It works as a medium of exchange, however, because its rarity is guaranteed by the U.S. Government.
It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money.
The advantage of a medium of exchange is that it makes trade work. The disadvantage is that it tends to obscure what trade really means.
What most businesses really do is make wealth. They do something people want.
I can remember believing, as a child, that if a few rich people had all the money, it left less for everyone else. Many people seem to continue to believe something like this well into adulthood.
Money is not wealth. It's just something we use to move wealth around.
Wealth can be created without being sold. Scientists, till recently at least, effectively donated the wealth they created.
In industrialized countries, people belong to one institution or another at least until their twenties. After all those years you get used to the idea of belonging to a group of people who all get up in the morning, go to some set of buildings, and do things that they do not, ordinarily, enjoy doing.
Someone graduating from college thinks, and is told, that he needs to get a job, as if the important thing were becoming a member of an institution. A more direct way to put it would be: you need to start doing something people want.
I think the single biggest problem afflicting large companies is the difficulty of assigning a value to each person's work.
There is one other job besides sales where big companies can hire first-rate people: in the top management jobs. And for the same reason: their performance can be measured. The top managers are held responsible for the performance of the entire company. Because an ordinary employee's performance can't usually be measured, he is not expected to do more than put in a solid effort. Whereas top management, like salespeople, have to actually come up with the numbers.
A company that could pay all its employees so straightforwardly would be enormously successful. Many employees would work harder if they could get paid for it. More importantly, such a company would attract people who wanted to work especially hard. It would crush its competitors.
If you're in a job that feels safe, you are not going to get rich, because if there is no danger there is almost certainly no leverage.
I think everyone who gets rich by their own efforts will be found to be in a situation with measurement and leverage.
A big company is like a giant galley driven by a thousand rowers. Two things keep the speed of the galley down. One is that individual rowers don't see any result from working harder. The other is that, in a group of a thousand people, the average rower is likely to be pretty average.
If you took ten people at random out of the big galley and put them in a boat by themselves, they could probably go faster. They would have both carrot and stick to motivate them. An energetic rower would be encouraged by the thought that he could have a visible effect on the speed of the boat. And if someone was lazy, the others would be more likely to notice and complain.
The larger a group, the closer its average member will be to the average for the population as a whole. So all other things being equal, a very able person in a big company is probably getting a bad deal, because his performance is dragged down by the overall lower performance of the others.
And when you discover a new way to do things, its value is multiplied by all the people who use it.
technical advances tend to come from unorthodox approaches, and small companies are less constrained by convention.
Big companies can develop technology. They just can't do it quickly. Their size makes them slow and prevents them from rewarding employees for the extraordinary effort required. So in practice big companies only get to develop technology in fields where large capital requirements prevent startups from competing with them, like microprocessors, power plants, or passenger aircraft. And even in those fields they depend heavily on startups for components and ideas.
A McDonald's franchise is controlled by rules so precise that it is practically a piece of software. Write once, run everywhere. Ditto for Wal-Mart. Sam Walton got rich not by being a retailer, but by designing a new kind of store.
If there were two features we could add to our software, both equally valuable in proportion to their difficulty, we'd always take the harder one. Not just because it was more valuable, but because it was harder. We delighted in forcing bigger, slower competitors to follow us over difficult ground.
I can remember times when we were just exhausted after wrestling all day with some horrible technical problem. And I'd be delighted, because something that was hard for us would be impossible for our competitors.
One way to put up barriers to entry is through patents. But patents may not provide much protection. Competitors commonly find ways to work around a patent. And if they can't, they may simply violate it and invite you to sue them. A big company is not afraid to be sued; it's an everyday thing for them. They'll make sure that suing them is expensive and takes a long time.
If you can develop technology that's simply too hard for competitors to duplicate, you don't need to rely on other defenses. Start by picking a hard problem, and then at every decision point, take the harder choice. [9]
If you can develop technology that's simply too hard for competitors to duplicate, you don't need to rely on other defenses. Start by picking a hard problem, and then at every decision point, take the harder choice. [9]
For most of the world's history, if you did somehow accumulate a fortune, the ruler or his henchmen would find a way to steal it.
Take away the incentive of wealth, and technical innovation grinds to a halt.
Remember what a startup is, economically: a way of saying, I want to work faster.
Instead of accumulating money slowly by being paid a regular wage for fifty years, I want to get it over with as soon as possible.
It is, as Edison said, one percent inspiration and ninety-nine percent perspiration. Without the incentive of wealth, no one wants to do it.
Engineers will work on sexy projects like fighter planes and moon rockets for ordinary salaries, but more mundane technologies like light bulbs or semiconductors have to be developed by entrepreneurs.
Understanding this may help to answer an important question: why Europe grew so powerful. Was it something about the geography of Europe? Was it that Europeans are somehow racially superior? Was it their religion? The answer (or at least the proximate cause) may be that the Europeans rode on the crest of a powerful new idea: allowing those who made a lot of money to keep it.
The theory that led to the stealth plane was developed by a Soviet mathematician. But because the Soviet Union didn't have a computer industry, it remained for them a theory; they didn't have hardware capable of executing the calculations fast enough to design an actual airplane.
This
essay is about how to make money by creating wealth and >
getting paid for it. >
This essay is about how to make money by creating wealth and getting paid for it.
The Proposition
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.
. This
essay is about how to make money by creating wealth and > >
getting paid for it. > >
Combine all these multipliers, and I'm claiming you could be 36 times more productive than you're expected to be in a random corporate job.
You just have to do something people want.
Money Is Not Wealth
Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn't need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn't matter how much money you had.
Money is a side effect of specialization. In a specialized society, most of the things you need, you can't make for yourself.
The advantage of a medium of exchange is that it makes trade work. The disadvantage is that it tends to obscure what trade really means. People think that what a business does is make money. But money is just the intermediate stage-- just a shorthand-- for whatever people want. What most businesses really do is make wealth. They do something people want.
The Pie Fallacy
A surprising number of people retain from childhood the idea that there is a fixed amount of wealth in the world.
Craftsmen
The people most likely to grasp that wealth can be created are the ones who are good at making things, the craftsmen. Their hand-made objects become store-bought ones. But with the rise of industrialization there are fewer and fewer craftsmen. One of the biggest remaining groups is computer programmers.
A programmer can sit down in front of a computer and create wealth. A good piece of software is, in itself, a valuable thing.
There are many senses of the word "wealth," not all of them material. I'm not trying to make a deep philosophical point here about which is the true kind. I'm writing about one specific, rather technical sense of the word "wealth." What people will give you money for. This is an interesting sort of wealth to study, because it is the kind that prevents you from starving. And what people will give you money for depends on them, not you.
