Wealth and Money

If you wanted to shrink rich, how would you do it? I bring forward your best bet would be to start or join a startup. Thats been a reliable foc utilize to rent rich for hundreds of years. The word startup dates from the 1960s, nevertheless what happens in one is precise similar to the venture-backed handicraft voyages of the nub Ages. Startups commonly involve technology, so much(prenominal) so that the phrase high-tech startup is almost redundant. A startup is a small beau monde that takes on a hard technical problem. Lots of common riches pop out rich k instantaneouslying nonhing more than that.You dont maintain to know physical science to be a good pitcher. But I think it could revert you an edge to under h senescent out the underlying principles. wherefore do startups check to be small? Will a startup inevitably stop be a startup as it grows outstandingr? And why do they so often bestow on developing new technology? Why are on that point so many startups covering new drugs or computer software, and none selling corn oil or washout detergent? The Proposition Economically, you can think of a startup as a way to extort your whole work life into a some years.Instead of working at a low intensity for twoscore years, you work as hard as you possibly can for four. This pays curiously well in technology, where you earn a premium for working fast. here(predicate) is a brief sketch of the economic proposition. If youre a good machine politician in your mid twenties, you can eviscerate a job roll nigh $80,000 per year. So on average such a jade must be able to do at least $80,000 worth of work per year for the company scantily to break even. You could believably work twice as many hours as a corporate employee, and if you cogitate you can probably knowledge three times as much done in an hour. 1 You should get a nonher quaternary of two, at least, by eliminating the drag of the pointy-haired middle manager who would be y our boss in a big company. Then there is one more multiple how much smarter are you than your job description expects you to be? Suppose another multiple of three. Combine all these multipliers, and Im claiming you could be 36 times more fur-bearing than youre expected to be in a random corporate job. 2 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 overmatch should be able to do work worth about $3 one million million million a year.Like all back-of-the-envelope calculations, this one has a lot of jiggle room. I wouldnt try to defend the actual numbers. But I stand by the structure of the calculation. Im not claiming the multiplier is precisely 36, but it is sure more than 10, and probably rarely as high as 100. If $3 million a year seems high, remember that were talking about the frontier case the case where you not only have zero untenanted time but indeed work so hard that you bring out your health. Startups are not magic. They dont change the legalitys of wealth creation. They just re make up a point at the far end of the curve.There is a conservation law at work here if you want to mend a million dollars, you have to endure a million dollars worth of pain. For example, one way to light up a million dollars would be to work for the Post swanment your whole life, and save every penny of your salary. Imagine the stress of working for the Post Office for fifty years. In a startup you compress all this stress into three or four years. You do be given to get a certain bulk discount if you buy the economy-size pain, but you cant evade the fundamental conservation law. If starting a startup were easy, everyone would do it.Millions, not Billions If $3 million a year seems high to virtually mountain, it will seem low to others. Three million? How do I get to be a billionaire, like Bill supply? So lets get Bill Gates out of the way right now. Its not a good idea to use famous rich plurality as examples, because the press only write about the very richest, and these hunt to be outliers. Bill Gates is a smart, determined, and hardworking man, but you affect more than that to pee as much currency as he has. You similarly bring to be very lucky. There is a large random factor in the success of any company.So the guys you end up reading about in the papers are the ones who are very smart, totally dedicated, and win the lottery. Certainly Bill is smart and dedicated, but Microsoft also happens to have been the beneficiary of one of the most spectacular blunders in the bill of business the licensing deal for DOS. No doubt Bill did every issue he could to orient IBM into making that blunder, and he has done an excellent job of exploiting it, but if there had been one person with a brain on IBMs stance, Microsofts future would have been very different.Microsoft at that stage had little leverage over IBM. They were in effect a component supplier. If IBM had required an exclusive license, as they should have, Microsoft would still have signed the deal. It would still have meant a lot of specie for them, and IBM could advantageously have gotten an operating system elsewhere. Instead IBM ended up using all its power in the market to give Microsoft control of the PC standard. From that point, all Microsoft had to do was execute. They never had to bet the company on a b honest-to-goodness decision.All they had to do was play hardball with licensees and copy more innovative products pretty promptly. If IBM hadnt do this mistake, Microsoft would still have been a successful company, but it could not have grown so big so fast. Bill Gates would be rich, but hed be somewhere near the bottom of the Forbes cd with the other guys his age. 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.There are toilet of other ways to get money, including chance, speculation, marriage, inheritance, theft, extortion, fraud, monopoly, graft, lobbying, counterfeiting, and prospecting. Most of the greatest fortunes have probably involved several of these. The advantage of creating wealth, as a way to get rich, is not just that its more legitimate (many of the other methods are now illegal) but that its more straightforward. You just have to do something people want. bullion Is Not riches If you want to create wealth, it will help to empathize what it is.Wealth is not the same thing as money. 3 Wealth is as old as human history. Far older, in fact ants have wealth. capital is a comparatively recent invention. Wealth is the fundamental thing. Wealth is jostle 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 any thing else you wanted, you wouldnt need money.Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldnt reckon how much money you had. Wealth is what you want, not money. But if wealth is the most-valuable thing, why does everyone talk about making money? It is a patient of of shorthand money is a way of moving wealth, and in arrange they are usually interchangeable. But they are not the same thing, and unless you protrude to get rich by counterfeiting, talking about making money can make it harder to understand how to make money. Money is a side effect of specialization.In a specialized society, most of the things you need, you cant make for yourself. If you want a potato or a pencil or a place to live, you have to get it from someone else. How do you get the person who grows the potatoes to give you some? By giving him something he wants in return. But you cant get very far by trading things directly with the people who need them. If you make violins, and none of the local farmers wants one, how will you eat? The solution societies find, as they get more specialized, is to make the trade into a two-step process.Instead of trading violins directly for potatoes, you trade violins for, say, silver, which you can then trade again for anything else you need. The modal(a) stuff the long suit of exchange can be anything thats rare and portable. historically metals have been the most common, but recently weve been using a medium of exchange, called the dollar, that doesnt physically exist. It works as a medium of exchange, however, because its rarity is guaranteed by the U. S. Government. The advantage of a medium of exchange is that it makes trade work.The disadvantage is that it tends to shadowy 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 peop le want. 4 The Pie Fallacy A surprising number of people retain from childhood the idea that there is a wintry bar of wealth in the world. There is, in any normal family, a fixed amount of money at any moment. But thats not the same thing.When wealth is talked about in this context, it is often described as a pie. You cant make the pie larger, say politicians. When youre talking about the amount of money in one familys bank account, or the amount procurable to a government from one years tax revenue, this is true. If one person gets more, someone else has to get less. 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.This fallacy is usually there in the background when you hear someone talking about how x percent of the population have y percent of the wealth. If you devise to start a startup, then whether you realize it or not, youre p lanning to disprove the Pie Fallacy. What leads people astray here is the abstraction of money. Money is not wealth. Its just something we use to move wealth around. So although there may be, in certain specific moments (like your family, this month) a fixed amount of money available to trade with other people for things you want, there is not a fixed amount of wealth in the world.You can make more wealth. Wealth has been getting created and destroyed (but on balance, created) for all of human history. Suppose you own a beat-up old car. Instead of sitting on your march next summer, you could spend the time restoring your car to pristine condition. In doing so you create wealth. The world is and you specifically are one pristine old car the richer. And not just in some metaphorical way. If you sell your car, youll get more for it. In restoring your old car you have made yourself richer. You havent made anyone else poorer.So there is obviously not a fixed pie. And in fact, when you l ook at it this way, you wonder why anyone would think there was. 5 Kids know, without sagacious they know, that they can create wealth. If you need to give someone a present and dont have any money, you make one. But kids are so pestiferous at making things that they consider home-made presents to be a distinct, inferior, sort of thing to store-bought ones a mere expression of the proverbial thought that counts. And indeed, the stumpy ashtrays we made for our parents did not have much of a resale market.