Extracting Value Vs Creating Value
Aaron Tang is a young Malaysia based founder of mr-stingy.com where he writes about optimizing time, money and relationships — to make the most out of life. His writing is featured in the likes of Business Insider and The Huffington Post. In this blog, Aaron talks about the scarcity mindset which drives extracting value versus the abundance mindset that drives creating value. He shows how the former limits value whilst the latter opens a world full of possibilities. He starts by defining the ‘scarcity mindset’:
“A belief that good things in life are limited, so you have to fight for them. For me to win, someone else has to lose. I’d better maximize my gains — take everything — before someone else gets the good stuff. Eat or be eaten.
…At some level, this scrappy, competitor mentality works. It’s natural. In the 2006 movie “The Pursuit of Happyness,” Will Smith’s character has to line up for a homeless shelter every evening. Get in line a few minutes late, and you sleep in the streets. Or a public toilet. Yeah, if you’re struggling to survive you probably don’t philosophize about mindsets for long-term success. You just fight for the next available resource.
This isn’t to say all rich people are free of the scarcity mindset. Ever met a selfish uncle who hoards money but never gives back anything? That’s someone who never learned to see the world beyond scarcity.
A scarcity mindset might lead you to be rich in material stuff, but be poor in happiness. A blocker to the greatest rewards in life….
…Where I hope everyone eventually moves to is an abundance mindset. The belief that there’s more than enough for everyone. And we can create a better world by trying to help each other, instead of trying to screw the other guy.
It is possible for all of us to win. For example, if I create an app that makes your life better. I charge reasonable fees that help me build a company, hire employees and take care of my family. This is good for everyone: customers, employees, business owners, even the government. Our modern economy is supposed to work this way.”
To drive his point further, he highlights a negotiation setting, much like in Game Theory, where the best outcome is when both parties are better off i.e, a win-win.
“How I used to think about price negotiation. Win-Lose:
I’ll bargain down to the lowest possible cost.
Even if it causes financial losses to the other guy. He can figure out his business himself — I’m not responsible for that.
The best negotiation is where I get what I want and the other guy gets screwed. Better if they don’t realize they’ve just been screwed.
How I think about price negotiation now. Win-Win:
I’ll pay fair price (yeah, I’ll still negotiate it down if I think it’s too high).
I’ll even pay a tip if you’re excellent. We need to support good businesses.
The best negotiation is where everyone gets what they want.
You can get temporary (small) wins from a scarcity mindset. But what happens when you develop a bad reputation — someone who deals in bad faith? Good people eventually don’t want to deal with you.
For long-term success, an abundance mindset will serve you better. Because the best way to get rich is not by extracting value, but by creating value.”
For entrepreneurs trying to create value, he brings up the example of the video conferencing technology company Zoom which got rewarded for having created value for millions of people across the world in a Covid driven lockdown situation.