Economics & Startup Strategy - Quick Review Notes

Capitalism vs Planned Economies

Private enterprise system with competition; minimal government intervention (e.g., Canada, Western countries).
Planned economy ( socialism/communism ): central government planning, controls on profit and property; higher government role.
In a business plan/assignment: assume a capitalistic economy.

Four degrees of competition:
- Pure/Perfect competition: many firms; no single firm can dictate the market; price is set by demand/supply; example: small-scale farmers; some gas stations.
- Monopolistic competition: fewer competitors, some barriers to entry; product differentiation and brand loyalty;
  example: fitness chains with trainer relationships and loyalty cards.
- Oligopoly: few large firms; high capital/entry barriers; substantial strategic interactions; examples: telecommunications, financial services.
- Monopoly: single supplier; one dominant market; example: exclusive supplier arrangements (illustrative).
Startups are temporary entrants; as they grow, markets tend toward monopolistic competition or oligopoly.
When starting, firms are price-takers in pure competition but may move toward differentiated competition as they scale.

Early-stage financing often involves equity; low initial share value to offer a larger percentage of the company.
Other incentives: employee equity or partial ownership to attract talent.
Idea recognition and protection: document and credit ideas to prevent misappropriation (e.g., real-world stories about recognition like Bumble/Tinder); protect with contracts and IP measures when possible.

Global GDP benchmark: 117\times 10^{12} (world GDP per year).
Debt vs. GDP: high global debt; notable example: in some economies like China, debt has risen significantly (described as more than doubled).
Financing options for firms: debt (borrowing) or equity (new owners).
At the firm level: debt/equity decisions depend on growth, risk, and cash flow needs.

Four forms of unemployment:
- Seasonal: tied to time of year (e.g., farm harvests, winter work like snow removal).
- Frictional: short gaps between jobs during career moves.
- Structural: skills-mismatch; technological change (e.g., AI) requires retraining.
- Cyclical: tied to business cycles (recession/prosperity).
Economic cycle stages: Prosperity, Recession, Recovery (and back toward Prosperity).
Policy responses: retraining incentives; monetary policy adjustments to manage inflation and growth.

Central bank role: Bank of Canada (policy rate adjustments, monetary policy tools).
Inflation targeting: typical range around 1.7\% \text{ to } 1.9\%; bands used to guide policy responses.
Interest rate signaling to stimulate or cool economy; cross-border considerations (inflation, tariffs, growth).

Banking risks: fractional reserve banking; credit risk on loans; confidence matters for deposits.
Gold as a traditional hedge; central banks repatriating gold; debates about gold backing for currencies.
Gold reserves in some countries (e.g., Canada reported as 0 in the discussion).
DXY Index: measures USD strength against a basket of currencies; used to gauge currency risk and global flows.

Deflation risk and global revenue impacts; potential failures of financial institutions risk systemic issues.
Sovereign/debt risk: high debt levels can lead to structural unemployment and instability if not managed.
Cross-border data use in anti-money-laundering and trafficking investigations via bank datasets (illustrative point on big data in finance).

Business plan as a living document: goals, objectives, and execution steps evolve; update regularly (e.g., two months, six months, etc.).
Practical guidance: avoid overconfidence; build a complementary team; one founder cannot do it all.
Working capital management: monitor inventory turnover and receivables; bridge financing needed before cash flow from sales arrives.
Don’t go cheap on talent; offer incentives (including partial ownership) to retain key people.
Regulatory costs: budgeting must account for compliance and payroll costs beyond base salaries.
Government support: organizations like the BDC assist small businesses with exporting and growth.

Recognize the four market structures and how startups transition among them as they scale.
Equity vs. debt: plan financing strategy early; protect ideas and document ownership.
Monitor GDP/debt concepts and unemployment types to understand macro risks.
Maintain a living business plan; invest in a strong team and robust working capital management.
Stay aware of monetary policy, inflation, and global financial risks as you develop a business strategy.