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How to earn a billion dollars

paulgraham.com

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Re: How to earn a billion dollars

#971

Post by bko »

gpt5 wrote: post #908
tsimionescu wrote: post #861

Earlier quoted context omitted.

Why do you think no one is contradicting him? The exponential growth model that pg presents is an obvious lie - you could use his exact explanation to claim that good founders will soon become trillionaires, all it takes is 9 months of 93% growth after your first few billions; quadrillionaires will soon follow. The obvious reality is that exponential growth is just a small phase in any company's history, and it is an…

Both you and PG are missing the mark here. PG made the error thinking that this is just people misunderstanding math and exponential growth, which created a convoluted math section that could have simply been explained as - if you start with a million dollar and double every month, you'll be a Billionaire in less than a year. He also didn't really touch well on why many people hate large companies / billionaires. You…

> There is a real problem of incentives when you prioritize growth endlessly, as it leads to perverse incentives such as that ones these companies are accused of - leading you to progressively take more and more less positive actions in order to achieve this growth.

What negative actions has Google Amazon and Nvidia done due to them prioritizing growth endlessly?

For Google, they didn't prioritize growth or they would have moved on AI a decade ago, but they were afraid of having tech journalists who hate them already write mean articles about how their AI is harmful.

Amazon just .. I don't know, keeps squeezing out operational efficiencies that get me next day delivery? Or developing AWS to enable other people to build apps?

Nvidia sells GPUs. Maybe you're a gamer and the push into AI means higher GPU prices?

I'm at a loss here. I don't think anyone is mad at these companies outside of a tiny vocal terminally online minority.

Re: How to earn a billion dollars

#972

Post by cm11 »

nearbuy wrote: post #842
cm11 wrote: post #746

Earlier quoted context omitted.

The reason her startup was growing so fast was simply that users loved what she'd built. He's said the "make something people want" thing before, his argument for billionaires doesn't seem to go much beyond it. It seems rather clear it's not all you need nor is it all it took for these people to get there. You don't just make the thing. The founder didn't become a billionaire simply because users loved her product. Y…

You're not really engaging with PG's argument so much as nitpicking around the edges. Are people becoming billionaires primarily by cheating and stealing, or by making something people want? That's the core argument. Were GitLab, Dropbox and Stripe primarily cheating or offering a service people liked? Rather than cherry-picking one or two examples of what you deem the worst offenses, show that "you can't earn a bill…

My argument was that he wasn't engaging with the topic. I didn't make a particularly heavy case (as you note) for billionaires as cheaters—part of the reason for that is that there are a few low hanging arguments and examples for it and I'd think a counterargument should address them.

I think you're reframing his argument as something softer. Not whether they cheat or exploit, but whether they're primarily doing it. Is the cheating low enough or outweighed by the tremendous love for the product? I'm not sure he would agree that's what he's trying to say, but I would count that as cheating. At best, there is cheating, but it's worth it (for them and, I don't know, maybe/hopefully even for society).

You're also nudging it towards whether some billionaires are sometimes able to do it without cheating. It's hard to make a strong assertion whether the senator or PG's claims are meant strictly all or nothing. Both have language of this type. I couldn't say which one means it, though I think it's fair to judge hyperbole. I alluded to this in the prior comment, but I think it's fairly easy for CEOs to benefit from cheating happening downstream. Did Dropbox spam users' contact lists to grow? Did their PM or PMMs abuse push notifications for marketing? Again, I can see versions where this doesn't count as cheating for some. Or it does, just low enough level or normalized such that people redefine cheating. I think there's a lot of (often low level) cheating just built into business and it's mostly a matter of whether anyone will take you to task for it.

Re: How to earn a billion dollars

#974

Post by runeks »

DrScientist wrote: post #927
pipes wrote: post #509

The amount of negativity to this is depressing. No one seems to be contradicting anything he's saying here, instead it's just vacuous ideology "extraction" etc etc. Purposely narrow reading. I've got kids, I want people creating start ups they can work in, the alternative is too grim.

I think the problem here is the word 'earn' is doing a lot of heavily lifting. Let's take Y combinator. He is in the money lending business - where he sells the idea of becoming a billionaire ( which is possible in software as it so easily scales relative to other types of businesses ) to young people so they work crazily hard. Most of them fail ( which he doesn't focus on ), but just like a bookie who profits from g…

> So he has set up a system that extracts value from others.

That's a very negative way to describe buying a share in a company.

Re: How to earn a billion dollars

#975

Post by theptip »

seanlinehan wrote: post #510
theptip wrote: post #360

Earlier quoted context omitted.

Right, regardless of whether you agree or disagree with the point, PG doesn’t actually engage with it. He just says “compound growth + build something that people love”. But the meat of the point is: if the economy is growing at 2.5%, how do you sustain 15% over 5 years? Look, I’m a startup guy, I buy into the premise that it’s an intensely value-creating activity. But I think it’s self-defeating to pretend like the…

> if the economy is growing at 2.5%, how do you sustain 15% over 5 years? US GDP is $31.82 trillion dollars per year. Taking the 2.5% growth rate, that's nearly $800 billion dollars per year in new GDP. The economy very obviously does not progress as a bunch of soldiers marching in a straight line. Some firms will shrink 100%, some will growth 10,000%. This much is obvious by just looking around. But even if no busin…

Thanks for engaging with this in a quantitative way. I particularly appreciate the earnings/valuation accounting, this really helps anchor the discussion.

I agree you’ve demonstrated that there is enough economic growth to not contradict PG’s hypothetical numbers. But I think we should strive for a deeper understanding than “all they had to do was capture… 0.05% of the increase in GDP”.

Just as a counter-example, a Robber Baron could monopolize all the profits in the rail sector and run a drug mafia on the side, and it would show up the same in your numbers; “all they did was capture 5% of the increase in GDP”. In other words, like PG you don’t actually prove the point you’re arguing; you just provided a story that doesn’t contradict it. (Capturing the annual wealth creation of ~350m*0.05% ~= 175,000 people doesn’t seem on its face to be obviously fair or routine, rather it seems like a tail outlier worthy of further investigation.)

The way I would frame it is, what we actually need to do is look at the firm level metrics and figure out what is going on. (A founder becoming a billionaire typically means their company grew to the order of $10b - let’s look at the business practices of $10b companies or founders with confirmed liquidity valuations in our range.)

If you look at founders like Jobs, I think it’s pretty clear he made his first $b (via Pixar) just by making things people loved. Companies like Uber obviously relied to some extent on regulatory arbitrage, and you can debate the timing of e.g. Google founders’ shift to monopoly rent extraction, I would likely argue they got their $b “fairly”.

The second order question of course - would markets price your company at $10b if they didn’t think you had a future monopoly opportunity? Expectation vs current reality makes this all more complex.

But I think for PG’s purposes you can ignore the second order and just talk about successful, billionaires who built things that people loved.

The problem of course is that nobody likes billionaires these days (except politicians of course) and so it’s a much less marketable narrative. And there is the crux of the problem; this post is not an honest attempt to increase our understanding of the world, it’s a political slogan.

Re: How to earn a billion dollars

#976

Post by peab »

ericd wrote: post #813
peab wrote: post #794

Earlier quoted context omitted.

incredible to see this opinion on hacker news.

Ehh I think many here would agree that first hire onward get at least a little screwed with normal market equity grants. I really like Andrew Mason's (Groupon founder's) Progressive Equity for this. First hire is basically the worst risk/reward tradeoff - almost as much risk as the founders, much much less upside.

I mean, yeah, but it's not like it's done in a deceiving way. Nobody forces anybody to be a first hire

Re: How to earn a billion dollars

#977

Post by runeks »

jltsiren wrote: post #670
pipes wrote: post #509

The amount of negativity to this is depressing. No one seems to be contradicting anything he's saying here, instead it's just vacuous ideology "extraction" etc etc. Purposely narrow reading. I've got kids, I want people creating start ups they can work in, the alternative is too grim.

The essay kind of misses the point, as the question was mostly about the meaning of word "earned". "Earned income", for tax purposes, matches pretty closely the kinds of income many people consider genuinely earned in the moral sense. From this perspective, if a startup grows organically and the founders become rich, they have earned it. But if the growth requires capital (an investment, a loan, or the wealth the fou…

> But if the growth requires capital (an investment, a loan, or the wealth the founders already have), the situation becomes less clear. How much of the success can be attributed to the contributions of the founders and how much is based on arbitrary choices made by wealthy people?

I don't get it. If I need to raise money to fund my startup, how are my profits more "earned" if I crowd fund $10m by finding 10,000 wage earners who will lend me $1000 each than if I borrow $10m from a billionaire?

Re: How to earn a billion dollars

#978

Post by tsimionescu »

Nevermark wrote: post #962
tsimionescu wrote: post #861

Earlier quoted context omitted.

Why do you think no one is contradicting him? The exponential growth model that pg presents is an obvious lie - you could use his exact explanation to claim that good founders will soon become trillionaires, all it takes is 9 months of 93% growth after your first few billions; quadrillionaires will soon follow. The obvious reality is that exponential growth is just a small phase in any company's history, and it is an…

You> you could use his exact explanation to claim that good founders will soon become trillionaires, PG> I don't want anyone to accuse me of using unrealistic numbers, so let's take a more conservative growth rate. Let's see what happens at 15% a month. That's not rare at all. You> it is anyway limited by the size of the market(s) it is operating in PG> how long you can continue to grow at that rate depends on the si…

He does put caveats around his initial, condescendingly worded points. The problem is that those caveats are either too small, or they completely contradict his initial point.

Again, if all it takes to become a billionaire is 15% growth rate for 5 years, which is easy, then if you start with two billion dollars and grow at 15% per month, you'll be a trillionaire in 5 years. And 5 years after that, a quadrillionaire. If the billionaires are literally generating billions of new value, what explains why trillions can't be generated in the same way?

If the market is limited, then it means that you can't grow your way to a billion dollars, you have to displace others - either competitors in the same market, or other markets as well. So now there's a much clearer chance that you're using underhanded means to actually get your billions - you're not growing a new pristine market that people just love, you might just be edging out competitors or snuffing out other markets that had existed before - and perhaps were limited by things like regulations or externalities that you simply choose to ignore.

And the question of externalities and unfair competition and corruption is not tangential, it is the whole point that Alexandria Ocasio-Cortez or Bernie Sanders or others in this anti-billionaire movement are making. Not talking about it is simply ignoring their argument. The problem isn't "oh, I didn't realize that simply growing at 15% every month for 5 years will make a million dollar business into a billion dollar business". It's "the actions that you need to take in order to continue growing at 15% every month for 5 years are going to include things like un priced externalities, corruption, cartel behaviors, etc". Addressing how you can sustain this growth, and how the markets can have so much money in them, are exactly the most important things - not the trivial math of exponential growth that he discusses, condescendingly, at length.

Re: How to earn a billion dollars

#979

Post by tsimionescu »

chistev wrote: post #880
tsimionescu wrote: post #861

Earlier quoted context omitted.

Why do you think no one is contradicting him? The exponential growth model that pg presents is an obvious lie - you could use his exact explanation to claim that good founders will soon become trillionaires, all it takes is 9 months of 93% growth after your first few billions; quadrillionaires will soon follow. The obvious reality is that exponential growth is just a small phase in any company's history, and it is an…

I agree with you, but what would be the argument against Athletes and someone like J.K. Rowling (Harry Potter author)?

There's no such thing as a billionaire athlete. There are a handful of athletes who went on to become billionaires through their business dealings, like Michael Jordan, or Ion Țiriac or LeBron James. The arguments are exactly the same for them as for any other billionaire - that their businesses are either not really worth as much as the numbers suggest, or that their business engaged in various problematic practices.

For authors, the arguments are again quite simple - billionaire authors or directors don't become billionaires by selling books or movies, they become billionaires from much larger businesses that employ way more people who were collectively much more critical to the success of said businesses than the authors themselves. JK Rowling didn't become a billionaire until the movie franchise and the toy mega production began. If the movies hadn't happened, or the toys hadn't happened, she would have just been an extremely rich multimillionaire.

Re: How to earn a billion dollars

#980

Post by robotnikman »

nolroz wrote: post #859
noufalibrahim wrote: post #857

Earlier quoted context omitted.

There is a bubble here. Running ones own business is, on the overall, better than being employed especially given the current world. However, that doesn't automatically equal to startups. There are people who are running their own brick and mortar businesses. They're not billionaires or even millionaires but they've crossed the point where lack of a reliable source of wealth is a source of misery for them. Surely, th…

Healthcare is one place that gives me pause when considering going back into business for myself and my family while living in the US.

This is definitely a concern that needs to be addressed if we want to see more small businesses again. It's a big risk not having health insurance.
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