What is the Nature of Value?
The question of value lies at the heart of virtually every decision we make, whether in business, investing, or life. Yet, despite its fundamental importance, the concept of value remains elusive and often misunderstood. What creates value? How do we measure it? And how does our understanding of value shape our decisions and their outcomes?
Beyond Financial Metrics
In investment circles, value is frequently reduced to financial metrics—multiples, margins, and returns. While these quantitative measures provide important guideposts, they capture only a fraction of what truly constitutes value. The most successful investors and business leaders understand that lasting value emerges from a complex interplay of tangible and intangible factors.
Consider some of the most valuable companies in the world today. Their balance sheets tell only a partial story. Their true value lies in their intellectual property, network effects, brand equity, organizational culture, and ability to innovate—elements that traditional accounting struggles to capture.
The Intersection of Supply and Demand
At its most basic level, value emerges at the intersection of supply and demand. Something becomes valuable when it is both scarce (limited supply) and desired (strong demand). However, this simple framework belies the sophisticated psychological and social factors that influence both sides of this equation.
Demand is shaped not just by utility but by perception, status, and meaning. A luxury watch doesn't just tell time—it signals achievement, craftsmanship, and tradition. Similarly, supply is constrained not just by physical limitations but by knowledge, capability, and coordination challenges. The ability to create truly innovative technologies, for instance, is limited by the scarcity of individuals who can conceive and implement breakthrough ideas.
Tangible and Intangible Dimensions
Value has both tangible and intangible dimensions. The tangible aspects include physical properties, functionality, and direct utility. These are often easier to measure and compare. The intangible aspects—meaning, identity, experience, and potential—are more difficult to quantify but frequently determine long-term value.
This duality explains why purely rational models of value often fall short. Human beings are meaning-making creatures. We value things not just for what they are but for what they represent and how they make us feel. The most valuable products, services, and experiences connect with us at both rational and emotional levels.
The Temporal Nature of Value
Value is not static but evolves over time. What was valuable yesterday may be obsolete tomorrow, while what seems worthless today might become invaluable in a different context. This temporal dimension of value requires us to think not just about current utility but future adaptability and potential.
In venture investing, this often manifests as the challenge of valuing optionality—the ability of a company or technology to evolve in response to changing circumstances. The most valuable startups rarely execute their original business plan precisely as envisioned. Instead, they adapt, pivot, and discover new forms of value as they grow and learn.
Value Creation vs. Value Extraction
A critical distinction exists between value creation and value extraction. True value creation involves bringing something new into the world that expands possibilities and enhances well-being. Value extraction, in contrast, involves capturing existing value through favorable positioning, information asymmetry, or power dynamics.
The most enduring businesses and investments focus on value creation. They identify genuine needs, solve meaningful problems, and build solutions that expand what's possible. This approach not only proves more sustainable but often yields greater long-term returns as well.
The Role of Perception and Meaning
Our perception of value is deeply influenced by context, framing, and narrative. The same objective reality can be valued differently depending on how it's presented and understood. This explains why storytelling remains essential in everything from product marketing to company valuations.
This doesn't mean value is purely subjective or arbitrary. Rather, it suggests that meaning and perception are themselves real components of value, not mere distortions of some "true" objective value.
Towards a More Nuanced Understanding
As we navigate decisions in business, investing, and life, we benefit from a more nuanced understanding of value that:
- Transcends purely financial metrics
- Considers both tangible and intangible dimensions
- Accounts for how value evolves over time
- Distinguishes between value creation and extraction
- Recognizes the role of perception and meaning
This expanded view doesn't make valuation easier—in fact, it highlights its inherent complexity. But it provides a richer framework for making decisions that create genuine, lasting value rather than chasing illusory financial metrics.
In a world increasingly dominated by intangible assets, network effects, and purpose-driven enterprises, this deeper understanding of value becomes not just philosophically interesting but practically essential.