“Lies are like children: they’re hard work, but it’s worth it because the future depends on them.” – House, M.D.
Pugsley, prior to going for his midnight shift in the PEZ® mines.
I was talking to a friend yesterday when he mentioned that he had been transferred to manage a group of newly graduated college kids. To be clear – this group of college graduates is in no way typical – I imagine that they’re making in range of $80,000-$90,000 a year. Not Harvard Law money, but still pretty good for the small(ish) town my friend lives in. So, as a new manager to the group (he’s been managing people for decades, and he’s a good one) he got the group together to explain what he was looking for from them, what his general expectations were of his employees. In one line that has been standard for him for years, (I heard it from him when Bill Clinton was President) he indicated that he expected the group to put in, on average, fifty hours a week.
My friend had become Literally Hitler.
He eventually backed down to forty-five hours per week, and was demoted to just being Literally Saddam Hussein.
As he told the story, I laughed.
The irony is that these college grads that actually do put in the long hours that my friend suggested will soon be so far ahead of their colleagues that their colleagues will never be able to catch up with them: the harder worker will have more knowledge, more skills, more credibility, and very soon, much bigger raises and promotions. Their colleagues will call them, “lucky.”
90% of success is showing up on time. At least 5% is working just a bit harder, so your skills build up faster, especially when you are young. (The remaining 5% is turtles. All the way down.)
What’s the point in all this hard work and achievement? To be rich? To stress yourself out to the point where you have a heart attack in your 30s and die?
The point is Value Creation.
One of the coolest aspects of the capitalist system is that it allows you (really, forces you in a purely capitalist system) to be of value to your fellow man. Capital flows to those that create and provide value. So, in a truly capitalist system, you create wealth for yourself by creating value for someone you might not even know or ever meet. Bill Gates made money when I bought my copy of MicroSoft® Word™, and yet he’s never invited me for dinner. Nor will he, unless that restraining order lapses. I’ve told him to stop calling me, but that man won’t listen.
Value creation is like magic. You take an idea or concept to make someone else’s life better, and then you create a product or service out of wood, metal, plastic, or just plain computer code, or, like this blog, just out of pure ideas. If your idea is good, people will buy it, eat it, or read it, but probably not all three, unless it’s breakfast cereal.
Capitalism is simple – you (should) make money only when you create value for someone else. Value Creation is nearly alchemy. Alchemy was (at least in part) focused on turning lead into gold. Capitalism is better. It can turn cow poop into gold – when sold as fertilizer. In a capitalist system, we transmute lower valued items into higher valued items every day.
The flows of capital follow the paths cut by Value Creation. Those people (and businesses) that are best at creating value get more money. What do they do with that money? Do they put it in a box? No. They use it to create more value.
And that’s what my friend’s newly graduated college students do not get. The business isn’t there for them to have a great life. It doesn’t exist to pay them a living wage. It won’t pay more because housing is more expensive where the business is. Companies pay based on the value the employees create. Don’t create more value than somebody else would for minimum wage? You’ll get minimum wage. Don’t create enough value for a three bedroom house on two acres in San Francisco? Your boss and company don’t care.
In the end, it’s Value Creation. How do you do it?
There are lots of ways, but perhaps the best way to create value is to solve someone’s problem. The bigger the problem and the greater the number of people, the greater the value creation, and, generally, the greater the wealth that the person or company can expect to get. The cell phone is a great example – before it existed, people spent no money on it. After it was invented, people would spend . . . some money on it. After the phones got data, and the phones got smart? Massive floodgates of money poured into a product that had never existed. Apple© went from a value of $30 billion to a market cap of 30 times as much, nearly a trillion dollars after their innovation with the iPod® and with the iPhone™. They created a new category, and brought value to people in ways that nobody (except Steve Jobs) anticipated. I hear that their primary focus right now, however, is bringing Steve Jobs back to life, so they can have a new idea.
The effort that went into creating the new products that Apple® launched was legendary.
And it was more than forty hours per week . . . because changing the world takes more effort than that . . . .