How is value created?

Imagine you find an old car in a junkyard. It doesn’t start, and it looks like hell but it has a sturdy chassis. You have it towed to your backyard and spend $500.

Then over the next 4 months, you spend fixing it up. You replace the engine. You give it a new set of wheels. You give it a nice paint job. Ultimately after 4 months, you have a good-looking working car.

You then turn around and sell the car for $5000 — a nice 10x return.

The question is: when did the value of $4500 get created?

I would argue that value was realized at the end of 4 months but the value was being created throughout the time that you were working on the car.

It would be difficult to point to a specific time when you would say “Ah I just created $4500 worth of value”.

But that’s not all. Imagine this was your first car restoration project, so naturally, you faced unforeseen difficulties.

For example, say you didn't have the proper tools to start with and had to purchase them. You messed up the engine and had to buy another one from the junkyard.

What should have been a month's job for a seasoned mechanic took you 4 months.

In the end, instead of the original $500, your costs ended up being $2500.

Still, a not-so-shabby 2x return on your capital spent.

But did you just lose $2500 in value?

No, you did not. That $2500 is the price you paid to learn.

The next car you fix is likely to take less time, perhaps around 2 months.

Next time you won’t make the same mistake with the engine because you learnt what not to do.

You already have the tools now that you didn’t before and now you are better at using them.

All of that has value, even if it isn't immediately visible in your profits.

That hidden value is the reason your returns will likely be higher in your next iteration.

Now you might make other mistakes that will reduce your “captured value” but that value is stored in the lessons learned waiting to be captured in the future.

Keep doing this, and you will eventually be a car restoration expert.

The gap between the value you create and the value you capture will narrow and that gap will ultimately show up as wealth created.

To me, this is the clearest and most direct form of wealth creation.

Spend time trying to hone a skill, that time spent leads to learning, that learning is stored as value, and eventually, that value transforms into wealth.

To an outsider, it may look like a waste of time. It might seem like you are not making any progress. Sometimes it may even feel that way to you. But if you engage in deliberate practice with a clear goal, make no mistake: value is being created.

Over time, this value will become apparent not only to you but also to those around you because every effort you make, every lesson you learn, and every challenge you overcome is another step towards mastering your craft.

This is the essence of any creative or entrepreneurial endeavor. Whether you're fixing cars, writing a novel, or starting a software business, the value is often invisible until it isn't.

So, keep at it. Trust the process. And most importantly,

Don't confuse value creation with value visibility.

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