Most children know the story of the aggressive dealmaker Rumpelstiltskin who would have been able to claim the queen’s firstborn child if not for his loose lips during a premature victory celebration. To most ears, the tale seems impossibly fantastical, and purely a cautionary tale about making bad promises and the financial concept of being overleveraged.
The underexplored aspect of this fairy tale, however, relates to the seemingly magical ability that Rumpelstiltskin had to turn mere straw into valuable gold. As it turns out, this part of the story is the most believable to economists who regard nearly every activity in an economy through the lens of “value creation.”
My eight-year-old goddaughter Braley discovered the essence of value creation last weekend during a routine playdate with a neighbor.
Superficially Braley might look like your typical American child. She loves unicorns and reading, playing with her dog Hannah, and keeping her younger brother in line. But Braley is exceptional in the sense that she has discovered the benefits of entrepreneurship and value creation before even finishing elementary school.
Value creation and entrepreneurship are linked inextricably. Coming from the French word for “undertaker” (literally someone undertakes an effort), the concept of an “entrepreneur” is understood widely, and most of us can name an entrepreneur we respect.
Value creation, on the other hand, is not quite a mainstream term. It’s familiar mainly in the domains of economics and business. Value creation is undertaking activities that create outputs (goods or services) that are more valuable than their inputs, including the raw materials, labor costs, advertising, and other expenses made to bring the goods to customers.
Figuratively, value creation is turning straw into gold.
Back to Braley.
On Sunday, she and her friend started digging around the yard for “buried treasures,” and curated a collection of pebbles, rocks, pennies, and acorns. Between these two kids, the idea was hatched that they could actually sell these items to neighbors by walking door to door. By the time they were finished, they had collected $58, which they split between them evenly and used to immediately buy treats from a nearby ice cream truck.
According to Braley’s mother, “She came home with a smudge of chocolate on her face, holding a small cardboard box containing $27 cash and an assortment of rocks, polished stones, and battered black pennies.”
These items were doing nothing in the ground. It took the activity of these two girls to extract them from the dirt, clean them up, have the idea that people might want to buy them, and actually go door to door to make the sale.
That’s pure entrepreneurship in the service of value creation.
Would you buy rocks and pennies from two neighborhood girls? Maybe not, but some of their neighbors did, and they were rewarded with cash, treats, and a great story.
This sort of activity is what entrepreneurs and businesses perform daily to bring us everything we want and need. Productive economic activities make it so that we do not, individually, have to hunt or gather our food, build or repair our shelters, or make our own clothing...unless we really want to.
Every time you hire someone to perform a service or deliver a good (or are hired yourself), you are engaging in a process of value creation by which both parties to the transaction benefit. The consumer solves his problem, and the producer profits by solving it. Value creation is the very definition of a “win-win” scenario.
The next time you buy something, no matter how mundane, consider how the entire process began with someone having an idea that she could do something that might be more valuable to another person than the cash he had in his pocket.
And the next time you see Braley and her friend, you might be asked to buy a hand drawn picture as they’ve now diversified their business offerings to artwork.