The change in economy 2008-2011 created structural tensions that needed to be addressed, said former FED chairman Paul Volcker. Industrial complex faces dramatic changes in modus operadi. This particularly concerns value creation activities and entrepreneurship. Fostering entrepreneurship today means creation of a completely new innovation infrastructure and paradigm to support startups. A view on what is coming next is presented in this document.

1. Special report for
TiE Atlanta chapter
where will future success live
Weather Report
2012 Startup
Background: www.zagasi.com/wp-content/uploads/2011/04/business-and-corporations.jpg
by Konstantyn, Atlanta, 2011
put simple

2. TiE Atlanta
Fostering Entrepreneurship Globally

3. most initiatives reflect a
retrospective analysis
Background: flickr.com

4. If creating systems, we need to be
Background: flickr.com

5. Background: flickr.com
The model of the past
how wealth creation worked
since
1981
America’s New Beginning: A Program
for Economic Recovery, Feb 18,
Last time the general
business model was
The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009 forced to modify thirty
years ago. An access to
x GDP US credit market assets easy-to-get consumer-
4
grade credit was
3 granted. The volume of
liquid funds nearly
2 doubled. Consumers
could easily afford
1
whatever they wanted
thanks to that excess
1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2008 money.
Source: Peter Stella, International Monetary Fund, The Federal Reserve System Balance
Sheet What Happened and Why It Matters, 2009

6. Consumer
Background: flickr.com
major market force
Private domestic consumption, % of GDP, 2008
USA 71%
Canada 60%
Germany 54%
Both big volume cash
South Korea 48%
flow and the effect “it’s
China 37%
easy to part with the
Source: Janamitra Devan,
Micah Rowland, and Jonathan money that you get
Woetzel McKinsey Global
Institute
easily” created
opportunities to do
lucrative business if
selling to consumers.

7. Grown Big
consumer-centered businesses
millions Microsoft’s revenue in 2009 prices
2500
2000 Businesses that put
consumers and small
1500
businesses in the
1000
center of their interests
500
have grown faster and
stronger than the rest
1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 of the pack.

8. Background: flickr.com
SELL TO CONSUMERS
was the primary concern of startups
All thinking started and
ended here. Consumers
do small ticket
purchases. Massive
sales is required for
startup success.

9. Background: flickr.com
MANUFACTURING
in mass production facilities
Massive sales requires
mass production.

10. Background: flickr.com
INVESTMENT
got form a third party
Big manufacturing
facilities or even
materials for big
production batches
weren’t affordable
without a financial help

11. Background: Microsoft

12. Background: flickr.com
Step 1. Borrow money
Raise enough money
was a paramount of
successful entre-
preneurship. Even if a
product didn’t work
there was still enough
room to learn on the go,
given one has positive
bank account balance

13. Background: flickr.com
Step 2. Produce
In the most cases the
production infrastruc-
ture was build anew.
Multiple “parallel
universes” have been
created. Some of them
busted (.com), some
have been acquired and
dissolved in big corpo-
rations as redundant. In
any way, it is a signi-
ficant waste.

14. Background: flickr.com
Step 3. Marketing
Big sales is also about
big marketing
expenditures. Many
thanks to credit card
cargo-cult. The financial
system and globalization
paid for it for a while.

15. Watch presentation
Background: Microsoft
“The next business”
to understand
triggers
behind the
scene
Game over
the business model
of the last three decades
is stale-mated

16. Background: Microsoft
For the next couple of years
growth redefined

17. Background: flickr.com
Financial System
has changed.
The startups have to change too
Let’s explain on the next
couple of slides.

18. Simple model
a few players
The economy is
complex. Though, a
simple model can
describe, help to under-
stand and predict
economic development.
Simple models
comprising of a few
players and their
interactions enable
strategic business
planning.

19. BANKS
are first in the row
FRS
bank reserves
loans
bank

20. BUSINESSES
produce goods and services
bank loans
assets
wages
business

21. CONSUMERS
are equally employees
paycheck
savings
spending
consumer

22. GOODS
Background: http://blog.nielsen.com/nielsenwire/wp-content/uploads/2008/06/shopping_recession.jpg
and services
Strictly speaking this
revenue isn’t a player. It’s a
(back into business) “warehouse” that stores
significant value. Startup
consumer spending economy is about value
prices creation. The warehouse
transaction overhead is an important entity in
& delayed consumption
value creation analysis.
goods

23. Real Economy
The last three entities
constitute the real
economy cycle. It could
the main concern be self-sufficient in a
steady market. But if
economy grows, it
means at least one of
the following:
1. Better products and
consumption choice
2. More savings for a
rainy day
3. More sophisticated
production facilities
Then the resources are
diverted for storage of
value. There is less and
less liquidity, economy
starves and stops
business consumer goods performing.

24. Control Mechanism
Background: http://www.digitaldesktopwallpaper.com/wallpapers/digitalwallpapers/1024x768/plane-british-airways-001.jpg
includes banking system
Banking system was
introduced to provide
stability and nurturing
ground for economic
growth. Essentially it
supplies and regulates
the amount of funds
(monetary incentives)
available in the system.
bank business consumer goods

25. -
bank
business
Sep 2008
consumer
goods
a humble beginning
Initial Setup
Data: http://investor.fisherinvestments.com/research-analysis/research-alert-QE2-part-two-inflation-phenomenon/
Background: http://upload.wikimedia.org/wikipedia/commons/9/97/Start_Jeremy_Wariner_2007.jpg
1x
3x
6x
9x
12x
the real sector
Bank reserves
Initially the amount of
funds was deployed in
bank reserves was low.
A significant amount of

26. Systemic issue
There is -though-
something there that
creates an unequal
production/consumption misbalance distribution of created
value between
businesses an
consumers. As a result
businesses possess
more power to produce
Background: http://uniquesparkshell.blogspot.com/2011/01/hasty-mystery.html
than consumers are
being able to buy. All
economic schools have
recognized the problem.
The difference between
them is only in the
perception of causes.
Whatever the reason, it
leads to an over-supply
and under-consumption.
Then business slows
business > consumer
down and a crisis begins

27. The law change in 1981
Empowered consumer dealt with such crisis. It
created an encouraging
immediate gratification environment to provide
loans for consumers.
FRS The intention was to
personal saving as a percentage of disposable income level up the consumers
1960 1970 1980 1990 and business. The 2008
2000
consumer-grade credit
provided excess funds.
1) Spending increased.
2) Goods could be
procured on-demand.
+ It eliminated the need
to collect money and
source: www.calculatedriskblog.com
- resulted in less saving.
Larger portion of wages
was spent.
Overall: spending
bank business consumer goods increases significantly.

28. Higher spending
due to wealth stimulation
It increased both:
a) prices
b) delayed
consumption
The opportunity for
high prices created
+ positive business
incentives. A higher
+ delayed consumption
improved the standard
bank business consumer goods of living.

29. First echo
recoiling
Some businesses
further tried to increase
revenue by biting off
consumer privileges,
i.e. reducing
consumer’s choice to
delay consumption.
Throw-away, use-once
products were
introduced en masse. A
fact is that such
products have high
+ costs per utility unit.
- They are economically
viable only if the level
of spending is high.
bank business consumer goods

30. Systemic issue It turned out that this
the misbalance didn’t disappear business model wasn’t
sustainable. There still
was a tarnished
inequality. As soon as
market saturated and
the opportunity for
short-term profits was
eaten up, the same old
problem occurred.
Consumers can’t pay
for goods that business
produces in a long run.
The inability to pur-
chase day-to-day goods
turned into inability to
purchase investment
business > consumer goods, i.e. housing etc.

31. Who paid?
Background: http://bullandbearessentials.com/blog/wp-content/uploads/2009/08/leverage-jpg.jpg
Businesses that had
Data: http://dailycapitalist.com/2011/04/06/what-is-happening-in-the-cmbs-market-and-why-is-it-relevant-to-recovery/
been underwriting
the few years of feast long-term consumer-
50
Number of closed banks
financing were hit first
in 2008. They had large
stakes in long invest-
30 ments and couldn’t
quickly react on sudden
revelations.
2008 2009 2010 2011
liabilities
10
- But other businesses
aren’t immune. To
survive volatility every
business wants to
increase assets to
assets
+ liabilities ratio. When it
comes to finance the
process is called
business deleveraging.

32. 50 1960 1970 1980 1990 2000 2010
Second echo
20x
Total corporate
liquid assets
what is happening right now 15x
All business entities
FRS
(banks as well as goods
+ and services producers)
10x do deleverage as of
2011. To speed up the
Background: http://www.visitingdc.com/las-vegas/hoover-dam-directions.asp
- process business
entities cut expenses
Data: http://annaly.com/blog/2010/07/13/ACaseStudyOnCash.aspx
5x
(risky loan processing,
wages, production-
- 1x
means investment, etc.)
+ To aid the process FRS
- provides liquidity in
huge volumes
+ (Quantitative Easing,
Backing governmental
bank business consumer goods programs.)

33. Coming next
http://theplanetd.com/images/bigstockphoto_turn_back_time_10456.jpg
a no-brain scenario A de-facto return to the
pre-1981 version of the
system will result in:
1) lower standard of
living
2) decreased life expect-
ancy and entitlements
3) loss of many product
specimens
4) permanent loss of
many jobs and skills
- Conclusion: Consumer is
- - ceasing be the power
driving (paying ramp-
- up costs for) innovation
consumer goods

34. Background: Microsoft

35. Background: 123RF
Step 1. Marketing
Big sales will now mean
fewer sales transactions,
big checks passing
hands. Businesses that
have financial resources
will be preferred cus-
tomer. Costs cutting will
be their main theme.
Startups can help with
more efficient machine-
ry, manage asset opti-
business mization, etc.

36. Background: flickr.com
Step 2. Borrow money
There is plenty of funds
in big banks. The backed
by industrial contracts
entrepreneurs can tap it
bank business cheaply.

37. Background: flickr.com
Step 3. Produce
The no waste policy
means that a creation of
“parallel universes” will
not be rewarded. New
production capacities
should be complimen-
tary to existing facilities
and improve their pro-
ductivity significantly. An
integration of the inno-
vation process with cor-
porations is inevitable.

38. TiE Atlanta
Fostering Entrepreneurship Globally
WELCOME
Corporate Innovation
http://www.zagasi.com/wp-content/uploads/2011/04/business-and-corporations.jpg