September 19, 2016

The Red Balloon

Why would Alice want trade her green balloon for Bob’s red one?

Is it because the red balloon cost more to make, and therefore it is intrinsically worth more?

Of course not. 

It’s because Alice likes red better than green. 

Lucky for Alice, Bob likes green better than red and agrees to the trade. 

What has happened?

The red balloon is worth more to Alice than the green one, and the green balloon is worth more to Bob than the red one. This is value creation - when both parties in a transaction profit, wealth has been created. 

And oh by the way, the same principle applies if instead of balloons, Alice had $250,000 to trade for Bob’s WordPress website development service.

This scenario is a bit more protracted because a service is delivered over time and therefore requires trust on Alice’s part. But if we assume that Bob understands what Alice wants and delivers as promised, both parties profit from the engagement. 

Does this mean that Bob’s WordPress website development service is worth $250,000 to everyone? Heck no. But if it’s worth $250k to Alice, that’s all that matters. 



P.S. Does $250,000 for a WordPress site sound preposterous? I’ve worked on a number projects for which clients happily paid six-figure sums for a WordPress site because the outcome was worth far more to them than the money. 

P.P.S. If you haven’t already, it might be time to buy my book -> Hourly Billing Is Nuts