Basic Economics 101 from an Ex-Entrepreneur now turned Consultant

I was forced to take a few economics classes back in my first year of university.

Incentives Make People Move #

As an entrepreneur, I was lucky to have the support of nobody but myself. How is that luck? Well, I didn’t need to rely on others to get things done. In the very early stage, it was important for me to build a first prototype and demonstrate that it could create value.

I am a firm believer in prototyping as a proof of concept and/or as a demonstration of one’s capability to translate a preliminary idea into something tangible. This beats business plan, pitch deck and any form of projection. There are exceptions to this rule, especially if you’re a seasoned entrepreneur.

Once you have a prototype, you can incentivize people to place some degree of trust in you.

Another way of looking at incentive will be the tangible and intangible incentives that can be derived from believing in you and your idea. Hiring comes to my mind and although, I didn’t have to touch this part in detail in the past, yet it is quite common nowadays for entrepreneurs to offer company shares (equity) to their staffs. This could be an incentive to trigger the staff’s ownership feeling of the company.

Less relevant but still important, incentives available for entrepreneurs to become entrepreneurs. This could be in the form of tax incentives. Countries wishing to develop their entrepreneurial ecosystem would be better off offering strong incentives to make it either more appealing to start a company or bearing some risks together with the entrepreneurs.

Specialization Matters #

From what I could remember from my course notes, specialization has always been welcomed throughout the history of mankind. Economic theorists have not argued otherwise.

Theory of comparative advantage advocates the potential gains from trade for a firm (or individual) from differences in their factor endowments or technological progress.

From an entrepreneur’s perspective, one’s specialization could be through an expertise in a domain (E.g Artificial Intelligence, Machine Learning) or an outstanding ability to execute (hustle) or a combination of both.

From a firm’s point of view, specialization combines your team’s expertise at individual level together with what you’re building. If your product’s value proposition is specialized enough to solve a particular pain point, and consequently that the market is big enough, you should be good to go (or get started).

Opportunity Cost is Costly #

Ex-Entrepreneur turned Consultant, for the time being. I used to hustle my way from starting my own marketplace for commodity to being part of 3 completely different startups (marketplace for carpooling, hackathon organizer & travel package aggregator).

Opportunity cost of being in an entrepreneur has often been seen as unsexy (seriously? I am saying this :)) and on a serious tone, foregoing a decent salary.

The other trade-offs which are non-financial in nature tends to be highly subjective. My personal experience can be summarised in 3 points.

I traded my time and energy for:
(1) A steep-learning curve about people, business models and new markets.
(2) A hands-on trial & error experiments to learn more about digital marketing, business development, strategic thinking and life. Yes, being part of a startup, you get to experiment new life style.
(3) All the above, ending up to discover that I could have done something else instead.

Supply & Demand #

Being a fan of marketplaces, partially because I started my own startup under that category and partially because of the economics behind them. Some famous marketplaces are AirBnB, Uber, Ebay, Lazada, etc…

Entrepreneurs tend to be a common breed which implies that there is a high supply of them. Good entrepreneurs are rare, hence the supply of those are limited.

In some countries, the demand for job creation or innovation is higher than the supply for good entrepreneurs. While on the other hand, the limited supply of good entrepreneurs (henceforth, role models) do not permit more aspiring entrepreneurs to join the (supply) the pool of good entrepreneurs.

This lead to: Startups are by nature highly prone to failure and hence, referring back to both incentive and opportunity cost, the entrepreneurs who started up and due to a lack of good role models, will end up failing. They would have traded off their time, energy, money (earning potential as well) for a failure that is culturally less acceptable here in Asia.

And so it seems that there are more success stories in Asia, venture capital pouring it from foreign lands (and also from local government, a.k.a tax payers money), and westerners joining the growing and great supply of yet-to-be discovered business opportunities in Asia, more good role models are flocking to Asia (apparently) which should hopefully encourage the wannabe entrepreneurs to dive into the game, hence improving the balance between supply of good entrepreneurs and the demand for job creation/innovation.

At this point, we could go on and on about the supply & demand application.

To be fair, just build a great product which can tap into a huge, preferably, unknown demand for it. (:

This post will be revised at a later stage by real economists for more accurate information on economics theories.
Disclaimer: I take a rather random approach and believe in a good random write up to confuse the minds and enrich the irrational thoughts of others
I tried to wear the consulting/economist-wannabe hat here…and like every good economist, being a cynic is a must.