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How to Make Wealth

Technology As Leverage

Technology is technique, the way we do things. New technology has its value multiplied by all those who use it. Solving a technical problem that affects many gives you leverage.

Technology changes fast, and small companies are better suited to this pace as they have less bureaucracy to slow them down and are less constrained by convention.

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IDEA EXTRACTED FROM:

How to Make Wealth

How to Make Wealth

http://paulgraham.com/wealth.html

paulgraham.com

12

Key Ideas

What Is A Startup

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. 

The Difference Between Wealth And Money

  • Wealth is the collection of resources we can use. You can have wealth without having money. Money is a way of moving wealth, and in practice they are usually interchangeable.
  • Money intermediates transactions.  In a specialized society, most of the things you need, you can't make for yourself and you might not have what the other person wants to trade directly for. Thus the use of money to intermediate transactions.

On The Creation Of Wealth

There is a limited amount of money in the world but wealth is unlimited. Wealth can be created through work and new ideas.

Companies aim to create wealth and so do you when you join one. In a company your work is averaged with that of others so it obscures your actual contribution.

Individual Power In The Creation Of Wealth

Joining a company is not the only way to create wealth. As long as you can create something that people want you can create wealth and for that you don’t need a company as an intermediary.

Working hard has a high individual cost but creates the opportunity to earn more wealth than one would have by working less hard. Companies are normally not set up to reward people who do this and they often lack a way of measuring individual contribution.

To get rich...

...you need to get yourself in a situation with 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, as in your decisions having a big effect in the final product you’re working on.

The smaller the group involved in a project the easier it is to measure the value of an individual’s contribution. That’s why startups are ideal for hard workers.

Technology As Leverage

Technology is technique, the way we do things. New technology has its value multiplied by all those who use it. Solving a technical problem that affects many gives you leverage.

Technology changes fast, and small companies are better suited to this pace as they have less bureaucracy to slow them down and are less constrained by convention.

The Role Of Big Companies In Technology Development

Big companies develop technology, but not quickly. Their size makes them slow and prevents them from rewarding employees appropriately.

They are better suited to develop technology in fields where large capital requirements prevent startups from competing. And even in those fields they depend heavily on startups for components and ideas.

How To Choose A Technology To Develop

Seek to solve the harder problems as they are more valuable and give your company an edge over the competition. It also increases the barrier to entry. That’s how hard it is for another company to duplicate what you’ve done.

If you can develop technology that's simply too hard for competitors to duplicate, you don't need to rely on less effective defenses, like patents.

The Issues With Running Startups

  1. Your competitors decide how hard you work. And that’s often as hard as you possibly can.
  2. Payoff is only on average proportionate to your productivity. You might end up earning as much or less than you would in a big company if the endeavor fails, and failures are common in startups.
  3. Startups tend to be an all-or-nothing proposition. And it takes a leap of faith to find out which side a startup stands on.

Tips On Selling A Startup

  1. Minimize risks by selling your startup in the early stages, giving up upside for a smaller but guaranteed payoff. Unfortunately, big companies tend to be risk-averse, so it is easier to sell an established startup than an early-stage one.
  2. Selling allows you to diversify away from the volatility of the startup.
  3. Being profitable is the best way to make your company worthy of buying.
  4. A great motivator for a big company to buy a startup is their competition trying to do the same.
  5. The user count is one of the best measures of a company. This tells the buyers if the company is focused on quickly creating a desirable product or just on solving a technical problem.

Wealth and Power

Without the incentive of wealth, people would only work on projects that brought them personal satisfaction or social status, no one would want to develop mundane technologies like light bulbs or semiconductors.

The power to be re-compensated for working hard and keep wealth is what gave rise to startup culture and what powers our technological revolutions.

Observations On Startups

  • One advantage of startups is that they don't yet have any of the people who interrupt you. There is no personnel department, and thus no form nor anyone to call you about it.
  • Theoretically a big company could implement a startup culture and maximize profits if employees are paid in proportion to the wealth they generate.
  • If you want to create wealth, then you should be especially skeptical about any plan that centers on things you like doing. 
  • Establishing a company in a country that has a less interventionist government is ideal for the company’s health.

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The Slow And The Fast Way To Build Wealth

  • The long-term approach to wealth building: If you’re younger and your income limits allow, open up a Roth IRA. Invest in mutual funds and ETFs while making sure you have enoug...

Todd Tresidder

Todd Tresidder

“Great wealth builders focus on both saving money and earning more.”

9 Ways To Building Wealth Fast

  1. Save on vehicles. Before buying a car, investigate vehicle reliability, pricing and financing.
  2. Rent. Most rentals offer more flexibility in case you need to move. Also, not having the mortgage payment allows you to start saving earlier.
  3. Don’t be a consumerist, buy only the things you really need.
  4. Save a percentage of your income so you have more money to invest.
  5. Work hard on your current work regardless of your feelings for it. It’s easier than finding a new great opportunity and may lead you into a promotion.
  6. Educate yourself even if it doesn’t bring any immediate benefit, being educated opens new opportunities on the long run.
  7. Invest in yourself and your marketing to open up new opportunities.
  8. Being an entrepreneur is the best way to maximize your earnings, short of being an investor. Try it, even if it fails the learning from it will be invaluable in your next attempt.
  9. Real estate won’t make you rich overnight, but it’s a solid strategy to increasing your network. 

Lack of innovation in larger corporations

  • As companies start to grow, they often experience a downturn in innovation as management layers increase. 
  • Many larger corporations are now attempting to harvest the suc...

3 performance management must haves

  1. Risk-taking. Create a culture in which risk-taking is encouraged. Fear of failure is one of the most common inhibitors of innovation. 
  2. Increase learning agility. People with a high learning agility are able to take feedback and adjust strategies accordingly, without becoming discouraged. 
  3. Creating cross-functional teams. Organise teams with different skill sets together on an ad hoc basis to tackle particular projects. It creates a smaller pool of decision-makers and allows the team to benefit from cross-departmental knowledge.