How to Create Wealth:
Advice from a successful startup founder Paul Graham
By Michael Riley on October 19, 2018
Based on one part of Paul Graham's book Hackers and Painters. Go buy it, and read the whole book.
It wasn't always this easy to create wealth and keep it. Startups became the best path starting in the 1960s. The modern concept of a startup can be compared to other historic business ventures; they are like investor-backed trading voyages that took place hundreds of years ago. The common link is high risk and high reward.
Startup = small company solving a hard problem
7 Steps to Creating Wealth:
1. Solve problems that people care about
2. Get version 1.0 out there ASAP
3. Get users/customers and listen to them
4. Be profitable
5. Practice the art of acquisition talks
6. Iterate continuously
7. Create Wealth
2 Requirements for Success:
Measurement and Leverage
You must be in a position where your performance is measured, and you earn more by doing more. And you also have to have leverage in the business; the decisions you make will have a big effect. For example: A factory workers output has measurement, but the job has no leverage (and limited potential).
Small Size = Better Measurement
Jobs with Measurement and Leverage (and huge potential):
- Actor
- CEO
- Hedge Fund Managers
- Pro Athletes
A good sign a job has leverage is the possibility of failure. There should be a huge potential for gain, and also a terrifying possibility of loss. But you don't have to be athletic or famous to join a small group working on a hard problem.
Big company = giant galley boat with thousands of unseen rowers
Startup = small crew boat where you can see the output of everyone
Ideally, you want a group of people who want to work a lot harder, and get paid a lot more, than they would in a big company.
"The success or failure of a startup depends on the first 10 employees." - Steve Jobs
Technology = Leverage
The difference between a startup and a restaurant or a barber shop is they can provide value to an unlimited number of customers. Technology is what enables a startup to accomplish this, and their advantage is they can do it faster than a big company. To maintain the advantage you need to choose the more difficult option when presented with choices. Maybe a big bully can run down stairs as fast as you, but his bulk slows him down when going up a steep flight of stairs chasing someone fast and lean.
How it works
A startup is a way to compress your entire working career into a just few years. Instead of doing a normal job for forty years, you work super hard for four years. Say you are worth $80K/year in salary to a typical company.
Do you want to make $3 Million in 4 years or 40?
This high level of productivity means no leisure time and working hard enough to endanger your health.
Money is simply the way people transfer wealth. Fundamentally, wealth is stuff people want. Startups build what people want, and that wealth is then converted into money.
What's The Catch?
1. You can’t choose your place in the market and how much hard work it takes to succeed. Your competitors determine that.
2. The payoff is not guaranteed. You can't predict the amount of wealth you will earn ahead of time. You could make nothing, or you could make $1 Billion.
The main sources of wealth used to be mines, slaves and serfs, land, and cattle. And the only ways to acquire any of these rapidly was by inheritance, marriage, conquest, or confiscation. Rapid wealth accumulation often had a bad reputation for a reason.
What enabled today's rapid wealth generation?
1. The rule of law: A new class of merchants and manufacturers began to collect in towns.
2. A relatively new idea: Allowing those who made a lot of money to keep it.
The theory that made the stealth plane possible was developed by a Soviet mathematician. But the Soviet Union lacked the required supercomputers and tech industry to develop it, so it remained a theory.
2. A relatively new idea: Allowing those who made a lot of money to keep it.
The theory that made the stealth plane possible was developed by a Soviet mathematician. But the Soviet Union lacked the required supercomputers and tech industry to develop it, so it remained a theory.
Tech entrepreneurs now have the power to build great wealth without disruption from a ruling class of warriors and politicians. If you let the nerds keep their lunch money, you can rule the world.
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