In his salient book Capitalism, Socialism and Democracy, Joseph A. Schumpeter explained that introducing new methods of production and new commodities to the market is inconceivable under perfect competition. But the reality of real-world competition is that some individuals capture opportunity and others miss it. Some entrepreneurs have more knowledge about market conditions, and others have less knowledge. Some react and move quickly, and others react slowly. Businesses do not just fail—they miss entrepreneurial opportunities in the market, failing to react just in time to consumer changes.
Because Austrians conceive of the market as a process and of competition as inspired by market participants, entrepreneurial innovation is the only way for a firm to survive. The notion of missed opportunities is rooted in Friedrich Hayek’s focus on knowledge and in Israel Kirzner’s idea of the interaction between the nature of the market and discovery. The fact is, you don’t know what you don’t know until you do know. Then what do you do with the new knowledge?
In an era of constant change in consumer preferences—from conventional retail to omnichannel retail, for example—many firms will undoubtedly miss entrepreneurial market opportunities, because they are not learning from market signals. The question is: what did you learn, and when did you learn it—after conventional consumers turned into omnichannel consumers and you realized what they want most?
Many businesses do not just fizzle out—they do not learn from the Austrian view of markets, competition, and knowledge, and therefore miss market opportunities. Chains and established firms used old methods in a new competitive market and disregarded the metamorphosis of consumers from conventional to omnichannel—from ones who go to a brick-and-mortar to ones who access multiple channels (i.e., website, social media, your brick-and-mortar via phone, etc.) to purchase what they want. These businesses did not learn from past experience how to improve their market position. They did not heed the market signals that the consumer gave them to cater to their newly emerging preferences.
We are now living in the Schumpeterian era of innovation and quick-to-market activity, which is the consequence of omnichannel consumerism. For entrepreneurs who are not on this innovation wave, providing goods and services at the time and in the manner the consumer wants them, it is an era of missed opportunities.
Moreover, as Schumpeter notes,
the function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on.
Ludwig von Mises, Kirzner, and Schumpeter agreed that market adjustments are based on consumers’ perceptions, taste, and preferences. These changes might account for why many firms close their doors and discontinue their services. What does this mean for existing market players who may otherwise miss opportunities during these rapid market adjustments? The panacea is to follow the market changes so that you do not miss entrepreneurial market opportunities.
Market distortions and economic interventionist policies created by the government can make these market opportunity signals foggy and unclear, which is why entrepreneurs must fine tune their ability to follow the adjustments created by consumer valuations. To improve your reception and eliminate the fog, consider the following reasons why entrepreneurial leaders miss market opportunities:
- Entrepreneurs fail to see what consumers want.
- Entrepreneurs do not co-create with their consumers.
- Entrepreneurs do not foresee consumer transitions (from conventional to omnichannel, for example).
- Entrepreneurs have not developed feedback loops between themselves and their customers (i.e., business to consumer or business to business).
- Entrepreneurs have not learned from previous experience new ways of bundling products and services in new market conditions.
- Entrepreneurs do not combine and recombine resources in a timely manner.
- Entrepreneurs cease searching for discoveries within and between new or existing markets.
- Entrepreneurs have not acknowledged that entrepreneurs and consumers have incomplete and sometimes error-prone knowledge.
- Entrepreneurs remain sticky about what works and neglect consumer-oriented just-in-time opportunities.
- Entrepreneurs miss relationships with consumers; they do not ask questions, learn, and respond appropriately.
The correct timing of innovation is never clearly signaled. Entrepreneurs do not know the future of the market, so they can’t act “just in time.” Why? Because, according to Kirzner, other entrepreneurs are consistently making entrepreneurial errors as they pursue various ends, consequently changing others’ plans. That is, every market participant has error-prone knowledge and is subject to missed innovations and opportunities.
How can entrepreneurs rid themselves of knowledge that contains errors and avoid foggy market signals? Little bits of knowledge are scattered everywhere, making it possible for some entrepreneurs to get it right and adjust. Successful entrepreneurs judge the market correctly, as Kirzner reminded us. But numerous others judge the market incorrectly. They do not clearly anticipate what is going on in the fog. It is errors in judgment and the inability to see what is ahead that leads to missed entrepreneurial market opportunities.
That knowledge is prone to error and that the market sends distorted signals to entrepreneurs (through no fault of their own) is not the result of market failure but of market adjustments that result in missed opportunities. The idea of missed market opportunities is not the same as opportunity costs. Missed market opportunities occur after learning something new, adjusting to consumer valuations, and applying the new knowledge. The omnichannel consumer is changing the market. Entrepreneurs—the disrupters/innovators—must alter their market approach. Those who lag behind market changes will miss market opportunities. Remember, the consumer is entrepreneurial, too!
Entrepreneurs, in the Austrian sense of the term, must find the innovative wave and jump in just in time to reap the benefits of market activity from missed market opportunities based on previous consumer interactions. Market-oriented entrepreneurs realize that they have a small window during which to adjust, employ innovations, and capture conventional consumer valuation and simultaneously reach the omnichannel consumer—just in time.
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