The History of Creating Value

The History of Creating Value, from Jeff Watson

April 29, 2013 | Leave a Comment

I really enjoyed this article “The History of Creating Value“. It has a great timeline showing how people made money through the ages. Stefan Jovanovich writes:

Warrior — “We can plunder grower’s food for the King”. Actually, not. Food is grown and taxed under the King’s authority so that the King can afford a standing army that picks fights with other standing armies.

Craftsman — “If we make things and found cities, warriors won’t get us.” Kings need palaces and priests need temples and they are sure as hell not going to be stuck out in the boonies.

Skipping forward…

Oil Driller — “since industrialists need to feed cars, oil” . Oil was used first for illumination, then for furnaces (both for direct heat and for steam), and only then for gasoline, which begins its history because the Russian oil production has created a kerosene glut.

Corporate Executive — “cars made large factories into corporations” – So this is why the East India Company and the Pennsylvania Railroad are really outliers.

Ms. Vital is the new winner of the Historicity Prize and is entitled to a full case of scuppernog.

Gibbons Burke writes:

The underlying thrust of this timeline is to argue that being a startup founder is the route to wealth and value creation today. Which is a great idea, and in line with Distributist economic organization, which holds that the main problem with capitalism is not when you have too many capitalists, but too few. The more owners there are in the society, the better.

But while the idea is a good one, the reality is that the road to wealth proposed by these startup evangelists is not to found and create a company which will provide a way to generate value for the owner over his lifetime, but to come up with a novel idea, develop it to the point where it has a proprietary advantage, and sell it to some corporate behemoth who has decided it it easier and much less risky to outsource its research and development to masses of proles living the startup dream. When one emerges with a good idea, simply snap it up and bring it into the corporate umbrella, and either monetize it and develop it further, or kill it because of the disruptive threat it poses to the existing herd of corporate cash cows.

The History of Creating Value

Anna Vital  /  April 24, 2013

At this point in history, startup entrepreneurship has become the fastest way to create value, and thus the fastest way to move upward in life. But this opportunity is unlike other opportunities humans had in history. Here is how you could create value before:
The Hunter Age. After hunter-gatherers became growers and herders, some people realized that it is faster and easier to go take other people’s crops and cattle than grow your own. War became popular. And wealth got a bad reputation.The Warrior Age. Going to war was the way you could create value for the king. If you came back alive he would give you land and slaves in exchange (you became his vassal).

The Craftsmen Age. The world pretty much stayed that way until about 9th century, when some people (who were too smart to be peasants but not aggressive enough to be vassals) realized that they could avoid being plundered by kings and their soldiers if they organized themselves into bigger groups – that is how cities were born. This is the time people first got the incentive to work harder and smarter, in other words be entrepreneurs. In cities, these people, called craftsmen or artisans, created value by making both useful and decorative artifacts.

The Explorer Age. Cities changed everything. Ideas swirled around and the more unscared ventured out to find the far away lands. They came back with silks, spices and other things people wanted but could not have before.

The Merchant Age. Once the far away lands were discovered, people who didn’t mind the risk of sailing really far to bring back exotic goods became the merchants.

The Mechanization Age. As craftsmen kept perfecting their skill, they came up with machinery. With machines you could mass produce things,  thus creating a lot more value a lot faster. Owning a machine became the next big thing.

The Industrialization Age. When electricity came around and machines became electric-powered, they started producing even more even faster. Industrialists became the big guys.

The Oil Age. Around this time, cheap cars and trucks came around. With the demand for fuel growing, people realized they could drill for oil. Like the Rockfellers and the Gettys, you would have been big if you discovered oil (or bought up oil futures, or oil companies.)

The Corporate Age. Now that you have trucks, you can distribute your factory’s goods almost anywhere. Factories realized they could reach a lot more consumers, so they organized themselves into factories with lots of departments – that is corporations. Being a corporate executive was the best thing you could do.

The Financial Age. As corporations grew very large, creating billions in value, banks realized that they could buy corporations and resell them for more. Since the corporations were so expensive, even making a small margin on the sale was a lot of money. Being a banker (and doing lots of leveraged buy-outs) became the best thing to do in life.

The Information Age. When corporations started employing hundreds of millions of people, and these people started spending money, banks started to need to manage the transactions – a lot of data. The information age  started and technology developed rapidly.

The Startup Age. Corporate workers started realizing that in a group as large as a corporation their contribution was not visible, and even if they wanted to work 10 times harder they could not ask their boss to pay 10 times more. Technology lowered the cost of starting a company. And now being a startup founder is the best you can do.

All of the above ways of creating value still exist. Startups today are the way to create value with the most impact.