On the Economics For Business podcast over the recent weeks, we’ve explored entrepreneurial solutions to wicked problems in comparison to the corporatist and/or statist solutions that customers and consumers often have to deal with. For example, Murray Sabrin and Christopher Habig both talked about entrepreneurial solutions to the current medical care crisis, and Joe Matarese specifically compared his private sector solutions in the same field to the bureaucratic reflexes of CMS (the Centers For Medicare and Medicare Services, i.e. the statist solution). We’ve covered entrepreneurial solutions in money (bitcoin and cryptocurrency), privacy (blockchain), and corporate organization (Valve and the boss-less approach to organization).
Why are entrepreneurial solutions always superior? Here are 4 reasons.
Entrepreneurial solutions are the most human.
Entrepreneurs design experiences that people seek and enjoy. They put the individual human experience first. Amazon, to its credit, calls this “working backwards”: in designing solutions, start from the desired customer experience. This is the essence of the entrepreneurial solution, which is the design and delivery of desired customer experiences. To get there, entrepreneurs understand the current customer experience, and what they find missing or dissatisfying or not quite right. Customers probably can’t design the new solution for you, but they provide all the experiential assessment data to inform the design of something better. And, to continue with the Amazon approach, the design process of working backwards is fueled by customer obsession – the undiluted commitment to put the customer first, understand their needs and wants, and make their lives better by delivering the experience they seek, and to do so with higher quality, greater speed, superior convenience, and, when applicable and available, lower prices.
Amazon demonstrates that entrepreneurial solutions can emerge from large companies if their internal teams and resources are appropriately arranged and motivated.
Contrast this with a statist or corporatist solution, where the customer is not placed first. Take home energy consumption as an example. A customer may wish for the experience of being able to switch providers whenever they feel like it, just as they can with online e-commerce providers. They may wish to switch between electricity and gas, or, within electricity sources, between solar and wind and natural gas and coal, based on price and availability, and preference. They may want a price and monthly cost optimization tool they can use to manage home energy consumption and expenditures, perhaps to allocate more dollars this week to entertainment and fewer to home heating (or cooling) and lighting. Could a regulated utility design or provide this experience? No. Could an entrepreneur design it and, in a free market, deliver it. Probably. Think Elon Musk.
Entrepreneurs are best at understanding and generating value.
The goal of the customer-first solution design process is for the customer to experience value. What is that? The answer isn’t all that straightforward, and entrepreneurs think about it deeply in striving to get it right. There are two elements of value that entrepreneurs understand that many big businesses don’t, and certainly that bureaucrats can’t.
First, value is a feeling. It’s in the customer’s mind. An experience is valuable if they feel it’s valuable after (or sometimes during) consumption of the good or service that produces it. In Austrian economics, this is referred to as subjective value. It emerges for customers from interactions within complex social systems – far more complex than one company or brand serving one customer in one exchange. Customers experience value uncertainty – will they experience the value they desire and expect – and perceptive empathic entrepreneurs continuously monitor, assess, and try to relieve the feelings of uncertainty.
Second, customers experience value within a system. Think of the household for example. It’s a system with the purpose of nurturing and protecting the family, and it includes everything from health and cleanliness, to nutrition, to clothing and fashion, and decor and comfort, and education and entertainment, and much more. The homemaker operates and manages this system and keeps it in balance. The entrepreneur knows that, to contribute to the system, the right stance is to humbly fit in. To be part of a value network that meshes with the home-as-a-system, and helps it to run better. Humble fitting in is a role that the entrepreneur typically plays far better than the global mega-corporation.
Listening, learning, and adapting.
Entrepreneurs understand, and are sympathetic to and supportive of, the customer’s continuously changing preferences. For the entrepreneur, the business environment is in constant flux. Entrepreneurs embrace change, and the speed of change. They are comfortable in a world of C-UVA: complexity as the norm, characterized by uncertainty, volatility and ambiguity. As a result of embracing change, they can be more responsive to customers.
How do adaptive entrepreneurs operate? First, they listen, actively establishing listening posts wherever they can, whether it’s consumer comments and ratings, research, or just random walking about in the same places the customer goes, and asking questions and joining conversations. Rich qualitative data, the kind that comes from one conversation with one customer, is far more valuable than a survey of 1,000 mechanized responses.
Via listening and monitoring changes in customer behavior (e.g. when they buy less, or buy more, or switch to a competitor, or leave the category entirely), the entrepreneur is able to learn. Learning is changing the mental model, the lens through which the entrepreneur sees the relationship with the customer. Changing mental models, recognizing that the existing one is not the best or not right or no longer appropriate and fit for purpose, is emotionally difficult for some. It can feel like defeat or an admission of error. Not for entrepreneurs. Learning and adapting are their best tools for keeping up with and succeeding in a changing market. Entrepreneurs love learning and love to take their adapted and adjusted solution, which proudly exhibits the mark of listening and learning, back to market to regain approval.
What’s the best solution for all these interacting customers with continuously changing preferences embedded in swirling systems of change and adaptation? No-one knows and no-one possibly can know. The future in a C-UVA system of constant flux is perfectly unknowable. What will customers want tomorrow or next week or next year? They certainly don’t know, and nor can entrepreneurs, even the most empathic and prescient of them. How do entrepreneurs cope? They let emergence happen. Emergence is that property of complex systems whereby new popular and effective solutions happen without a tight design process to guide them. In emergence, entrepreneurs don’t know what’s going to work or fail, but they launch experiments to see what happens and adaptively respond to the results data, whatever they may be.
There’s an example in the book Working Backwards by Colin Bryar and Bill Carr, two ex-Amazon executives who describe the inner workings of that firm. AWS (Amazon Web Services) became a huge and very profitable business, but not by design. The authors tell a story about launching a new feature at the very beginning of AWS’s business life. Instead of providing merchants with a templated display design for their online offerings, AWS offered the display information in XML code. The merchants would have to write some code of their own to use it. How would they react? They might hate the new feature, or not have the resources to utilize it. They might be resentful that Amazon took something away from them. Amazon didn’t know what the response would be, but they ran the experiment anyway. It was a huge success. Customers proudly displayed the new pages they had created with this new web service. The reaction encouraged AWS to roll out more features and a richer customer experience, and they benefited enormously from the creativity and feature suggestions from their enthusiastic customers. AWS emerged and went from success to success.
The salient point regarding emergence of entrepreneurial solutions is the role of the customer. They’ll choose which experimental features they prefer, they’ll find new uses for them, they’ll request better and faster versions, they’ll tell their friends and colleagues, they’ll form user co-operatives and share best practices. Emergence is co-created. Naturally, and automatically, the emergent entrepreneurial solution is loved and valued.