
How to Make Wealth - mofeeta
http://paulgraham.com/wealth.html
======
nikcub
I don't buy the argument that Gates became rich because of IBM's "blunder"
with DOS. When Windows was released Microsoft almost had to start over again.
They had both a good product and the right business model by horizontally
integrating with ODM's and realizing that the value in software is in
platform. Then he went and did it again with Microsoft Office.

Bill Gates created some of the most profitable and efficient business units
that the world has ever seen, and he did it more than once.

It just happens that he took advantage of IBM's naivety the first time, but
that was only a blunder with hindsight.

To add, I think being rich is overrated, and that it isn't a coincidence that
the biggest influencers and successes in our industry don't care about money.

~~~
danssig
>To add, I think being rich is overrated, and that it isn't a coincidence that
the biggest influencers and successes in our industry don't care about money.

The biggest influences and successes in our industry don't care about money
_after they have their FU money_. I wouldn't either! Ironically, this tells me
that being rich is absolutely not overrated but really important if you ever
want to be able to forget about money.

~~~
mgkimsal
Thank you.

I find very few poor or middle class people who continuously hold the belief
that "money isn't important" or they "don't care about money". Once you've got
that FU money - you can say FU - that's why it's called FU money!

The few that do may do so because of religious/spiritual beliefs, but almost
everyone without enough money cares about it, because a) it's scarce and b)
necessary to live.

------
nadam
I liked these essays when I was young, because these were so encouraging. It
treated us programmers as special snow flakes, and advertised us the romantic
super exciting world of startups. Now as I got older and more experienced I
find these essays trivial, boring or simply not true. I realized I no longer
gain anything 'usable' for my life from such essays. (I find less and less
interesting most essays from Joel and others also. I am more and more
interested in actual business opportunities and connections, and less and less
interested in general essays about enterpreneurship and programming.)

Creating wealth is relatively easy, but I don't care about it anymore (except
as a hobby), I care about creating money, which is much harder. All the stuff
about programmer productivity in this essay is first not true but more
importantly not really important anymore in my opinion. At most startups and
big companies programming is a commodity. By 2011 we programers are good
enough, programming became matrue enough that it is really a commodity now.
Not a cheap commodity, but a commodity: a $100.000 per year commodity. I argue
that in 2011 (maybe not in 2004) you can find really good people for $100.000
per year if you know how to find these people. You can find much cheaper in
Eastern Europe (where I live) if you are not so snob that you think
programmers in the West are so special. So unless you work on something very
deeply technical or technicall revolutionary (so you are not John Carmack
working on the fastest rendering engine on the planet or you are not the
engineer behind Gogle's superfast javascript engine) your value as a
programmer is someting like $100.000 or something. There is no '36x multiplier
because of programmer productivity.' I think if the market is quasy efficient
that means if your startup would be about programming then the expected value
of your earnings would be sometinng like this value ($100.000) in your
startup. What kind of multipliers there really are:

\- There can be a multiplier because of your idea, your product, your
marketing, and your connections. But not programming (in case of not
technically deep startups. Technically deep startups are quite rare.) \- There
is a factor which is related to how popular it is to create a startup. If it
is super popular because of marketing essays like this, then it is possible
that there are too much startups of constant sized markets, so that your
expected value of earning could be even less than $100.000. At the time of
this essay, when starting-up was not that popular we could not really speak of
saturated markets, so that your expected value of earning was probably more
than $100.000. The more people start-up the less attractive it will be to
start-up. So the more successful PG's essays will be the less true they will
be.

~~~
pg
Can you give me an example of a specific sentence or passage in the essay that
you believe is false?

~~~
jules
One doesn't need to look very far. The first paragraph:

> If you wanted to get rich, how would you do it? I think your best bet would
> be to start or join a startup. That's been a reliable way to get rich for
> hundreds of years.

Startups are _not_ a reliable way to get rich. Or what failure rate would you
still consider reliable?

That said, I do agree that working at a startup can mean that you can
contribute more. That is not always the case however. Just like smart
technology is leverage, a big company is leverage too. Even assuming that
you'll be 36x less productive at a big company, you'll probably reach 36x more
users simply because you're working on a product by a big company.

~~~
pg
You seem to share a common statistical misconception about success rates. If
10% of startups succeed, that doesn't mean that if you start a startup, your
chances of succeeding are 10%. They are either much higher or much lower.

This is clearer if you consider a statement like "10% of men are over 6 feet
tall." There's no one who has actually has a 10% chance of being over 6 feet
tall. 10% of people have a 100% chance, and the remaining 90% have a 0%
chance.

For the sort of person who has sufficient drive to get rich at all, starting a
startup is a much more reliable way to do it than the overall success rate
implies.

~~~
jules
The frequentist way you're doing probability in that comment is not valid
since the success or failure of one particular startup is not a repeatable
experiment. The only valid interpretations are (1) the frequentist probability
across a group of startups and (2) the degree of belief, or bayesian
probability of a single startup's success. In this framework it is entirely
reasonable to assign a 10% probability of success to one particular startup. I
agree that if you knew beforehand that you're in the small group of people
whose success rate exceeds your standard for reliability, then for that person
a startup would be a reliable way to get rich. The problem is, of course: how
do you know which group you're in?

~~~
pg
I didn't mean to imply that for the right sort of person the odds are 100%.
But they're pretty good. Probably over 30% and maybe as high as 50%. And since
failing is usually pretty quick you could easily try 3 startups in 5 years.

As it turns out there is an easy way to know which group you're in: ask us.
Like all venture investors, it's our job to answer that question, and we work
very hard to try to do it well.

------
kitsune_
I think the problem with such essays is that the authors extrapolate their own
experience and think it can be used as a template for everyone. We are told
how to get rich, become successful, date a beautiful women, write the best
programs, influence people and so on.

------
drblast
"If a fairly good hacker is worth $80,000 a year at a big company, then a
smart hacker working very hard without any corporate bullshit to slow him down
should be able to do work worth about $3 million a year."

Wow, in hindsight this seems way too hacker-centric and elitist. The
assumption is that all that other corporate stuff creates no value. I don't
think that's true. I think that marketing, sales, etc., can be what enables
the $80,000 salary and the combination of everything can be an overall
multiplier. Otherwise, the proposition that a marketing firm can help you
increase sales would not be true.

Contrast with Joel Spolsky's article about how managers are there to abstract
away everything but the hacking problem at hand. There is value created there,
and a good manager can multiply the value of a good hacker.

------
mgkimsal
"If a fairly good hacker is worth $80,000 a year at a big company, then a
smart hacker working very hard without any corporate bullshit to slow him down
should be able to do work worth about $3 million a year."

I'm not sure whether this was meant tongue-in-cheek or not, but ...

If someone's worth $80k to company X, they're worth $80k in the context of the
value the provide to company working as part of the whole. At least some of
the "corporate bullshit" is at least partially necessary to make the company
run.

A developer "programming" outside the context of company X _might_ be able to
provide more value to a wider audience, but not without some level of
"corporate bullshit" (legal, financial, etc). And they're not going to create
$3m of directly accessible money without a decent amount of "corporate
bullshit".

The same skills that are worth $80k to company X might have nearly $0 value to
anyone outside the context of company X.

~~~
pmorici
I think you are under estimating the stench of corporate bullshit. Take how
ever bad you think it is and multiply it by 10 then add a little bit and it's
worse than that at the really bad places.

~~~
mgkimsal
Show me people that were $80k corp developers who left, did nothing else
except the exact same things they did as corp devs (minus corp redtape) who
made millions. No one does. To function, more stuff than just programming
needs to happen.

~~~
pmorici
Yes more stuff besides programming needs to happen but in a large corp. doing
all those ancillary things takes a lot longer than it needs to. For example if
you needed to buy a larger hard drive for your dev machine as an individual
you can just go to your favorite online retailer order it and have it in a day
or two. At a large company you would have to deal with a litany of people
forms and other nonsense that could stretch on for weeks if not months. If
you've never experienced it you can't possibly imagine how bad it really is.

~~~
mgkimsal
I have experienced it (event got yelled at at company X for upgrading my
computer to 1g from 512m - just bought a 512meg chip at lunch for about $40).
I still don't think that just being able to replace your own drive and such
will allow someone to generate 10+ times their previous value. I'm not
intentionally trivializing your point of view - we'll just have to agree to
disagree. :)

------
mr_luc
It's been a while since I've read this essay -- and I'm surprised by some of
the reactions I'm reading in these comments!

The essay is just as good now as it was then.

The underlying ideas are not only correct, they're being actively validated in
the increase in salaries for good programmers.

Someone in this thread says that programming is a commodity. Well, sure. Isn't
everything?

But the key point in the essay is about making value directly, by making
something people want.

Has that somehow become a dated notion? Isn't it, rather, being validated with
every single startup that enriches its value-creating founders?

There's no 'magic' in the essay, of course. No secret key to success, no fairy
dust; I'm sorry for anyone who felt there was, but such is youth.

The essay never said that all programmers will become millionaires.

What it said was that if you wanted to become rich, and you're a programmer,
probably your best shot is to make a product that people want.

Google and Facebook and Twitter and more, they're all validating that argument
by raising salaries for their best talent, to make creating value directly for
the customer a less attractive option.

~~~
achompas
_The underlying ideas are not only correct, they're being actively validated
in the increase in salaries for good programmers._

Then why do people complain about low wages and poor equity offers? Not
everyone is a Google employee making $250k in salary + benefits.

 _But the key point in the essay is about making value directly, by making
something people want. Has that somehow become a dated notion? Isn't it,
rather, being validated with every single startup that enriches its value-
creating founders?_

Where are all of these startups that magically print money for their founders?
All I see on HN are people grinding away on their MVPs (or pushing a landing
page as their MVP) while we discuss the same hot-shot startups (Square,
Twitter, FB, etc.) over and over again.

------
RandyHelzerman1
He's slipping. Marx is wrong, there's no labor theory of value. If working
24/7 was the ticket to riches then every mother would be a billionaire. The
Mexicans who now your lawn and harvest your food work way harder than a
20-something at a startup. What's more, you can do all that work, and 9 times
out of 10 you end up with nothing.

~~~
invalidOrTaken
The essay is about how to _make_ wealth, not _capture_ it. Know the
difference.

The importance of capture is skimmed over a bit too much in pg's essay, in my
opinion. He writes "for much of human history... the only ways to acquire
[wealth] rapidly [was] by inheritance, marriage, conquest, or confiscation.
Naturally wealth had a bad reputation."

Wealth-by-confiscation is far from dead, and is in fact alive and kicking.
Excepting the government, no one can print money; hence, the only way to get
it is from other people, who don't part with it willingly. The separation of
others from their money is the real business, and those who specialize in it
or aid others in it (salesmen, advertisers [Google, Facebook], lawyers,
marketers, those who provide marketplaces [Amazon, eBay, Viaweb], payment
facilitators [PayPal, banks]) will find themselves much better paid than those
who "merely" create wealth. The same is true for those who _guard_ wealth
against those who would take it: tax accountants, lawyers, security system
vendors (one of the more lucrative jobs in my town is sales _for_ a security
systems company---double whammy), and defense contractors (on a national
level).

Today I threw a kill switch on work I'd done for a client that was seemingly
impervious to invoices. In two hours I had an email titled "Urgent Matter,"
and two hours later I had a check in hand (five minutes later the client's
software was working just fine again, if you're curious).

So while I would much prefer to think of myself as a developer, today I got
paid for being an extortioner instead.

~~~
tbourdon
Here, here.

------
outside1234
two comments:

* this only applies if you are the FOUNDER or early employee. joining later and making your 0.14% of the company is good for learning a small part of how startups work, but it is unlikely to get you rich, especially after the discount you take for not working at Googlesoft (where salaries are at least 40% higher than startups). This essay is part of the story that early employees spin to convince you to work like crazy so they take home the majority of the rewards.

* the best way to make wealth consistently is to save money from your paycheck at a young age, invest it in low to moderate risk investments, and let it compound. this would actually argue for taking the higher paycheck from Googlesoft.

* getting rich isn't everything and work isn't everything. you'll be a much more interesting guy (and probably more effective, including at work) and you'll have a better chance of seeing something that is broken and needs a startup.

------
nwhitehead
It's interesting that in this older essay pg suggests focusing on number of
users as a good metric for adding value. Nowadays this is called a vanity
metric and everyone is looking for actionable metrics based on cohort analysis
etc. It shows how fast the best practices for startups are evolving.

------
achompas
After spending over a year on HN, I really have to disagree with assertions
about "corporate bullshit" for one reason:

Advertising.

Look at how HN is inundated with "Show HNs" for everyone's new web app. Many
of these people bootstrap their own company and can't afford advertising.
They're all fighting for attention in a market saturated with novel apps
(Instapaper for videos! another iOS photo sharing app!). Many of these apps
create wealth, and many won't survive into next June.

Now compare these tiny startups with any larger startup or corporation.
Facebook, Twitter, Foursquare have a lot of users, and they need to build out
bizdev teams to continue growing (marginal cost and all that). They need HR
departments to build out those teams--now we're halfway down the road to
internal hierarchies and politics. Ugh, corporate bullshit!

However, these startups can also advertise and market like crazy and watch as
their growth charts show exponential behavior.

Traction and user retention are economies of scale. As much as we hate
corporate bullshit, that bullshit lets a company grow enough to trivialize all
those marketing + bizdev concerns. Otherwise, how can you advertise your
wealth creation when consumers are too busy looking at Tumblr or tweeting to
pay attention to you?

------
asknemo
"If you're a good hacker in your mid twenties, you can get a job paying about
$80,000 per year."

Wow, things change fast. Isn't there a thread talking about certain mid
twenties in Google having $250k per year lately? It was written only 6 years
ago.

~~~
robryan
Wouldnt the equivalent non top of the range amount be around 120k now? And it
seems the dev market is a fair bit tighter than 6 years ago?

~~~
achompas
What do you mean by "tighter"?

~~~
cwilbur
A good programmer who can find a job in an urban market can earn $120K a year.
But there are a lot of programmers who can't find jobs, and that puts
significant downward pressure on salaries; and there are a lot of programmers
in more rural markets who are willing to telecommute, and _that_ puts
significant downward pressure on salaries as well.

------
ashishgandhi
Spooky coincidence: This is exactly the chapter I read yesterday in Hacker and
Painters.

Blunder or not, and as much as I love Apple; like Steve said, "They've earned
their success, for the most part."

On the other hand, because MS grew so big I feel people started taking
software more seriously. It may have shaped how the industry looks at software
now. This is only a hunch as I wasn't even around when it was the 80s.

------
solipsist
Just out of curiosity, is pg a millionaire? A billionaire?

~~~
pathik
The way YC is growing, PG could very well become a billionaire in the coming
years.

~~~
chalst
At 3% equity, he would need either a really, really big hit or a lot of big
successes to become a billionaire. From YC's modus operandum, I think pg cares
more about shaking up Silicon Valley than he does about maximising return on
investment.

~~~
DilipJ
maybe if YC were acquired by another VC firm, he might be able to get a large
multiple off of his ownership stake.

either way, that would be cool to see pg become a billionaire. I wonder how he
would shake up philanthropy? He might be able to find a better charity model
than what currently exists today..

~~~
sp332
The most efficient way to help homeless people is to walk up to them on the
street and give them money. Not much room there for innovation. On the other
hand, the cheapest way for society to help "permanently" homeless people is to
pay their rent on an apartment. That might be more interesting.

~~~
chopsueyar
Give them anything but money.

~~~
sp332
It's a small pilot project but it went really well:
<http://www.economist.com/node/17420321?story_id=17420321>

And, with the standard Malcolm Gladwell disclaimer,
<http://www.gladwell.com/2006/2006_02_13_a_murray.html> seems to indicate than
most homeless people aren't homeless for very long.

