In a recent coffee with Jon Bach (Blog, Company), I blurted out something that I want to explore here. In my last post I talked about the Modus Cooperandi 2010 Business Plan which is:
We want to work with people we like and respect on projects that are fulfilling.
Idealistic? Pedantic? Maybe.
Yesterday's post provides a few equations as to why this might make sense. But in reality, it's all risk mitigation. Regardless of how much a difficult project might pay, it's usually so painful to complete as to be self-negating.
I had a project with a large client a few years back that was so painful that my wife refuses to acknowledge that I ever got paid for it at all.
Why?
Because there's a time value of money which is well defined by economists. It looks something like this:
According to Investopedia:
What Does Time Value of Money (TVM) Mean?
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
So, it took soooooooooo long for me to get paid by my client that a combination of interest I was paying for a business line-of-credit and the fact that I wasn't able to invest that money when I made it, greatly reduced the actual value of what I was paid for the project.
Okay, that's all well and good, but I was still paid. Why does my wife not even recognize this as an event?
I think this is due to a psychological value of money or (PsVM).
You see, when you do a thing, your brain gets really happy when you are immediately rewarded for that thing. Beyond simply instant gratification, serotonin levels rise making you feel happier, more social, you digest your food better, just a load of good stuff. Why? Because immediate rewards, have a funny two-pronged effect. They make us calmer (not nervous) but simultaneously more excited (ready to invent, ready to take on new challenges).
So NOT getting a reward when it is expected for a job well done drastically decreases the value of the reward when it does come. The longer it takes, the more our brains disassociate it as a reward and make it an entitlement. And if someone HAS to give you something and they don't do it on time, you quickly become resentful because they are keeping you from something you are entitled to.
Getting something you are entitled to has zero psychological value because you were supposed to get it regardless. This is why pre-calculated cash bonuses have been shown to be lousy incentives to effect change in companies. The disassociation of the reward from the individual (through having to wait and having it be a systematic equation) makes the incentive a disincentive.
It's like telling someone what to get you for Christmas, having them order it, and then having it be backordered to March. It was never really a gift to begin with because you requested it, someone else merely paid for what you wanted. But then, you don't get it in time and by the time it arrives you say "finally."
Money Money Money Money
In the end, Money is an abstraction. A really important abstraction, but one nonetheless. We need to figure out, as people, as companies, as a society, what we really value and where money fits into that equation. It's clear that, as an abstraction, the value of money is different to every individual. To some people it's a toy to play with on the stock market or in Macau. To others it's security to hold and look at and smile. To others it is power to buy and sell whatever or whomever they wish. But the psychological component is clear.
So when weighing future projects or opportunities ask yourself where that psychological value of money fits for you.
Photo by emrank
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