Hello. My name is Sergey Smirnov. I am an Associate Professor of St Petersburg State University. Today, we'll consider the main characteristics and features of the startups economy. A startup is a rapidly grown, dynamic entity. The majority of its indicators are changing quite quickly. Revenue changes because the company grow rapidly. The price may differ from client to client because of new customers. Some of them most powerful can offer and sometimes even appoint a new pricing condition. Eventually, the company's managers are looking for the optimal policy and can offer a new price in policy resulting in the products prices unstable. The product costs are also unstable mainly because of its high dependence on the change in scope of activities. In the case of startup, the cyclicity, seasonality, also as many other cost influence at features of the business are usually not had been fully revealed. They become apparent much later in a more major period of the business. But even if a startup is loss zone, this should not be considered as a catastrophic since it's a quite natural for a newly launched enterprise. Loses are very possible because entrepreneurs and managers are in the process of testing the business model. They still had to find the optimal parameters of business decisions. So loses acquired normal during this period. We can take Uber as a fine example. It has one of the most successful business models of the last decade, but it's still in the zone of loses and in fact, still spends shareholders money. Temporary losses are not a tragedy for a startup. They key point is much more important is to reveal their success factors of the business model and demonstrate dynamic market grows, gain customer liability, and reputation of a strong market player. One of the challenges facing new business is a choice of an economic viable variant of activity. On the slide, you see three options for one process variant A, B, and C have different levels of fixed and variable costs. Generally speaking, entrepreneurs and managers often underestimate the option of switching from one variant to another when a company is just starting its activity. In most cases, it's more profitable to rent resources. In rent resources, I mean buildings squares, expensive equipment, and even we can rent the staff instead of hiring them. If we look at the equation of total costs, we'll see that it consists of fixed cost and variables, which can be represented as variable cost per unit of production multiplied by the volume of production. The most preferable variant of the activity becomes evident depending on the volume of the scope of activity. To find the answer which variant is better? We represent the information in graphical form. On this slide, we can see three chart that represents total cost reflect in three variants of the one process. The intersection points of the chart Q critical reflects points at which they are peripheral process option changes. We can see that from zero production level, where business just starts and enters the market until a certain point Q first critical, the most preferable choice is one that has the lowest fixed cost and the max variable cost per union. Take the example of car-sharing service. What is the point of buying an expensive car and pay maintenance service and tax when you can rent a vehicle and pay per drive and minute? As a business is expanding, we achieve a new production level and reach the point of Q critical where their option of variant B became more preferable. This means that we have to choose the variants that has a higher level of fixed cost and low variable costs per unit. This option is optimal until we reach the next Q critical Q2. After achieving it, it is more profitable to switch to this version of the process, which means large investments to the fixed assets. For example, it may be the construction of own production facilities or expensive equipment. Inactive investment pool, which means their formation of own capacity makes sense for an already established firm that has worked out a favorable business model that has reached a fairly serious scope of activity.
