I haven’t been writing for a very long time on The Hieno!

This is because I haven’t had anything to consolidate until today. And I had been putting much of my priority in building up IKIGUIDE. You might have noticed also that I’ve changed the template to my blog–the blog archive page is still buggy, in spite of me trying various code haha. I hope my web dev friends can help me fix it soon as I’ve spent 2 hours searching for a solution online.

Thank God for web dev friends!!! Before I go to chill out today, I would just like to write a little bit about my recent thoughts and learnings from a branch of economics I was recently introduced to. It’s known as “institutional economics”, and I find the Austrian school of economics so much nicer to refer to vis-a-vis reality.

how to run a sustainable business

Anyway, I’ve often felt that my Economics + PR academic training is a waste of time until I got involved in blockchain/ cryptocurrency, and then I started really dealing with my own relationship with money. And as I cleared some of the relationship with money slowly but surely, I realised I started being able to spot other people’s relationship with money with greater clarity.

A person’s relationship with money is often emotional, often dark, often laden with fear. We often hide our deepest fears in money, or our concept of it. And what if…an entrepreneur is unaware of his own relationship with money? Then, jibaboom! haha.

So today I would like to write a little bit about a realistic observation about how to make a lot of money sustainably, after reading quite a few of works by Steve Pavlina, Armen Alchian, Hayek and attending ImagineCon’s various lectures.

How Business Works: “What Is”

what is

In all introductory Economic lessons, we learn that positive economics is about “what is” and normative economics is about “what should be”. I’ve always wondered why this is such an important point because it’s so simple.

Then I found out that any monetary exchange in a business context is based on “willing buyer, willing seller”. Reach a lot of people with the value your provide, tally those transactions up and you get a steady cash-flow, which then gives you a working business model.

For a business to be sustainable, an entrepreneur needs to be nimble and to observe market trends carefully. Change, experimentation, pivots and clear analysis are essential. Also, having a margin of safety in an emerging/ growing industry helps greatly. The greatest business opportunities happen when any said industry is in a state of flux/ change.

Examples of:

  • Growing industries include the blockchain industry, VR/AR, AI, etc
  • Sunset industries include hawker stalls, radio-related, etc
  • Saturated/highly competitive industries include the niches of dating/love/romance, tuition, etc.

The marginal return on effort in growing industries is naturally greater as compared to saturated or competitive industries.

For a business to be sustainable, the following considerations seem to be essential:

  • Team: Degree of emotional awareness and ability to see things “as they are”, complementary strengths and weaknesses, % of shareholding per person, etc.
  • Business Model: Does the business address a pain point or a pleasure point? Is the pain point verified to be the pain point of “the masses”, or is simply a pain point of individuals?
  • Cash-flow: How does the business get revenue, on what frequency and at what cost/loan?
  • Predictability of revenue: Is the revenue/cashflow coming in on a regular basis or sporadically?

What Is Human Nature

how to run a sustainable business

There is a great deal of discourse on the question of “What is human nature”.

What is true is that there are kind people, and there are bastards, and there are people in between. A conservative way of looking at human nature is to assume that everyone is a bastard, whereas a liberal way to looking at human nature will be to assume that everyone is fundamentally kind.

No matter how we want to look at human nature, we live with the consequences of our assumptions. I’ve been hurt by not having contracts to protect myself before, and it is through these “hard knocks” in life that I realised finally that not everyone is kind. Even if people are sometimes kind, they might not be always kind if there is too much at stake.

So I’ve started to accept human nature as it is. Which then got me really wondering about why I even assumed that businesses is about “what should be”. After some digging, I realised it is due to my prior unresolved emotions.

 

Two Common Ways To Make Money

two ways to make money

  • The first method is to make money by (1) creating value and then (2) distributing this value to as many people as possible. In creating value to the masses, each person in the mass who receives the value will give you money as their value to you.

This is the economy of abundance, and a non-zero sum game, since everyone benefits from this model.

  • The second common method is to exploit market inefficiencies. Market inefficiencies come from in a lot of format “regulation”, “lack of accurate information”, “market sentiments and lack of understanding common sentiments”, etc.

In this case, value may or may not be created due to asymmetric information. This method of making money is not sustainable as the internet speeds up the flow of information these days (“matter of time”) and the entrepreneur or company might end up with a reputation of being opportunistic.

In economic theory, this is known as the discourse between the “moral philosophy” vs “political philosophy”.

Why Are Some Entrepreneurs Against Money?

To run a sustainable business, it is very important to have internal congruence about money.

However, because we are bombarded on a daily basis with conflicting messages about money, such internal congruency may be hard to come by.

Therefore, it is extremely important for an entrepreneur to be clear about his own emotions towards money. Some entrepreneurs are against money because they believe that money is inherently evil, other entrepreneurs are against money because they have seen how people change due to money.

At any rate, an awareness of attitudes towards money is essential to the running of businesses, because conflicting ideas causes the brain to overload and zaps energy. In addition, certain attitudes towards money might cause an unfavourable lens towards certain business decisions.

Such entrepreneurs usually also don’t see that a constant, healthy and sustainable cash-flow is the life-blood of them sustaining their mission and vision of the corporation.

Is There A System to Engineer “What Should Be”?

engineer

The answer is yes, and sociologists/PR folks such as Edward Bernays and Roland Barthes has detailed such systems in their books.

The summarised method is to choose one point and repeat.

Now, high-level skill is needed to choose just one best point. After doing that, a lot of money is needed to “reset the status quo” and to repeat/ brainwash/ drill that one point into fellow human beings.

This is because the “what should be” runs counter to the fear mechanism triggered by the “what is”. People don’t like to feel like fools following something new, particularly if the switching costs are high, especially if they are wrong.

Therefore, it is essential for the marketer to spend a lot of money convincing people of the “new norm” by reassuring them that it’s okay to switch. They usually do this by repeating the same new message over and over again to the masses, changing the group norm and hence causing a new standard.

So, if you are doing a “what should be” business, be sure to have a lot of money. Haha!

How Do You Test If A Company Is Solving A “What Is” Problem?

Now this section is important because we don’t know the market until we test it.

Sometimes what we assume as “what should be” turns out as a “what is” after testing (could be due to transactional friction), and sometimes what we assume as “what is” turns out to be a “what should be” (because people lie a lot).

Sometimes it is just by luck that a “what should be” to an entrepreneur turns out to be a “what is” for the market. Even if that is the case however, a simple market validation solves the problem.

  • People are willing to pay for your product or service almost effortlessly. They are willing to pre-pay as well, without the entrepreneur doing anything much;
  • Hustling should therefore yield good and easy results. After a while of hustling the entrepreneurs should be able to detail the buyer persona.
  • When it comes to “hard work”, the hard work refers to doing sales and improving the conversion to sales rate. Marketing and branding is then done with the buyer personas in mind.
  • It should be easy to “rub salt on wound”: If the wound is already there, it should be easy to test that the wound is there and offer a viable solution to reduce the pain. No matter what happens you are improving the status-quo of the person because a healed wound is better than an open wound.  It is only unfavorable to fear-monger if your solution makes the person worse-off instead of better-off.

Why Do Some Entrepreneurs Go Against Human Nature And Start A Business Based On “What Should Be”, In Spite Of Not Having A Lot of Resources?

opposite directions

Therefore, I now believe that if a startup has limited amount of money and resources, it is only wise to start a business based on “what is”, not “what should be”.

In spite of this however, why do some startup founders do things based on “what should be”? Here are some possible reasons:

  • Naivety: They believe they are heros who can change the world. They ignore the reality that a lot of money and resources is needed to change the world. They also believe that “working hard” and “passion” are all it takes to change the world to their “what should be”.
  • Unresolved prior emotions: Entrepreneurs have some sort of unresolved emotions, and they believe that nobody should go through the shame/ pain that they have been meant to go through. While this is perfectly legit, the entrepreneur is subject to the risk of delivering value to himself/herself and not value to a larger group of people, especially if the latter does not share the same unresolved prior emotions/ trauma.
  • Sheltered Life: Entrepreneurs might be from a highly sheltered environment, and have a tendency to assume the best of humans instead of the worst. These entrepreneurs are likely to want to do a product/ service that is pleasure-based, not pain-based. In this case, a lot of money is needed to brainwash the public haha! Good luck if they don’t have that sort of money–the business will therefore not be sustainable.
  • The desire to appear “unique” or “original” or “interesting”: These entrepreneurs belong to the profile that they don’t want to be like the rest. They look down on “normal/ boring” businesses, and do not want to do certain things because those things are boring. The danger with this group of entrepreneurs is that they will tend to equate hype with revenue, and this might result in the greater burning of money.
  • A refusal to accept human nature: These entrepreneurs believe that most human beings should operate at the self-actualisation stage, and not at the “lowly” survival stage. Correspondingly they view any businesses that operate at the survival stage as “lowly” and they would rather die than to do businesses like that.

 

Takeaway: How To Make Money In A Sustainable Manner

Making money is all about creating and distributing value to as many people as possible.

Value here is defined not as value to the individual and defined as value to a group of people, or to the masses. To make money in a sustainable manner, it is essential to provide value to the masses. This value is firstly created and subsequently distributed.

So remember to test your idea on “what is”, then focus on value creation and then hustle to distribute value to as many people as possible! 🙂

 

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