Transcript
Introduction
How to make wealth? There are a lot of ways to get rich, and this essay is about only one of them. This essay is about how to make money by creating wealth and getting paid for it. The advantage of creating wealth as a way to get rich is that it's more straightforward. You just have to do something that people want.
Money is not wealth. This paragraph is key to understanding this entire essay. Wealth is the 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 anything else that you wanted, you wouldn't need money or as if you were in the middle of Antarctica, where there's nothing to buy, it wouldn't matter how much money you had.
Wealth is what you want, not money. But if wealth is the most important thing, why does everyone talk about making money? 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. The people most likely to grasp that wealth can be created are the ones who are good at making things, the craftsmen. Their handmade objects become store-above 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. Programmers literally think of the product one line at a time. It's also obvious to programmers that there are huge variations in the rate at which wealth is created.
At Viaweb, which was Paul's start-up that he sold to Yahoo!. At Viaweb, we had one programmer who was a sort of monster of productivity. I remember watching what he did one long day and estimating that he had added several hundred thousand dollars to the market value of the company. A great programmer could create a million dollars’ worth of wealth in a couple of weeks. A mediocre programmer over the same period will generate zero or even negative wealth. Steve Jobs repeated a variation of this idea his entire career. “You must find extraordinary people”, is what he would repeat over and over again.
Wealth is whatever people want. That is a concise description of this essay. Wealth is whatever people want. Think about this, Y Combinator's motto, which Paul is going to found, I think, the year after -- a few months after this essay is written, Y Combinator's motto, ‘Make Something People Want’. When Paul wrote that ‘Wealth is whatever people want’, YC was not founded yet. But you could see the thinking behind it was there.
The way most companies make money is by creating wealth. Nearly all companies exist to do something people want. A more direct way to put it would be you need to start doing something people want. You don't need to join a company to do that. All a company is, is a group of people working together to do something people want, which is also why there's always limitless opportunities because people always want new things.
A way to think about this is my favorite quote on this from Richard Branson, ‘A business is just an idea that is going to make other people's lives better’. Now, you get to the part of the essay on working harder, which is something that he references a lot in a bunch of his essays. It turns out that there are economies of scale on how much of your life you devote to your work. In the right kind of business, someone who really devoted himself to work could generate 10 or even 100x as much wealth as an average employee.
He started this essay that if you wanted to get rich, how would you do it? And he says, “I think your best bet would be to start or join a start-up”. That's the very first sentence. This is a couple of pages later. “And we're seeing why main theme is really hard to generate wealth inside of large companies. Companies are not set up to reward people who want to do this, meaning work 10 or even 100x harder who are not -- company is not set up to reward people who want to do this. You can't go to your boss and say, ‘I'd like to start working 10x as hard, so will you please pay me 10x as much?
And one of the reasons Paul says that it's hard to do inside large companies is the lack of measurement and leverage. He says, “To get rich you have to have leverage”. He's not talking about financial leverage, by the way. “To get rich you have to have leverage in the sense that the decisions you make have a big effect. If you're in a job that feels safe, you're not going to get rich because if there's no danger there's almost certainly no leverage".
And then he goes into smallness equals measurement. That's the second part of this. You can measure the value of the work done by small groups. The opposite of this is why it's hard to generate personal wealth inside of a large company. Starting or joining a start-up is, thus, as close as most people can get to saying to one's boss, "I want to work 10x as hard, so please pay me 10x as much." There are 2 differences. You're not saying it to your boss, but directly to the customers for whom your boss is only a proxy after all. And you're not doing it individually, but along with a small group of other ambitious people.
And this line is so fantastic, “The people you work with had better be good because it's their work that yours is going to get averaged with”. That is why all of history’s greatest founders, including Steve Jobs, say you must find extraordinary people to work with. In fact, you might remember this from Episode 208, where this interview of Steve Jobs is being done in 1997. He says that the founder's most important job -- he said recruiting is the founder's most important job.
Back to the essay, extra motivation comes from being in a small group. By selecting that small of a group, you can get the best rowers, each one will be in the top 1%. That is the real point of start-ups. You are getting together with a group of other people who also want to work a lot harder and get paid a lot more than they would in a big company. A start-up is not merely 10 people, but 10 people like you.
Steve Jobs once said that the success or failure of a start-up depends on the first 10 employees. I agree. I'm pretty sure Paul is referencing that same interview that I covered in the book, In the Company of Giants, back on Episode 208. So let me just repeat that real quick. Steve Jobs once said the success or failure of a start-up depends on the first 10 employees. I agree. A very able person who does care about money will ordinarily do better to go off and work with a small group of peers. That's a really important part on 275, which is the first episode I did on Paul Graham, when I shared what he would do if he was starting a company now. That part really resonated. I had a ton of people who share it publicly on social media, but also send me private messages about hearing that.
And he says -- I'm just going to read the second part of it real quick. He says, “At every point in the company's growth I'd keep the company as small as I could. I'd always want people to be surprised by how few employees we had. Fewer employees equal lower costs and less need to turn into a manager”. This is the most important point though. His punchline here, he says, "When I say small, I mean small in employees, not revenue." That is very important.
He's writing that tweet, I think, 15 years, maybe even close to 20 years now, but over 15 years, after he's writing when he's writing in this essay. This is something you and I talk about over and over again that the people building these companies they don't have 20 things or 100 things that they want you to remember, they have a handful of core principles that they repeat decade over decade.
And we see that here, a very able person who does care about money will ordinarily do better to go off and work with a small group of peers. Then he gets into the point of what he means about leverage. For him, technology equals leverage. This is another very important line. What is technology? It's technique. It's the way we do -- we all do things. And when you discover a new way to do things, its value is multiplied by all the people who use it. And he goes into that. This is the domain of small companies, right?
Small companies are more at home in this world because they don't have layers of bureaucracy to slow them down. Also, technical advances tend to come from unorthodox approaches, and small companies are less constrained by convention. And I love what he does here. He ties this into, no one thinks of Walmart as a technology company, but he makes the point. Sam Walton got rich not by being a retailer, but by designing a new kind of store.
Go back to the previous page. What is technology? It's a technique. It's the way we all do things. A few paragraphs later, he ties it in. Sam Walton, the founder of Walmart, no one thinks of Walmart as a technology company. Sam Walton got rich not by being a retailer, but by designing a new kind of store. Episode 150 and Episode 234, if you don't know what Paul Graham is talking about, you will see Sam Walton experiment decade after decade of trying to find a new kind of store and then stumbling on to this idea.
It's like, “Oh, there's a ton of business out there in all these little, small rural towns that all the other big retailers ignored. And if you can offer the lowest prices, these people will drive far distances just to save money”. It is also a good idea to go and read about the opening of the first Walmart store, the idea that it's going to generate in the future one of the largest fortunes that a family has ever made in the history of humanity. Starts off with donkey c*** and exploding watermelons. That is not hyperbole. That actually happened.
Back to this essay. His idea -- very next paragraph, he talks about one of my favorite ideas that I've learned from him, again, taking a very complex idea and breaking it down to the aphorism level run upstairs, which means the harder something is to do the less competition you're going to have. So Paul writes, use difficulty as a guide, not just as selecting the overall aim of your company, but also add decision points along the way.
At Viaweb, one of our rules of thumb was run upstairs. Suppose you're a little nimble guy being chased by a big, fat bully. You open a door and find yourself in a staircase. Do you go up or down? I say up. The bully can probably run downstairs as fast as you can. Going upstairs as bulk will be even more of a disadvantage. Running upstairs is hard for you, but even harder for him.
What this meant in practice was that we deliberately sought hard problems. If there were 2 features we could add to our software, both equally valuable in proportion to their difficulty, we would always take the harder one, not just because it was more valuable, but because it was harder. We’re delighted enforcing bigger, slower competitors to follow us over difficult ground.
Venture capitalists know about this and have a phrase for it, barriers to entry. If you go to a VC with a new idea and ask him to invest in it, one of the first things he'll ask is how hard would this be for someone else to develop. Now, he gets to the point of what's the catch. There is a large random multiplier in the success of any company. Most start-ups tank. It's common for a start-up to be developing and generating a good product, takes slightly too long to do it, run out of money, and have to shut down.
And I think this is a good line to end the essay part before I get to the footnotes. The ball you need to keep your eye on here is the underlying principle that wealth is what people want. So few businesses really pay attention to making customers happy. And just 2 things in the footnote. This last sentence I'll get to you in one second is a really good point at the very end of this paragraph. 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's a kind that prevents you from starving.
This is a fantastic sentence that I double-underlined it. It ends it. “And what people will give you money for depends on them, not you”. And then I'll end this essay on really just good life advice from Paul. This is more on his idea of running upstairs, on doing something difficult intentionally. This is a good plan for life in general. If you have 2 choices, choose the harder. If you're trying to decide whether to go out running or sit home and watch TV, go running. Probably the reason the strict works so well is that when you have 2 choices and one is harder, the only reason you're even considering the other is laziness. You know in the back of your mind what's the right thing to do. And this trick merely forces you to acknowledge it.
So that’s an excerpt from the book that we are going to talk to you about today, which is the collection of Paul Graham's essays. It is called Hackers & Painters: Big Ideas from the Computer Age. Okay. So I want to start with the essay that the book is named after, which is Hackers and Painters. And I think the point of reading this essay, from my perspective, is Paul is trying to describe and really teach, like it's learning how to make good things.