It might be in the middle of the night. I might be drunk. But I have to write this down.
Everyone of us have to obey and respect a set of constants, things in life which we cannot change or alter. Just as we have to obey the law of gravity, we only have 24 hours in every day and we all are destined to die. We can’t deny this.
But if we all have to follow the same rules in life, how come some people succeed where other people fail? How come some people are tremendously successful while others spend their lives living in poverty? We all have to follow the same rules; yet some people come out on top.
So why is this?
In life I believe there are two very important components we have to pay attention to: time and value. Bill Gates, the world’s richest man, has clearly figured out how these two measurements are related.
If we for example take the average Joe out there, we’ll probably see a few differences. The average Joe is probably employed by a company, working 40 hours or more per week. The thing that a lot of people who are employed do not really realize is the fact that they spend their time making someone else rich. Your paycheck just represents a fraction of the actual value you create for the company you’re working for. Your company reaps the benefits of your work, not YOU.
Bill on the other hand probably won’t have to work another day in his life to live a life in abundance. He probably makes more in a minute than you and I combined make in a month. So he’s clearly on to something… but what? Bill found a way to make money irregardless of the time he spends making money. So he can make a killer living by sleeping, or just lounge by the pool. So there’s clearly a principle at work here:
The money you make should have no correlation to the time you spend making them. Makes sense?
Bill might have spent a lot of hours in the beginning of Microsoft’s history without getting anything back, but that’s just the way it works. In the beginning you might create a lot of value without getting anything back - but in the long term (if the product or service is valuable) you’ll get a really good return on investment for your efforts. Eventually the return on investment you’ll get from your product or service will be non-correlated to the initial amounts of hours you spent on creating the product or service in the first place.
What you can probably tell is that I’m pretty much suggesting that (some - not all) people should aim to be self-employed, or preferably, to be a business owner. In the end, what it really comes down to is the choice between security and yield. The reason a lot of people are employed are because they enjoy the security and comfort a job brings them. The reason a lot of people start their own companies are because they’re striving for a higher yield than the yield they’ll receive from being employees. It’s just that simple.
I’m not saying that each and everyone should quit their jobs and join the entrepreneurship-bandwagon. I’m just saying that these things are worth thinking about. Some people should be employees (and happily so) and some people should go about setting up their own companies. The former enables the latter to create more value and a higher yield while the latter enables the former to enjoy a life of security. That’s the beauty of the world - we’re all different.
So to tie this all together: Time is a constant, Value is a variable. We all have 24 hours every day to spend; some people spend their 24 hours creating minimal value, some people spend their 24 hours creating amazing amounts of value. We all have to find a way to optimize the value we create during the fixed set of hours we have to our disposal.
This is far from the complete story, I just felt that I had to jot these specific thoughts down somewhere. It is truly worth thinking about, and I’ll expand more on these thoughts some other time. Good Night!
7 comments so far leave a comment ↓
Martin Melin
May 30th, 2009 at 12:59 am
I think you’re describing two concepts here that, while similar, are quite different.
For one, as an employee you are indeed only compensated for a fraction of the value you create. Whether or not the absolute amount of that fraction is larger than what you would get when getting 100% of the fruit of your labor, but being on your own, varies.
However the more important concept here, which I agree is very important to understand, is that you need to disconnect your input from your output. In other words you create a scalable model, where time spent working is not a factor in the value you create.
Nassim Nicholas Taleb’s The Black Swan talks about this at length and I would recommend a read if you haven’t read it already.
My point in all this is simply that your two concepts are not necessarily related - employees can work in scalable models where their value creation and compensation are not related to their work input, and entrepreneurs can get caught in the trap of tying their output to their hours spent (something I fell into myself at first).
Sebastian Johnsson
June 4th, 2009 at 10:15 am
Hey Martin.
After re-reading my little post (in a more sober state) I’ve realized that I didn’t really explain a few things in depth.
You’re absolutely dead on about the idea of absolute value. Setting up your own company isn’t a 100% surefire and foolproof way of creating more value in absolute terms, and it surely doesn’t guarantee that you would be able to make more money than being an employee.
Another thing that I didn’t really go into detail about is the difference of being self-employed and a business owner. Being self-employed is pretty much like being an employee - in the majority of the cases your input is highly correlated to your output - the amount of money you make is highly correlated to the amount of hours you spend working.
To be honest, I’m pretty much still stuck at this stage. I’ve been running an IT-consultancy company for a few years and during the most of this time I’ve pretty much only worked in a way in which my time was highly correlated to the money I would make. The more hours of consulting I did, the more money I made.
It is just recently that I started to look into hiring other freelancers to do the majority of the work for my clients. I’m still experimenting with this and I’ll probably give outsourcing to India, Russia and similar countries a go to free up even more of my time.
What I’m aiming for is to transform myself from being self-employed to being a business owner where the income I make comes from scalable products and/or services.
As you’ve said, there might be opportunities for employees to conduct their work in a scalable, no-input-to-output-relation, model where they’re rewarded for their work in a greater extent.
I do however believe that this isn’t a very common case. I believe that the majority of the employees in this world are stuck in the endless rat race with 40ish hour work weeks, the money they make being highly correlated to the amount of hours they work and the money that they do make only representing a fraction of the actual value they created.
I’m not saying that employees are dumb, stupid or whatever for sticking to this common model. We humans are all different; some people enjoy the security and routine that comes with a job and some people are willing to take risks and make sacrifices in the pursuit for a higher return on investment for their work.
I do believe that if you’re smart, ambitious and do want to make a dent in the universe, that you should go about trying to create a product or service of your own. You might fail, you might succeed - and if you do, you’ll probably be able to work less hours than most people and make more money than most people.
Regarding the book, I haven’t read it yet. Definitely going to check that one out. Thanks for the recommendation and your comment!
Wes Blair
June 4th, 2009 at 7:46 pm
I absolutely agree with you on this one. One “problem” I see often is the simple fact that people don’t want to risk leaving their comfort zones. They would rather stay inside their “safe” little box. Unfortunately, in many instances, it’s actually more risky to play it safe than to take a risk and peek out of the box. I currently in the beginning stages of entrepreneurship myself and fall into the “self-employed” category. Hopefully I’ll be able to transition into “Business Owner” category soon though….
Life Quote
July 23rd, 2009 at 4:58 pm
Passive income….it is a Beautiful thing! Whether it is by having others produce an income for you, or by creating a perpetual wealth machine, the richest peole in the world do not waste their time “earning” their money (in the traditional sense). They have people or machines earn it for them.
Aislinn O'Connor
July 23rd, 2009 at 6:32 pm
Society has largely been conditioned since the Industrial Revolution to believe that the only viable means of making money was working for an employer. Only one generation before that, the idea would have been laughed at - almost everyone was self-employed, or worked in a family business (farming, lace-making, carpetry, brewing, or whatever).
Some people genuinely like what they still believe to be the security of working for an employer, and it’s certainly much less scary than working for yourself.
Unless you have a realistic chance of ending up running the company, though, the trade-off is that you’re never likely to make any REAL money.
Merely being self-employed more often than not ends up as drudgery, with long hours and customers or clients every bit as awkward as the most demanding boss.
The beauty of the Internet is that it gives you the perfect platform for “create once, sell forever” products such as software, music, books, etc, and even lets you (eventually!) build your business to a point where it becomes self-sustaining and provides both the money and the free time to spend the way you want to.
If you’re going to do that, though, you need to understand one thing - no matter what the courses tell you, it DOESN’T happen overnight. You’re going to have a lot to learn, and you’re going to make plenty of mistakes, before the cash starts rolling in.
My advice? Try it in your spare time first. Build your savings up as much as possible (don’t worry about the effect on your social life - you won’t have time to go out, anyway!).
That gives you a chance to see if your idea is profitable - AND if you’re the kind of person who can work all day at a computer, on your own, and still stay sane.
If in either case the answer’s “No”, you can walk away with your head held high (you’ve given it a go - that’s more than most folks ever do!) and no financial damage.
If it’s “Yes”, though, you’re on a winner. Go for it!
Sebastian Johnsson
July 23rd, 2009 at 8:46 pm
@Wes:
Yeah, I completely agree with that. As you said, a lot of people stick to thinking it’s more risky to play it safe than to take a risk and peek out of the box and try something new and different.
@Aislinn:
Whoa, really like your ideas and your advice. Especially the part:
“If you’re going to do that, though, you need to understand one thing - no matter what the courses tell you, it DOESN’T happen overnight. You’re going to have a lot to learn, and you’re going to make plenty of mistakes, before the cash starts rolling in.”
A lot of people seem to miss this, and as you say, they’re all hyped up by everything they read about “Making loads of $$$ in no time at all using (insert random method)”.
Building a sustainable business takes time, effort and most of all, persistence.
Great comment and thanks for taking your time to write it!
my website value
June 14th, 2010 at 9:50 pm
make money is very easy.but we should work hard forwrding untill the success.