Embarking on the entrepreneurial journey? The Austrian School of Economics could be your secret weapon. Its principles, rooted in individualism and free-market capitalism, offer invaluable insights for entrepreneurs navigating today's complex business landscape.
Modern economics is a theory of the economy that leaves no place for the entrepreneur
So where should entrepreneurs turn to improve their understanding?
- The Austrian school of economics might be the answer
- Entrepreneurs are the lifeblood of the dynamic market economy
- They create disequilibrium, they engage in “creative destruction,” and they make the new that they create displaces the old and makes us better off
The Austrian school of economics
So-called Austrian economics is an alternative approach to understanding the economy that embraces entrepreneurship and sees it as the driving force of the market
- More realistic than equilibrium models
- Focused on value creation, uncertainty, and how producers constantly adjust and attempt to meet changing consumer preferences
Entrepreneurship is about creating tomorrow
The ultimate source from which entrepreneurial profit and loss are derived is the uncertainty of the future constellation of demand and supply.
- Individual entrepreneurs choose costs in the present to produce a product that must be sold in the near or distant future, whatever the market situation might be
Economics for entrepreneurs
Most entrepreneurs are Austrians without knowing it
- They have learned from experience how the economy works and have developed an intuition
- Their gut feeling, sometimes referred to as entrepreneurial judgment, is a tacit understanding of the economy as a market process and what this means for entrepreneurship
Seek to be a good monopolist
In standard economics models, competition is about offering the same or nearly the same goods competing on price. This is a terrible strategy for entrepreneurs, whose superpower is to facilitate value.
- Austrians think of competition differenlty: It is about figuring out how to provide the best value experience possible.
Consumer Sovereignty
All production aims to ultimately satisfy consumers by providing them with value
- Value is entirely up to the consumer
- Entrepreneurs can only provide the means to help consumers become better off
- Sometimes this requires educating the customer so that they understand the value of the product
Value determines price and costs are a choice
The price is a guess based on what value consumers see in the product, and the only choice is cost: how to produce at costs below the selling price and, ultimately, whether to produce.
- Figure out at what price their product is attractive, and then choose a cost structure that allows for profit
