The source of profit

A comparison of roulette systems with business strategies would have been irrelevant in the formalised and reasonably stable business world of the twentieth century. In the time before the rapid advance of computers and digital communication technology, strategies could be based upon formalised plans where uncertainties are mostly eliminated.

Business is quite different in the twenty-first century, where there is massive connectivity, rapid technological change and information over-load. Uncertainties and unknowns are unavoidable. Strategies have to be employed, not to try to eliminate these, but, to be able to cope with them better than competitors. This makes the ability to understand and use probabilities an essential requirement for anyone involved in e-commerce or e-business. This is why the game of roulette is of interest to us.

Up till now though, we have considered roulette only as it is played in a conventional way. This is not applicable to e-commerce or e-business because, as we have just seen, it can be viewed as either a zero sum game with a disadvantage to the players, or, as a non zero sum game where losses are always greater then winnings.

As the idea of business is to make a profit, such a scenario doesn't seem to be a particularly apt model to use. To resolve this problem, let's stop for a moment to examine the nature of profit and define what we mean by it.

Taking another scene from "How God Makes God". there are a group of people sitting around talking to each other about the nature of making money. Here is a snatch of their conversation:

What type of game is "money making"?

It has to be a zero sum game because if you make money it has to come from somewhere, and that somewhere has to be from somebody else.

How do you reason that out?

If you bought something, and then sold it for a profit, you would gain at the expense of either the original owner, who could have sold it for more, or, at the expense of the buyer who could have bought it for less. By being clever enough to be in the middle of a buying and selling operation you could perhaps gain from both of them.

Doesn't that disturb you?

What?

Making money at someone else's expense? That is like stealing or trickery.

Is it really true that to make money you must take it from someone else?

Think of the different ways in which people make money. Employers make profits; where does that money come from?

Obviously they make profits by not paying their employees all the money they are earning. The employers are keeping some of it for themselves. Surely that is cheating?

Are you saying that all employers cheat their employees?

'Exploit them' - is a better way of putting it.

Let me tell you about our local butcher. He has a Rolls Royce and lives in a grand house.

Capitalist!

Do you think he got all his wealth by charging his customers too much for their meat?

Of course. He must have done, otherwise he wouldn't be so rich.

It seems logical, except that everybody went to his shop because he gave better value than any other butcher for miles around. Every reputable business that I know makes money in this same inexplicable way: at the expense of others who do not seem to mind.

How very odd?

It seems that in all forms of successful business enterprise, the people involved, whether buyers or sellers, all seem to think they are gaining from the business they do together. Nobody seems to think they are losers. How do you explain that?

But how can everyone be gaining? Where does the profit come from?

To know that is to know the secret of creating wealth.

It is truly surprising how many people confuse making money with the creation of wealth. They are not the same. You can make money without creating wealth and you can create wealth without making money. The concepts are totally different.

Making money without creating wealth is the characteristic of the zero sum game. The winners win from the losers. Making money by creating wealth is to play the non zero sum game, where if the wealth creators co-operate with each other and don't let in any of the zero sum players they can all win.

The mystery surrounding the creation of wealth disappears if you look at business enterprises as creating benefits. Although there are innumerable ways to describe benefits they all boil down to one single principle: increase in efficiency.

If you can supply somebody with something they need at a better value than anyone else you have improved the efficiency by which their needs are satisfied. If you come up with a superior service it must, by definition, have provided a more efficient service than other alternatives. A better price, a quicker delivery, a more attractive or superior product. Each of these represent to the recipient an improvement in the way they live or work. This is the source of wealth creation. It is the act of adding to the efficiency by which others can lead their lives.