In another post, I talked about the 4 different types of employment. In particular, I stressed the importance of moving from being an employee to being someone who owned the mechanism to generate income, either as being self-employed, owning a business or as an investor. The point that I was trying to make was that it is very, very difficult to become wealthy working for someone else.
I wanted to spend some additional time in this post drawing out the intricacies of employment and thought looking into how work translates into wealth is highly important.
Ability to generate income is based on value and breadth
As a starting place, regardless of whether someone is an employee or has employment in one of the business types, their ability to generate income is directly linked to two things; (1) the value that they can create for other people and (2) the breadth of how many people they can serve.
Let’s first look at the value that needs to be created in order to generate income. The obvious fact is that the more something is valued by someone, the more they will pay for it.
Therefore, what we do as an employee and as a business has to be something that is in demand and is seen as being something that has a particular importance to people for which they will pay a substantial amount of money for.
As we all know in an openly capitalistic system, the more something is in demand and the scarcer it is, the more it will cost.
So let’s make this applicable as an employee. We all know that doctors make more than individuals who work at a fast food restaurant. The explanation is that a doctor has a specific level of education in a very highly valuable skill area that people will pay a significant amount of money for. The reason for this is that there are a lot fewer people walking around who are trained as doctors but a lot of people who can work at fast food restaurants because it requires a lower skill level and a low level of specific training over a shorter period of time.
More skill, less people that have it, the more money you make
As a result, those people who provide a highly valuable and specialized skill that takes a long time to acquire, such as a doctor or cyber security specialist, and that are in an occupation where there are fewer of them available tend to be able to charge more for their service.
Take note that it is not just about being smart unto itself or having to study for years in order to get a specialized college degree. I’m sure becoming a feline psychologist is arguably a difficult task but it doesn’t have significant value to that many people.
The same goes for each form of business. It’s not good enough to simply have the same product or service as everyone else does in the same market.
That of course is called a commodity and as you know with commodities, it’s the lowest priced offer that prevails and the company that can move the largest volume usually is the one to deliver it.
The opposite of a commodity business is a business that is able to provide their product or service in the most unique and meaningful way with the highest value proposition. Businesses that can do this will be the businesses that will be able to charge the most.
Now what about breadth? Where does it fit into the equation? Well for starters as it relates to being self-employed if you have a particular skill that you can get out in front of a large number of people you stand to make a significant amount of money. More importantly, if that skill is also something that is inherently scalable without a direct proportional amount of labor expended than you stand to make a serious amount of money!
The interesting aspect of breadth is that there isn’t much of it when what you’re doing is directly connected to your time. More specifically, if you need to gain additional breadth by having to actively spend your time doing it you’re just simply going to run out of time.
Therefore, the goal is to establish a system that can extend your skills impact without having to spend your time doing it. This system is basically another word for a business. As an example, if you had a particular high-end skill such as having incredibly effective copyrighting abilities you might be able to create a digital course on copyrighting that could be accessed at any time on the Internet.
This would meet both requirements of having value and having breadth, as this skill is not only in high demand it can reach an incredibly large amount of prospective customers without the individual having to actively work on extending its impact. Although this might be the ideal scenario where a highly in-demand skill is able to access a large and broad market, it certainly is not the only one.
As an example, a therapist might be able to host multiple group sessions and conduct one-on-one consultations online across time zones, extending the breadth of her reach of potential customers.
So in addition to the importance of owning the money machine, being able to create BOTH value and having breadth is the formula for building significant wealth. Unless, of course, you think that trading hours for dollars is simply misunderstood.
