No, Wealth is Not a Measure of Value Creation

If you’ve been around the entrepreneur “motivational” space for a while I can guarantee you’ve heard this type of maxim before:

Wealth is a Measure of ValueYour Wealth Equals The Amount of Value You’ve CreatedTo Make More Money, Create More Value

While listening to yet another podcast repeating this stance, I realized exactly why it irks me so much and why it can lead entrepreneurs astray.

Last Saturday, I had to cancel a party last-minute and ended up with a big catering order. I searched for somewhere that could use the food that day, and found The Clock Tower Sanctuary, an organization that supports homeless youth here in Brighton, UK. The stars aligned and I was able to donate the catered food for their lunch that day.

Does The Clock Tower Sanctuary create value in the world? Yes. A huge amount. They serve people who have nowhere else to turn. I’m sure lives have been saved due to their work.

Do they create wealth? No. I certainly hope that their founders have not gotten wealthy from the project! Their budget does not automatically increase for every person they serve. (That would be nice!)

What about my children’s teachers? I’m immensely grateful for the value they create, and in my opinion their pay check is not even close to a match for the value they create in the world. Some children will have the entire trajectory of their life changed from one teacher.

So does value create wealth? No. Of course not.

And this sentiment is inherently insulting to all the people creating extraordinary value. Value which is very often completely unrelated to wealth creation.

We can also see that the equation is untrue in the other direction — does wealth come from value creation?

Well, can people create wealth without creating value? Yes.

That’s the whole concept of rent-seeking, often discussed in Nassim Taleb’s popular books.

There’s also the good ol’ scammer/grifter/charlatan. You can create huge wealth selling people outright lies. Or you can use manipulative sales tactics to sell something that the buyer immediately regrets, like time-shares. You can definitely create ANTI-value (making people’s lives worse) and make a whole lot of money because of it.

Why “Value Creates Wealth” is Bad Business Advice

OK, so we’ve proved it untrue. But it’s also unhelpful for entrepreneurs.

CAN creating more value create more money? Yes. Add more value to your offering, charge for it, if people agree to pay for it you’ve created more money.

But by pretending that statement stands alone, a lot of entrepreneurs get led astray. First, it really implies the ol’ “if I built it, they will come” doesn’t it? It makes it sound like if you just create something valuable enough the money will somehow start flowing.

In the SaaS space, I see countless aspiring entrepreneurs who want to build something cool but don’t want to tackle the marketing/sales side of the business. They’re hoping the product’s value will somehow be enough. It is not.

This advice also detracts from the very important yet often uncomfortable skill of making money.

Making money is a specific skillset that you generally need to have if you want to . . . make a lot of money.

And there are many different ways of making money — sales and marketing in your own business, buying shares of other successful businesses, salary negotiation at your job.

But looking at these things head-on often feels . . . icky? We would rather just focus on a nice agreeable concept like “value” than admit that if we want to make more money we may have to do something scary like learn how to build a business or start a new career path.

So it’s time to kill this frustrating and insulting “definition” once and for all. Value does not create wealth. Wealth-building creates wealth. Value creates value.