Special report for    TiE Atlanta chapter                                                                   where will fut...
TiE AtlantaFostering Entrepreneurship Globally
most initiatives reflect a                         retrospective analysisBackground: flickr.com
If creating systems, we need to beBackground: flickr.com
Background: flickr.com        The model of the past                       how wealth creation worked                      ...
Consumer                                               Background: flickr.com                        major market forcePri...
Grown Big       consumer-centered businessesmillions               Microsoft’s revenue in 2009 prices25002000             ...
Background: flickr.com  SELL TO CONSUMERSwas the primary concern of startups                                              ...
Background: flickr.comMANUFACTURINGin mass production facilities                                                 Massive s...
Background: flickr.comINVESTMENTgot form a third party                                          Big manufacturing         ...
Background: Microsoft
Background: flickr.comStep 1. Borrow money                                        Raise enough money                      ...
Background: flickr.comStep 2. Produce                                   In the most cases the                             ...
Background: flickr.comStep 3. Marketing                                     Big sales is also about                       ...
Watch presentation                                                  Background: Microsoft“The next business” to understand...
Background: Microsoft     For the next couple of yearsgrowth redefined
Background: flickr.com Financial System                   has changed.The startups have to change too                     ...
Simple model     a few players                     The economy is                     complex. Though, a                  ...
BANKS                     are first in the rowFRS                     bank reserves             loans      bank
BUSINESSES      produce goods and servicesbank loans                                assets                        wages   ...
CONSUMERS are equally employeespaychecksavings                      spending           consumer
GOODS                                            Background: http://blog.nielsen.com/nielsenwire/wp-content/uploads/2008/0...
Real Economy                                The last three entities                                constitute the real    ...
Control Mechanism                                      Background: http://www.digitaldesktopwallpaper.com/wallpapers/digit...
- bank business                                            Sep 2008 consumer goods                                        ...
Systemic issue                                                                                                            ...
The law change in 1981       Empowered consumer                                                                         de...
Higher spending       due to wealth stimulation                                       It increased both:                  ...
First echo                              recoiling                                          Some businesses                ...
Systemic issue                   It turned out that thisthe misbalance didn’t disappear   business model wasn’t           ...
Who paid?                                                                                                                 ...
50           1960              1970               1980           1990                                                     ...
Coming nexthttp://theplanetd.com/images/bigstockphoto_turn_back_time_10456.jpg                                            ...
Background: Microsoft
Background: 123RF     Step 1. Marketing                                      Big sales will now mean                      ...
Background: flickr.com       Step 2. Borrow money                                               There is plenty of funds  ...
Background: flickr.comStep 3. Produce                                   The no waste policy                               ...
TiE Atlanta      Fostering Entrepreneurship Globally                                                                      ...
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Corporate Innovation - TIE Atlanta report

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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.

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Corporate Innovation - TIE Atlanta report

  1. 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.jpgby Konstantyn, Atlanta, 2011 put simple
  2. 2. TiE AtlantaFostering Entrepreneurship Globally
  3. 3. most initiatives reflect a retrospective analysisBackground: flickr.com
  4. 4. If creating systems, we need to beBackground: flickr.com
  5. 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 BalanceSheet What Happened and Why It Matters, 2009
  6. 6. Consumer Background: flickr.com major market forcePrivate 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 theSource: Janamitra Devan,Micah Rowland, and Jonathan money that you getWoetzel McKinsey GlobalInstitute easily” created opportunities to do lucrative business if selling to consumers.
  7. 7. Grown Big consumer-centered businessesmillions Microsoft’s revenue in 2009 prices25002000 Businesses that put consumers and small1500 businesses in the1000 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. 8. Background: flickr.com SELL TO CONSUMERSwas the primary concern of startups All thinking started and ended here. Consumers do small ticket purchases. Massive sales is required for startup success.
  9. 9. Background: flickr.comMANUFACTURINGin mass production facilities Massive sales requires mass production.
  10. 10. Background: flickr.comINVESTMENTgot form a third party Big manufacturing facilities or even materials for big production batches weren’t affordable without a financial help
  11. 11. Background: Microsoft
  12. 12. Background: flickr.comStep 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. 13. Background: flickr.comStep 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. 14. Background: flickr.comStep 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. 15. Watch presentation Background: Microsoft“The next business” to understandtriggersbehind thescene Game over the business model of the last three decades is stale-mated
  16. 16. Background: Microsoft For the next couple of yearsgrowth redefined
  17. 17. Background: flickr.com Financial System has changed.The startups have to change too Let’s explain on the next couple of slides.
  18. 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. 19. BANKS are first in the rowFRS bank reserves loans bank
  20. 20. BUSINESSES produce goods and servicesbank loans assets wages business
  21. 21. CONSUMERS are equally employeespaychecksavings spending consumer
  22. 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. 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. 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. 25. - bank business Sep 2008 consumer goods a humble beginning Initial SetupData: 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. 26. Systemic issue There is -though- something there that creates an unequalproduction/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. 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 consumers1960 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. 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 standardbank business consumer goods of living.
  29. 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. 30. Systemic issue It turned out that thisthe 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. 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. 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. 33. Coming nexthttp://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. 34. Background: Microsoft
  35. 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. 36. Background: flickr.com Step 2. Borrow money There is plenty of funds in big banks. The backed by industrial contracts entrepreneurs can tap itbank business cheaply.
  37. 37. Background: flickr.comStep 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. 38. TiE Atlanta Fostering Entrepreneurship Globally WELCOME Corporate Innovationhttp://www.zagasi.com/wp-content/uploads/2011/04/business-and-corporations.jpg

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