My series of notes on Y Combinator’s Startup Library:
Takeaway: Create something people want. That’s real wealth.
If you wanted to get rich, how would you do it? I think your best bet would be to start or join a startup. A startup is a small company that takes on a hard technical problem. Lots of people get rich knowing nothing more than that.
Economically, you can think of a startup as a way to compress your whole working life into a few years.
Startups are not magic. They don’t change the laws of wealth creation. They just represent a point at the far end of the curve. There is a conservation law at work here: if you want to make a million dollars, you have to endure a million dollars’ worth of pain. If starting a startup were easy, everyone would do it.
The advantage of creating wealth, as a way to get rich, is not just that it’s more legitimate but that it’s more straightforward. You just have to do something people want.
Money Is Not Wealth
If you want to create wealth, it will help to understand what it is. Wealth is not the same thing as money.
Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money.
Wealth is what you want, not money. Money is a way of moving wealth.
What most businesses really do is make wealth. They do something people want.
The Pie Fallacy
If you plan to start a startup, then whether you realize it or not, you’re planning to disprove the Pie Fallacy – that there’s a fixed amount of wealth in the world. There is, a fixed amount of money at any moment. But that’s not the same thing.
What leads people astray here is the abstraction of money. Money is not wealth. It’s just something we use to move wealth. You can make more wealth. Wealth has been getting created and destroyed (but on the balance, created) for all of human history.
In restoring your old car you made yourself [and the world one car] richer. You haven’t made anyone else poorer. So there is obviously not a fixed pie.
** **The people most likely to grasp that wealth can be created are the ones who are good at making things, the craftsmen. One of the biggest remaining groups is computer programmers. A programmer can sit down in front of a computer and create wealth.
In our world, you sink or swim, and there are no excuses.
What a Job Is
** **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.
** **The single biggest problem afflicting large companies is the difficulty of assigning a value to each person’s work. The company has no way of measuring the value of your work.
Measurement and Leverage
**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 in the possibility of failure. Upside must be balanced by downside, so if there is big potential for gain there must also be a terrifying possibility of loss. If you’re in a job that feels safe, you are not going to get rich.
Smallness == Measurement
**Starting or joining a startup is thus as close as most people can get to saying to one’s boss, I want to work ten times as hard, so please pay me ten times as much.
The people you work with had better be good, because it’s their work that yours is going to be averaged with. A startup is not merely ten people, but ten people like you.
Being small is not, in itself, what makes startups kick butt, but rather that small groups can be select. You don’t want small in the sense of a village, but small in the sense of an all-star team.
Technology == Leverage
**Startups offer anyone a way to be in a situation with measurement and leverage. They allow measurement because they’re small, and they 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.
Use difficulty as a guide not just in selecting the overall aim of your company, but also at decision points along the way.
One of our rules of thumb was run upstairs. What this meant in practice was that we deliberately sought hard problems.
Start by picking a hard problem, and then at every decision point, take the harder choice.
**Unfortunately there are a couple catches. One is that you can’t choose the point on the curve that you want to inhabit. You can’t decide, for example, that you’d like to work just two or three times as hard, and get paid that much more. When you’re running a startup, you competitors decide how hard you work. And they pretty much all make the same decision: as hard as you possibly can.
**I think it’s a good idea to get bought, if you can. Running a business is different from growing one. It is just as well to let a big company take over once you reach cruising altitude. It’s also financially wiser, because selling allows you to diversify.
How do you get bought? Mostly by doing the same things you’d do if you didn’t intend to sell the company. Being profitable, for example.
In both cases, what it all comes down to is users. You’d think that a company about to buy you would do a lot of research and decide for themselves how valuable your technology was. Not at all. What they go by is the number of users you have.
In effect, acquirers assume the customers know who has the best technology. And this is not as stupid as it sounds. Users are the only real proof that you’ve created wealth. Wealth is what people want, and if people aren’t using your software, maybe it’s not just because you’re bad at marketing. Maybe it’s because you haven’t made what they want.
In a startup, you’re not just trying to solve problems. You’re trying to solve problems that users care about.
So I think you should make users the test, just as acquirers do. Treat a startup as an optimization problem in which performance is measured by number of users. As anyone who has tried to optimize software knows, the key is measurement.
Number of users may not be the perfect test, but it will be very close. Certainly it’s a better test than your a priori notions of what problems are important to solve, no matter how technically adept you are.
Among other things, treating a startup as an optimization problem will help you avoid another pitfall — taking a long time to develop a product. Now we can recognize this as something hackers already know to avoid: premature optimization. Get a version 1.0 out there as soon as you can. Until you have some users to measure, you’re optimizing based on guesses.
The ball you need to keep your eye on here is the underlying principle that wealth is what people want. If you plan to get rich by creating wealth, you have to know what people want.
Wealth and Power
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.
Since it became possible to get rich by creating wealth, everyone who has done it has used essentially the same recipe: measurement and leverage, where measurement comes from working with a small group, and leverage from developing new techniques.