Imagine the following scenarios:
- Michael is a lawyer. He’s married with a boy and a girl at home. Michael spends most of his day at the office, working hard. He gets paid for his effort, as his paycheck is highly correlated to the amount of billable hours he can put on his clients. In fact, no hours – no pay.
- Lucy works at a large creative office in NY city. She manages a team of graphic designers who design billboard ads. Work starts at nine and ends at five, when she leaves for home. Most evenings she stays at home with her boyfriend. Sometimes they go out for a beer. When they do, she always points at the ads she was responsible for. She takes pride in doing a good job. Her monthly salary is enough to live the comfortable life she learned to love.
Now, imagine the following scenarios, and find the difference:
- Ragga was a software developer at Microsoft. Last year he got an iPhone and it changed his life. He promptly quit his job and started developing applications for the iPhone. Slowly, his revenue started rising. Soon enough he was raking a whopping $1000 a day, as one of his applications, an ad-supported dating service, was awarded favorite by a popular magazine. Today he is working for two hours a day, and the profits just keep growing.
- David sits in front of a computer. Numbers in green and red fill the screen. He sweats in the Miami heat, and moves uncomfortably in his chair. That morning he accidentally bought a large amount of call options for a stock of a large pharmaceutical conglomerate. If he can’t undo what he has done, he will lose his pension. He hopes he can sell them before his wife notices what he’s done. Luckily, by the end of trading hours the price of the options has risen, and he is able to sell them for a hefty profit. That evening, the happy couple opens a bottle of champagne to celebrate their good fortune.
The Secret Of Scalability
I define scalable and non-scalable workplaces as follows:
Non-Scalable Workplaces are workplaces where reward is correlated with work/effort.
In Scalable Workplaces, no such correlation exists.
Non Scalable Safety
If Lucy performs exceptionally well, she gets promoted. If she’ll stop working, she will be fired. Michael gets paid by the hour. There is a limit on the amount of hours he can work in a month, and there’s also a limit on the amount he can charge for an hour’s work (even if it is a high limit). Both these cases roughly translate to:
Pay = Work x Time
This equation brings us to the conclusion that although you can be wealthy, if your hourly rate is good, these jobs will not make you filthy rich. To become filthy rich, like Bill Gates, Warren Buffett and Carlos Slim Helú, you must play the scalable game.
The Scalable Game
Ragga and David represent the scalable game. Ragga put a lot of effort into his iPhone application, but the amount of his success is not directly correlated to amount of effort he has put. In fact, an external effect was the biggest driver of his success. The dating application became so wide-spread, that he could work less and still make more. It was just as likely that he would not make even enough to cover the rent on his apartment. David made a large sum of money in one day. In that day he could have lost his entire savings, or gain an untold fortune.
In the scalable game, the profit equation is roughly:
Profit = Risk x Reward
where risk is always random, and sometimes the reward is, too. And neither is limited by the bell curve.
Mediocristan and Extremistan
There are two countries we are dealing with: Mediocristan and Extremistan.
Mediocristan is where most of us live. It is ruled by the bell curve. Most people’s heights and weights fall within a boundary. So do the salaries of the same profession. It is just as rare to find a taxi driver making $5000 an hour as it is to find a 10ft tall man. Pay is a function of work and time, both limited resources.
Extremistan is the land of information. Information is not bound to the rules of matter. It multiplies almost without effort. In fact, the less effort it takes to multiply information, the more extreme Exteremistan becomes. When software has direct access to the stock market, fluctuations in get amplified. When a book becomes a bestseller, it sells tenfold more than the second book on the list.
Living in Extremistan is a gamble, a winner-take-all game. If you control information that turns out to be valuable, like the copyrights to a popular video clip, you can make a big profit. If your information turns out to be worthless, you get nothing.
Entrepreneurs live in Extremistan
Startup founders live in Extremistan. By starting our own technology company, we accept the risk of losing everything for the small chance at fame and fortune. We do it for various reasons, which may have nothing to do with neither fame nor fortune, but we take the risk nonetheless.
It is important to understand that in Extremistan, there is a great deal of randomness and unpredictability. The market is complex and changes all the time, and the rewards are often spread unevenly. Chances are you will not become a billionaire. Chances are you will not be followed by a million users on Twitter. Chances are you will not succeed. But you might, if you are lucky.
In fact, Extremistan it is such an arbitrary place, that I’d suggest not living there. Our brains are not fit for such a place. Live in Mediocristan. It is safer there. And when you do, choose a profession with good return on your time. Be a lawyer or a doctor. If nothing else, it’ll make you mother proud.