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Dec 10 2011 - 10:52pm
NLT Special Feature: What Entrepreneurs Can Learn From Economics?
When the guys from ProctorU came to present at an EdLab Seminar a few months ago, I was struck by the fact that the founder was an economist. When I asked him how his training and experience as an economist led him to become an entrepreneur, he told me that his economics training gave him a better understanding of the role efficiency plays. This made sense to me, yet entrepreneurs oftentimes mock economics for not saying anything useful about starting a company or even running a company. Sure, economics does not make us any more informed about consumer tastes...that's for marketing. Nevertheless, here's some economic food for thought for aspiring entrepreneurs: With any market, there are entry costs. For a new company to bear these entry costs, its idea has to be so productive that if you were an existing competitor, you would have a significant leg up. This quantum leap that needs to be taken by the startup is a necessary, not sufficient, condition for success. To disrupt an existing market already in equilibrium, it is also helpful if your product is making use of consumed resources (time, money, workers, etc) in a better way than what already exists. Roughly, speaking the more output (what you want) you can extract from your fixed input (time, money, workers, etc), the easier it is to bear the entry costs. Ultimately, you want consumers or firms to be faced with a situation where NOT adopting your idea will actively cost profits. To be better than the rest is not enough; otherwise your startup runs the risk of producing something useful but not valuable enough to get over the hump. This is obviously a simplistic take on what economics has to offer entrepreneurs (the above two merely revolve around entry costs and opportunity cost). I would encourage those looking for deeper but still useful insights to familiarize themselves with concepts from industrial organization.
|By: Skanda Amarnath|955 Reads