As a capitalist, I focus myself on finding a good use of the tools I was born with: my brain, my body, my hands, even my voice. I also focus on using the tools I can purchase: property, equipment, the Internet, my cell phones and my cars.
Capitalists understand that property is useless if one doesn’t know what to do with it. I use my property for one reason: to gain effiency for myself or for others. Instead of shoveling snow, I’ll use a snowblower. That’s saving time. A $500 snowblower that I can use 50 times before major upkeep costs me $15 per use (including gas) and maybe 15 minutes of my time. If I shoveled, I’d lose an hour. The 45 minute time savings for only $15 paid out means I used my property to become more efficient. If it cost me $15 to save 3/4 hours of time, I have to be worth more than $20 per hour for snowblowing to be efficient. Your mileage may vary.
Sometimes, other people will hire me to use my tools and my property to save them time. Maybe you might need someone to help navigate some part of your corporation. You could do it yourself, but it would take you 16 hours. If you hire me, and I’m good at it, maybe it’ll get done in 2 hours. Some will scoff if I say I want to charge you $250 per hour, but your time is worth something to you. $250 per hour means you’ll save 16 hours of your life having me do the work. $500 / 16 = $31.25 per hour to buy back those hours for yourself. Most corporate owners are worth much more than that, so my $250 per hour billable rate is CHEAP.
This is how capitalists look at efficiency. We don’t think about profit, solely, we think about how we can save people money and time. In the example of you hiring me, you’d probably hire me at a rate all the way up to how much you value your time. If you, as a small business CEO earning $250,000 per year ($125 per hour), wanted to save time by hiring me, and I could do that work in 2 hours, you might actually pay me $950 per hour and still see a savings. It would cost you 16 hours of your time ($2000 of your time), so paying me $1900 means a savings. Of course real business owners know they have to charge far less than the maximum savings, to take into account competition and reality. Nonetheless, this is how business works. All business — even shopping at Best Buy or your grocery store. You buy brocolli at the grocery store because it would cost you far more in time and money to grow it yourself.
Explaining how capitalism is about efficiency leads to the point in this article: I have given up volunteering. Whether it’s at church or the local food pantry, I do not see the point in volunteering for others. I’m not good at it, and I’m not efficient at it. The reason for this post comes from a response to a post by Om Malik on his site. Om commented about how a venture capital funded firm, Renkoo, has gone through another transformation into another direction for the company. Renkoo responded to Om’s post:
Om thinks Renkoo is rebooting, and we’ll be the first ones to admit that 36 million Booze Mail users on Facebook platform isn’t worth a whole lot, even as Facebook passes 150 million users. As Andy Grove put it, “You can’t build an empire out of this kind of concoction.”
But Om, we’re not bored at Renkoo. And we’re still building Facebook and MySpace applications. So what has changed?
We believe an important mission has found us. And we believe we’re just getting started.
We believe the first four years of Renkoo were our boot camp, where we learned all of the skills we can now employ to help people serve.
We believe that Monday, January 19 — MLK Day — is an opportunity for everyone to find an opportunity to serve.
The folks at Renkoo finish with the following two-liner:
And Om, there’s more to life than a business model.
Goodness begins in small steps.
That was a slap in the face to me, as a capitalist. Goodness does not begin in small steps. There may be more to life than a business model, but a business model dictates the efficiency goals of what the business will provide. There isn’t more to life than helping yourself become more efficient so you can find ways to help others become more efficient. That’s what almost every industry is about, from software to health care to insurance to banking.
These folks at Renkoo don’t seem to understand that. Trying to become charitable is all nice and sweet, but it’s a waste of your time, and it’s inefficient to try to serve people when you can be doing more profitable things with your time. When you reach your maximum efficiency (meaning, your most profitable work), you now have the ability to hire others to do that charitable work, and find the most efficient people to do so.
If I work at a food kitchen for 4 hours, I may be out $600 of my life, if I gauge my value at $150 per hour. If I worked those 4 hours, and paid someone else to feed those same people, the money would go very far. It’s called efficiency. Volunteering makes little sense, because the people who are doing what they do aren’t doing it efficiently. That changes if the volunteer work is something that makes you happy or warms your heart — you’re passing on a financial gain in order to get an emotional gain or an entertainment gain. That’s fine, profit is not just financial. We can profit by gaining money, information (education), entertainment, or emotional stability.
When I see big businesses try to focus on charitable works, I go bonkers. Handing money to a charity that does good deeds makes sense: they can specialize on helping people because they have the tools and talents to do so. But if a big business tries to do charitable works themselves, they’re wasting precious time. They’re taking staff and managers who are better at running a business, and they’re trying to feed people in a soup kitchen. It’s insanity.
Even worse, the folks at Renkoo are doing this with $9 million of venture capital funds. If I provide someone with funds to start a business, I want them to find out what they can do to save others time and money, in exchange for a profit to pay me back. I sure don’t want them doing something they’re not very good at.
Update: I responded to reader Alex’s comment below in a new post that you can read here.
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I have stumbled upon your post and consider myself a staunch capitalist. I could not disagree with you more. I see your logic with regards to whether Renkoo can build a profitable business with appropriate returns for VCs, while focusing on only charity work. However, they have capable leaders and we do not know that charity is their only source of revenue.
The rest of your logic is flawed from the get-go. Assuming your logic of efficiency I want to point out one of your points. You write, “If I work at a food kitchen for 4 hours, I may be out $600 of my life, if I gauge my value at $150 per hour. If I worked those 4 hours, and paid someone else to feed those same people, the money would go very far.” You are making a critical assumption that the other person’s time is worth less than yours. How can you make that assumption? Is volunteering at a hospital and saving lives, for example, worth less than your CEO consultations?
Also, you completely miss the ball with regards to the fact that good business is recognizing the demand of your consumers (who do hold the power in an economy). In today’s world, let alone today’s American culture, the value of volunteering is very high. A corporation would be foolish not to volunteer their time, get involved in the community, and encourage their employees to not only donate money but to take real action.
For some reason you assume that you, are so much better (in your value per hr argument) than the other “minions” that you can just pay to do some good deeds in your name. I am appalled. From what you wrote here, I would not hire you to help me with any kind of strategy.