The Enterprise Network

Members of the Polymathic Institute will receive regular articles on the economics of the Information Age that will assist them in building an Information Age career and to function optimally within our Culture of Affluence.

An Enterprise Network is a private, bounded, opportunity rich and success prone productive environment.  Over the next twenty years it will replace the more rigid and hierarchical corporation as the dominant enterprise structure of the Information Age.
 

As you consider The Transformation, you will undoubtedly notice the opportunity for many new careers and enterprises.  As shown on the graph, these opportunities will place a layer of more entrepreneurial activities on a sharply declining supply of traditional jobs.

However, the Industrial Age image of an entrepreneur as a monomanic, visionary, highly self-promotional and intensely goal oriented person doesn't fit most people.  If the employer-employee relationship will comprise a relatively small minority of the workforce in the Information Age, a new, more encompassing, paradigm for the entrepreneur needs to be developed.

That new paradigm is expressed within an Enterprise Network.

First, let's get a visual picture of it.  The red rectangles are funding organizations that today might be called Venture Capital Funds.  However, in the Information Age, they will actually be targeted crowdfunding platforms.  The light blue are corporate overhead service providers, which may include accounting, human resource, IT, legal services, etc. on a consultative basis.  The green circles are the individual, independently owned and operated, enterprises.

The enterprises will tend to be much smaller than Industrial Age enterprises.  First, consistent with The Age of Boutique Everything and The Cultures of Affluence, they will be providing niche products and services.  Second, consistent with The Income Explosion and Technological Unemployment, they will have highly automated operations.

Each enterprise may also have contractual or equity relationships with other enterprises within the network that may be the result of a vendor or customer relationship..

Information Age companies, as discussed in The Death of Capitalism, have a theoretical  return on book value of 67%.  In fact, by using more aggressive financing and organizational models, many actually achieve results that substantially exceed this.  So, let's look at a ten year result when an initial million dollar investment can productively retain and deploy its earnings.

Year	Beginning Book Value	Net Income at 67%
1	$1,000,000	$670,000
2	1,670,000	1,118,900
3	2,788,900	1,868,563
4	4,657,463	3,120,500
5	7,777,963	5,211,235
6	12,989,199	8,702,763
7	21,691,962	14,533,614
8	36,225,576	24,271,136
9	60,496,712	40,532,797
10	101,029,509	67,689,771
Ending BV	168,719,279

There are several methods for determining the market value of this enterprise after ten years.  We can imagine a P/E Ratio of around 15, which would place the value of the company, based upon its tenth year income, at about $1.0 billion.  This would imply a very conservative Price to Book Ratio of 6.  In reality, actual Information Age  companies such as Cisco, Amazon and Google, tend to have Price to Book Ratios of 10:1 or higher.

Now, on to the next step; let's assume that the passive investors in the Network will typically receive 20% of the equity for 100% of the investment.

Total Market Value	$1,015,346,565
Passive Investor Share	$203,069,313
Total Return	20,206.93%
Annual Rate of Return	70.04%

Let's look at it from the income stream viewpoint.  Suppose you, as a passive crowdfunding investor, put 1,000 2013USD into this business.  That will buy you 0.2% of the equity in earnings.  Therefore, after year ten, you can reap an annual income stream ≈ 17,000 2013USD (168,719,279 X 67% X 0.2%/132.94%CPI).  Clearly, that completely changes the investment dynamic and your expectations of and appetite for private investments.

So, the rational decision for anyone who thinks that they can pick winners a reasonable percent of the time is to divert investment funds from the public equity markets to the private equity market.  Furthermore, these new start-up investors will understand that Enterprise Networks, with their readily available investment sources, expert consultative services and the competitive advantage of economies of scale, are a success prone environment that will substantially reduce the failure rate of its member enterprises.  Success rates within Enterprise Networks will likely exceed 50%.

Now, let's look at our example from the point of view of, say, a six person management team sharing the equity equally.

Total Market Value	1,015,346,565
1/6 of Entrepreneur Share	$135,379,542
Annual Profit Year 11	113,041,917
1/6 of Entrepreneur Share	15,072,256
Approximate 2013USD	$11,215,174

The entrepreneurs will, of course, receive a salary with the equity in earnings being apportioned in a manner specific to the enterprise and its entrepreneurs.  In this scenario, for the first ten years, they will receive no dividends.  This is stylized and not realistic.  While the enterprise will likely grow at the maximum rate that can be internally financed for the first several years, at some point prior to year ten, the growth rate for most enterprises will slow down and an increasing share of the profits will be given out in dividends to the entrepreneurs and, parenthetically, to the fund..  This means that dividend income will start sooner and the ultimate value and earnings of the enterprise will be somewhat less. 

At this point, let's recap.  First, remember that the calculations here are based upon hypothetical results that are, however, consistent with actual Information Age companies and their share and financial performance.  Second, this clearly indicates that a wonderful new age of cooperation and long term commitment between entrepreneurs and the investment community is about to dawn.  Managing to next quarter's results will become a thing of the past.  Third,  the above begins to explain why prevailing incomes of over 1,000,000 2011USD in the Knowledge Class are realistic.  Fourth, you can see what at least a portion of the Knowledge Class will be doing to acquire such incomes.

Since Real GDP in the developed nations is going to increase at least ten-fold during the Transformation, 90% or more of the their 2040 GDP will need to be 'new business'. Additionally, what are currently considered to be 'developing nations', most notably Brazil, Russia, India and China (BRIC), will likely 'catch up'  Overall, Gross World Product will likely increase more than forty fold.

Consequently, while the markets in publicly traded securities will be bearish for the foreseeable future, the business outlook is strongly bullish and that will translate into a strongly bullish private equity market.  There is, essentially, a whole lot of business to get and the investors and entrepreneurs of the Enterprise Networks will be the ones who get it.

There are several reasons why the Information Age Enterprise Networks will replace the traditional hierarchical corporations.

First, they will out-compete them because they will be more responsive to changes in the marketplace.  As the Income Explosion, The Cultures of Affluence and The Age of Boutique Everything rapidly change society, culture, economies and markets, the centrally planned and controlled, hierarchic corporations will not be able to respond quickly enough to take advantage of the new opportunities and to avoid the repercussions of the new threats.

Second, large, often multinational, corporations are creatures of the global public equity markets.  Their rates of returns, their structured equity sections, their management relationship with markets and market analysts define them.  As the investment dollars are driven to the private equity markets, with smaller scales and higher risk adjusted rates of return, they will not be able to provide the equity instruments and structures that the new investor wants.  In response, large corporations will likely decentralize and offer shares in subsidiaries and business units for sale in an effort to become competitive with Enterprise Networks.  Some will succeed.  However, they will no longer be what they were.  They will have essentially converted themselves into an Enterprise Network.

Third, Enterprise Networks are free to make superior long term decisions while publicly traded multinationals are driven by the need to 'deliver' on the next quarter's results.  Over time, this superior decision making environment will result in superior decisions which will lead to greater success and competitiveness.

On the other side of the coin, the best Knowledge Workers will prefer the relationship being offered by Enterprise Networks over what is offered in a traditional employer/employee relationship.  It is also far superior to the Contractor or Consultant relationship.  The astute reader has, perhaps, already caught that being an entrepreneur in an Enterprise Network does not require start-up capital.  It simply requires the ability to find a place in the structure and then take advantage of the success prone environment.  Unlike the current entrepreneurial market, this will not require the participant to be a self-promoter or to possess a monomanic personality.  There are no dictates from on high.  The local management team, advised by expert Network consultants, is in charge. 

The Polymathic Institute Enterprise Networks 

The polymathic Institute promotes polymathic research, education, careers and lifestyles.  Providing success prone productive environments enhances all four of these.  Consequently, at the beginning, The Polymathic Institute will emphasize the service of providing its Members with the tools they need to create or join an Enterprise Network.

The first Enterprise Networks will be 1) Polymathica.com, 2) Polymath Education and Certification and 3) Polymathica Boutique Villages.  The Polymathic Institute will retain a share of the equity in Polymathica.com which will be used to promote polymathic research, education, careers and lifestyles.  The Polymath Education and Certification and The Polymatnica Boutique Villages Enterprise Networks will be administered by The Polymathic Institute as part of the Institute Membership fee. 

 

Conclusion

The imminent transformation to a global, Information Age civilization, with its Income Explosion, Death of Capitalism, Age of Boutique Everything and Cultures of Affluence will destroy current markets and enterprise structures and replace them with new versions compatible with Information Age realities.  The Transformation will see the end of the multinational and hierarchical, Industrial Age corporation as the dominant business structure.  Volatile, publicly traded financial markets will lose significance as private equity funds, providing superior growth and high return dividend streams come to dominate the global economy.

Enterprise Networks will arise, replacing the large, hierarchical, publicly traded corporations of the Industrial Age.  The Networks will be bounded, enterprise communities rich in resources and opportunities.  They will be flexible, capable of responding quickly to changing technologies and market conditions, while capitalizing upon the economies of scale that come with strategic aggregation.

The significantly better incentives offered to participants will attract the very best Knowledge Workers.  Even in the very early stages of development, incomes characteristic of the Knowledge Class will be available to their members.

A new Knowledge Class will arise, a portion of which will comprise the management teams and enablers of small, niche oriented providers of goods and services.  The design component of product price will come to dominate and creatives and designers will be the new, hot career.