Entrepreneurship Boot Camp: Economic Issues

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Entrepreneurship Boot CampEconomic Issues

• Robert Eyler, Ph.D.
• Director, Center for Regional Economic Analysis
• Sonoma State University
• crea_at_sonoma.edu

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Introduction

• The entrepreneur should never forget the
  macroeconomic environment.
• New tax policies
• Interest rates
• If global, exchange rates and foreign economic
  issues
• Consumer Confidence Where is my demand?
• Competition in all ways, also complementary
  businesses
• Macroeconomic ideas are more than policy

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Examples

• Starting a restaurant
• Demand Who cares about your restaurant?
• Competition What other choices exist?
• Location Any local political issues
• Financing Has a little to do with interest rates
• Labor Any other places to work? Unions? Wages?
• Entrepreneur Any other projects more profitable?

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Examples (cont.)

• Real Estate business
• What direction will prices go?
• How much construction is planned?
• Financing Again, interest rates.
• Supply what is available?
• Demand who cares if this housing or commercial
  space goes up?
• Government issues They care.

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Examples

• High tech (Telecom, biotech, etc.)
• Will there be another boom? When?
• In what sector of this industry? Why?
• Financing Where will VC come from? Will it
  come?
• Available Space What will I need? Does the
  local government want me there?
• Cotati vs. Petaluma as an example.
• Demand Is my product going to be sought by the
  comsumer?

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The Big Issues

• Macroeconomic events, policy affect choice
• No kidding
• The question is how, when, to what extent.
• No one perfect at gauging this.
• How do politics come into this?
• How many Republicans?
• How many Democrats?
• How much does it matter?
• It is the economic policies that matter the most.

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Big Issues (cont.)

• Resource Availability
• Resources come in all shapes and forms, but they
  have four major categories in economics
• Labor Who will work for you? What will you pay
  them?
• Capital How will you finance the project? What
  physical capital is needed
• Land Where will you locate? Is land available?
• Entrepreneurship Could you do something else?

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Labor

• Exogenous Forces on Labor are many
• Unions
• Minimum wages
• Local labor markets
• Wage issues
• Living space issues
• Cost of living issues as the sum of the above.
• Competition for labor
• Benefit packages changing in cost the wrong
  direction

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Capital

• Stock Market ups and downs
• Where will financing come from?
• Is debt a bad thing?
• How much do you need?
• Rate of interest the key to all your decisions
• FED influence
• Does it really matter in the end?
• Need to keep financing flexibility
• Can go away quickly if exogenous change takes
  place

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Land

• Our Local Counties have many issues
• Zoning issues may change
• Some munis do not allow certain businesses in
• Cotati and Starbucks
• How much space is needed?
• At what cost?
• Where do you need to be?
• Does your demand depend on your location always?

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Entrepreneurship

• For you
• Could you do something more lucrative?
• When do passion and reality clash??
• When you least expect it
• When you should expect it
• Building a team brings in many issues exogenously
• Need to build around stable people
• Changes in macroeconomic forces can destabilize
  anyone

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Conclusions

• What is the entrepreneur to do?
• Need to be patient, do not go without
  understanding the exogenous forces
• Should not be too concerned by the stock market
• Should not be too concerned about the interest
  rates
• Should not be too concerned about general global
  risk
• If your project is a good one, sell it as such.
• If not, the market will play that out
• You are not omniscient, no one is.

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Conclusions

• The Local Environment for Business and Outlook
• Seems like some of the global issues are
  resolving, but we have some major local problems
• Low-cost housing
• Location of businesses (downtown SR)
• Finding VC Where is it going to be found?

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Conclusions

• The Local Environment for Business and Outlook
  (cont.)
• Outlook
• Should see some viable signs of growth by late
  summer
• I said this last year also
• Need 6 to 9 months without a major shock.
• Watch local unemployment rates and interest
  rates.
• Look for PD report coming in June.

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See CREA Website for more

• www.sonoma.edu/org/crea
• crea_at_sonoma.edu