Thursday, 23 February 2017

Entrepreneurship in red states versus blue states

Just finishing up some interesting research with my co-author Emanuel Oliveira this week. We will submit the paper to an economics or entrepreneurship journal shortly, but the findings are interesting enough that I feel the need to share them with our readers ahead of time.

The study

We analyzed 10 years of entrepreneurship data from the Kauffman foundation combined with data on the political orientation of every state in the U.S. We coded states at ‘red states’ if they were dominated by the Republican party (i.e., both state houses and the governor are from the same party) and ‘blue states’ if they were dominated by the Democratic party. We then ran regressions with control variables so see how the political orientation of a state affects it entrepreneurs.

Entrepreneurship in blue states

The results strongly suggest that blue states have higher rates of entrepreneurial entry by individuals with higher levels of education.

Democrats tend to tout the need for regulations, government spending, and the creation of a social safety net to protect the disadvantaged. Our research suggests that this creates conditions whereby educated entrepreneurs feel they can take risks because they will have a net to catch them if they fall.

Entrepreneurship in red states

By contrast, red states have higher rates of entrepreneurial entry by individuals with higher incomes.

I think this is really interesting, especially given that Republicans usually consider themselves the party of the entrepreneurs. Turns out they are the party of the entrepreneurs with greater financial capital. Perhaps these are individuals are enticed by tax-cutting, less regulation, and reduced government spending.

Conclusion

We didn’t find a main effect for political control by either party, which suggests that both parties’ policies can be good for entrepreneurs, but for different types of entrepreneurs. Perhaps a good follow on study would be to see if entrepreneurship by those with higher education is more valuable than that of those with higher prior income or vice versa.

Entrepreneurship in red states versus blue states was first seen on The LaunchScore Blog



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Wednesday, 15 February 2017

Solar opportunities: Theory and projections for entrepreneurs

Green opportunities

I’ve been tracking the annual drop in the price of solar power and what I keep seeing amazes me, and gives me great comfort. Let me explain.

It seems that the price per watt for solar keeps getting better from year to year. Much of the product innovation continues, but that is no longer the main driver. The reduction in cost now has more to do with economies of scale and the implementation of process innovations by manufacturers.

Innovation theory

The innovation cycle starts with product innovation. We’ve had those gains from solar already—the yields on new ‘commodity’ panels are better than those placed on early satellites.

The second curve, that of process innovation, started around the time that process innovations made it feasible to try to achieve economies of scale and climb the associated learning curves.

The arrow in the figure denotes about where we are today: right near the end of the product innovation curve, but beyond the point where product and process innovations were essentially equal contributors. Process innovations have accounted for the majority of recent gains as huge factories in the U.S., but especially in China, have upped their production and learned to make better panels more cheaply.

The demand keeps growing as lower prices make whole new regions viable for solar installations. The more sunlight a place gets, and the further away from cheaper alternatives, the faster the diffusion. But with each additional place, there come more process innovations, increasing the pace of the feasibility wave.

The bet

This leads me to place a big rhetorical bet. Given that no other energy technology comes close to the improvement curve in solar, and that process innovations are going to continue driving demand, we should bet on solar. Technology scholars often note that people are not very good at making estimates for non-linear curves. Early improvements seem slow when they start because they are starting from such a low point. They still look slow right now, but if we are at 1% global capacity, and we go to 2% next year and 4% the following year, then the jump to 8% will perhaps be the first one to really get attention. But by then, the time to invest will be over because by then everyone will believe it, and valuations will reflect it.

Solar enterprise opportunities

Entrepreneurs can get into every level. They can learn from the gains of big production facilities and build new facilities with newer, cheaper technologies. They can get into the business of moving and maintaining panels, repairing them, and optimizing them. They get into the distribution or sale of the panels. They can resell panels with marketing startups. They can finance projects in search of returns; even buy options on their neighbor’s roofs. Now seems to be the time.

Some opportunities we scored

While only one type of solar venture, Launchscore estimates the potential yearly earnings of Solar Energy Systems Dealers in 750 U.S. cities. The statistical model suggests that there are over 100 cities where the entrepreneurs could make over $100,000 in net profits within three years of entering the business, and also 100’s of cities where it is not yet viable as a business choice. Not surprisingly, some of the worst places are cloudy, like Bridgeport, Connecticut with 99 sunny days a year, and some of the best are in sunny places like Cupertino, California, with 265 days a year. Note that some of the sunniest places of all like Phoenix (AZ) are not in the top 100 because opportunities have been strong enough there for long enough that dealers are already ubiquitous (sorry but you need to sign in to see this one). But we didn’t just factor in sunny days. We used 30 other control variables, including demographic factors (e.g., median age and income), elevation, location (East, West, North, South), weather more generally, and cultural factors (e.g., red versus blue states) to make our estimates.

 

 

 

 

Solar opportunities: Theory and projections for entrepreneurs was first published on blog.launchscore.com



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Saturday, 11 February 2017

Entrepreneurs and the mythical machine takeover.

In the last few years, several big names have made statements they will likely have to take back in the future. In particular, Elon Musk recently made the claim that artificial intelligence is poised to take over so many human jobs, that the government will need to step in with a basic income to prevent chaos.

AI, is progressing quickly, that is sure, but the effect of its application for the broader economy is less well understood. Economist like Schumpeter have long reminded us that the ‘gales of creative destruction’ are actually a force for good, and should not be feared.

How will this play out?

Just for fun, let’s pick on The Inquirer’s 5 recent picks: personal assistants, cab drivers, technical support professionals, factory workers, and doctors (yes, medical doctors).

Drivers

What happens when human drivers become obsolete? Transportation costs fall, empowering people to do more importing and exporting. Entrepreneurs will more easily find new markets and consumers will more easily access goods and services.

Personal assistants

What happens when human personal assistants are replaced? Everyone can now afford a digital assistant, which means they can get more done. Entrepreneurs have a lot of work to do. Starting a business often entails taking on many of the organizational functions that will eventually be done by employees. What entrepreneur wouldn’t welcome a low cost personal assistant?

Technical support professionals

What about technical support specialists? Surely this will boost productivity for everyone, especially technology entrepreneurs. Faster, more competent technical support means that entrepreneurs can get their technology working and get their products out to market. It also means they can offer technical support for their own products and services more economically. Yet another barrier to entry out of the way.

Factory workers

Factory workers. Come on! Factory work has been evolving rapidly for 200 years. The more machines take on, the lower the cost of manufacturing, the better off we all are. It means more entrepreneurs can afford to have their prototypes put into production. It means more innovative new businesses popping up!

Doctors

This is probably the funniest example in the list. It’s hard to imagine doctors being replaced by AI, but let’s entertain that possibility for a minute. Doctors are well paid today because there are too few of them. For example, in Cuba, where doctors are in abundance, they are paid similar wages as school teachers. If AI takes over some of the jobs that doctors do, we can expect that doctors will move on to other higher value tasks. This is likely to result in better care at a lower cost. For entrepreneurs, that means that lower healthcare costs, and in places where employers chip in to pay for employee healthcare, it means the ability to hire more employees.

Don’t worry, entrepreneurs will step in!

In conclusion, the overall impact of AI will be to boost entrepreneurship, which in turn creates new jobs. That’s not something we need to fear.

 

 

 

The blog post Entrepreneurs and the mythical machine takeover. was initially published to The LaunchScore Blog



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Sunday, 29 January 2017

Impact of Protectionism and Trade Wars on Small Businesses

President Trump has recently signed executive orders that clearly indicate his administration’s intention to de facto heighten protectionism and global realpolitiks tensions. As they take effect, small businesses dependent on international trade are likely to undergo a cost increase, the magnitude of which will depend on how far they are in the supply chain. At this time, it appears that those businesses with trade relations with Mexico will be the first to experience it, but if the renegotiation of NAFTA becomes a reality, there could be a contagion effect to those dealing with Canada.

On the other hand we have the consumers.  Typically, cost increases lead to hikes in consumer prices and this pass-through effect tends to be quite close to the amount of the cost increase. Ceteris paribus (all else held constant), higher consumer prices will increase inflation rates and put upward pressure on nominal interest rates, and therefore on borrowing costs as well. In relation to profits, the likely outcome is a decrease in profits for businesses that sell goods and services with elastic demand, whereas those operating in markets with inelastic demand will be the least affected. Markets with an elastic demand are far more common that those with inelastic demand.

However, reality is in fact more complex.  For example, Mexican imports contain 40% of American made inputs on average.  Hence, domestic producers of those inputs will also be negatively impacted by tariff increases on Mexican products. Even more so if Mexico retaliates with tariff increases on American imports (i.e. beggar-thy-neighbor policies).

As most small businesses tend to be at the end of the supply chain (retailers, food and beverage establishments, etc.), business owners should considerer changing the country of origin of their supplies. This exercise should take into account not only the price listed by domestic suppliers but also foreign, and the tariff schedule that regulates imports per country – click here to access the US Harmonized Tariff Schedule (HTS).

For example, recent media reports suggest a potential additional tariff of 20% on Mexican imports. Such increase may justify changing suppliers.  More details about the specificities of the law will have to be disclosed in order to determine which products and services will be affected. Notwithstanding, regulatory changes often lead to additional costs for small businesses due to the time required to assess their impact and adaption to the new rules (e.g. logistics).

Another action that US importers and exporters should evaluate is the need to hedge exchange rates.  Protectionist policies tend to appreciate the domestic currency. This expected appreciation may be further augmented by plans to increase US investment in infrastructure.  As businesses dislike uncertainty, one may find it cost effective to buy or sell future contracts according to their needs – click here to access CME quotes and contract specifications.

Globalization is too big of a phenomenon to go away. It will not stop even if the US decides to shell itself from it. Globalization is just recently becoming truly global. Globalization keeps on growing as South American countries make new deals with the China, or African countries with the European Union. Lastly, one should not ignore history lessons. In the great recession of the 1930s there were similar populist outcries for protectionism in the US which led politicians to implement the Smoot-Hawley Tariff Act, raising tariffs on over 20,000 imported goods. The end result was a decline by more than 50% of US imports and exports, further exacerbating the depression and augmenting unemployment to 25% by 1933.

The following article Impact of Protectionism and Trade Wars on Small Businesses Find more on: http://www.launchscore.com



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