How to Make Wealth, Slowly
In How to Make Wealth, Paul Graham suggests you join a startup if you want to make wealth. His thesis is that startups allow you to compress work:
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. This pays especially well in technology, where you earn a premium for working fast.
This take on startups is very grounded. Instead of a glorified, mystical creature (🦄), a startup is simply a bet on working harder.
The reason this is possible at a startup is that you are closer to the output. More accountable for the result. And so it is easier to measure your work. At a startup, your pay can better reflect your actual worth. Working harder means earning more. The smallest startup is just you, fully accountable and entitled to all rewards.
Naval tells us we must arm ourselves with specific knowledge, accountability, and leverage to create wealth — all things we can do well at a startup.
At a corporate job, this is much harder — if not downright impossible. There is a limit to what you can make. Often determined by your title instead of your direct contribution. Your pay is closer to the average than your actual worth.
If you are a lazy, incompetent person this is good news. But if you are striving for more this can be demotivating.
Joining a startup is an option. And if you really want to go for it, it is probably the best option. But there are big downsides as well. One such downside is risk and volatility. Graham:
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.
The median is probably zero. Another way to put it: “In the long-term, risk-adjusted view, taking a job at a startup is a bad financial choice.“
There are lots of reasons to join or found a startup. Financial freedom isn’t one of them. With that in mind, what are some alternatives?
Work and spend less
If you want to be rich, you need to work hard and be lucky. But if you already have a good job (all developer jobs I know are great, relatively speaking) and you can accept that you won’t be making $10 million in four years, you may consider less instead of more.
Working a corporate job means you signed up to work a certain amount. Working twice as much, three times as much, or 36x does not increase your pay with the same multiple. Working hard may yield a promotion. But compared to the work you are already putting in, extra effort likely has diminishing returns.
That’s the issue with a corporate job and wealth creation. And why Paul Graham argues startups are the way to build wealth.
But you can still build your own wealth, albeit at a slower rate, if you decide to accept your current pay and learn to live below your means. People are retiring at 30 using this strategy. And from personal experience, this has yielded more wealth than any product or website I have created (and I have tried and failed many times!).
It takes a different mindset than the startup grindset. And whether it is right for you depends on what you want. But it is worth considering before giving up your next four years to attempt a startup.
While you are working less, you can spend your free time doing whatever you wanted in the first place. As you will actually have free time. You can take care of things in life other than money — health, community, family, hobbies, etc.
Compress your corporate job
Modern jobs, especially tech jobs, have given us unprecedented freedom. Personally, I work at a job where being at the office is encouraged but working from home is also broadly accepted.
Which means I have lots of freedom to plan my work week.
There is the freedom I have in being able to make personal appointments during the day if needed. But there is also another freedom that comes with WFH — freedom to arrange how I work.
A thread running through How to Make Wealth is that corporate jobs average out workers’ pay as it is difficult to measure their worth to the company. We’ve already established this and why it is a problem. But now that we recognize this, we can act on it.
One way to act is to go where worth is more easily measured: at a smaller company. Another way is to lean into the average work and compress your working hours to live up to that. This topic becomes a bit tricky for the exact reason we just outlined: it is difficult to measure. Which means it becomes a subjective task.
But it already is a subjective task. Your manager makes subjective decisions when deciding if you should get a raise, promotion, or a letter saying you are no longer needed.
The way corporations have usually managed this task is by putting down a certain number of hours you have to work each week. Something like 37-45 hours. But if you’ve been in an office for all of five minutes you know this doesn’t make sense. Hours don’t translate into anything useful for a company.
So what if you decided to compress your working life — not from 40 years to 4 — but from 40 hours a week to something less? Could you compress your day from 8 hours to 6? Or your week from 5 days to 4?
My bet is you can.
You’ll face challenges for sure. Meetings, always-online cultures, interruptions, etc. But it is possible. And if your output is the same as before, any good manager should welcome your efforts (although I don’t suggest you make it explicit. Just do your work and let the results speak).
It’s the same principle as compressing work by joining a startup. Just at a different scale. It will not be as effective as there are unavoidable headwinds slowing down things at many corporations. But even if you aren’t 30x as productive, any multiplier allows you to compress your day or week into fewer working hours.
Make wealth, slowly
Working a corporate job is wealth creation. It is a lot of people coming together to create something people want. To create more wealth in the world.
It is just happening at a slower, steadier pace.
If you have patience and discipline to live below your means, you can use this steady pace to build up wealth for yourself. You don’t have to dedicate everything to a risky pursuit of riches. And what’s more — you probably don’t want or need riches. What you want is something else. Wealth alone doesn’t make happiness.
With what I’ve outline in this post, you can work on that ‘something else’ while also building up a comfortable financial position.
Compress your work, live below your means, invest the difference. Care less about money and more about life.