Thursday, April 15, 2010

The business formula

I think the overall formula for how value is allocated within an economic system is governed by the following formula:

Consumer Contribution = Producer value received + System value received


There are an infinite number of solutions to this equation, so how is it decided who gets how much?

The consumer contribution is determined by the market since the consumer contribution is equal to the price they pay for a product or service.  The other side of the equation seems a bit trickier.  How do producers, innovators, and systems decide how to split the value that consumers contribute?

I'll return to this question eventually, but first I want to address something that this formula highlights.  Because each of the actors on the right demand a certain minimum value, they will refuse to participate entirely if this value is not delivered.  Since our current economic system depends on all of these actors, when one actor refuses to participate, the product or service is not produced.  But what if you could create a system that didn't require so many actors, each demanding their share?  It's not likely that you would be able to eliminate producers, but what if you could redesign the system so that it weren't so needy - so that it didn't demand so much.  Suddenly, you would have a formula that could deliver products and services that otherwise couldn't be delivered and for those that are already being delivered, you could deliver them at a much lower cost to consumers.

In general, I believe that there is a way to rebalance how value is distributed.  I believe that the system is capturing far to much of the value, and that a healthier society can be achieved through allocating more of the value to consumers and producers.

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