"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 down should be able to do work worth about $3 million a year."
I am not sure though that it is false. It is just not very well defined. (I don't know what it means. What actionable advice can be concluded from it.) You say wealth is different than money. This implies that wealth cannot be measured with the money you can gain from it. But you somehow measure wealth with money. You somehow convert between the two using the ratio used at big companies.
What can be said in my opinion is this:
At a big company you are paid 100.000 per year to improve someone else's huge shitty code. You are paid to fight with buerocracy. You are paid well for it.
In a small company you are paid to create new programs fast. Much faster than in big companies. But this small company either has huge risks or have much smaller income than the big company. You programming does not worth more just because you can create more lines of code or nicer code. Your programming here also worth only $100.000
Maybe I misunderstood you, but I read you as you stated that the expected value of the earning of a programmer founded startup is 36x$80.000
I think it is more close to 2x$80.000
The 2 multiplier comes from you work 2x more time in a week.
In a small company you are paid to create new programs fast. Much faster than in big companies. But this small company either has huge risks or have much smaller income than the big company.
It sounds like what you're saying is that although you may be able to get code written (and thus wealth created) faster in a small company, you don't automatically get paid in proportion.
If that's what you're saying, I agree, and in fact I said so later in the same essay:
"The other catch is that the payoff is only on average proportionate to your productivity. There is, as I said before, a large random multiplier in the success of any company. So in practice the deal is not that you're 30 times as productive and get paid 30 times as much. It is that you're 30 times as productive, and get paid between zero and a thousand times as much. If the mean is 30x, the median is probably zero."
One doesn't need to look very far. The first paragraph:
> If you wanted to get rich, how would you do it? I think your best bet would be to start or join a startup. That's been a reliable way to get rich for hundreds of years.
Startups are not a reliable way to get rich. Or what failure rate would you still consider reliable?
That said, I do agree that working at a startup can mean that you can contribute more. That is not always the case however. Just like smart technology is leverage, a big company is leverage too. Even assuming that you'll be 36x less productive at a big company, you'll probably reach 36x more users simply because you're working on a product by a big company.
You seem to share a common statistical misconception about success rates. If 10% of startups succeed, that doesn't mean that if you start a startup, your chances of succeeding are 10%. They are either much higher or much lower.
This is clearer if you consider a statement like "10% of men are over 6 feet tall." There's no one who has actually has a 10% chance of being over 6 feet tall. 10% of people have a 100% chance, and the remaining 90% have a 0% chance.
For the sort of person who has sufficient drive to get rich at all, starting a startup is a much more reliable way to do it than the overall success rate implies.
The frequentist way you're doing probability in that comment is not valid since the success or failure of one particular startup is not a repeatable experiment. The only valid interpretations are (1) the frequentist probability across a group of startups and (2) the degree of belief, or bayesian probability of a single startup's success. In this framework it is entirely reasonable to assign a 10% probability of success to one particular startup. I agree that if you knew beforehand that you're in the small group of people whose success rate exceeds your standard for reliability, then for that person a startup would be a reliable way to get rich. The problem is, of course: how do you know which group you're in?
I didn't mean to imply that for the right sort of person the odds are 100%. But they're pretty good. Probably over 30% and maybe as high as 50%. And since failing is usually pretty quick you could easily try 3 startups in 5 years.
As it turns out there is an easy way to know which group you're in: ask us. Like all venture investors, it's our job to answer that question, and we work very hard to try to do it well.
I would have to agree. For all the belly-aching about Wall Street in NYC's tech community, you're guaranteed a significant income for a number of years.
For this equality to hold:
E(Wall Street hacker's earnings) == E(startup founder's earnings)
you need an extremely high payoff, since
E(startup founder's earnings) == P(startup success) * payoff of startup.
and we know the probability of success at a startup is low.
Everyone on HN needs to be honest with themselves: this kind of high payoff almost never happens, in aggregate. And I haven't even included a risk premium, which would make the required payoff higher!
If wealth capture is a main concern, you're better off building a nest egg at a hedge fund or large corporation for 10 years. If you want to start a startup, do it for the culture and technological freedom. From a statistical view, however, a startup is not the optimal way to become rich.
EDIT: mynegation reminded me of risk-adjusted returns. Thanks!
The risk adjusted returns of a venture-capital funded startup for a a founder with assets < 100k and non-entrepreneurial opportunities of > 100k is about negative 100-200k. In other words, you'd pay money to not be a venture-capital funded startup founder in that scenario.
I believe pg meant there's a much larger percentage of rich people who were once part of a startup vs rich people that worked like everyone else. I'd say that's a fact right there.
P(becoming rich | working at a startup) != P(worked at a startup | is rich)
I don't want to parse statements here, but it's pretty clear PG suggests that starting up or working at a startup is the best way to become rich. I'd wager that, in practice, people become rich for a variety of reasons, with none being more effective than any other.
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EDIT: Above, I'm trying to point out how the fraction of rich entrepreneurs vs. rich employees provides us with no information by itself.
However, we can develop a distribution of probabilities for becoming rich based on the career you chose, using the careers of those who are already rich. I'd suppose this is PG's real point, and while I can't verify it right now I'd bet entrepreneurs become rich at a higher frequency than non-entrepreneurs.
Can't say we are saying anything much different but let's focus on what seems important. So there's a variety of ways to get rich and we want to know which one is easier: work for someone else vs start your own company. My point is that 99.9% of the world population work for someone else while only a really small percentage started a company. And only a really small percentage of the world population is rich. Even if only of 1% of the rich people started their own company, there's still truth to what the article said. So, I was saying it's a fact that your chances to get rich are much higher having your own company than working for someone else. Which I also believe is the point in the article.
You're right, we're agreeing violently. Above, you said that more rich people started a company than worked for others; here you're applying Bayes. That first assertion is not verifiable, but you're definitely right that starting a company increases your likelihood of becoming rich.
That depends entirely on your definition of rich. While P(earnings > $1M/year) is probably going to increase, P(earnings > $100k/year) is probably going to decrease. It's also unclear whether your expected earnings are going to increase, and note that most people's loss function is not even linear (e.g. you're not going to be 10x as happy earning $1M than earning $100k -- and you're going to be much less happy when you're broke).
It's ok, I could have been much clearer (but then I would also repeat what's in the article). I have the feeling people commenting here did not read the whole article or are just nitpicking, it's one of the best articles about the history of work and its current status I have ever read, everyone should read this.
"When those far removed from the creation of wealth-- undergraduates, reporters, politicians-- hear that the richest 5% of the people have half the total wealth, they tend to think injustice!"
Your comments preceding and following this sentence suggest that injustice doesn't enter into the equation.
But on the contrary, anyone who's paid attention the past 30 years is well aware that inequality has increased greatly, and that the main reasons are various forms of carefully calculated injustice, such as:
1. Regressive tax policies shifting the tax burden from the wealthy and the corporations to the middle class.
2. Mass wealth transfer scams such as the housing bubble and the S&L scams of the 1980s.
3. Massive spending on foreign wars which benefits a very narrow slice of weapons companies and related businesses - that money could have gone to build up the wealth of the nation, in the form of infrastructure, education, etc.
4. Massive deregulation of the financial industry, which allowed many Wall St. scams to proceed without hindrance.
The glib thinking exemplified by the quoted sentence is typical of "libertarian" ideology that doesn't expend much energy on thinking about the problems cited above.
You didn't refute what I wrote. You just quoted me and used it as a jumping off point for a rant of your own.
This is why I ask people who think they disagree with something I've written to find something I actually wrote and refute it. Otherwise more often than not they are (as you are here) arguing against something they mistakenly believe I said rather than something I actually did say.
What I said in the sentence you quote is that a lot of people automatically assume that economic inequality is due to injustice. I never claimed it never is, and in fact it's pretty clear from e.g. this passage I think it often is:
"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 plenty 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."
