Value Creation vol. 1

Value Creation

For a while I have been wondering about the concept of VALUE and what we put in it. I have tried to challenge friends of mine with my thoughts, and have been met by rebelling arguments against my own, founded in the definition and understanding of the concept in-between people. To fully discuss the subject of Value, I will start out trying to define: what is Value?

Value is a broad term and means something different to everyone. However, if we have to agree on certain topics that creates value. I have five for you! – You are probably familiar with the theory of Maslow’s Hierarchy of Needs, developed in 1943 by Abraham Maslow. Maslow’s Hierarchy of Needs is a theory in psychology, and it gives us five basic needs that we can compare up against the concept of Value. What I’m arguing, is that we create value to fulfil each one of these needs. In our modern society a lot of these needs can be related to money which for many is the definition of value. However, a need such as love and belonging is not in particular money related and therefore value created from friendship, family and sexual intimacy.

I will like to continue with the concept of money, because it is measurable in comparison to love and goodwill. Considering money as our primary source of Value, we can measure how much value you can create, which brings me to the next topic of this article: Time. 4

We all know the saying “Time is Money” and the most people tend to agree. If money equals value, then value equals time. Let’s try and work with the concept of “Time is Value” and if time is the most valuable thing you got, you might want to consider how you spend it. But what is time and can we define it?

The definition of Time

management_time_line_model
management_time_line_model

Time is in reality an indefinable concept measured in seconds, minutes, hours, days, weeks, month and years. Time is measurable, but indefinable, simply because we know when it starts, but not when it ends.

I will like to present a management theory that I got to know from professor Nils Villemoes. The theory is centred on a human time-line, and starts with birth: Year null. From here it continues with childhood, teenage life, and higher education until graduation. We are still considering money as our primary source of value for this example. Upon graduation comes the time for people to make money or value until the day of retirement. This is very much the circle of life for the majority of the western world’s population. Accepting this as a simplified example, we see that an average person has about 40 years to create value. The question is then how to create the most value with the limited time?

An average work day

We have probably all at some point wished for more hours in a day, but sadly we are all limited to 24. Of those 24 hours an average person will spend what is close to 8 hours sleeping, leaving us with 16 hours awake. These 16 hours are distributed for duties such as cooking, eating, exercise, and even TV and relaxation time. Putting the numbers together leaves us with close to no free time. And for the most people this free time is non-existing. The point I’m stating is that the amount of time available for value creation is extremely limited.

You can make your own 24 hour chart and discover how few hours you actually got to create value.

Creating the most value

We can agree that we all have a limit to how many hours a day we are able to work. Take that number multiply it with days a week you work, and again multiply with 4, multiply with 12, equals the number of working hours in a year, approximately. Then multiply that with your hourly pay and consider if you like your annual salary. That salary will increase slightly with inflation and promotions over your entire working life, which is approximately 40 years. If you are a nurse or an office worker, you can actually with decent accuracy calculate your life pay and you will know that owning a Ferrari, a large house and a boat is simply not possible. So what to do?

Inspired by the bestselling book “Rich Dad Poor Dad” by Robert Kiyosaki, I will share with you a mind-set that makes the different between rich and poor. The concept is to set yourself above your limitations; in this example above time. But how do you do that? What Rich Dad says aka, Keith Cunningham: “DON’T WORK FOR MONEY, MONEY SHOULD WORK FOR YOU”. This means that money you have should work on its own. This is possible if investing or owning a company. What you seek is to maximize your interest.

Let’s consider owning a company. Owning a company you want to have employees, and you only have employees if they make you money. This is really the key; because the surplus gained, when you have paid your employees and other expenses, goes straight to the bottom line aka, your pockets. Expanding your business will increase your net worth and if you do well, you will see Ferrari, house and boat come a bit closer. Nothing is that simple, but the mind-set is real and if you got it, you are well on your way to create a lot of value.

Another good quote: “Why climb the latter, if you can own it”.

This was vol. 1 of Value Creation. As mentioned in the beginning of the article, value is a broad term and concept deserves a vol. 2, to follow up on why value that is not money related is important for you.