Broadly speaking, there are two types of capital: resource and talent capital.
Resource capital is any physical or digital resource that can be used to produce value for society. This could be an asset a company owns like a manufacturing facility that makes frozen pizzas. The facility (resource capital) makes pizzas (value added product) that are sold (hopefully) for a profit.
Capital allocation is the process of deciding where finite resources should be invested to maximize some chosen metric(e.g. return on invested capital, revenue, profit, etc). It is commonly used in the context of businesses deciding where to spend their finite capital resources(e.g. revenues, cash on hand, physical capital) to maximize return on invested capital. I like how Jacob Taylor articulates the importance of capital allocation in a conversation between the two main characters (capital allocation teacher and student) of his fiction book, The Rebel Allocator:
Investing teacher: "Our errors [in capital allocation] show up as bad returns on invested capital."
So say, putting one dollar in and only getting two cents out?" I [Investing student] asked. "Or even a negative number," he said. "Being bad stewards of capital."
"Is it that big of a deal?" I wondered aloud. "After all, you still have the restaurant you built."
"Some CEOs would have you believe it's not," he said. "But a positive or negative ROIC is a huge deal when you look at the entire capitalistic ecosystem. Misallocation is bad for the company because we have less profits to reinvest. Where's the internal eighty percent of funding going to come from? It's bad for customers because we built in a location no one really wanted. It's bad for the environment because we wasted materials and energy for a building that will likely be torn down. It's bad for society because not making progress is a waste of everyone's time and talent."
Resource capital allocation is important because we have finite resources, and I believe we have a responsibility to make the best use of those resources to benefit our communities. High returns on invested capital can have wide-ranging positive impacts in society, but it can miss part of the equation when considering only resource capital, and not talent capital as well.
Talent Capital
Talent capital includes the gifts each of us have, including work ethic, raw intellectual abilities, personal and professional strengths, and physical abilities. Just as businesses can be good stewards of capital, we too have an impactful opportunity and responsibility to be stewards of our talent capital.
I often find it useful to look at the opposite of what I want to happen in life. This helps to a) set clear psychological boundaries and b) provide a sharp contrast to my desired outcome that can be motivating in and of itself.
What do I not want to happen with my talent capital? I don't want to get to the end of my life and believe I had more in the tank. I don't want to get to the end of my life and believe I could have helped more people but, instead, chose not to capitalize on my strengths and increase the reach of my life's impact.
Next, do we have a responsibility to be stewards of our talents? I have been personally given so many advantages in life, and feel responsible to pay back that and more to society. Who am I to sit around idly when I'm aware of the talents I have? Who am I to not use and develop them to the benefit of those around me?
Marianne Williamson put it well in her poem Our Deepest Fear:
"Who am I to be brilliant, gorgeous, talented, fabulous?
Actually, who are you not to be?"
The world needs people passionate about making a difference. People with infectious enthusiasm and boundless curiosity. People who want to be part of a virtuous cycle of giving more than they receive.
If we felt pulled to serve others by maximizing the gifts we have, wouldn't that lead us toward a more noble life, one full of impact?
Once we understand the why behind pursuing our talents, how do we maximize the return (societal impact) on our talent capital? We need to first understand what our talent capital consists of, and then pursue it with abandon. In his book, Range, David Epstein recommends a "sampling period" to find out what you are good at and enjoy doing. This consists of trying several different activities until you find one that suits you well. People who did not do this ended up less fulfilled and less likely to feel they were pursuing what they were born to do.
Next, pursue your talent with abandon. David Goggins, Navy Seal, extreme endurance athlete and author of Can't Hurt Me, created the 40% rule, which goes like this: when your mind is telling you you can't go any further, you've only reached 40 percent of your capacity. You haven't even achieved half of what you're capable of.
60% left? That's absurd! I don't like to think I'm lazy or that I would quit an important endeavor before I've accomplished even half what I was capable of. But it's not about laziness, it's about awareness. There are so many excuses out there that make us ok with settling for the 40% that we may not be aware we had the potential to accomplish 150% more(60/40=150%). But when others--parents, siblings, mentors, coaches--call attention to our potential it can be thrilling.
Thomas Edison famously said: "If we did all the things we are capable of, we would literally astound ourselves." Who wouldn't love to be astounded by their own massive impact on the world?
Capital allocation is critical to societal progress. But I think the proper allocation and stewardship of talent capital is even more important. Have you astounded yourself today?
-GN