“How to Make Wealth” by Paul Graham
Out of all the RSS feeds that i subscribe to, Paul Graham’s Essays is my favorite. When I see a new item on his feed, I usually pause what I’m doing and read it. His latest essay this month is titled “How to Make Wealth” and it discusses the difference between money and wealth and how understanding this difference is fundamental to understanding entrepreneurship. Some of my favorite quotes:
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. 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. It’s doing something people want that matters, not joining the group.
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.
The problem with working slowly is not just that technical innovation happens slowly. It’s that it tends not to happen at all. It’s only when you’re deliberately looking for hard problems, as a way to use speed to the greatest advantage, that you take on this kind of project. Developing new technology is a pain in the ass.
This is a good plan for life in general. If you have two 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 this trick works so well is that when you have two 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.
…having worked in a medium size enterprise software house for 4 years and knowing friends and family who did startups I’d comment on this a little.
In particular, while this is a very motivating and insightful read, I found the logics behind the cover is quite weak.
For example, he mentioned:
“If you look at history, it seems that most people who got rich by creating wealth did it by developing new technology.”
this is true and false in many ways. To elaborate, I’d quote the list of Fortune 500 companies – inside, a company makes cheese, another one makes labels and one that makes, well, gas (and you know who!).
Fortune 500 (2004)
http://www.usatoday.com/money/companies/2004-03-22-fortune-500-list_x.htm
these are commodities and everyone knows we all need these on a daily basis, that’s their first step of success, creating something everyone wants. but how are they more successful than their competitors? it’s about how they execute their ideas.
Like they may use technology to give themselves an edge (e.g. wal-mart), or they may use smart partnerships (e.g. ExxonMobil + George Bush).
But to coin all successful wealth generators under the umbrella of “new technology”, I think that’d be a gross overstatement.
However, new technologies are what startups are about and that’s how they make wealth – because they have nothing else to offer.
Maxwell
27 Dec 05 at 11:34 am
…and in my dad’s industry – garment manufacturing – i know enough people who became rich by lowering labor cost (think moving to China) that’d prove Paul’s theory wrong.
Maxwell
27 Dec 05 at 11:38 am
…I don’t mean to babble on like Rishi does most of the time but I figure that’s what Blog is about right? : )
my last point on this – think of all the tycoon who became ridiculously rich simply by being in real estate.
yeah they may use technology like a PDA to keep track of their connections, and an Excel sheet to keep track of price trends. But at the end, it’s their vision, their connections that made them rich (plus a bit of luck of course).
Like they bought a piece of land cheap, then they suddenly realize it’ll be re-zoned to a business zone and they can build offices. Yeah i wonder how they can tell the future wink wink.
Maxwell
27 Dec 05 at 11:44 am