility. This theory posits that in certain markets, a customer, having purchased a product or service, may perceive a lower value in the next unit. Having bought one Ferrari to meet the need for social approbation, to continue our analogy, the customer may not find a second one equally as desirable as the first. The construction company owner, on the other hand, may see equal value in adding another pick-up truck as business grows. Where that same pick-up truck buyer may find diminishing marginal utility is in the proliferation of accessories and bundled features in which he or she does not perceive value. Too many features bundled together may deter a purchase for reasons of diminishing marginal utility. These considerations are important to entrepreneurs in the design of loyalty programs and multiple-purchase discounts.Uncertainty Theory. Entrepreneurs exercise judgment under conditions of uncertainty. Austrian economists employ uncertainty theory to focus their theorizing about entrepreneurship in action. In specific situations, entrepreneurs must apply the theory by choosing the tools to use to overcome uncertainty, such as the explore and expand tool, which identifies the many experiments to run (explore) and then the broad deployment of those experiments that work (expand).Network Theory. Economies and markets are networks, and theory looks into the attributes of densely and loosely connected networks, and those that are wired in different ways. The theory can identify the possibility of “structural holes” in networks, where there are nodes that can be productively connected, yet stay unconnected. Entrepreneurs in specific situations can establish whether such a gap exists in their own network, and work actively to fill the gap and increase their productive capacity, e.g., by connecting to a new vendor or a new customer or a new resource.Entrepreneurial Process Theory. Entrepreneurship is a process, and theory can identify the most productive processual methods, and can employ entrepreneurial history to reconstruct how productive processes have worked well in the past. Entrepreneurs operating in the present, and designing processes for the future, can utilize process theory and its illustrative histories (Per Bylund calls these “biographies of processes”) to help them make the best design choices for the most robust processes. As an example, our N-A-B-C process for innovation (see Mises.org/E4E_37) is a theoretical framework that every entrepreneur can apply in their own specific circumstances to arrive at unique innovative solutions for their business and their customers. Take time to think and time to theorize. Theorizing is hard, rigorous work. It requires identification of the theories you are actually using (consciously or not) in your own mental model, and then relentlessly questioning them and examining them for internal consistency and external validity. Are there gaps or soft spots? Is there something that doesn’t quite sit right with you? If so, you then work to change your assumptions or figure out better elements to add, or extending the theory further.
It requires thinking, and thinking requires the allocation of time. Per Bylund urges us all to be good thinkers. "Think better, think Austrian," as he says.
Additional Resources "Let ’ s do it Frank ’ s way: general principles and historical specificity in the study of entrepreneurship" by Marek Hudik and Per Bylund (PDF): Mises.org/E4B_118_Paper
"Entrepreneurship in Theory and Practice" (PDF): Mises.org/E4B_118_PDF
Vijay Boyapati left a lucrative job at Google in 2007 to move to New Hampshire and campaign for Ron Paul. In this episode, Vijay explains why the other Austrians should have listened to him in 2010 when he warned that their inflation predictions were wrong. He also explains his popular 2018 essay, “The Bullish Case for Bitcoin.”
Mentioned in the Episode and Other Links of Interest: Vijay Boyapati’s 2010 article on credit deflationVijay’s 2018 article on “The Bullish Case for Bitcoin”Bob’s guide (with Silas Barta) to BitcoinBob’s article on Hayek on private fiat moneyBob explains his botched inflation prediction For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
Few people can be said to be the originator of a new science. Jim Spohrer is one of those rare beings. The science he originated is Service Science. You can read about the origination process at IBM Icons Of Progress (Mises.org/E4B_117_Icons). Jim currently is the Director of IBM’s Cognitive Opentech Group (COG). On the E4B podcast #117, he shares some of his knowledge and insights, especially on the subject of the wonderful new directions in which the combination of service science and artificial intelligence is going to take entrepreneurship in the near future.
Key Takeaways And Actionable insights A new science of service. Service science is combinatorial innovation: it combines service innovation, technology innovation and business model innovation. At the time of its origination it was also a challenge to the then-dominant logic embedded in the product mentality; that is, what is produced in the economy is products. As services began to take over the economy, the kinds of assumptions inherent in goods-dominant logic needed to be changed. The famous 1994 paper by Steven Vargo and Robert Lusch (Mises.org/E4B_117_PDF) was one of the sparks that lit a fire of change.
Looking at the world through the Service Science lens means seeing things differently, seeing all the knowledge that is embedded in products and services and people and exchange, and seeing that what is produced is a value experience for customers. This view opens the door for service innovation, serving people in better ways by facilitating more preferred experiences.
Service systems. Just as Austrian economics is a systems-based view of the economy — with a diversity of interdependent consumers and entrepreneurs interacting and adapting to each other in the co-creation of value — so Service Science is a systems-based view of service. A lot of people, processes and technologies have to come together and interact to generate service value. Service is no longer viewed as one person helping another. Service systems consist of responsible entities interacting across networks to co-create value.
Service systems are people. Service systems are businesses. Service systems are governments. These are value networks. But these systems can become smart, and ever smarter, by the application of new technology.
Technological agency. Just think how many service offerings might be limited by the number of employees with the requisite skills that can be deployed. And now think about how A.I. and automation and new technology could supplement human capacities.
One of the most significant new and accelerating capacities of technology is to act. Given a certain input (such as a service request) a technology or software can act in response, and deliver the requested service to the customer. We don’t need a librarian to retrieve a book for us, or a checker to check us out of the store. Perhaps in the future, we won’t need a doctor to diagnose our condition, or a driver to drive our Uber. We’ll rely on technological agents.
And, in turn, the technological agents will change people’s skills.
All kinds of innovation. But technological innovation is not the only source of service innovation. Business model innovation is just as important. How do we pay for something? How do we recruit employees? There are existing models for these systems that can be innovated.
Institutional innovation is also going to be taking place, including in the operations of government.
At all levels — services, business models, institutions — systems are going to become smarter, which means using resources more efficiently, and getting results with less material, less effort, less time, and less use of space.
Smart systems can become wise systems. If we add artificial intelligence to systems and human beings get dumber as a result, is that wise? No it’s not. For entrepreneurs, this means thinking through the delivery of betterment to the customer on a long term basis, thinking through all the secondary and tertiary effects, and aiming at long term benefits.
This thinking also embraces ethical considerations and the impact on future generations. Systems should become both smarter and wiser.
Cognitive assistants and cognitive mediators. A.I. brings us cognitive tools. A tool typically does one thing, but an assistant can do many things. And perhaps the cognitive assistant can become a coach, and then perhaps a collaborator. Perhaps the best collaborator is one you can debate with, in order to sharpen your ideas. IBM is investing in debating technology so that, in the future, you can have a good debate with your cognitive collaborator.
One way to think about this is that the hundreds of apps we have on our smartphones grow up and become digital assistants, and the human owner of the smartphone is the manager of all these assistants.
The next step, perhaps 20 years into the future, perhaps more, will be to a cognitive mediator, an artificial intelligence you trust to make good decisions on your behalf. Perhaps it can negotiate better than you can. Perhaps it will know you better than you know yourself. Some innovators refer to the idea of a cognitive mediator as a “digital twin”. It’s possible today to have a digital twin for a piece of equipment. Tomorrow there may be a digital twin for all responsible entities, including people, businesses and even government.
All of these developments will have profound effects on service science, and the kinds of services we can imagine, design and deploy. And they’ll have a profound effect on identity — who we think we are, and how we think of ourselves.
Trust, Emotion and Empathy. Trust in a digital twin takes us into the world of emotion and empathy. We all wonder if artificial intelligence can ever have empathy. Empathy is a way to unlock the ability to see the problems others are experiencing and to identify ways to solve them. A.I. will be able to build models of any particular individual, using data about the individual and data that the individual has generated. Amazon is already building a model of your preferences and Facebook is building a model of your social interaction.
Perhaps individuals will build data twins of themselves, and perhaps there will be a way to monetize the digital twin. There will be many, many new opportunities in evolving service science and the kind of value co-creation that is possible. So empathy comes down to digital twinning. Empathy is having a better model of others. Innovative entrepreneurs will tap into the best digital models they can of their prospective customers.
Parallel entrepreneurs replace serial entrepreneurs. When we are all managing 100 digital workers on our smartphones, we’ll be able to initiate multiple innovations in parallel. This suggests we are on the verge of profound entrepreneurially-driven change. To do this wisely will require trust in artificial intelligence and trust in our digital twin. It will require an understanding of our own biases. And perhaps the digital twin will be able to point out these biases and correct them. If we trust it to.
Billions of responsible entities, trillions of strategies, higher aspirations. W. Brian Arthur talks about complexity economics (Mises.org/E4B_117_PDF2) and a future in which the multiple strategies of billions of individual entities can be run in a simulation to see how they interact and what outcomes emerge. Such capabilities enable us to raise our aspirations to higher levels. What innovations can one entrepreneur introduce? How about 1,000 entrepreneurs or 100,000 entrepreneurs, or 500,000 entrepreneurs each with 100 digital assistants? We shouldn’t be thinking of mundane trivial things in this context. We must find higher aspirations. We should be thinking about augmented reality, new energy systems, biological innovation, institutional innovation and new mindsets to go with our new skillsets.
Our best selves can become better. For each of us, our future self is our customer. How do we make the future better for ourselves? How does that kind of thinking change the decisions we make every day? How does a business become a better future version of itself? How does an institution do so? How are businesses creating new customers by making them better future versions of themselves?
The best way to answer these questions is to be an entrepreneur and start, grow or re-purpose a company to do so.
Additional Resources T-Shaped Professionals: Adaptive Innovators by Jim Spohrer: Mises.org/E4B_117_Book
"T-Shaped Individuals" on Slideshare: Mises.org/E4B_117_Slides
Service Thinking: The Seven Principles to Discover Innovative Opportunities by Hunter Hastings and Jeff Saperstein: Mises.org/E4B_117_Book2
IBM Icons Of Progress: Mises.org/E4B_117_Progress
Welcome To The Cognitive Era (PDF): Mises.org/E4B_117_PDF3
Bob gives a guest lecture for Jonathan Newman’s MA course for the Mises Institute, on the history of, and new developments in, the pure time preference theory of interest. After summarizing the work of Bohm-Bawerk, Fetter, and MIses, Bob explains his own perspective and then how Jeff Herbener partially agreed with Bob’s critique.
This episode sets the table for Bob’s interview with Herbener in ep. 199.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this lecture (which has the PowerPoint slides)Information on the Mises Institute’s online Master’s ProgramBob’s dissertation on Austrian capital theoryBob’s interview with Jeff Herbener (BMS ep. 199) For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Jeff Herbener is a Senior Fellow with the Mises Institute and an economics professor at Grove City College. At the 2021 Austrian Economics Research Conference, Jeff presented a defense of the pure time preference theory of interest, and mentioned Bob’s critique of it. This episode is a very informative discussion of their views.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this lecture (which has the PowerPoint slides)Jeff Herbener lecture on interest at Mises UniversityBMS ep. 198 (which provides context for this discussion)BMS ep. 119 with Guido Hulsmann (who also tries to replace the Pure Time Preference Theory)Bob’s dissertation (which is technical) on Austrian capital theoryBob’s article (for the lay person) explaining BB’s critique of the naïve productivity theoryAn intermediate difficulty paper, in which Bob explains problems with viewing interest as “present goods are more valuable than future goods”Bob’s 3-part series (one, two, three) on Capital and Interest in the Austrian tradition For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
America's "Old Right"—rooted in 19th century liberalism but birthed in the 1930s to oppose the New Deal—was strongly laissez-faire and non-interventionist. Murray Rothbard wrote the comprehensive story of that movement, it's influences and influence, and its destruction at the hands of Buckleyite Cold Warriorism. Modern conservatism sadly bears little resemblance to the Old Right, and America is worse off for it.
Dr. Patrick Newman and Tho Bishop join the show to dissect the book, which is both a critical history and a fascinating political memoir of Rothbard's own journey to libertarianism.
Read this historic work at Mises.org/Betrayal
We can gain useful insights by winding business models back in time to see how they emerged and evolved. In the case of competing business models, we can analyze the different outcomes and perhaps assign some cause and effect analysis to interpret why one model variant performed better than another. How do we do that? Through the technique of entrepreneurial business history.
Alan Payne conducts just such a historical business model re-enactment in his excellent book, Built To Fail: The Inside Story of Blockbuster's Inevitable Bust (Mises.org/E4B_116_Book). It’s the dynamic story of two competing business models in one industry, a comparison of outcomes, and the resulting emergence of a new, third model.
Key Takeaways And Actionable Insights. Business models are discovered by experimenting entrepreneurs. The video cassette recorder (VCR) and playback device was a technological emergence in the 1970s. Movie studios saw the opportunity for new sales but worried about diverting revenues from the theater channel and therefore priced movies-on-cassette quite high from a consumer perspective (about $65). The experience of viewing movies at home was valuable to consumers but the exchange value was not aligned with the price. A few enterprising entrepreneurs discovered the rental option (don’t buy the cassette, rent it, and return it). The unit rental price emerged at around $3. The video rental business was born. Individual rental stores were profitable and some of the entrepreneurs started to open multiple stores and build small chains.
Capital-advantaged shareholder value-focused owners recognize emergent business models that are scalable. Alan Payne’s story of business model evolution in the video rental industry describes a great leap in industry growth led by another kind of entrepreneur. Wayne Huizenga was an entrepreneur experienced in a certain kind of growth model. He had built Waste Management, a Fortune 500 company, from a one truck garbage collection route, largely through acquisition and subsequent expansion of local operators. He knew how to finance and run high growth expansion of a templated operating system. He bought Blockbuster for $18.5 million and sold it nine years later for $8.4 billion. That’s a huge amount of shareholder value generation.
Under Huizenga, the consumer value experience did not get better. It was frozen. We know that consumer experience is dynamic, not static; Huizenga’s Blockbuster let more and more consumers into a static experience (through geographical expansion) but was not generating new value for those or any other consumers.
More consumer-oriented businesses evolve more responsive business models. In Alan’s story, HEB Grocery was a different kind of entrepreneurial business that approached consumer value in a different way. Alan describes the company as “obsessed with being the best” at meeting the ever-changing preferences of food shoppers. An effective grocery retailer must be highly responsive to changing consumer needs and adept at providing selection and value at low cost, with operational excellence in inventory management and customer service.
HEB decided they could offer video rental service in-store and brought their grocery operations skills to bear on designing a consumer-preferred experience. They tested different value propositions – Alan called their stores laboratories for the video rental experience – and let the consumer decide which were the best. They experimented with inventory (number of movies available), the in-store selection of new releases versus classics, different pricing schemes for different movies, different return dates for different products, and offering snacks alongside movies, among other variations. The result was a differently-tuned business model, one that built a more satisfied and loyal user base and generated more revenue and more profit per store than Blockbuster.
Business models are tools for economic exploration and advancement, so long as there is managerial and organizational flexibility to learn and improve. When Alan Payne went to work for Blockbuster as an executive to run a panel of franchised stores, he transferred the learnings from the HEB video rental business model. He demonstrated that the model could be applied successfully in this new environment, achieving similar levels of growth, profitability and consumer satisfaction and loyalty in his panel of stores.
The issue for Blockbuster was not business model transferability, but the managerial, organizational and decision-making environment into which it was transferred. Blockbuster was a top-down hierarchy in which knowledge flowed one way — from the top of the hierarchy to the stores in the form of commands. When there was learning at the store level about new and better ways to organize, to manage, to operate, to please consumers and to make profit, it was impossible to transmit it upwards and share it. Blockbuster lost money and entered bankruptcy even while a significant number of stores in Alan’s franchised panel were operating profitably and were growing.
Alan eventually raised the money to buy the franchised stores from Blockbuster and operate them independently, which he did successfully and profitably for over 20 years. Blockbuster never was able to learn any of his techniques, nor modify its business model to the more successful version that was in plain sight.
Sometimes, an outsider from the industry comes along to seize the opportunity of the next business model evolution. Alan makes it clear that technological change did not kill Blockbuster or the video rental model. When DVDs were introduced to (eventually) replace video cassettes, Alan’s franchised stores thrived by offering both side-by-side and thus appealing to two sets of consumers in one store.
Netflix was able to anticipate a future in which the digital data stored on DVDs became streaming data downloaded at home by consumers. This was not so much an act of prescience as one of exploration. The next new video-at-home experience began to emerge and Netflix captured much of the consumer value.
There is more value to be captured today because the consumer finds new experiential benefits in streaming, and the accompanying data analytics deliver insights that a consumer-centric firm like Netflix can utilize to further improve the experience. The same opportunity would have been available to Blockbuster, but their lack of business model agility and their failure to build learning channels from the consumer back to the corporation meant that they could not take it.
Additional Resources Built To Fail: The Inside Story of Blockbuster's Inevitable Bust: Mises.org/E4B_116_Book
"Consumer Value vs. Shareholder Value Models" (PDF): Mises.org/E4B_116_PDF
Rothbard called Mises's The Theory of Money and Credit "the best book on money ever written." But Rothbard himself may have written the best money book for lay readers, namely What Has Government Done to Our Money?
Bob Murphy joins the show to discuss this superb and eminently readable tract: a mini-course on money itself, from its origins and uses to its degradation by kings, politicians, and central bankers. In only 119 short pages, Rothbard gives us everything we need to know about this most critical commodity in society—along with the ruinous development of fully fiat (unbacked) state money. Readers also enjoy a brilliant history of money regimes, from early barter to the classical gold standard and the ultimate collapse of the Bretton Woods agreement.
Read this fantastic book for free in HTML format: Mises.org/WHGD
Bob Murphy's series, "Understanding Money Mechanics": Mises.org/MM
Bob Murphy interviews Fed economist David Andolfatto on the devaluation of money, among other topics: Mises.org/BMS175
Hans-Hermann Hoppe reconsiders Hutt's seminal article, "The Yield from Money Held": Mises.org/HoppeHutt
Our guest is Dan Morgan, MD, MS, a physician and epidemiologist in Baltimore, Maryland. He is Associate Professor of Epidemiology and Medicine at the University of Maryland School of Medicine, Chief Hospital Epidemiologist at the Baltimore VAMC, and a fellow at the Center for Disease Dynamics, Economics and Policy (CDDEP). We discuss a recent paper he co-authored about probabilistic diagnostic reasoning among clinicians.
SHOW NOTES Dan Morgan Twitter and Website
Morgan D, et al. Accuracy of practitioners estimate of probability of diagnosis before and after testing. JAMA Internal Medicine. 2021.
Watch the episode on our YouTube channel
Bart Jackson is a CEO, and has studied the job and the people in it via thousands of survey responses and hundreds of interviews and multiple collaborations all over the world over many years. He’s distilled his findings in two books, The Art Of The CEO (Mises.org/E4B_115_Book1) and CEO Of Yourself (Mises.org/E4B_115_Book2), as well as his radio show The Art Of The CEO (Mises.org/E4B_115_Pod).
From all of this data, processed via his empathic diagnosis, Bart takes two perspectives: the job and the person in it.
Key Takeaways The CEO job threatens to take more of one individual’s time than is available. The firm’s value proposition guides the CEO to the right priorities and allocation of personal resources. How do CEOs organize their time among the multiple priorities of the job? The answer is: by embedding the value proposition of the firm into their mind. With a clear view of the customer and of the customer service mission of the firm, every competing priority can be ordered. The CEO can design a framework for every day, week, month and year. They can continuously review their mission and goals and assess their own contribution, and the stamp they are putting on the firm, through the value proposition lens.
The set of priorities importantly includes “time to think,” both on your own and with others.
Leadership style can be adapted to each individual’s strengths. Bart asks, “Are you a king or a prime minister?” Are you the one who inspires your team to demanding feats of achievement, or the one who provides them with the tools to encourage the emergence of their own capacities? Or both? When the CEO is totally devoted to the firm’s mission, this devotion becomes the lens through which others’ efforts will be focused. No team member will withhold effort when the purpose and mission are clear and shared. Leadership style is devotion to mission.
Communication is a key CEO tool, and there are many ways to accomplish great communication. Devotion to the mission requires clear communication of that mission to employees. There is no one way for the CEO to communicate. Bart told the story of one CEO who committed to travel to meet every one of his employees in small and large groups, armed with a whiteboard and a personal presentation. Communication is inclusive — address by name all the people who are going to be involved in the mission, approach all the departments, inventory all the internal strengths available as resources, and describe all the innovations that will open up new ways to leverage those strengths.
CEOs make communication a four-dimensional flow. Communication does not just flow in one direction to the employees. It must travel in two directions, so that the CEO can receive a continuous flow of ideas and information from the frontiers of the company. Bart talked about 4 dimensions: horizontal across the company from the center to the edge and back, through every department; vertical from top management to front line employee and back; then the third dimension of reaching outside the company box to vendors and suppliers and other external knowledgeable sources; and the time dimension of identifying ideas early, evaluating them, giving them a chance to bloom and thrive and the enthusiastic energy to move them along quickly.
CEOs press knowledge into action. In Austrian theory, entrepreneurship is a knowledge process. Bart calls it “pressing knowledge into action”. The information flow can be overwhelming, and the CEO manages it by taking action more than by analyzing. The entrepreneurial instinct to “just do it” is valid for CEOs of any size undertaking. Once there is enough information to support an action, take that action. Then all new information can be channeled into furthering the action, adjusting or correcting, or even terminating it in favor of a new and more preferred action. Knowledge is not for its own sake, it’s for the sake of action.
The CEO is an incessant questioner and interviewer, ascertaining the knowledge that is available for action.
CEOs don’t create a company culture. It emerges. Bart defines culture as how individuals feel when they are at work for the firm, and how they behave as a consequence. CEOs can try to create an atmosphere in which more desired feelings and behavior are nurtured, but they can’t control or guarantee it.
The best tool for the creation of such an atmosphere is concern for each individual. Respect is not enough. Genuine concern will motivate people to put their shoulder to the wheel at all times.
Hiring becomes a core CEO skill. Assembling the best team is a most difficult challenge. It’s hard to hire the right individual for every position, but hiring is a skill that a CEO can actively cultivate in order to develop greater mastery over time. CEOs train themselves to hire well.
One key to success, according to Bart, is not to fill a slot but to look for a person. Identify character, look for intellectual curiosity, look for people of high merit who can potentially fill many slots on the organization chart. Utilize the pursuit of diversity to investigate a broader pool of human resources from which to draw.
Great CEOs build their personal brand in order to achieve company goals. They make individuality the whole point. Bart approaches the process of building a personal brand in the same way as he would approach building a product or service or corporate brand. Start with the customer. A corporate brand, he says, is built in the production and service departments, not in the PR and marketing departments.
For personal branding, therefore, look to the resources you have for production. What’s in your personal “warehouse”? Great CEOs inventory their personal strengths and interests. They listen to what people praise them for and thank them for and find their strengths in that data.
Then they examine their own principles. What do they truly believe in? Bart recommends we write down our own inventory of strengths and interests and principles
In the end, he says, individuality is the whole point. Each of us is a marvelous person. We’ve got to be able to see that. Being the CEO of yourself opens up the pathway to doing the best possible job of CEO of your firm.
Additional Resources “CEO: The Position and the Person” (PDF): Mises.org/E4B_115_PDF
The Art Of The CEO: Mises.org/E4B_115_Book1
CEO Of Yourself: Mises.org/E4B_115_Book2
The Art Of The CEO Radio: Mises.org/E4B_115_Pod
Stephan Livera hosts a popular podcast on Bitcoin and Austrian economics. He recently had Bob on to discuss, appropriately enough, the economics of Bitcoin from an Austrian perspective.
Mentioned in the Episode and Other Links of Interest: Stephan Livera’s YouTube pageBob and Silas Barta’s guide to BitcoinBMS ep. 191 clarifying the debate over Bitcoin For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Politics degrades our lives in innumerable ways, from personal relationships to work to places of worship. Even sports and movies now seem to have become deeply politicized. The political class and political system in America appear intent on creating division and hatred rather than cooperation. The two political tribes in America—red and blue—are divided on everything: abortion, guns, immigration, Trump, and now Covid. Is there any way to reclaim some semblance of a truce between these warring nations?
Our guest Ross Benes has written an engrossing memoir of his experiences in both worlds, from small town life in his ultra-red Nebraska hometown to his writing career in ultra-blue Brooklyn. It's a fascinating look at how and why we have allowed politicians to alienate us, and a hopeful call for a less political America.
Find Rural Rebellion: How Nebraska Became a Republican Stronghold at Mises.org/RuralBook
Scott Horton comes back on the show to discuss his new book, Enough Already: Time to End the War on Terrorism. He and Bob largely focus on Osama Bin Laden's strategy for drawing the U.S. into unwinnable wars. They also discuss the role of Israel in U.S. foreign policy.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewScott’s new book Enough Already: Time to End the War on TerrorismThe archive of interviews at The Scott Horton ShowThe homepage of the Libertarian Institute For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Veteran venture capital investor Pete Farner distills experience from four decades of entrepreneurship and investing on the Economics For Business Podcast #114. Passion, perseverance and intelligence are the three critical attributes he looks for in investable entrepreneurs, an insight drawn from a broad survey that we summarize here.
Key Takeaways 1. The entrepreneurial mindset develops in youth. It is averse to the restrictions experienced on the subordinate levels of the corporate hierarchy. In an early experience that several E4B podcast guests have shared, Pete grew up in an entrepreneurial household and absorbed the approach. He created several independent job opportunities in high school and college, including house painting and taxi driving and trading classic cars. When he joined a corporation, he quickly understood that a life in the hierarchy requires you to do as exactly as ordered by superiors, an experience incompatible with the entrepreneurial mindset.
In that brief corporate experience, Pete was able to observe that even the highest levels of the executive ladder are occupied by mere humans, with all their quirks and flaws, and not by superhumans. This observation can translate into the self-confidence of being able to tackle any business undertaking oneself.
- Taking the entrepreneurial route is not risk-taking. In fact it’s the opposite. Pete suggested that entrepreneurs are not risk-takers. They are, in fact, risk-averse. They typically do not take great personal risk or financial risk. If their business does not achieve the success they imagined, they seldom “lose all”, and their financial risk is often shared with others or syndicated in some way.
Entrepreneurs deal with business uncertainty. They embrace it. They are comfortable with what Pete called the ambiguity of entrepreneurship. That’s not risk.
- Develop a knowledge space from which to begin your entrepreneurial journey. Pete’s corporate experience was in the beer industry. That knowledge space included the use of neon signs for advertising and display purposes. He was also able to observe the use of etched mirrors in bars along with other forms of decoration and display such as sports memorabilia.
He launched his first entrepreneurial venture with a technological improvement on the conventional (and also expensive and fragile) neon sign. He merged this venture with a mirror and sports memorabilia company to give it greater breadth and market penetration. His first investor was a beer company.
We all curate a knowledge space as we go through life, and that space can provide the foundation for entrepreneurial initiative.
- Entrepreneurial success lies on a time-and-place continuum. What are the determinants of success for an entrepreneurial business? For a venture capitalist who is financing the business, the appropriate metric is a sale to an acquirer, who validates the worth of the entrepreneurial initiative. Surveying his experience of such acquisitions, Pete emphasized the relevance of time and place: being in the right place at the right time. Acquirers are ready for their own reasons at their own time. He discussed the sale of Minute Clinic, a walk-in in-store clinic staffed by nurse practitioners, to the CVS drug store chain. Minute Clinics were under-developed and unprofitable on their own, but a great marketing device to drive traffic to CVS’s highly profitable pharmacies.
On the other hand, Webvan, one of the most spectacular venture-financed startup bankruptcies, was ahead of its time in 2001, but could have been a standout success in 2021.
Business brilliance has a role to play in entrepreneurial success, but so do luck and timing.
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Entrepreneurs widen and deepen their own knowledge space by making far and wide knowledge connections. Entrepreneurship is a knowledge process. One entrepreneur, one team, one firm can have only partial knowledge. There might be a surrounding network of investors and partners to supplement the available knowledge. Successful entrepreneurs reach further, making connections in as many directions and to as many knowledge sources as possible. Syndicated investments with a wide range of partners can yield a lot of knowledge sources.
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Specialization must be balanced with a broad-based understanding of business. Differentiation can come from a specialized body of knowledge that the entrepreneur and partners bring to bear. In addition to this deep specialization, there must be a broad interest in starting, running, growing and managing a business. Entrepreneurs are T-shaped people — able to combine their specialist knowledge with boundary-crossing interest and capabilities in everything from accounting to HR to marketing, and especially the development of motivational purpose.
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Personal qualities — and especially integrity — play an important role in success. In Pete’s summary of success factors, “People are the real key”. As an investor, given the choice between a great business plan, a great idea, and a great person, “I’d choose the great person”. Integrity is a core attribute: the strength to go through growing pains, pivots, disappointments and adverse situations, and maintain belief.
Certainly these personal qualities can be more important to success than what Pete called “pedigree” — the degree from the right school, or the resume with the right corporations, or the well-credentialed board of directors.
- Different personal qualities are appropriate for different stages of the entrepreneurial journey. Pete observed that it is rare that the same individual who launches a business or manages it in its earliest formative stages is the same one to manage it to and through maturity. From start up to 8- or 9-figure revenues is a difficult transition for most people to make. It requires both decentralization of decision making and rigorous, detailed and disciplined operational management that are not always the strengths of originating entrepreneurs.
Nevertheless, the founder’s continued presence — in a significant role, not just a symbolic one — is a very important factor in the maintenance of mission and purpose for a young firm.
- Revenue is king, especially when efficiently generated. Revenue is the most important indicator of marketplace acceptance for an entrepreneurial service — proof that customers will buy what the business is selling. It’s a harbinger for the future: if there is a revenue stream, it can be grown.
Revenue — assuming cash flow is well managed — is the guarantor against the worst sin of entrepreneurial businesses, which is running out of cash.
Austrians know that the value of capital is the NPV of the flow of customer revenue it generates. Venture capitalists respect capital efficiency — a high ratio of revenue to capital.
- Empathic customer understanding underpins revenue generation and capital efficiency. It is the deep understanding of the customer and market that ultimately is the key to revenue generation. Pete talked about the medical device market where a misunderstanding of the incentives for surgeons — that they might not adopt a superior-performing device if they don’t make as much money using it as they do with the incumbent device — as an example of the battles that have to be fought and won for market acceptance, and might be lost with poor customer understanding.
Revenue generation is the primary indicator of customer understanding at work.
Additional Resource "10 Attributes of Investable Entrepreneurs and Businesses" (PDF): Mises.org/E4B_114_PDF
Bob elaborates on two ideas he had when he wrote his novel "Minerva" in grad school.
Mentioned in the Episode and Other Links of Interest: Bob’s archives at Strike the Root, which contain the serialized version of Bob’s novel, Minerva. (Note that the HTML formatting is incorrect for some characters, such as the em-dash turning up as an apostrophe.) A listener compiled a PDF version of Minerva hereBob’s articles on the social function of stock speculators, futures markets, and call and put optionsTo learn more about Whole Life insurance policies, see the Foundations of IBC video series, particularly Module 3 For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Ryan McMaken joins the show for a lengthy discussion of Rothbard's brief but devastating essay Anatomy of the State. This book demands that readers understand the stark nature of government, without fairy tales or niceties. It applies the same lens to public and private criminality. It challenges every myth surrounding politics and statecraft, ranging from "the government is us" to judicial review. It explains how the state maintains legitimacy, how it expands, how it deals with other states, and ultimately how it works to prevent domestic threats to its power. And it still serves as the baseline analysis for understanding state power, nearly 50 years after Rothbard helped create a burgeoning anarcho-capitalist movement. Anatomy of the State is a book that everyone, from anarchist to statist, needs to read and consider.
Read Rothbard's Anatomy of the State at Mises.org/AnatomyBook
Jeff Deist comments on the latest Democrat agenda of increasing the number of judges in SCOTUS.
Does the expansion bill stand any chance in the house? How can conservatives be forward-looking instead of being reactionary all the time? Should we expect a scandal involving Ron DeSantis? What can we learn from Ludwig von Mises about the bureaucratic and working classes in our society?
Find more from David Gornoski on A Neighbor's Choice.
Our guest is Shawn Whatley, a physician in Canada who is the author of the recently released book When Politics Comes Before Patients: Why and How Canadian Medicare Is Failing. Dr. Whatley is past-president of the Ontario Medical Association and is a senior fellow at the MacDonald-Laurier Institute for Public Policy in Toronto.
SHOW NOTES Shawn Whatley, MD. Blog and Twitter
When Politics Comes Before Patients: Why Canadian Medicare Is Failing
No More Lethal Waits: 10 Steps to Transform Canada’s Emergency Departments
Dr. Whatley's previous appearance on the show: Ep. 40 Practicing Medicine in Canada: Promises and Realities
Watch the episode on our YouTube channel
Walter Block is a giant in the libertarian movement. He explains how he discovered this philosophy and why it will be difficult to advance liberty.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewWalter’s (co-authored) 2019 article on sociobiology and libertyWalter’s book Defending the Undefendable For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
This week on the Economics For Business Podcast we were gifted the opportunity of reviewing and assessing a completed entrepreneurial journey, courtesy of Jacqui Boland, founder, CEO and now alumna of Red Tricycle, following the acquisition of the company by the corporate owner of tinybeans, a family photo sharing and journaling app.
Red Tricycle is a brand — "a lifestyle brand that fuels the parenting universe with daily inspiration for family fun." In the "Economics For Business Value Proposition Template," the Red Tricycle proposition would be:
FOR: Fun Moms
WHO: Search for and utilize ideas for family activities for parents and children to enjoy together.
VALUE PROMISE: A unique daily source of ideas and inspiration for family fun
VALUE RATIONALE: Every day, Red Tricycle finds and presents all the best local and in-home family fun opportunities and makes them easy for Moms to research, evaluate and act.
BENEFIT > COST: In one daily web visit, Moms have easy access to a unique curation of new ideas and inspirations, simply formatted, and requiring a minimum of their precious time.
Jacqui was generous in helping us map her entrepreneurial journey to the stages of the Economics For Business GPS.
Key Takeaways And Actionable Insights. Imagination The pre-design phase in which entrepreneurs develop the imaginary construct of their business idea.
Jacqui was a new mom in a new and unfamiliar city. She wanted to identify all the opportunities for fun with her family. She became an avid online searcher. A few conversations with some other moms revealed that many moms are searchers — with intensity and determination and a commitment to find and evaluate all the relevant information in their field of search. The idea of an online one-stop location for information about local family-friendly fun activities was born.
A useful tool for the Imagination phase of entrepreneurship is "Entrepreneurial Empathy": Mises.org/E4B_113_PDF3
Design The phase where a validated imagination is transformed into a more formal business model.
Jacqui capitalized on her existing knowledge field. She knew magazine publishing and the power of content, and how to source it. She knew the advertising revenue model for magazines. She was able to design a crisp business model of content creation, content presentation, consumer engagement, and attractiveness for local and eventually national advertisers.
One of the tools in the Design tool set is the "Means-Ends Chain," helping entrepreneurs to align their business design with customer values: Mises.org/E4E_01_PDF.
Assembly The phase in which design is operationalized by selecting and combining assets: people, technology, content, operating processes.
Assembly for Red Tricycle began with people: content producers, editors, salespeople. Jacqui found investors, initially angel investors, then angel groups, and, later in the business’s evolution, institutional venture capital. In turn investors and investor groups like 500 Startups were very useful in providing connections and recommendations for technology and software resources. Comparisons between different operating models that the investor groups were able to provide were useful guidance in making resource selections.
Consult our "Austrian Capital Theory" tool for capital assembly of resources: Mises.org/E4E_19_PDF.
Marketing The phase in which the designed and assembled entrepreneurial offering is presented to the market for consumer consideration.
Red Tricycle adopted a city market-by-market rollout strategy, starting in Seattle, proceeding to San Francisco, then systematically adding more cities. The killer app for market introduction was “Mom Word Of Mouth”. Moms have friends in other cities, and travel between cities, and are excited to share family fun ideas with others. The best sharers were subscribers to the Red Tricycle newsletter, so the brand worked hard to build up a subscriber list.
Red Tricycle KPIs were traffic, subscribers, and revenue. As a result of a system of creating and testing content, Red Tricycle could seed new markets with say 20 or 30 stories that drove good SEO traffic. And then the job was to convert that traffic to subscribers to the newsletter.
Building brand uniqueness is fundamental for the Marketing Phase. Use our "Brand Uniqueness Blueprint": Mises.org/E4E_30_PDF.
Customer Experience The phase of the value learning process in which customers try the offering, experience its benefits, and assess the subjective value.
Red Tricycle designed a very specific customer experience, which Jacqui described as: "Quick, get an idea and inspiration to spend time with your kids, and then go offline and do it, and then come back two days later and do it over and over again." The model was distinctive in not asking for too much time (“the infinite scroll”). Red Tricycle helped Moms focus on the lighter side of parenting and having fun with their kids.
Social media came into play as an aggregator of subjective value anecdotes. Moms would share a picture of themselves at the zoo and use Red Tricycle’s recommended hashtag, "Best weekend ever." And not just everyday moms, but even celebrity moms, like Randi Zuckerberg, Pink, Ivanka Trump, sharing that they found a great idea for a campsite or a restaurant. These were subjective value data points.
Facilitate great customer experiences with our VUCA tool: Mises.org/E4E_41_PDF.
Management and Growth The phase where the business model is scaled and the marketing and customer experience reach is expanded, with continuous innovation accelerating growth.
The major growth pivots for Red Tricycle were the transition from local to national advertisers, and hiring and assembling and empowering the new team members best suited to lead the way in the new business environment that this entailed.
The goal for the management and growth phase was to roll out multiple local markets, and build a strong foundation of local advertising revenue until Red Tricycle had enough scale to interest national advertisers. The transition was a 5 year process. As Jacqui described it: "We put a plan in place and then we adjusted and adjusted and adjusted."
A core element of the transition management is hiring. Skilled national advertiser salespeople are expensive, and sometimes it might take a year of that salary before a new salesperson can close a big national deal. There's a lot of foundational work that needs to be done. Scaling the business was a delicate process. A fully staffed company would have a sales team across the U.S. in every market, but if you can't afford that, you have to stretch and think, "Can this person sell local and national? Could this person cover Chicago, and L.A.?" And then once you start to get a little bit bigger, and you can hire an L.A. staff, what happens to that Chicago rep?" It's a constant adjustment.
How does growth feel? “You're always looking for the next milestone. And you have about a minute after you hit a goal or a milestone to celebrate, and then you run into the next quarter and you have another goal that's even higher. So it's a constant stretch.”
"Upsizing a Customer Need" is a useful tool for the Management and Growth Phase: Mises.org/E4E_47_PDF2.
Disposition When the entrepreneur decides to sell the business, merge it into a larger business and relinquish the founder / owner role, or to turn it over to the next generation.
Selling a business is just as much a marketing task as establishing it and growing it. And that means seeing the business through the eyes of an acquirer — empathic diagnosis of their needs, their preferences, their goals and desires, their constraints.
Jacqui had made the economic calculation that the best path forward was not to raise additional venture capital for continued high growth, but to demonstrate solid and sustainable profitability and look for either a strategic partner or an acquisition partner. She didn’t use a banker (whose process she compared to a dating app) but conducted her own search for a firm that would recognize a complementary asset that could be a marketing engine for them. She found a partner in an adjacent field (family photo sharing) that was strong in technology and would benefit from Red Tricycle’s content creation and sales expertise. The deal was made quite quickly.
Additional Resources Map of Jacqui Boland’s Entrepreneurial Journey (PDF): Mises.org/E4B_113_PDF1
eGPS Handbook (PDF): Mises.org/E4B_113_PDF2
Using a recent Dave Smith interview of Michael Malice as a springboard, Bob elaborates his understanding of anarcho-capitalist principles to the thorny issues of vaccine passports, court rulings, and desegregation of the Old South.
Mentioned in the Episode and Other Links of Interest: Part of the Problem episode from February 20, 2021, “They Don’t Care About You” featuring Michael MaliceBob’s book The Politically Incorrect Guide to Capitalism (featuring his analysis of racism in business)Bob Murphy Show ep. 176, “A Framework for Analyzing Big Tech Censorship.”Bob’s essay against mandatory vaccinationsBob’s Mises U talk, “The Market for Security” (explaining private law enforcement)Khan Academy page on the Rosa Parks bus boycottBob’s critique of an AIER article on private mask mandates
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Bob helps to clarify the Bitcoin debate. On the one hand, the “no intrinsic value” skeptics are ignoring how Austrians deal with gold, while on the other hand, the “HODL forever” enthusiasts would never allow Bitcoin to become a money.
Mentioned in the Episode and Other Links of Interest: Bob (and Silas Barta’s) guide to BitcoinBob’s book Contra Krugman For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Innovative entrepreneurship is the segment of the entrepreneurial economy that is especially highly focused on innovation via new products and services. Within innovative entrepreneurship there is an even brighter spotlight on NTBF — new technology-based firms that are cutting edge, scalable, and fast-growing. They represent only one form of entrepreneurship, but one that is very interesting. Indeed, they attract the interest of government and government policy-makers. A recent special issue of the Strategic Entrepreneurship Journal, a top journal for which our friend Peter Klein sits on the editorial board, examined the impact of policy on entrepreneurship itself and on the institutional and social challenges of these policy interventions (see Mises.org/E4B_112_SEJ).
Key Takeaways Government policy-makers take an interest in innovative entrepreneurship when they are trying to grab some credit for economic growth and improved goods and services. Both micro policies and macro policies aim at stimulating successful entrepreneurial and innovative outcomes. Policies to encourage the growth of green energy supplies, for example, are a micro policy; they apply only to firms engaged in particular activities. Changing bankruptcy laws (so that the reallocation of assets can proceed faster and more smoothly) or an educational initiative to support entrepreneurship teaching in school would be classified as macro policies: trying to create a new set of conditions that apply to all firms, all entrepreneurs, all technologies.
Government doing nothing to intervene is another — highly desirable — kind of macro policy: maintaining a social order in which entrepreneurs can operate with the least uncertainty about the future regulatory environment.
At minimum, government interventions in favor of entrepreneurship fail to properly consider trade-offs. Analysis of policy starts from trade-offs. Every policy has trade-offs. Economists are the ones to point this out. Politicians just want one button to push to achieve one specific goal. All that is needed, they presume, is a piece of legislation that provides a tax break or a subsidy to the firms they want to succeed. But there are always trade offs. Directing funds or capital to one group of firms diverts it from another group. The consequences are unknown and can’t be known. What if the current crop of battery technologies, for example, do not include the one that will emerge as a more efficient alternative in the future? By subsidizing today’s technology do we constrain the emergence of a better one in the future?
Evidence suggests that neither macro policies nor micro policies are successful or effective. One example of ineffective micro policy is intellectual property protection for selected technologies or firms. One of the papers in the Strategic Entrepreneurship Journal special edition looks at fast tracking patents for particular technology areas. One of the outcomes identified is the diversion of resources to overinvestment in legal protections and excess litigation with all its attendant economic costs.
Regulatory systems are another form of macro policy. An example is the number of days it takes to get the permits to open a new business. Reducing this would be a macro policy that could be effective. Peter Klein made the comparison between Singapore vs India on this variable, pointing out the correlation with greater speed of innovation in the former, encouraging new and unintended applications of technology.
But often, regulatory permissions favor well-funded and well-connected firms over the young and agile, and certification signals may not be completely accurate about underlying quality.
Micro interventions are targeted to boost outcomes by helping a particular firm or technology. Bureaucrats claim they can make better decisions than the market about resource allocation. They identify so-called “market failures” to be corrected (like fossil fuels causing pollution), and market decisions that they believe should be over-ridden. They don’t want to let consumers buy the gas-powered SUVs they prefer.
There’s no reason to believe these policy makers will get their decisions right. They certainly don’t have the incentives to do so, since they are not governed by profit and loss. They can easily pick the wrong projects.
Some interventions may be dismissed as irrelevant, but they may still produce distortions. The papers in the Strategic Entrepreneurship Journal special edition point out that many of the cash payments / subsidies / tax breaks are given to firms that would have launched any way and been successful anyway. One paper (not in this collection, but cited by Professor Klein) found that the major effect of research grants in STEM is to increase the salaries of scientists rather than encourage scientific experiments that wouldn’t otherwise take place. The result is not better science, but a better life for scientists (that is, those who know how to win grants).
The private sector can stimulate basic science and government subsidies are not needed. For example, pharma companies encourage basic research at private companies via the incentives they provide via M&A strategy — an exit plan from the lab for basic science. In general, firms trying to develop new products and services for the market do a lot of the scientific discovery in the early stages of production. The government is not needed.
When government does provide venture capital (more frequently in Europe and Southeast Asia than in the US), the researchers reporting in this journal edition identified the receipt of such funds as mostly a marketing signal, enabling firms to enroll bigger partners, or get a prestigious underwriter for their IPO as a consequence of the positive imagery derived from being a subsidy winner.
Non-policy is a more promising and potentially more effective approach to encouraging entrepreneurship. Culture is an example of non-policy. A culture that encourages experimentation and creativity, and assigns a low level of stigma to boldness whatever the result, is likely to attract more investment and accumulate more capital than a culture of more traditional norms favoring continuity. Cultural evolution like this is less likely to occur in a system where the state directs investment and chooses industries and sectors for support. One outcome is a negative view of business when business success is determined by getting close to government: in those cases, individuals tend to think badly of all business, including entrepreneurial businesses.
The verdict: maintain a healthy skepticism about the case for interventions to support entrepreneurship. Overall, the evidence is not in favor of either macro-interventions or micro-interventions to stimulate innovative entrepreneurship. How should the individual entrepreneur think? It may be an ethical issue: whether or not to accept government subsidies or support. Nevertheless, the entrepreneur must make the best use of available knowledge, which includes knowledge of the regulatory regime. One of the papers in the collection finds that entrepreneurial businesses can make better connections with the right kinds of capital and partners as a result of government involvement. At some level, this kind of knowledge is a defensive mechanism for the real world.
And at least the regulators and policy makers are recognizing entrepreneurship as a positive force for growth and for good.
Additional Resources Read the management summary of the Strategic Entrepreneurship Journal special edition (PDF): Mises.org/E4B_112_SEJ
"Effects of Institutions and Policies on Entrepreneurship" (PDF): Mises.org/E4B_112_PDF