Umair’s recent talk at the BRITE conference (embedded below) got me thinking this morning on the subject of authentic value creation. I think it’s a fascinating subject. The notion of authentic value creation is creating products and services that make the lives of those who consume better. Pretty basic huh? But what’s interesting to follow is how little emphasis this notion has received in most of the corporate world.
Umair uses the example of the food industry and I think it’s an appropriate one. The food industry (let’s say fast food for the purposes of this analogy) certainly does provide some benefits to society. Calories. Enjoyment of eating meals with friends/family. Convenience and time savings associated with not having to cook. However, the modern fast food industry also imposes a slew of costs on society. Huge environmental costs. Significant contributions to our obesity epidemic (this video will blow your mind).
But here’s the interesting part, the vast majority of those external costs are not borne out by the fast food companies making money off selling their food to consumers. McDonald’s doesn’t pick up the cost of the heart attacks its food helps to cause. Burger King doesn’t have to pay anywhere near the true costs of those flame-broiled Whoppers. So they are able to artificially create value by charging a lower price and making higher profits than they would if they had to pay the true costs that their products are imposing on society.
Fast food is hardly the only example of this. Other forms of inauthentic value creation can be seen in every nook and cranny of society. Anywhere there is an option to take true costs of a product and externalize them you get inauthentic value creation. Anytime you see government subsidies increasing a company’s profits, whether this be a corn farmer in Iowa or an investment banker in Manhattan, you get inauthentic value creation.
So lest I end this blog post on a depressing note, let me talk about an area where we are, recession and all, seeing a tremendous amount of authentic value creation: Tech entrepreneurship. Now as a tech entrepreneur I’m admittedly biased but let me offer up a few data points here:
#1 – Watched this excellent TED Talk by Juan Enriquez (embedded below) a couple of days ago and he quoted an amazing statistic:
“Venture-backed start-up companies are 0.02% of US GDP investment and are about 17% of output.”
Wow. That’s a mind-blowing statistic. We’re spending such a small amount of money on funding new technology and yet receiving enormous payback (think Google, Apple, YouTube, Amazon, eBay, etc.).
#2 – Look at the example of YCombinator, a program that I think is, on a pound-for-pound basis, the most innovative thing going on the planet. In the last few years, with a relatively small amount of money, YCombinator has produced a host of high-value services like Dropbox, Loopt, Scribd and Xobni. Check out this recent Motley Fool article “Ignore YCombinator at Your Own Risk” for some more on just how much they’ve done with so little.
#3 – The other side of the authentic value equation of course is cost and here’s where tech really shines. Unlike industries like energy (at least traditional energy), food and health care, it’s difficult to see in tech where significant costs to society get externalized. This isn’t to say it doesn’t happen but rather than the costs are so small relative to the benefits that technology is affording us that it’s hard not to argue that when costs are factored into the equation, technological innovation doesn’t represent, by far, the most significant authentic value creation on the planet.
The thing about authentic value creation is that it doesn’t get recognized immediately. Which is why YCombinator doesn’t have many multi-millionaire alumni rounding around despite the fact that Wall Street ignoramuses continue to pull down fat paychecks and bonuses. But I’m an optimist and I believe that eventually what you do catches up to you. It’s starting to happen. The playing field is starting to level and tech is playing a big role in making that happen faster than most people realize. Let’s hope it continues and intensifies as the meme of authentic value creation spreads to more people. I’ll let Umair take it from here…
Umair Haque Q & A from BRITE ‘09 conference from BRITE Conference on Vimeo.
Wed, May 6, 2009
Disruption, Entrepreneurship