There are a lot of ways to get rich - chance, speculation, marriage, inheritance, theft, extortion, fraud, monopoly, graft, lobbying, counterfeiting, and prospecting. This essay is about getting rich by creating wealth. The advantage of this is that it’s a lot more straightforward - just make something people want!

Wealth is the stuff we want (food, clothes, gadgets etc.). Money is what we use to make trades easier. It’s a medium of exchange. Talking about making money can make it harder to understand how to make money. It’s easier to talk about making wealth.

Pie Fallacy - “You can’t make the pie any larger”. This is true in the sense that you can’t create more money, and that a government can’t increase its budget without taking from others. But in the sense of wealth, it’s wrong - wealth can be created. For example, if you repair your broken down car, you’ve created wealth without harming anyone and without creating more money. You are now one car richer. And not just in the metaphorical sense, if you proceed to sell this car, you’ll get more for it.

The people most likely to grasp that wealth can be created are the ones who are good at making things, the craftsmen. They see their products become things that consumers use and benefit from. In a company, everyone works together to create wealth. A lot of the employees are a few steps removed from the actual making of stuff, and thus have a harder time grasping that wealth can be created. These people are more likely to think that inequality = injustice.

Again, a company is just a bunch of people working together to make something people want and get paid for doing so. Your personal contribution is often indirect, but it’s important to understand that what you have to do is make something people want; joining a company is just one way to do that.

When you work with other people, your contribution is averaged together with theirs (because everyone needs to do their job if the final product is to come out right). If you make x dollars a year, you have to be contributing on average at least x dollars a year of work for you to be worth hiring.

Because of this averaging, it’s hard to tell how much value a given employee is creating. So companies usually punt - they pay you predictable salary for a reasonable amount of work. But if a company were able to measure the work done by its employees and pay them proportionately, it’d be very successful and would crush its competitors.

To get rich you need to get yourself in a situation with two things, measurement and leverage. You need to be in a position where your performance can be measured, or there is no way to get paid more by doing more. And you have to have leverage, in the sense that the decisions you make have a big effect. A good hint to the presence of leverage is the possibility of failure.

Smallness = Measurement. If you can't measure the value of the work done by individual employees, you can get close. You can measure the value of the work done by small groups.

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. But the real advantage of the ten-man boat comes from when you take the ten best rowers and have them work together, because its a better deal for them to average their work together.

Technology = Leverage. Startups offer leverage because they make money by inventing new technology.

What is technology? It's technique. It's the way 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. It is the proverbial fishing rod, rather than the fish. That's the difference between a startup and a restaurant or a barber shop. You fry eggs or cut hair one customer at a time. Whereas if you solve a technical problem that a lot of people care about, you help everyone who uses your solution. That's leverage.

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. However, you do get a certain “bulk discount” when you compress it (so you do end up doing less work overall when you compress it).

A good hacker could probably get 10-100x more work done at the company he works at. (The reason he doesn’t get this work done is because of corporate bullshit, and because he isn’t paid more to get more done.)

Don’t try to be Bill Gates. Startups involve luck, and you have to be very lucky to be as rich as he is (Microsoft happens to have been the beneficiary of one of the most spectacular blunders in the history of business: the licensing deal for DOS. If IBM hadn’t screwed up, Bill Gates would still be rich, but he’d be at the bottom of the Forbes 400 instead of the richest guy on the planet.)

Small companies are generally good at hard technical problems because they’re not slowed down by bureaucracy, and because they’re less constrained by convention. So then, it’s probably a good idea for small companies to seek these hard problems because it’ll be harder for the big slow-acting companies to compete with you there.

The Catches