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THREAD: Financial Independence : Retire Early (FI:RE Series)
Part 1b: Understanding Money: How it comes.
Part 1b: Understanding Money: How it comes.
Some Pre-Read:
My personal FI:RE experience is here:
Part 1a of this series is here
My personal FI:RE experience is here:
Part 1a of this series is here
Remember,
Money is:
1. A means of exchange for PERCEIVED value.
2. A store of ACTUAL value.
Understanding the dichotomy between PERCEIVED and ACTUAL value is the key to FI:RE.
Money is:
1. A means of exchange for PERCEIVED value.
2. A store of ACTUAL value.
Understanding the dichotomy between PERCEIVED and ACTUAL value is the key to FI:RE.
Therefore, the way to FI:RE is to increase the PERCEIVED value of yourself, your products, and your services. This lesson (Part 1b) explores models for increasing PERCEIVED value.
The 3 key drivers of PERCEIVED value are COMPLEXITY, BRAND IMAGE, and STRUCTURAL ADVANTAGES.
Let’s break them down.
Let’s break them down.
1.PERCEIVED value is positively correlated to COMPLEXITY via 3 mechanisms – Avoidance, Esteem, and Innovation.
1a. Avoidance: People avoid complex problems so the competition is less fierce and the likelihood and volume of profit are relatively higher.
Simple problems produce simple business models with intense competition.
People who solve complex problems gain higher margins.
Simple problems produce simple business models with intense competition.
People who solve complex problems gain higher margins.
1b. 3.Esteem: Tackling complex problems helps people and organizations gain respect/esteem.
Esteemed people/orgs can charge more and extend their brands to new products.
Esteemed people/orgs can charge more and extend their brands to new products.
1c. Innovation: Tackling complex problems yields solutions that nobody else knows/understands.
Innovative people/organizations can name their prices. We generally pay rocket scientists more than janitors because PERCEIVED value is correlated with complexity.
Innovative people/organizations can name their prices. We generally pay rocket scientists more than janitors because PERCEIVED value is correlated with complexity.
2. PERCEIVED value is positively correlated with BRAND IMAGE via 3 mechanism (a) Aesthetics (b) Association (c) Quality.
2.People pay more for beautiful things (a: Aesthetics); they pay more for things associated with celebrities and other influencers (b: Association); and they pay more for (c) quality products.
3. Finally, PERCEIVED value is positively correlated with STRUCTURAL ADVANTAGES via 3 mechanisms (a) Location, (b) relationships (c) Skills.
3a. Location: Each location has its own structural advantage. Learn to harness yours - Nairobi: mobile tech, Lagos: FinTech, Durban: Logistic, Harare: Education, Joburg: Media, Accra: EdTech, Germany: heavy machinery, Japan: miniaturization, USA: Service, China: manufacturing etc
3b. Relationships: I am an introvert so I think networking events are overrated. I have however discovered that people only do business with people they know and like. Relationships matter.
3c. Skills. Talent is overrated. Nobody pays top dollars for talent. They only pay for skills.
Talent + deliberate practice + time = skill
"I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times." - Bruce Lee.
Talent + deliberate practice + time = skill
"I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times." - Bruce Lee.
This thread is a little bit more conceptual than the previous ones. Please feel free to ask me for clarifications via comments. I will try to answer all questions within 24 hours.
