Lion of the Blogosphere

How to become rich through entrepreneurship

Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich. Both people and companies make money by having a monopoly, or at least by having monopoly power.

The advance of technology, which has accelerated significantly since the invention of the integrated circuit and Moore’s Law which doubles their power every eighteen months, has created various hidden monopolies. The first person or company to discover and exploit one of these hidden monopolies becomes rich. It’s especially exciting when a lone individual or small group of individuals discovers and exploits a monopoly worth hundreds of millions of dollars. When a huge corporation like Apple discovers a new monopoly worth hundreds of millions of dollars, it’s just a small blip because Apple is already worth hundreds of billions of dollars, so an extra few hundred million doesn’t appear to be very significant.

If Mark Zuckerberg had been born two hundred years ago, he probably would have been a big nobody because it was a time when hidden monopolies were fewer in number and less valuable.

What are the factors that increase the chance that an individual can discover and exploit one of these hidden monopolies? I believe that one factor is that these people usually have very high IQs. At this point, some longtime blog readers are remembering that I’ve previously stated that IQ has nothing to do with making money except for getting you into a good college so you can get into a good career track. That part is true for the vast majority of smart people. The 0.1% of people with IQs higher than 140 who stumble upon one of these hidden monopolies are such a small number of people that they don’t show up at all on samples like the General Social Survey or the cohort of college graduates studied by Stacy Dale and Alan Krueger.

Let’s assume that the founders of WhatsApp are pretty smart guys. As pointed out by Steve Sailer, before WhatsApp they were just regular staff engineers at Yahoo who were presumably not thought of as worthy for promotion to executive-level positions, and they applied for jobs at Facebook and weren’t even hired. Their high IQ didn’t help them make any significant amount of money in their careers. The irony for FaceBook is that they paid $19 billion for a company founded by two guys that a few years earlier they didn’t even think worthy of hiring. Most high-IQ people are like the founders of WhatsApp before their app hit it big, but they never hit it big, they just keep on working at whatever career track they started out on, and if it’s a lousy career track like being a staff engineer at a big corporation, then they never amount to much.

The second factor in entrepreneurial success is having the resources to exploit the hidden monopoly once it’s discovered. And this is the main reason why smart computer programmers are overrepresented among centimillionaires and billionaire entrepreneurs. The best computer programmers are said to be ten times as efficient as the average computer programmer. It’s a lot more viable to start developing the hidden monopoly if you can do the work of ten computer programmers yourself instead of having to hire a team of ten people.

Furthermore lone individuals, or a small group of two or three individuals, are able to exploit the 80-20 principle. By that I mean that at most corporations, 80% of the time spent at work is wasted and only 20% is spent doing anything valuable. The lone entrepreneur, however, can spend 100% of his time doing only the 20% of the stuff that’s valuable, and skip useless 80% work which includes things like paperwork (now typed into Word documents but still the same thing) and all other unnecessary documents, time-wasting meetings to build consensus, and all work done on stupid projects that are doomed to fail but are the pet of someone higher up in the organization.

A guy who majored in history and doesn’t know how to program is at a disadvantage here, because he can’t do any of the work himself. However, if our history major has access to venture capital, then he can still found a company and become rich. How does one get looped into the venture capital markets? I’m not sure, but I suppose that attending a prestigious university and a prestigious MBA program can help you meet the right people.

Or you can do things the Steve Jobs way, which is to find a clueless high-IQ nerd like Steve Wozniak to work for you for free.

Written by Lion of the Blogosphere

February 25, 2014 at EST pm

Posted in Wealth

87 Responses

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  1. “Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich. Both people and companies make money by having a monopoly, or at least by having monopoly power.”

    I’ve never seen any economist say this ever…….and also you should define the word “monopoly” as you’re using it here.

    SJ

    February 25, 2014 at EST pm

    • When Lion talks about monopolies, I think that he’s referring to network effects.

      Alex

      February 25, 2014 at EST pm

    • I believe LotB has rightfully stated before that in a true free market no one could become very wealthy as perfect competition should keep the profit margin slim. Hence whenever someone is wealthy they must have created a monopoly situation with help of government: zoning laws. patents, copyrights, cumbersome regulation, etc., to create high barriers to new potential competitors.

      Gil

      February 25, 2014 at EST pm

      • Sometimes with the help of government, and copyright and patents are an example of that, but there are also natural monopolies like Facebook. Facebook is only valuable because everyone else is also on Facebook. Even if you could program your own Facebook, no one will use it.

        Lion of the Blogosphere

        February 25, 2014 at EST pm

    • “I’ve never seen any economist say this ever…”

      of course not. to the extent that econ is a science and its predictions diverge from the cw whether “conservative” or “liberal” one will never hear an economist speak of this divergence. econ is proximally and for the most part ideology and econ depts at elite unis are merely finishing schools for future executives, that is the typically technically illiterate but ideologically reliable american executive.

      jorge videla

      February 25, 2014 at EST pm

  2. Facebook is a bad example of a monopolistic company, or even the tech sector in general. Unlike Apple, Google and Amazon, Facebook has no strategic advantage against their competitors. Apple has state of the art hardware and beautifully designed software. Google has exceptional data analytics. Amazon is the lead facilitator of web commerce.

    Facebook on the other hand could be dethroned by another social networking site if they lose their cool factor. There’s nothing about Facebook that couldn’t be copied by some other startup provided there’s enough buzz. For some reason a billion people decided to camp out at Facebook, but there was no particular reason why they had to go to Facebook instead of, say MySpace or some copycat.

    I believe that one factor is that these people usually have very high IQs.

    Don’t agree. IQ has diminishing returns in business. The right combination is high enough IQ plus value transference traits. Sometimes a very high IQ can be an advantage if they’re accompanied by asshole-alpha male personality traits (think Jeff Bezos who’s said his workers should be paying him for the privilege of working at Amazon).

    Going back to my point about Ivy League’s selecting for value transference traits and engineering schools selecting for value creation, MIT students will end up working for white male Harvard undergrads in the future despite the former are are collectively smarter the later because Harvard undergrads are selected for value transference characteristics.

    Of course, because Harvard has pushed out white males in favor Asians doomed to hit the middle management ceiling and affirmative action admits who’ll be assigned do-nothing positions, Harvard admissions is reducing how many elite ground breakers they’ll produce. This is why Harvard alums have been declining as a percentage of Fortune 500 CEOs since the 1980s. They’re going to be very disappointed at their future alumni donations when only 25-30% of undergrads are power hungry white males.

    The Undiscovered Jew

    February 25, 2014 at EST pm

    • De(prolifying) the UK, in favor of wealthy Asians?

      http://www.nbcnews.com/business/business-news/rich-could-bid-visas-u-k-proposal-n38661

      Re: Harvard and the lack of power hungry White Males

      It isn’t always the power hungriness and leadership skills that brings vibrancy and enterprenuerialship to a society. Although such behavior could bring about such qualities with the right combination of IQ and value transference traits. Whites are generally more enterprising and bolder when compared to Asians. You saw it in history and you’ll see it today.

      I’ve already have brought up the issue of White gentrification of Asian neighborhoods in NYC, where low status Whites are gradually setting up small mom n pop businesses in Chinatown, and where very little enterprenuerial activity is coming from acculturated Chinese Americans.

      JS

      February 25, 2014 at EST pm

      • De(prolifying) the UK, in favor of wealthy Asians?

        No Asian immigrants in Britain, America, Australia, Canada and New Zealand. Why should high IQ white British (outrageous I have to qualify ‘white’ with Britishness) have their wages depressed and put their children into competition for the few good jobs left in the coming robot economy. Do Asians allow white British to immigrate to Asians to depress their wages and push Asians out of Asian schools?

        The Undiscovered Jew

        February 26, 2014 at EST pm

      • I agree, but my view is that Asians have a null effect on Western countries.

        JS

        February 26, 2014 at EST pm

    • Harvard College and Cal Tech have the smartest undergraduates, not MIT.

      tolles

      February 26, 2014 at EST am

    • That’s a good thing. Harvardies have ruled the world for so long and they stagnated. Let the Asians have Harvard- nobody will cry for its well-deserved demise.

      Colmainen

      February 26, 2014 at EST pm

      • I expect Harvard to recruit more Chinese students in the future, or they might install a satellite school in China similar to NYU, at the request of the Chinese communists.

        Ivy League is reserved to 4 schools that garner status, HYP and Columbia. Columbia, because of its location in NYC, with a large liberal arts curriculum.

        The other lesser Ivies have no significance these days. That’s how I see it!

        UPenn in Philadelphia: people confused it with the prole school Penn State and vice versa. And Wharton folks try to separate themselves from the general studies folks at Penn.

        JS

        February 26, 2014 at EST pm

      • tolles,

        Cal Tech is a value creation school.

        The Undiscovered Jew

        February 26, 2014 at EST pm

      • Let the Asians have Harvard- nobody will cry for its well-deserved demise.

        Seconded. Turning down a future Elon Musk, Sergei Brin or Steve Jobs today in favor of, at best, competent but non-paradigm breaking Asians or at worst Nigerian princes and wise Latinas defeats the whole value transference purpose of Harvard. Sergei Brin should have been welcomed with open arms by the Ivys, nut shunted into the cold of some Maryland public-U.

        On a related note, does anyone know if the wages of white women have been stagnating? It seems traditional white girl fields such as secretarial, teaching, and administration have suffered stagnant wage growth because affirmative action. The only well paying girl field, medicine, has probably seen white women wages fall because of Asian competition – who of course don’t have to worry about high IQ white girls taking medical jobs in Asia since we don’t “export’ our white talent overseas.

        The Undiscovered Jew

        February 26, 2014 at EST pm

      • The funny thing is is that Brin and Page copied the Rankdex algorithm made by some Chinese guy for their Google algorithm.

        samzenpus

        February 26, 2014 at EST pm

    • TUJ,

      because Harvard undergrads are selected for value transference characteristics.

      HYP are mostly irrelevant when it comes to churning out Non-Wall St – CEO billionaires. If I’m not mistaken, most of the ultra-successful tycoons didn’t come the Ivies, or dropped out from them to start their own businesses, such as Bill Gates and Mark Zuckerberg.

      JS

      February 27, 2014 at EST pm

  3. Your first paragraph misses something rather important. While monopoly power is one way to become immensely wealthy, value-creating workers can still become immensely wealthy without monopoly power. The classic case would be NFL players. It is not that the best quarterbacks are 10x better than the median NFL quarterbacks, in most cases they are only marginally better. But what matters in a game is not the absolute skill of the quarterback per se, but their relative skill. So the best quarterbacks will get paid much more than people just a little bit worse than then.

    The same thing happens to lawyers and bankers. You may think that litigation is 0-sum and not value creating, but even corporate attorneys working on drafting transactional documents are under the same economic logic as NFL players. The best get paid tremendously, while the lawyers a little worse than them get paid much less.

    Trading is 0-sum, so its easy to see why the best people at hedge funds get paid so much (because they’re better traders than everyone else, not because of their absolute skill). But in private equity, the same kind of principles apply. PE firms hire only the best ibanking analysts, although you could say that PE has a monopoly power in the sense that it is a relationship business.

    3LFreeL

    February 25, 2014 at EST pm

    • The best NFL QB has a monopoly on having those superior football skills that no other person has.

      However, I was writing about entrepreneurship, and not winner-take-all fields in general.

      Lion of the Blogosphere

      February 25, 2014 at EST pm

  4. Interesting post, Lion, but I question your use of a 140 IQ here. Is this not one of the few times that Malcolm Gladwell might be partly right?

    This was written in the Paul Bloom article you linked the other day: “Malcolm Gladwell, for his part, argues in Outliers for the irrelevance of a high IQ. ‘If I had magical powers,’ he says, ‘and offered to raise your IQ by 30 points, you’d say yes—right?’ But then he goes on to say that you shouldn’t bother, because after you pass a certain basic threshold, IQ really doesn’t make any difference.”

    Now, of course, very high IQ matters when it comes to certain things like winning a Fields Medal or a Nobel Prize, and it certainly matters when it comes to extremely cognitively demanding jobs.

    But let’s go back to your example of very high IQ computer programmers finding the next monopoly to exploit. Is John Derbyshire, who is an ex-computer programmer with a stated IQ of 135, not bright enough to pick up on something like this? I seriously doubt that. So where’s the real cutoff?

    What you’re talking about here seems to be more about pattern recognition, chance, and opportunity rather than pure brain power.

    Robert

    February 25, 2014 at EST pm

    • Derbyshire is too old to develop the next Facebook. Not that there’s anything wrong with being old, but old minds aren’t nimble like young minds.

      I don’t buy into the Gladwell argument that IQ is irrelevant. IQ is key to creating value. But for value transference, where the real money is made, IQ only matters up to a certain threshold like Gladwell says.

      Lion of the Blogosphere

      February 25, 2014 at EST pm

      • Doesn’t that contradict what you just said in your post which is that people who discover & exploit monopolies (a value transference act) have very high IQ’s? You’re all over the map. First you say IQ matters when it comes to getting out of poverty but not when it comes to getting good pay, but then suddenly it matters again when it comes to getting super rich, which you label value transference, while asserting that only value creation requires high IQ.

        Bottledwater

        February 25, 2014 at EST pm

      • Yes low IQ predicts poverty much better than high IQ predicts wealth. It’s an observation of how things work, not a contradiction.

        Lion of the Blogosphere

        February 26, 2014 at EST am

      • Derbyshire is too old to develop the next Facebook.

        Somebody will displace Facebook. Like I said, FB has no business advantage over the competitors except buzz. It’s not as if their UI’s anything a team of programming nerds couldn’t best.

        The Undiscovered Jew

        February 26, 2014 at EST pm

    • Derbyshire has a higher IQ than 135 given he’s written multiple books, is paid to write high-brow book reviews, learned fluent Chinese as an adult, and has a good grasp of advanced math. He’s probably just being modest by reporting a score on a test that was faulty in some way. 150-155 is more likely.

      tolles

      February 26, 2014 at EST am

      • What is it with people inflating IQs? 135 would put him in the top 1%. That’s plenty smart enough to do those things.

        steve@steve.com

        February 26, 2014 at EST am

      • Indeed, Steve. Roughly half of the people who have told me what they think their IQ is put it above 135. They think that is just “pretty smart.” Lol. They can’t all be right.

        Copperhead Joe

        February 26, 2014 at EST pm

      • Derb on his IQ:

        http://www.johnderbyshire.com/Opinions/Diaries/2007-11.html

        No-test I.Q. estimation. Following my three-parter on race and I.Q., some readers asked me what my I.Q. is. I actually, honestly don’t know, not having taken a test. I can give you a pretty good estimate, though, via heuristic argument. For historical reasons, this argument can’t be made to work any more. It worked once, though — as follows.

        Start with a picture, the one on this web page. Yup, that’s Derb (number 4), aged 10, in his class of 40 kids, give or take a couple. There were four classes like this in my age group, say a total of 160 kids.

        These classes were streamed by test results. The tests were I.Q. tests, near enough. Those were simple days in the English educational system. They tested us; they placed us. My own class was the top-streamed of the four, so you are looking at the top quartile of a random 160 working-class English kids with parents from the pre-meritocratic age. (I mean, from the fact that our parents were poor, you can’t make any inference about their, or our, smarts.)

        It’s therefore fair to assume that this is the top quartile of an IQ distribution, Gaussian-normal in shape, with a mean 100 and a standard deviation 15. Applying the handy little NORMDIST function in Microsoft Excel, it follows that the kids in that picture all have I.Q.s. of 110 or more.

        We were even streamed within our classes, though. The top four in my class — numbers 1, 4, 7, and 11 in the picture — sat in a separate group, doing advanced stuff. As the top four out of 160, we were at the 97½-th percentile. Applying NORMDIST again, that means our I.Q.s were 129+.

        And in fact, Alan and I were somewhat ahead of the other two, alternating for first place in the class tests, with Pete and Martin placing third or fourth. A fair guess, therefore, is that those two had I.Q.s in the low 130s, Alan and myself in the mid- or high-130s.

        If pressed, therefore, I give my I.Q. at 135, with fair but utterly un-tested confidence. I.Q. is pretty stable through life. Indeed, like many other aspects of personality, it exhibits a “shape-memory alloy” effect, drifting a bit in the buffetings of one’s salad days, then returning to its childhood value in adulthood, when you’re more in control of your environment.

        For a normal distribution with mean 100 and standard deviation 15, a statistic of 135 also has the neat property that it’s at pretty precisely the 99th percentile — the 99.0184671th, if you want to be picky. Put it another way, about three million Americans are smarter than me. (I shall introduce you to three of them in just a minute.)

        So: If I were to take an I.Q. test, I’d expect a result around 135. If the result came up 145, I’d ask for a raise. If it came up 125, I’d quite drinking.

        Robert

        February 26, 2014 at EST pm

      • My own class was the top-streamed of the four, so you are looking at the top quartile of a random 160 working-class English kids with parents from the pre-meritocratic age. (I mean, from the fact that our parents were poor, you can’t make any inference about their, or our, smarts.)

        Pre-meritocratic age? Where do people get this idiotic idea that meritocracy only just started in the 1960s? Charles Murray? The rich and poor have always differed greatly intelligence even before money was invented, so Derbshire should definitely shave several points off his estimated IQ if his analysis is based on comparing his ability with poor kids. His true IQ is probably about 130. People with IQ’s of 135+ do not think there was a “pre-meritocratic age”.

        Mama

        February 26, 2014 at EST pm

      • It’s therefore fair to assume that this is the top quartile of an IQ distribution, Gaussian-normal in shape, with a mean 100 and a standard deviation 15.

        Derb’s wrong.

        The standard deviation for whites is 16.7. The STDEV for various races is as follows:

        Whites – 16.7 (Source, Chuck Murray)

        Asians – 16.7 (Source, Steve Hsu)

        Jews – 13 (Source, Murray)

        Blacks – 13 (Source, Murray)

        Upper Caste Indians – who the fuck knows. Likely varies wildly depending on what Indian caste is being looked at.

        The Undiscovered Jew

        February 26, 2014 at EST pm

      • By Asians I meant Northeast Asians.

        The Undiscovered Jew

        February 26, 2014 at EST pm

      • Undiscovered Jew, you’re the one who is wrong. Charles Murray does not report the racial SDs you attribute to him. On page 375 of his book “Coming Apart”, he estimates that White America has a mean IQ of 103 with an SD of 14.5. Then on page 742 of “The Bell Curve” he writes that black Americans have a mean IQ of 86.7 with an SD of 12.4. But because America’s (genetic) intelligence keeps changing because of immigration, it is now common in peer reviewed journals to follow Richard Lynn’s lead and define an IQ of 100 as the average of the white population, not the U.S. Population. When you use whites as the norming population, the white mean and SD by definition become 100 and 15 respectively, and the American black mean and SD become 83 and 12.8 respectively.

        Mama

        February 27, 2014 at EST am

      • Although most of those people you’ve talked to don’t have IQs that high, you’re certainly not taking a representative sample of all white americans.

        BurplesonAFB

        February 27, 2014 at EST pm

  5. The surest way to generate interest from venture capitalists is to have irrefutable traction. (I assume we are talking about consumer tech, which is increasingly hits-driven and unpredictable, much like Hollywood.) When VCs see early signs of a major hit, they pile in – they are momentum investors.

    Yes, an MBA from a top school – Stanford, in particular – will help open VC doors for non-technical founders, but such credentials are far from sufficient to secure VC backing. The typical VC partner will invest in 1 out of every 200 companies that he (or, occasionally, she) meets with, and many of the founders of the remaining 199 companies will be impressive, well-credentialed people.

    It is also worth noting that the majority of VC-backed companies do not achieve life-changing exits for the founders. This is partly due to the fact that VCs are typically awarded liquidation preferences at the time of investment. In the case of WhatsApp, the VC had a triple liquidation preference – if the company was sold for a relatively meager $180 million, then the VC would have realized a return of 3X on its $60 million investment, and the founders would not have seen a penny.

    Yossi

    February 25, 2014 at EST pm

  6. Lion,

    Do you have any ideas on where machine learning can be used for value transferrence / monopolies? I suspect that most of the opportunity lies with automating work done by fairly highly paid white collar workers.

    Alex

    February 25, 2014 at EST pm

  7. “The 0.1% of people with IQs higher than 140 who stumble upon one of these…”

    right. although iq is nearly uncorrelated with income when credentials are controlled for, the super smart are probably greatly overrepresented among the self made super rich.

    “A guy who majored in history … How does one get looped into the venture capital markets?”

    how did steve hsu make his 10 million or so? he was a physics prof at yale. was he a programming savant too? he’s never explained it, but i think the answer is he was not. he had a partner who may have been and he had a caltech classmate at the vc firm which funded his start up. yet he’s also claimed he hired physics phds to do the programming. these people were experts in computer security too? maybe i’m just a moron, but as hardy wrote in his mathematician’s apology, “perhaps five or even ten percent of men
    can do something rather well. It is a tiny minority who can do something really well, and the number of men who can do two things well is negligible.”

    “Or you can do things the Steve Jobs way, which is to find a clueless high-IQ nerd like Steve Wozniak…”

    exactly right. without the other steve, jobs would have been a cult leader at best, rather than a cult leader and billionaire.

    jorge videla

    February 25, 2014 at EST pm

    • Hsu is an Asian who is content with whatever he got in his college. That might be why.

      Colmainen

      February 26, 2014 at EST pm

  8. Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich …

    This is not true, a fairly ordinary person can sometimes create or discover something of immense value by pure luck.

    James B. Shearer

    February 25, 2014 at EST pm

    • That person is discovering value that was there all along, just hidden. CREATING value requires high IQ.

      Lion of the Blogosphere

      February 25, 2014 at EST pm

      • Consider JK Rowling and the Harry Potter stories. She created them but their immense value was mostly luck.

        James B. Shearer

        February 26, 2014 at EST am

      • Novel writing is a winner-take-all occupation. I wouldn’t call her an entrepreneur.

        Lion of the Blogosphere

        February 26, 2014 at EST am

      • Isn’t the Cronut guy creating value with his trademark pastries? Not sure what he does require high IQ.

        How would he fall victim to value transference? I guess if he sells his recipe and someone enrich themselves with it, by making millions and million of Cronuts, mass produced for the masses.

        JS

        February 26, 2014 at EST am

  9. “…because no human is so special that his work product is valuable enough to allow him to become rich.”

    the late, not so great, self described “post socialist” christopher hitchens said (i paraphrase) “managers are necessary, but that doesn’t mean there need be a class distinction between labor and management or that managers be paid so much more…”

    perhaps it is human nature that one cannot take orders or directions or whatever from someone who doesn’t make twice as much a he does.

    lion likes to make class distinctions. but ability is not multimodal, pace TUJ. from the genetics pov proles and executives are not like the eloi and morlocks. the difference is one of degree not of kind. look at this australian mining heiress: http://www.abc.net.au/news/image/4092748-3×2-940×627.jpg

    the us military makes the same absurd distinction between enlisted and officer. the bell curve has no gaps.

    jorge videla

    February 25, 2014 at EST pm

  10. In business/investing jargon “monopoly power” is commonly called a “moat” (a Warren Buffett colloquialism). There’s tons of literature on the topic. For instance, Facebook’s moat would consist of a network effect (the service FB offers is tangibly more valuable than that an upstart competitor could offer by virtue of it’s large user base) and switching costs (time/energy/hassle for consumers to switch).

    “Facebook is a bad example of a monopolistic company” -TUJ

    I think FB’s dominant position has pretty well solidified. For FB users, it’s no longer about ‘being cool.’ It’s simply a tool; a utility. Furthermore, if any competitor happens to come up with a better mouse trap, Facebook just has to copy their big idea (and can incrementally improve on it by throwing more money at it) or simply acquire them.

    anon

    February 25, 2014 at EST pm

  11. Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich

    Bull$hit

    Bottledwater

    February 25, 2014 at EST pm

    • Well, I’m glad you settled for us that Lion is wrong!

      CamelCaseRob

      February 26, 2014 at EST am

  12. “managers are necessary, but that doesn’t mean there need be a class distinction between labor and management or that managers be paid so much more…”

    I agree with this. If anything, managers should be subservient/in-service to the workers as they are the ones with boots on the ground where rubber meats road. But somehow the manager is the boss an he/she more often than not is in confrontation with the workers as opposed to having their back and clearing the way so they can do the actual work.

    Mangers (not owners) are useless and unhelpful bureaucrats.

    fakeemail

    February 25, 2014 at EST pm

  13. Successful entrepreneurs don’t discover monopolies, they effectively create them. The concept Buffett uses to describe this is the “moat”. Without a moat, a business’s products become commodities, and profit margins become razor thin.

    The founder of Under Armour started out of his grandmother’s basement or something. He created and sold innovative clothing for athletes and developed a reputation for quality that’s now represented by the UA brand. That brand is now his moat.

    Dave Pinsen

    February 26, 2014 at EST am

  14. “Or you can do things the Steve Jobs way, which is to find a clueless high-IQ nerd like Steve Wozniak to work for you for free.”

    I’m told this is nowadays known as a “technical co-founder”. Though Wozniak made out well enough, didn’t he?

    Glengarry

    February 26, 2014 at EST am

  15. “Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich. Both people and companies make money by having a monopoly, or at least by having monopoly power.”

    Lion goes full retard, or full Marx or something. Lion, you are a liar if you don’t back up this statement with who said it… I contend basic economic theory teaches this nowhere.

    It is certainly possible to become rich with your own special work. If you are a top actor or musician or athlete or architect or NFL coach or talk show host or property developer or surgeon and so on, your skills will be very high demand even though there are others who do what you do. You don’t have a monopoly, but you can still become very rich, a billionaire even in some of those cases.

    Creating a company that does something new can make you very rich. I am not sure who you are transferring from in such an instance… Your customers?

    Dan

    February 26, 2014 at EST am

    • NFL players are not value-creators, they are the beneficiaries of a winner-take-all industry.

      Lion of the Blogosphere

      February 26, 2014 at EST am

      • The NFL creates a lot of value. If the players aren’t creating it, who is?

        James B. Shearer

        February 26, 2014 at EST am

      • They make a lot of profit, but that doesn’t mean they are creating value. How does the world benefit from watching people play football instead of watching them play baseball, or hockey, or soccer, or rugby?

        The NFL makes money by being a monopoly.

        Lion of the Blogosphere

        February 26, 2014 at EST am

      • The NFL has beaten out other competition in the past, like the USFL or XFL.

        Camlost

        February 26, 2014 at EST pm

      • “The NFL creates a lot of value. If the players aren’t creating it, who is?”

        Remains to be seen that they create a lot of value. The 22 guys on the field are doing the same thing as guys were 60 years ago when they were payed 3 orders of magnitude less (maybe only 2). The difference is that there are 10? 50? times as many people watching now. The people who created that situation (management, marketing etc) are not wearing helmets on Sundays.

        The players are beneficiaries of the efforts of the people who made NFL Football “America’s game”.

        BurplesonAFB

        February 27, 2014 at EST pm


      • The players are beneficiaries of the efforts of the people who made NFL Football “America’s game”.

        And Stephen King is a beneficiary of the guy who invented the printing press. So what?

        James B. Shearer

        February 27, 2014 at EST pm

  16. This entry is just…not very good.

    RBG

    February 26, 2014 at EST am

  17. “work done on stupid projects that are doomed to fail but are the pet of someone higher up in the organization”

    Ha so true.

    bjdubbs

    February 26, 2014 at EST am

  18. A small number of people are indeed very special. It’s not for nothing that dukes and popes sought out Michelangelo to paint, sculpt, and design buildings. Unlike athletes, artists earn more the older and more famous they are (not to mention after they’re dead!).

    Anthony

    February 26, 2014 at EST am

    • Justin Bieber and Selena Gomez earn more than the average young adult. I expect them to lose their appeal when they get older, and hence less money for them.

      JS

      February 26, 2014 at EST pm

  19. Here’s a “predicting the future” article from 2004 that holds up fairly well. I wonder if the current articles about the driverless-car future are just as accurate?

    “By the end of this 10-year cycle [i.e. NOW], the change could be extreme..Web pages will snap to life. Hundreds of thousands of political bloggers, fly fishermen, chefs, and Oprah wannabes will be uploading gobs of video programming — creating their own channels. This plethora of Web shows will joust for attention with television fare, Internet radio, video e-mails, and games. All of it will play on televisions, computers, and cell phones, which will be different flavors of the same machine.”

    http://www.businessweek.com/stories/2004-06-20/big-bang

    Fiddlesticks

    February 26, 2014 at EST pm

    • It’s true that there’s a huge amount of crap on YouTube, but I think that a lot more time is spent watching Netflix.

      Lion of the Blogosphere

      February 26, 2014 at EST pm

  20. peterike

    February 26, 2014 at EST pm

    • Fishmongers are prole!

      The same goes for Vinny or Sal with their pizzerias in the West Village, NYC.

      JS

      February 26, 2014 at EST pm

      • But they’ve figured out how to sell exclusively to up-scale, super SWPL restaurants. Certainly, the owner of Blue Hill (one of their customers) is no prole, even though he’s a chef. If the fishermen have completely integrated themselves into the SWPL “food chain” are they not rising above prole themselves? Or are suppliers always and forever prole?

        peterike

        February 26, 2014 at EST pm

      • Just because proles interact with SWPLs, doesn’t mean they will become them.

        I know of a technical school, here in NYC that trains Ivy League students. Tech schools are prole and many of their admin folks have degrees from places you never heard of.

        God forbid, you have overweight tourists lining up for Cronut. Proles overlap with SWPLs when it comes to food, and other things, such as iPhones.

        JS

        February 27, 2014 at EST am

      • JS, why don’t we just simplify it by using the acronym GUPO for all Italians everywhere? Guido Until Proven Otherwise.

        (sarcasm, of course!)

        MaryK

        February 27, 2014 at EST am

      • Lol…GUPO makes a great name for a NYC pizzeria that serves genuine old school pizza.

        There’s an artisanal pizzeria known as GRUPPO in the East Village, NYC, which serves a bland thin crust – cardboard cheese combo for SWPLs. The owner seem to be your typical uncultured White male transplant, the same guys that Bill de Blasio and Spike Lee have been griping about for sometime, in regards to the gentrification process – tale of 2 cities divide.

        http://gruppothincrust.com/photo.html#

        My opinion is to stay away from this place.

        JS

        February 27, 2014 at EST pm

      • “Lol…GUPO makes a great name for a NYC pizzeria that serves genuine old school pizza”

        Oh, Lord, no. Did I just give you encouragement in your anti-Italian bias? With my luck, you and Lion will invest in a pizza franchise with this name and the commercials for it will be worse than the “Jersey Shore!”

        MaryK

        February 27, 2014 at EST pm

      • If you read my posts, I am anti just about everybody, with the exception of Southern Euros, so no, I don’t dislike Italians.

        Italian Americans are a different people altogether!

        JS

        February 27, 2014 at EST pm

  21. Very good post.

    Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich.

    Don’t many professional athletes and entertainers become rich doing exactly this?

    …and skip useless 80% work which includes things like paperwork…time-wasting meetings…

    3/8 of my work day today was wasted in meetings.

    Their high IQ didn’t help them make any significant amount of money in their careers.

    True, a couple of layoffs and blown opportunities, affirmative action, and the Great Recession have limited my current salary to exactly what I was earning in 1999 (despite a 135 IQ).

    E. Rekshun

    February 26, 2014 at EST pm

    • Bragging about your IQ is low class, and so is your vulgar user name.

      You can take the boy out of the white trash, but you can’t take the white trash out of the boy.

      shiva1008

      February 28, 2014 at EST am

    • bs. this is a very tiny minority of hr and hiring managers who know what they’re doing. i volunteered mine and was asked, “why isn’t your gpa higher?” as if he sat gpa correlation weren’t 1500 sats with < 3.00 gpas.

      that is, in america, the people who make the hiring decisions are proximally and for the most part MORONS.

      jorge videla

      February 26, 2014 at EST pm

      • I wouldn’t hire you either. If your GPA was low despite high SAT scores, then you’re obviously pretty lazy or the SAT overestimated your ability. Either way, you’re not quite up to snuff.

        Mama

        February 27, 2014 at EST am

    • Who’s demanding anything from 50-year-olds? The only real companies mentioned (Bain, McKinsey, DE Shaw) all ask for SAT scores, but they’re only hiring 22-year-olds. DE Shaw is probably asking whether or not you’re a Putnam winner, lol.

      None of these companies are hiring 50-year-olds.

      Renault

      February 27, 2014 at EST am

      • So in other words, being a Ivy League grad alone is not enough to get a job at McKinsey?

        I could understand if they wanted to do a criminal check on you.

        Just stupidity, if you ask me. They must think a lot of Harvard grads must be morons, and maybe they’re. Lol…

        This goes to show you that the whole country is full effing idiots.

        JS

        February 27, 2014 at EST am

    • SAT scores will screen out NAMs and lead to a disparate impact lawsuit by the DOJ.

      E. Rekshun

      February 27, 2014 at EST am

    • When I took the SAT in 1980 at my middle-class suburban school, there was no test-prep. It was just, “hey, kids, show up at 9:00 Saturday morning for the SAT.”

      E. Rekshun

      February 27, 2014 at EST am

      • I took the SAT that year and it was the same way for me. I was going to an open admissions school so I didn’t really need the SAT but took it out of sheer curiosity. My verbal score was 460 – with no studying at all. Years later after college and tons of independent reading and a Master’s degree I bought an SAT review book and took two practice tests just to see if my score had gone up significantly. It had – 610 and 620 were the two results. I was working on vocabulary building just for my own improvement and began to take practice tests every time I’d learned several hundred words more. My score went up to 650, then 670. I had trouble raising it higher and then realized that the words I was selecting to learn weren’t necessarily the ones they recommend studying in the review books. When I learned the right words I eventually got my score up to 750. But I seem to have plateaued there. In total I’d learned 1043 words in about a year and 3 months. This shows that while a low IQ will hurt you on the SAT, a high IQ won’t necessarily guarantee even a decent score unless you’ve studied a lot. David Owen said in his book “None of the Above” that the SAT is primarily a vocabulary test. Reasonably intelligent students who want a higher SAT score need to do a ton of memorizing rather than pay for pricey prep courses.

        MaryK

        February 27, 2014 at EST pm

      • Mark K, your verbal SAT went from 460 to 750? That’s equivalent to going from a verbal IQ of 112 to 155! That’s quite a spectacular leap, and if practice effects anywhere near that large are common, that would pretty much invalidate the SAT as an IQ test. You do realize the SAT became much easier circa 1995 so is it possible you got your lower scores on the harder pre-1995 version?

        Mama

        February 27, 2014 at EST pm

  22. the gpa-sat correlation is < .5. this is not explained by restriction of range.

    the measure of degree quality by prestige of institution and gpa is why the american elit is so dumb, obedient, and pushy.

    jorge videla

    February 26, 2014 at EST pm

    • Actually the SAT-GPA correlation would be much higher if you adjusted for restriction of range. For example in elementary school, where there is virtually no range restriction because virtually all IQ levels attend, the correlation between grades and IQ is 0.65 (about the same as the correlation between two different IQ tests). The other factor limiting the SAT-GPA correlation is that the SAT is just way too easy to effectively measure intelligence beyond IQ 135. There’s virtually no cognitive difference between someone scoring 1400 and someone scoring 1600, it’s just that 1600 was lucky or prepared and coached enough to avoid a few trivial mistakes on the test. But when you confront these 1600 types with really challenging problems like in a Caltech physics exam, they get SLAUGHTERED by 1400 types who didn’t even study. The SAT is useful for screening out dumb kids who only got a high GPA because they attended an easy grade inflated school, but it’s useless at measuring genius.

      Mama

      February 27, 2014 at EST am

      • you don’t know what you’re talking about…when there is no putative need for such an adjustment, such as at schools like the university of oregon where percentiles and percentage of students is matched the correlation is .4 both overall and within major.

        jorge videla

        February 27, 2014 at EST pm

      • you can find this on infoproc.

        jorge videla

        February 27, 2014 at EST pm

  23. “Wozniak worked on the invention of products and Jobs was responsible for marketing.”

    hell yeah.

    http://www.biography.com/people/steve-wozniak-9537334

    rivsdiary

    February 27, 2014 at EST am

  24. off topic, this 2-4-6 question sounds to me like a great one-question IQ test.

    http://www.farnamstreetblog.com/2014/02/peter-cathcart-wason-falsification/

    rivsdiary

    February 27, 2014 at EST am

  25. loved the Steve Jobs swipe having just watched his long lost interview on netflix there’s more than some truth to your comment but Id also defend him Im like that Im a genius at putting people into an organization I create optimized for efficiency and managing their personalities even though I may not posses their particular talents I can tell you they would never accomplish anything without my vision and drive

    viking

    March 2, 2014 at EST pm


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