“Money” and “Wealth” are two simple concepts that people often say interchangeably. Growing up, I have always thought these two are the same. That turns out to be a mistake. They are two different things — i.e., money is a medium of wealth, but wealth is not all money.
Let’s talk about money first. It usually comes with a currency sign and can be in the form of paper or digital credit. A simple enough concept we typically don’t overthink about. At its essence, money is a fictional concept that we humans together have faith in, just like religions, corporation entities, and even Bitcoin. If we look at human history, it was a big breakthrough when humans collectively decide to take this concept of “money” for trades instead of real goods. Money allows convenience and enables faster trades when you don’t have to drag a sheep for shoes. Money is a medium of wealth, but it’s also an enabler for speedier wealth creation. So when we say “how to make money,” we mean “how to make wealth.”
Now let’s talk about wealth.
On a macro level, wealth represents a society’s overall living standard, wellbeings, and goods it possesses. And these tangible and intangible kinds of stuff are created by humans working collectively in a flexible fashion.
For example, living in the modern world, we don’t need to ask for or get to the know the person who makes our clothes, preps our food or build our shelter. We have this massive system called “Division of Labor” — with each member making things that other people want. More importantly, we can do it flexibly within either a small commune group or a thousand-person entity called a multinational corporation. It’s a powerful thing. In the animal world, for example, bees can have a perfect “division of labor” system, but the structure is very rigid, and there are certainly no corporations among the bees.
Humans are the only species who can create wealth on a massive, systematic level and yet in a flexible, adaptable fashion. And that’s how we create wealth for humanity as a whole.
Now let’s zoom in to a micro-level. An often-used phrase “turn lemon into lemonade” does capture the essence of creating wealth. In this case, one lemon at a time. For example, on a hot summer day, a little girl — also a future entrepreneur — bought a lemon for $0.5, squeezed it, and put into a cup. Now it’s sold for $1.5. Then that extra $1 is wealth that didn’t exist before she squeezes the lemon.
It’s important to note that the dollar sign (money) is a measurement of wealth but not wealth itself. Now let’s say if the little girl doesn’t sell the lemonade but instead drinks it herself. Does that wealth disappear? No. The wealth was still created because it had improved one’s living condition by quenching the maker’s thirst on a hot summer day. Other examples would be that if you decide to renovate your house by yourself — the end product would definitely increase the value of your home (assuming you don’t have a terrible decor taste.) But even if you don’t sell it, the renovation improves your well beings and life condition. And that’s wealth.
So making wealth is about making stuff people want, for oneself or others. Once we establish that, we can then dig into the topic of how to create wealth fast.
You would generally need two qualities: 1) make things not just for yourself, but for many others**; 2) make things once, but they can be used by others many times. In business terms, the first one is called “total addressable market,” and the second is “scalability or leverage.” There is a reason that investors love technology business because it usually resembles both qualities. If we look at the most valued companies and the wealthiest people today, most of them are undoubtedly in or related to the technology business (Financiers can get wealthy too because they usually master the quality of “leverage.”) It’s not coincident.
I believe it’s important to have such a mental framework for money v.s wealth, as wealth is the one we are seeking to create, and money is often a measurement of that. So “how to make money” turns out to be a false question. What we really want to have is to create wealth. To do that, we will need to make things other people want — hopefully, many people will want it; ideally, we want to make it once but sell it many times. Simple yet tricky, for that it’s the essence of technology entrepreneurship and venture capital.
Why?
Either you are a founder or a VC; what we stand behind is the startup entity that’s going to change the world. Often time its hard to tell if the evolving market is big enough, especially if you only get to stare at the current one. Think Airbnb vs. hotels in the early days; think Google vs. Yahoo plus thousands of other search engines; Think Salesforce vs. on-premise CRM solutions. There was no way to know if the majority of people in the future would need the stuff you are building/ funding now. Hence the inevitable uncertainty of wealth creation. Unless you can envision. Or imagine.
Albert Einstein’s famous quote goes:
“Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution.”
The longer that I am in the technology and investment business, the stronger I hold on to such belief: the ability to imagine is the key for the ultimate wealth creation and is what separates a great Founder / VC vs a good one.
And in the venture, being great is where it all matters.
**we can go more in-depth on the first quality — i.e., make things. I do believe what to make matters. There is a substantial difference in making things that will drastically increase society’s productivity versus diminish it, although both ways can make the makers very wealthy in the short term. But that would be the topic for another post.
The post was first published at https://www.amisfit.vc/blog/money-wealth-and-imagination
