 Your business needs a business model. It's your recipe to make profit. Traditional business models view your firm as coordinating a set of activities related to the delivery of value to customers. Economics for Business utilizes the principles of Austrian economics. We'll explain what that is elsewhere. And establishes the very different idea that value is created by customers and that firms are facilitating agents, organized by the customers. They're not delivery agents. This changes everything, opening up new business model design imperatives. We call it the Austrian business model because it's based on Austrian economics. But since the word Austrian has ambiguous connotations for many people, let's use the term value-centric business model. There are four major parts of the value-centric business model. The first is understanding what value is and then defining it for your target customer group. In our model, value is an experience that the customer enjoys, a feeling that they evaluate as valuable. We call it subjective value. It's hard to measure. You can't put a number on it or measure it in a survey. And it's not always easy to understand. Why does one customer feel that the experience of a Tesla Model S is valuable? And another swears the Porsche Panamera is preferable. As an entrepreneur, you need to develop a detailed, in-depth understanding of the subjective value preferences of your target customers as a first step. You must be able to design a new value proposition for them and have a good sense of how they will learn about the value that you can facilitate for them. This is an understanding phase for you. Once you have this understanding, you can design for value. The customer will be the one who assesses whether or not you have done so. You'll start with a value hypothesis and complete the stage when you've assembled the best set of resources from which the customer can experience the value that you propose. The customer has input all the way through the design phase and you're in the mode of listening, responding, personalizing and co-designing with the customer, the final assembly. You accept the role that the customer is the organizer of the process. The validation of the business model lies in exchange. The customer buys what you are selling, demonstrates willingness to pay a price that's higher than the cost you have chosen, assesses the experience after the event as valuable and at least as valuable as you promised and he or she anticipated. The customer demonstrates a commitment to buy again. Repeat, subscribe, upgrade, add features, give you high ratings, recommend and share, exhibit pride in his or her association with you. You make a margin, which you can reinvest in your business or take as profit. The customer remains in control, determining the price they will pay, the value they experience and the assessment and consequences of that experience. You observe the exchange and you try to understand. The fourth stage is continuous and recursive. The customer is always changing, the market's always changing, competition is continuously trying to improve on what you are offering. Our model is dynamic, never static. It's continuous response to continuous feedback properly interpreted. If you don't enhance your value proposition, it will erode. Practice value dynamics. In the first phase of the model, subjective value understanding, there are nine sub-stages. One, your starting point is that value, the thing you are trying to create or conjure up or facilitate is a feeling inside the customer's mind. Therefore, it's subjective. You don't determine what it is, your customer does. It's personal to them and their individual context and your role is observer and interpreter. Two, therefore you start with people. For whom are you facilitating this feeling of value? What is their personal value scale? What's more important to them? What's less important? What can you observe that sheds light on this question? What behaviors do they exhibit that will help you understand them and their values? You need to develop a value insight. Three, any value you propose to a customer cannot be evaluated as a singularity in their mind. They're involved in a value system. Let's say you propose a value from food. That might be embedded in a value system of personal health and nutrition or a value system of family. Those value systems have a highest value, such as achieving the very best life for the family. Be a systems thinker and be sure to identify the highest value your customers are striving for. Four, next it is imperative to identify as closely as possible their feelings about their current value experience. This is where your empathy is exercised. You must understand and empathize with the ends the customer is pursuing, the means they currently choose to achieve those ends and their subjective assessment of how well their choice of means aligns with their chosen end. You'll find a means end chain tool on economics for business to help you here. Five, if the customer has the experience that the means they've chosen are not achieving the ends they're aiming for, we call that dissatisfaction. Customer dissatisfaction is your unlimited entrepreneurial resource, it's everywhere. Because customers always want things to be better than they are now. They may not be able to articulate exactly how, but there are plenty of ways for you to discover the nature of customer dissatisfaction. There are tools on economics for business to help you. Six, once you can identify dissatisfaction, you're in a position to define your value insight. What is the new and better value customers want and what is their motivation to change their behavior? Abandoning their current means or solution and moving to yours. How important is it to them relative to what? What's the scale? Seven, now you are ready to compose a value proposition. It's a promise of an improved feeling of value with the support of a credible approach to delivering that feeling of value at a price that's aligned, i.e. the customer feels that they will get more value than any alternative use of the dollars they're gonna use for the purchase price. Eight, two more elements you need to know. One is what the economists call opportunity cost. If customers take your value proposition, what are they giving up? It could be a competitors alternative solution or it could be the chance to save and not buy or it could be to ignore your proposition and do nothing. Be empathically aware of the customer's opportunity cost. Nine, and be aware that the customer has a value learning process. First, they assess whether there is any potential value in your proposition at all. Then they mentally calculate the relative value to other uses of their dollars. Then they decide whether to buy or not. Then they experience the value and then they assess it after the event and compare it with their expectations. We have tools for you throughout this learning process. Having designed the value proposition, the next stage of the model is to assemble the resources that will enable you and your firm to present that value proposition to the customer in the form of a purchasable good or service. One, start with the hypothesis of what experience you can facilitate for the customer that will motivate them to change their behavior. You'll derive it from the value insight you created in the design phase. There are several tools on the E4B platform for insights generation. Two, then think through the learning process the customer will go through before making the change. There's a full suite of value learning tools. Essentially your proposition must be sufficient for the customer to anticipate some value, to assess that value as higher than some alternative, to become willing to make an exchange of dollars with you, to activate the experience and assess it after the fact is better or worse than or the same as anticipated. Make sure you think this process through from end to end and make it viable. Three, if you're confident of your hypothesis, begin the design process, features, attributes and delivery system. Keep a singular focus on the customer experience. Four, the next stage is to assemble and orchestrate the resources to bring the features, attributes and delivery system to the market. Is that a firm or a partnership or an alliance or a supply chain? How do you want to deliver? Five, you'll need capital because it takes time to progress from design to production and implementation. Who will finance this capital gap? At what cost to you? What is the best form of capital for your project? Our E4B platform will help you. Six, once assembly is complete, work your way back from the customer experience. How is the experience delivered? What is the interface? How does the customer feel at the point of delivery? Are your operations optimally designed for this delivery? Is your organization 100% aligned with customer experience delivery? Where is it deficient? How can you fix that deficiency? Seven, now you are ready to design and implement communications, which are an integral part of the product or service you're delivering, not an add-on. Eight, how will you facilitate the customer experience? Promotion, sampling, each step of the learning process. Nine, once you enter the market with the offering, value goes wild. It becomes subjective again. You don't control it. So make sure you put in place the tools to observe it in the wild. Access the customer's context. What are they thinking? Don't presuppose, just collect data. Can you be there? Can someone you trust be there? Can a bot be there? Make sure you're there to collect the data. Phase three in the Austrian business model is the ultimate market test. Does the customer perceive sufficient value in your proposition to make the exchange, paying dollars that they could utilize in many alternative ways, in order to secure the experience you're promising? One, the customer's willingness to pay is a core element of subjectivity. The value decision is entirely theirs. They're weighing a complex algorithm of perceived and predicted benefit against the cost of the experience, which includes both the dollar price and all other costs, transaction costs, that's any difficulty in making the exchange, and opportunity cost. What else could they have done with the money, time, and effort required to exchange with you? Make sure you know the algorithm and the variables that each customer is weighing. Two, how do you do that? The economic term is price discovery. You don't set the price, you learn it from your customer. That requires a lot of experimentation with offer bundles in real life situations, not simulations. Make sure your offer bundles test variables of communication. Often your value proposition is enhanced by more and better information rather than discounts, coupons, and price variables. Three, plug your price discovery data into your revenue model to make sure the margins and cash flows you can generate conform to your financial goals. Don't run lean for lean's sake, but do make sure you understand how the price the customer is willing to pay interacts with the costs you have chosen to generate sustainable margin. Four, costs are not forced upon entrepreneurial businesses. Entrepreneurs choose costs once they know the customer's willingness to pay. Choose costs wisely, but don't sacrifice the features that made the customer willing to pay in the first place. Five, margins are emergent from willingness to pay minus the cost you choose. Don't set unrealistic margins in advance, but do know the margin level required at the velocity and volume of sales you can generate that's sufficient to provide adequate cash flow for your business. Six, cash flow is a critical variable. You hear about startups burning cash, but that's a false horizon based on receiving liquidity from venture capitalists and making a bet about how much of it can be invested now to obtain the attributes to attract more investors in the future. That's a bad business model. Much better is the model that recognizes the capital gap at the beginning of the business process, i.e. production takes time, and accelerates the attainment of cash flow break-even through revenue-generating sales once the proposition gets to market. Seven, use accounting subjectively. Yes, there are rules to follow, but accounting is a means to an end. Be sure of what you're trying to attain and then organize your accounting to generate the data you need to review and follow to attain your goal. Is it low taxes or high cash flows or a high rate of reinvestment or high margin? Know your goal and make sure accounting serves it. Once the value exchange processes are in place and humming, entrepreneurs enter the fourth stage of the value-centric business model, which we call value agility. This stage focuses on maintaining dynamics. The marketplace is continuously changing and sending you new data, whether that's about competitors or customers changing preferences. The entrepreneur responds with agility. One, make sure that feedback loops are in place from current and prospective customers. How will you collect the data? How do you know it's accurate? How do you make it so your organization can respond? This is relationship management. Two, prepare your company and your value proposition to be dynamic. Whatever value experience you've designed will erode over time. The customer's expectations may be raised or there may be rearranged by competitive offers or new and better experiences may emerge in other ways. Use a 360-degree monitor of the customer's experience and always be thinking in terms of improvement and enhancement. Never stop. Three, the customer's experience is reflective of their preferences. If their preferences change, they will rate your offering and deliver the experience differently. Keep a fresh model of customer preferences. Four, although value is subjective, it can still be enhanced in the customer's own mind by new facilitating innovations on your part. Keep generating and trying ideas to ensure that your offered value is growing faster and the customer's experienced value is eroding. And five, always maintain some innovations in your portfolio that are truly new to the world and not enhancements of what already exists. These new to the world concepts can only be imagined ideas at this stage. But isn't that where you started? Keep your portfolio of new to the world ideas topped up and maintain sufficient funds to begin testing and learning. So there you have it. The value-centric business model. Customer reflective through four phases and 32 stages. Of course, it's not linear. In fact, quite the opposite. It's recursive and self-correcting. A new piece of data at any one stage may cause you to return to an earlier stage to reset some variables or to change the decision that was made with old information. That's exactly the attitude to have. A business model is responsive to changing data from the marketplace every day, not something set in stone forever. The value-centric business model powers the E4B platform and our aim is to provide you with all the tools you need to make your own unique version of this model effective in meeting your goals.