Value creation vs. value extraction

Why forgoing value extraction leads to a bigger pie for everyone and more serendipitous outcomes

Entrepreneurs tend to focus on creating value – making the pie bigger for themselves and others – before they take a piece. 

With founders building startups, this is pretty obvious. Founders create startups that have a lot of value. They forego extracting value for a long period of time in order to grow the pie (taking smaller salaries, allowing others to take equity in the company). Then, once the pie has gotten pretty big, they can take a big slice – either by taking money off the table during a round or exiting. 

But this dynamic of foregoing value extraction in order to make the pie bigger is not just limited to founders building startups. It applies to day jobs, side projects, freelance gigs, and being helpful to others. 

The longer you can create value for others without needing to take anything in return, the more serendipitous and abundant opportunities you’ll have for extracting value down the road. On the other hand, if you only create value for others when you have clarity on how you’ll get value in return, you limit the range of possible outcomes and put a ceiling on the value you can get in return.

Day Jobs

With day jobs, this may mean working on projects outside of your core job, creating tools that others on your team can use, or mentoring other teammates – even if there isn’t a clear path towards how it gets you promoted. Some people only do things if they can clearly see the value they’ll get in return. But taking that approach limits the serendipity that can sometimes lead to some of the biggest breakthrough achievements. In my first few years at Amazon, I spent time on some wacky projects – like a tool that quasi-automated a very repetitive part of the job for myself and cowworkers. It was pretty far outside my scope of responsibilities, and I didn’t know how creating these tools would help my career. But I knew they would add value for others. Building and sharing these tools has helped me advance within Amazon in ways I could not have predicted when I decided to spend a Saturday hacking together a tool.

Side Projects

Foregoing value extraction with side projects can also create higher-upside opportunities. Just like a consumer startup that starts by giving away their product for free, we can reach more people and further refine our value offerings by avoiding the temptation to try to prematurely capture some of the value we’re creating. I’ve been running into this with my own fundraising coaching. Over the past three years, I’ve written a book on fundraising, led over 50 workshops helping founders raise seed rounds. Thousands of founders have consumed my fundraising resources, and I've made $0 from it. There have been times where I’ve felt self-councious that I was giving so much and didn’t have much to showw for what i was getting in return.

But doing all of this for free has gotten me to a position where I have a well-structured fundraising module that I can teach with dozens of testimonials from founders who’ve used my coaching to raise seed capital. The pie has gotten pretty big, and now there are opportunities for me to take a piece of it.

Helping others

Throughout your career, you may take calls with founders who want to ask you questions, help friends or colleagues navigate job searches, or mentor colleagues. Helping others with the expectation that you get something immediate return is short-sighted. Helping others can bolster relationships which can produce unpredictable outcomes years down the road. Being someone who tries to prematurely extract value (e.g. ask for equity to become an advisor) undermines the potential to build a strong relationship, or worse – can lead to a bad reputation. But being someone who gives first – without the expectation of anything in return – introduces a lot more serendipity into their life.

When to start extracting

So, if forgoing value extraction results in higher-upside outcomes, how do you know when it’s time to shift from creating value to extracting some of ti?

It ends up being a similar signal to finding product-market fit: the demand for your time is outstripping your capacity/willingness to deliver the value people crave from you. Once you’re at that point, value extraction needs to become part of the equation in order for you to continue creating value sustainably. It makes sure the pie can continue to grow, but that you can start taking and eating pieces of the pie.

But trying to extract value any sooner than that would limit the size of the pie.