Unless you are going to steal money from someone, there’s only one way to create new wealth for yourself.
That is, you have to come up with a new idea.
When I became a management consultant, I started creating different strategies that would help businesses accomplish their goals.
Over time, I came up with sixteen strategies, one of which was the “Ideation Strategy.” Simply stated, an Ideation Strategy is implemented when one wants to create new revenue. Or, put another way, new ideas equal new wealth.
We are passing through one of the most critical periods of financial stress in American History. In part, this stress was brought on by mistaking new wealth creation with “financial engineering.”
An extreme example of financial engineering takes place when financial groups, like the now famous private equity firm Bain Capital, conspire to buy companies in order to load them up with debt. This debt (borrowed money) is used to pay fees and dividends to these private equity groups. This results, not always, but enough to be alarming, in letting these purchased companies go bankrupt, but not before the Bains of the world have stripped them of all their value.
This scheme is called “wealth transfer.” Bluntly stated, it is a transfer of wealth from the purchased company and its employees, to the private equity firm and its partners.
It results in a ballooning of wealth for the financiers, and a shrinkage of wealth for the company and the people the company employs. It also results in fewer jobs being created, and a quick build up of unpaid debt.
This kind of activity is not wealth creation, it is wealth transfer.
On the other hand, wealth creation occurs when a person comes up with an idea for a new product. Ideally, the person is not tied to any company or corporation.
Usually this person invests her own money to get the idea started. From here she goes out and tests the product with consumers. She then improves the product.
After a while, her sales increase, and she hires employees. At this point she probably creates a company, and secures a line of credit from her local bank. And finally, along the way, she creates a long term strategic plan.
Each month she pays her bills, and has something left over at the end of the month. That left over amount is called profit, or new money. It is wealth that would not have been there had she not come up with the idea. It is the truest kind of new wealth that is created. It is the kind of wealth that contributes most to the overall prosperity of a community.
My Happiest Days
In 1981, I created a very simple management tool to help executives work together to create plans for the future of their companies. Two years later, I had made enough money from selling that management tool to different companies, that I was able to leave my teaching job and start a small consulting firm. I hired another consultant to help out.
For the next six years our consulting business grew anywhere from 30% to 50% a year. Each month I paid my bills and made a monthly profit.
By 1992, I sold that company and retired for four years. In 1997, I started a new consulting firm, and with the money I made on the sale of my first company, I was able to invest in two additional start-up companies. The new companies, again, started out as ideas. Each of the three new companies is profitable, and has increased in value. In other words, each has created net new wealth.
At last count, the three new companies employ well over 100 people.
The first company is Hendrix Consulting; the second company was Hendrix Ventures, which my wife and I have since sold to one of our sons in law. He renamed it Hybrid Construction, and his idea is to build it into a construction company that builds homes using environmentally friendly green materials solely. And the third company is grënx, the creator of GreenTeaHP, an alternative beverage to soft drinks. Its strength lies in its flavors, and liberal amounts of antioxidants. My oldest son and I own 95% of the company. The idea for grënx came from my son.
All three were partially financed by money I had earned from the first company I started. Again each of these companies started out as an idea in the mind of the creator.
There is no long term debt with any of these companies, and they are all worth more than when they started out.
This is what I mean by new wealth. It’s about companies that come into existence as a result of the birth of new ideas. It’s the purest form of capitalism. It employs the best of capitalism at a philosophical, as well as financial, level.
Philosophically, capitalism starts out with the notion that the best wealth is that which comes from the personal interests and creativity of the individual. Financially, capitalism recognizes that capital is best utilized when invested in the ideas that emanate from the passions and zeal of the creator. This is especially the case when the idea creator starts out by using her own money to get the idea off the ground and running. Invested capital, at this point, grows faster than in any other kind of capital invested in any other way.
I Love This Strategy
Of all the strategies I’ve created as a management consultant, the Ideation Strategy is the one I love most. In fact, it was the first strategy I came up with. It is the one with which I have had the most direct and long lasting relationship.
Upon the backs of the people, who come up with ideas and bring them into reality, is the wealth and greatness of America created.
But I may have created a problem for myself in describing the process in this way.
For example, I can imagine the founder of Bain Capital sitting at his desk and all of the sudden having this flash of insight. He figures out how he can make all this money by buying companies and stripping them of expenses, and borrowing money, using the company as collateral, to pay his fees and dividends. He also realizes that after he has done that, he no longer needs to worry whether or not the purchased company goes bankrupt.
He had an idea. He worked his idea. He made money with his idea. Under the description I gave of capitalism, he followed the rules, so why use him as an example of what wealth creation isn’t?
Here is the difference. While idea creation may not always lead to new wealth creation, there is no new wealth creation without new ideas.
Ideating (coming up with your own ideas) is the single most efficient step in creating new wealth within a capitalist system. From the very moment an idea pops into your head, until the second you sell it, all that comes from it is new money, and you own it – rightfully so.