“Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone” John Maynard Keynes
When did you last have an ‘economics fundamentals’ refresh?
This week, Chancellor Kwasi Kwarteng’s statement (23-Sep) kickstarted a crisis, spooking the financial markets in spectacular fashion. As investors took fright, the Bank of England injected £65bn, and said that it was ready to buy unlimited quantities of long-dated bonds to restore order to financial markets. Earlier, the pound had crashed to its lowest ever exchange rate with the dollar.
The entrepreneur who chooses not to understand economics will commit follies and impede the growth of their company.
You may have different opinions, politics and underlying economic philosophies, but you should be mindful of some economic fundamentals to add to your startup thinking:
⛔️Risk and return: With all investment, the higher the risk assumed, the higher the expected return, and there is no riskier enterprise than a startup venture.
📈Supply and demand: Demand is the relationship between quantity of a good and its price, as well as the benefit perceived by customers. Supply reflects how much of a good is brought to the market within a given time.
⚖️ Opportunity costs: the invisible cost of the path-not-taken.
🫠Sunk costs: money that has already been spent and cannot be recovered.
⏳Breakeven: when will our revenues equal our costs, and we are making neither profit nor a loss?
💝Marginal benefits and marginal costs: the supply of an additional amount of that service or good.
🎈Elasticity of demand: how much demand for your offering changes when price changes.
🥇Specialisation: become the leading expert in a niche.
🌟Satisficing: people are subject to cognitive biases and are emotional decision makers.
🙇♀️Comparative Advantage: focus on your USP.
Wise words indeed Ian Brookes FRSA