Three Economics Truths for Entrepreneurs

Being an entrepreneur is about producing a good or service for the advantage of others. Business is about connections and people, hence every entrepreneur should be aware of how best to assist others.

Although knowledge in marketing, accounting, product development, and every other facet of the company is vital and required, often economics is overlooked and disregarded.

Since economics is about human behavior, incentives, and the distribution of resources—all of which are vital knowledge for any entrepreneur—this is a great error.

Every business owner should so commit the following three economic facts to mind. Doing this can help your company grow to new heights, better serve your clients, and boost earnings unlike anything else. 

1. Economics is not Finance

I constantly hear a widespread misinterpretation of economics as essentially about getting money. False is the outcome here. Other misnomers cover banking, investment strategies, and wealth building techniques. Good businessmanship does not translate into good economics. 

Though it may somewhat address each of these subjects, economics is not about that. 

Economist Thomas Sowell's textbook definition of economics is, "the allocation of scare resources which have alternate use." 

This essentially indicates that although there is a lot of things that may be used for many various reasons, it is restricted therefore individuals have to choose what to produce and what not to build. Actually, it's just that straightforward.

Now, when you start to go into economic systems, how it works, how that affects the economy, and the other major subjects you study about, where economics gets perplexing and intimidating. Fundamentally though, economics is about how things are distributed.

Although they have limited money, resources, and demand, entrepreneurs naturally grasp this; their job is to expand each.

It helps one to know the backdrop and basis of this mystery.

2. Economics Greatly Affects Public Policy

Seeing how many successful business owners back poor policies that negatively impact their consumers, staff, industry, market, and sector is astounding. 

I first saw this soon after graduate school when employed at Fidelity Investments. Having more than $3 trillion in assets, Fidelity Investments was the biggest 401(k) provider in the nation at the time. Mass quantities of money are involved here.

Protests against Wall Street's avarice and wickedness known as Occupy Wall Street emerged during this period. This includes individuals demonstrating at California Bay Area local Fidelity Investment locations, one of which I worked at. 

I was really barely out of grad school and totally destitute, not really wealthy at all. But since I wore a suit and tie to work, I appeared terrible to the demonstrators outside. Mind that the suit was bought on-sale at Men's Warehouse and the tie was a hand-me-down from a retired businessman. 

Still more fascinating were the remarks I overheard from my colleagues. Most of them backed the cause of the demonstrators, "Wall Street is evil!" and agreed with them. I am over here, like "guys, we work for Wall Street." Still, the demonstrators lacked the connecting dots. They failed to see that their direct support of the demonstrators and the related policies would damage our sector, make our jobs more difficult, increase the volume of paperwork we already had to do, and generate extra obstacles to entrance that would truly harm minorities and women entering the financial world. You may also read this: 5 Common Startup Mistakes to Avoid

3. Economics is About Human Behavior

Considered the Father of Economics, Adam Smith wrote his well-known book The Wealth of Nations in 1776. Most people are unaware, nevertheless, that Adam Smith first and foremost was a moral philosopher before penning his seminal work on economics. 

His lesser-known earlier book is titled The Theory of Moral Sentiments. Understanding and examining the ideas of conscience, moral judgment, virtue, and the larger good dominated the whole book.

Therefore, every entrepreneur should realize that economics is about human conduct and every activity, good or bad should be in accordance with ethical and fair behavior. Every entrepreneur in the world should always have moral activities benefiting others, mutually beneficial interactions free from coercion on top of services to others right at hand.

The idea that the world is not flawless and never will be also gets omitted most of the time. Individuals are not flawless either, hence we should not demand perfection. Rather, business owners have to cope with the reality we live in and provide our goods and services within that framework.

How should I study economics?

To really comprehend economics, you don't have to return to school. Here is a quite brief list, nonetheless, to help you lay a strong basis of economic knowledge:

• View the Fear the Boom and Bust Cycle rap video created by economists; although humorous, historically true. This will enable your passion of economics.

• Thomas Sowell's Basic Economics is a great introduction with historical background to help you grasp economics; it is also easy to read and features no complicated charts and graphs.

• Then read through, Economics in 1 Lesson-written by a newspaper editor, this book is brief, straightforward, and covers the major economic ideas.

• Spread your reading in several directions. Flip through the New York Times and the Wall Street Journal. View CNN and Fox News. When you run upon a problem, investigate both sides.

• Keep in mind that trade-offs exist always. Perfect solutions are unattainable.