Value Creation vs. Value Extraction
Create more value than you extract seems like a good rule of thumb to follow in most endeavors. Other ways of saying this are pay it forward or give before you get but they all basically mean the same thing. Its a way to avoid the tragedy of the commons, which is obviously something we’d all benefit from.
I’m fortunate to work at a unique and special place with a strong set of values and a healthy culture. We haven’t exactly codified the principle of creating more value than we extract but its clearly part of how we do business. I’ve been thinking about that recently in connection with how we approach partnerships, how we create an outstanding customer experience and how we recruit and retain employees. It requires taking the long view, it often isn’t the obvious choice but its nearly always the right one.
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It came into focus this week when we were informed by a customer about their new payment terms and were asked/told that they now needed 90 days to pay. We’re still working through it so its premature to conclude that they are going it about it the wrong way, but it certainly has that appearance. One could argue that they are attempting to extract every ounce of value without thinking about the long term consequences or the broader implications. There is a fine line between being a hard nose negotiator/getting the best deal possible and being somewhat exploitative and taking advantage of the situation. Sometimes its hard to tell the difference.
At a venture backed Company where I used to work, we were having a tough go of it and weren’t getting the revenue traction we needed. To make it worse, we were running out of money. We needed to raise another round of financing but we couldn’t get much interest from new investors. Our lead investor from prior rounds was willing to put more money in but felt they needed to recapitalize the Company and lower the valuation. Sitting in our conference talking about the terms of the deal, our investor said “We’re f***ing you because we can”. I wasn’t sure whether to be grateful for his candor or be offended by his approach. He was right of course and putting in money at a lower valuation was absolutely the correct move, but it still felt kind of extractive in the moment.
It also applies to friendships and marriages; who wants to be in a one sided relationship where someone is always taking and never giving. If our bodies consume calories but don’t give enough back in the form of spending those calories, we get fat and unhealthy. If we take a paycheck without contributing sufficient value in return, we’ll find ourselves out of a job. If we extract value from the corner store without paying for it, we’ll find ourselves in jail. if we always let our friends pick up the tab, we’ll find ourselves not being invited out very often. There is a principle in here somewhere about how we treat the environment too, perhaps that one is a bit more complicated but the point is that long term sustainability in anything requires that we give at least as much as we get, preferably more.
