Paul Graham: How to Make Wealth

Subscribed to Paul Graham‘s RSS feed for a while and I think this might’ve been the first new article. A must-read for you guys who read my blog regularly. Having worked at three startups (or relatively small high-tech companies), I agree with a lot of things here.

Paul Graham: How to Make Wealth:

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. The word “startup” dates from the 1960s, but what happens in one is very similar to the venture-backed trading voyages of the Middle Ages.Startups usually involve technology, so much so that the phrase “high-tech startup” is almost redundant. A startup is a small company that takes on a hard technical problem.

Economically, you can think of a startup as a way to compress your whole working life into a few years. Instead of working at a low intensity for forty years, you work as hard as you possibly can for four. This pays especially well in technology, where you earn a premium for working fast.

A great programmer, on a roll, could create a million dollars worth of wealth in a couple weeks. A mediocre programmer over the same period will generate zero or even negative wealth (e.g. by introducing bugs).

That averaging gets to be a problem. I think the single biggest problem afflicting large companies is the difficulty of assigning a value to each person’s work.

the payoff is only on average proportionate to your productivity. There is, as I said before, a large random multiplier in the success of any company. So in practice the deal is not that you’re 30 times as productive and get paid 30 times as much. It is that you’re 30 times as productive, and get paid between zero and a thousand times as much. If the mean is 30x, the median is probably zero. Most startups tank, and not just the dogfood portals we all heard about during the Internet Bubble. It’s common for a startup to be developing a genuinely good product, take slightly too long to do it, run out of money, and have to shut down.

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