How to Earn a Billion Dollars

She meant impossible in that one doesn't earn a billion dollars through work alone. The only way to get there is to set up a structure that extracts a billion dollars from a market (usually by building a structure that's more efficient but also generates externalities that are not borne by the person getting the billion dollars).

pg's reading of it is so blunt and misrepresentative that I'm nervous about what kind of content he's consuming.

Impressed at the commentary here, which correctly points out Paul dodges the entire issue at hand.

Three things can be true: 1. Growing at a rapid rate over long periods of time is hard, doable and rewarding 2. Incentivizing the discovery of these things is good for society. 3. Nonethless there is and should be a limit to wealth acquisition, given moral hazard.

To make a similarly glib counterargument to Paul G:

If it's the founders who earned the same monetary value of the companies they created ("because they're responsible for it"), they should bear the same moral and legal responsibility for the externalities.

So far, only SBF is in jail. Lots more of these companies have broken the law.

Let's throw the founders in jail too - they can keep their money!

But the accounting difference is real. It is virtually impossible to earn a billion dollars. What is possible but still difficult is to create something worth a billion dollars which you can then sell if you choose so.

And to the people criticizing, this is cheating. To them, a billion dollars enterprise is not possible without the exploitation of employees, customers, or at least the environment.

Also, the most important thing to understand about a society is how people gain status, not just money/wealth. If you focus on money, you won't have an explanation for political movements or artistic endeavors.

In creative destruction, you can do an accounting sleight of hand by attributing credit for creation while ignoring blame for destruction even though the two are linked.

This is a technology + investing forum and all of us agree that in general creative destruction processes are enormously net positive, but they frequently do kick off a toxic byproduct in the form of said destruction (e.g. Uber and displaced taxi drivers), so there is moral entanglement between creation and destruction. Morally speaking, figuring out how to mitigate this toxic byproduct is part of our remit just as it was part of the remit of earlier industrialists to figure out how not to discharge so much flammable goo into the river that it lit on fire. We neglect this at our peril, because society merely pinches its nose if the toxic byproducts are small, but they are increasingly not small.

Weird to see Graham take AOC's quote out of context:

Graham: So you can imagine how astonished I was last month when an American politician said that it was impossible to earn a billion dollars. I felt like a skating coach hearing someone say that it's impossible to do a triple axel. Of course it's possible. It's hard, but it's possible.

Per his link in the article:

AOC: there is a certain level of wealth and accumulation that is unearned. You can’t earn a billion dollars. You just can’t earn that. You can get market power, you can break rules, you can abuse labor laws, you can pay people less than what they’re worth, but you can’t earn

The pursuit of everlasting growth that pg describes inevitably results in cheating. At a certain point the market reaches a saturation point and if you're capitalising on every possible opportunity to retain your high growth rate, that will include hoarding resources and circumventing consumer protections.

First question: why? Why should I (or anyone) earn a billion dollars? PG made it seem like that's the ultimate goal somehow. Also, why only a billion dollars, PG? You see your infinite cancerous growth machine doesn't stop?

This article did not sit well with me. I have found myself rereading Beyond Smart, How to Write Usefully, The Need to Read, Life is Short. But this one is harmful; nobody needs a billion dollars.

The people who create real value rarely make any money.

Linus Torvalds created Linux which allowed companies to use commodity hardware. Before Linux, every company had to pay massive taxes to Sun (Solaris) or IBM (AIX) to run a server. With Linux, commoditty hardware ecosystem blossomed, and the first companies like Google built massive datacenter. This wouldn't have been possible if they had to buy Solaris servers to run their datacenters.

The value created by Linus is probably tens of trillions of dollars. I don't think he is a billionaire. There is a guy who is a trillionaire today. It is hard to make an argument that Musk created more value than Linus. Tesla is a trillion dollar company with negative YoY growth.

Linus Torvalds is not a visionary: https://www.youtube.com/watch?v=I-YL0BeWZyU

The people who become billionaires are experts at becoming billionaires, creating value probably has nothing to do with it. They have either inherited wealth or in the right networks. The example PG gives of starting with 2 million USD is someone who is already incredibly wealthy and in the top 1% (1% globally, not just US). As always, there may be some rare exceptions where the founders actually created value and became billionaires.

We can't romanticize making money, it's a ruthless field where mostly politicians, the military complex, and drug traffickers thrive, and a few startups that cater to the global economy, which are very very rare, so rare than only 30 out of more than 6000 have succeded in Paul's own words.

Amazon was first, then Uber went world wide, so did Airbnb, and now OpenClaw, so yes, the AI gold rush opened the gates for new opportunities but only a few will make it. We all can run the race for sure but most of us will only get tired at the end while the lucky few will take all the prizes and our corpses will be their podium, as it's supposed to be.

Still, we have to run because there is a chance, a very slim chance which is more than zero hope.

Playing devils advocate here:

Maybe the politicians position is that the whole system is based on cheating and everyone who partakes is acting immorally?

Is it fair that the founder got education and some money to start his company while other people are living on the street or have to care for relatives? If they come from a relatively privileged position and manage to build a company that ends up being successful, did they earn that money?

I don’t think the cheating people criticize is necessarily criminal fraud.

Edit: and the second thing people seem to criticize is that just keeping your company growing often seems to involve some unethical things. Basically every company that’s manufacturing hardware is doing that in Asia under inhumane conditions, so they probably can’t really claim they earned their money and it’s just maths.

> She was getting richer at a stupendously rapid rate. And yet she hadn't been doing anything bad. The reason her startup was growing so fast was simply that users loved what she'd built. So she could feel from her own experience how wrong that politician was. She wasn't exploiting anyone.

I presume it's a company that just has co-founders then? Or everyone is getting an equal % of the share? In which case SHE's not getting 93% richer just cause her start up is.

>an American politician said that it was impossible to earn a billion dollars… What she meant was that it's impossible to get that rich without doing something bad — without cheating in some way.

This assumption is depressing. That the only alternative to "earn" is "cheat".

A system of diminishing work (i.e. where money makes money), especially combined with inheritance, means every dollar is arguably less earned than the last. That system is fine and actually very useful, but that diminishment becomes a big problem at large enough scales. We've been operating at that scale for many decades.

I've been able to calculate logarithms for well over 20 years.

That's not the problem.

The problem is even simpler mathematics. Proportions. How much do we give to first employees? How realistic is that John Smith, first salesman of the company is getting 2% and should consider himself lucky, while I, Peter Boss retain most of the company?

We always talk about the dilation of the founders' shares and its relation to the VC portion.

What is the usual proportion of the shares held by the founders and the first 10 or 100 employees?

Is that proportion usually realistic with regards to the effort put in and the risk assumed?

Is that risk usually really that heroic or most of us in the "can found a startup" caste can usually go back to jobs that already pay well over average?

I am the founder of a company. I want it to succeed. I don't want to become a billionaire, but I want the people that help me build it to have similar successes to mine.

If we succeed, I don't want my car or house to be 10x more expensive than of those people who joined me first.

There's something seriously rotten about telling university students about billions. The issue isn't whether anyone can earn a billion dollars. Nobody actually needs a billion dollars.

The question they should be pondering is given the excess of talent and opportunity they have, how can they help the people around them and give something back to society.

Technically if you look at AOC's statement he mentions

>AOC: “There’s a certain level of wealth and accumulation that is unearned. You can’t earn a billion dollars. You just can’t earn that. You can get market power, you can break rules, you can abuse labor laws, you can pay people less than what they’re worth, but you can’t earn that”

there's some truth there in that PG is talking about capital gains as the owner of a company and AOC is talking about earnings as payment for labour which are different things both in reality and in tax policy and law.

The capital gains can be unfair in that most of them go to founders and VCs and not much to other employees and stakeholders who have contributed as well.

  So you can imagine how astonished I was last month when an American politician said that it was impossible to earn a billion dollars [...] that it's impossible to get that rich without doing something bad — without cheating in some way.

To me, earning something means deserving something.

I don't think that the current system rewards those deserving the largest cuts of the pie.

If you want to argue how to get a billion dollars, sure. But to me that is different than earning it.

The thing about "compound growth", even in the most general sense, is that it ALWAYS ends, and that end is typically a crash of some sort.

In biology there's the notion of a growth curve. It starts out with the familiar "compound interest" exponential growth, but unlike Econ-101 textbooks, that curve then proceeds to resource depletion (overshoot), followed by "die-off", followed by extinction, where (N -> 0, where N is usually something like yeast-cell count, but if you're applying this model to something else, it could be stuff like well-being or money).

Is this the same Paul Graham who says that founders need to be the kind of people who are prepared to break the rules? That is, cheat.

I think the distinction the politician tried to make, was that you don't "earn" a billion dollars the same way the vast majority of people make their money. You become a billionaire by company ownership, not getting cold hard cash.

The hierarchy of wage looks something like:

1. hourly pay (how many hours you can work sets the maximum possible salary)

2. base pay + cash bonus (the cash bonus starts to increase your earning potential. Sometimes the bonus can be huge, for traders, salespeople, etc.)

3. base pay + stock options (the stock options can outsize your base pay by big margins)

4. stock ownership (almost all your wealth is tied up to the stocks)

The vast, vast majority of people are stuck at (1), and will never move to (2). Nearly all billionaires are at (4).

The average worker will work around 100k hours in their lifetime. If you started working today, with a 2% inflation rate, you'd have to start getting paid close to $6000 / hour in order to reach a billion dollars (pre-tax) in total income by the time you retire 50 years from now.

Another factor to consider, is that salaried workers can't use leverage to increase their earnings. A startup founder can find investors and raise money, which works as rocket-fuel for their company. You can practically outspend your competition. That is simply not possible for regular workers, without breaking rules (as in outsourcing your job, taking on several jobs and outsourcing those, while collecting).

“Billionaires v. the underclass” is such an unsophisticated discussion. Markets have all kinds of externalities, equilibrium traps, information asymmetry flywheels, and hundreds of other phenomena that interplay to trip people’s sense of fairness in all kinds of ways.

To pick just one example, infinite scrolling can be seen as a modern equivalent of cigarettes— a product that made people billionaires, and that consumers obviously want but are not free to stop using because of hyper-sophisticated dark patterns.

Is Elon a trillionaire because he created a trillion dollars of value from thin air, or is it because he created an information asymmetry flywheel that lets him allocate capital more efficiently than other actors?

It’s genuinely unclear to me whether the universe in which we incentivize this kind of scale is better than the universe in which we do not (because the counterfactual universe has massive externalities too). But this is obviously not just a matter of compounding value creation and becoming a billionaire fair and square in ten years.

There's a kind of Efficient Market Hypothesis of career advice that I wish PG took better notice of.

If a career path (e.g. startup founder) outperforms at time T1, then this fact will diffuse quickly throughout society, causing the path to become overcrowded, which pushes down the average performance. So at time T2 the path will no longer outperform. This is analogous to a stock becoming overpriced due to hype. I consider the founder path to be enormously overcrowded at this point.

The key to finding a good career is to play a kind of Money Ball - find paths that, for whatever reason, are mispriced and thus undercrowded.

You can aquire a billion dollars. Nobody has ever earned a billion dollars.

Why would you even WANT to become a billionaire?

Wealthy, sure, but becoming a billionaire effectively destroys your place in any of your social circles. It obliterates any dynamics of trust and interdependence you may have and replaces them with a gnawing unease about if they’re still hanging out with you, or if they’re hanging out with the money.

Not to mention, Graham entirely fails to differentiate between EARNING a billion dollars and HAVING a billion dollars. You can be part of a structure that earns a billions dollars without “cheating”, there are all kinds of companies that do that. But if you let that wealth accumulate in yourself? There’s something wrong there. You are almost guaranteed to be under-valuing the contributions of others, or the externalities of the systems in which you operate or SOMETHING.

And even if you’re not? That’s a dragon’s hoard of money. You’d have a very difficult time spending that much money on yourself and your lifestyle, and I find it hard to justify sitting on the rest, just to have it. It is literally a hoarding problem at that point. You do not need that money, it is actively making your life worse (look up the Billionaire’s Social Calendar: it’s the list of ultra-wealthy-only events that billionaires must attend if they want even a chance of interacting with people as peers instead of dependents), just let it go.

> What she meant was that it's impossible to get that rich without doing something bad — without cheating in some way.

She certainly frames it in a way that you have to personally cheat, or personally create the myth that you've earned it, or at least it can be interpreted that way. But I think it is the system itself that causes unearned[1] money to accumulate. Money begets power begets money, with or without any intention of the actors to exploit this is any bad way.

I don't think we know a better system, but I do think we can point to the level of wealth accumulation and say this is a bad property of this overall very good system, and we should try to do something about it.

[1] Or rather: Money to accumulate disproportionate to the earning. We can say that many billionaires have earned something very significant and ALSO say the accumulation is disproportionate to that, and that there is an opportunity here for improvement.

I enjoyed this, but the thesis is misleading. Paul’s own examples here were Facebook, apple etc. I imagine that the politicians point was that beyond a certain point, you do have to be unethical to continue that growth rate. Facebook is notorious for doing plenty of this. Apple too is known for exploiting developers.

If we extrapolate to trillionaires, we know for a fact that you need to be an all-around dousche that manipulates politics and literally cuts government funding to the poorest and most vulnerable groups to get there.

And since this post has a numbers focus, zuck is worth 195 billion. Would Facebook’s negative influence be noticeably less if they spent 194.9 billion on reducing the harms of Facebook, and zuck remained a millionaire? I believe so.

There is an argument to be made that societal structure enables much of that wealth to be made. J K Rowling can make a billion dollars not just because people want her stuff and give her money for it but because we have a system of intellectual property and a bunch of guys who enforce it. We all pay for that and Rowling benefits. It’s true that this happens, but our system of taxation takes care of this pretty well.

There are exploitable gaps in the logic where loaning against owned collateral is not considered a realizable taxable event and it’s reasonable to attempt to close these.

But like most things I find that things fall down when actual policy needs to be written. The only example is the SEIU proposition in California which is backdated and requires many people to give up half their ownership in a company.

I can’t be brought around to supporting those outcomes.

I've read (and re-read) all of PG's essays over the years. Often they're wonderful fonts of wisdom. Sometimes they're myopic and poorly supported, but never just plain wrong.

This is, sadly, a first for him.

AOC (the politician referenced) did not mean that earning a billion is "impossible". She, very clearly, stated within the context of that interview that Billionaires must be an extractive class at the cost of normal market efficiencies due to the rent-seeking behaviors of the monopolies that must exist to attain that level of wealth.

lots of moving parts on this discussion but I'll boil it down to:

the ratio of the average individual's wealth to 'illionaire's wealth feels "wrongly asymmetric" for a lot of people (CEOs making ~300x that of average worker)

the question is basically about how that startup scaling at 94% translates to scaling up the individual's life (who faces alleged "stagnant wages")

or in other words, how can entrepreneurs create an approach for society that facilitates individuals scaling up their wealth?

There is for example a perception that a person working all waking hours on a low amount of pay - like minimum wage, and without investments - could never become a 'illionaire through their "honest hard work"; ergo becoming a 'illionaire requires something beyond this "honest hard work" (implying illegal and or unethical means)

"It's impossible to earn a billion" means it's impossible to work hard enough to deserve to have a billion dollars in a world where so many people died for lack of money, not that it's impossible to get it without cheating.

> So how do you find startup ideas without looking for them? By working on projects with your friends. That's where the very best startups come from. Initially they're not even meant to be companies. They're just something people built because they thought it would be cool. That's how Apple and Google and Facebook all started. None of them were meant to be companies at first.

That’s cool and it’s a cool post, sure, but it sounds ridiculous when you look at how many dumb GPT wrappers there are in YC batches nowadays.

> Since we started it in 2005 we've funded about 6500 companies.

> Starting a successful startup is the most common way to become a billionaire, so in effect I've spent the last 21 years training people to become billionaires. So far about 30 of them have, but there are many more in the pipeline.

Seems to me that right off the bat he completely undermines his own point - less than .5% of the founders being funded at basically the best connected best financed incubator become billionaires. Easy, right?

I won't even go into the embarrassing math that follows... pyramid scheme salesman levels...

What occurred to me reading this was the wage. Initially, and famously, the hours put into building a startup result in sub-par wages. But the amount of work by an individual never increases as it is limited by human capacity. In a successful startup with continuous growth the wage is ever increasing, to the point of absurdity.

That’s weird. I grew up around farming and farmers. A group also very proud of the work they do, in a profession where the wage is also indirect — sometimes negative, sometimes a fortune, always based directly on the work they’ve done. Year after year, the work.

That’s different.

I’ve always identified two sets in the realm of entrepreneurs: those that want to “be rich”, and; those that want to “become rich”. The latter group is perhaps more admirable as they acknowledge the process and the value creation whereas the former seek only the status. But neither are often interested in the work of it.

This article reads like a rather flippant dismissal of the original concern that "earning" a billion dollars cannot be done without some moral compromise.

Sure, if you start off with $2 million and double it 9 times, you end up with $1 billion. Exponential growth is a powerful thing, so it comes as no surprise that maintaining a large growth rate over time very quickly grows a starting sum into a much larger pool of money.

However, his only response for how you should achieve exponential growth is this hand-wavy "make something you yourself want". His only acknowledgement of the concern that maintaining exponential growth may require cheating is a casual dismissal, and his only acknowledgement of the concern that the growth rate will drop off over time is "you'll still get there eventually".

So, while the original concern was that you cannot earn a billion dollars without some wrongdoing, PG's response can be boiled down to "nuh uh".

>There are two numbers that determine how big a startup gets, and thus how rich its founders become: the growth rate and how long it continues. You get the first by making something users like so much they tell their friends. You get the second by being in a big market. If you grow exponentially into a big market, your startup will become valuable, and you, as a shareholder, will become rich. You not only don't have to cheat to make this happen, it will happen automatically if you just keep making customers happy.

The real problem is his example, "you start off with 2 million dollars and 95% growth rate".

Fine, show me the average person who can come up with 2 million dollars. I sure as hell can not. I even went to banks and founders with my ideas, cash flow sheets and customer list looking for a loan.

No, I am convinced, the rich already have 2 million dollars, and make themselves a billionaire. The system is rigged against "normal" people.

You can tell that he doesn’t really think too deeply about any of this, because the way he wants to illustrate the point is by typing the numbers into a calculator.

It’s as if the money comes right up out of thin air, isn’t it?

He inadvertently gets close when he talks about Facebook being about people doing stalking. PG, is stalking a good thing or a bad thing, hmmm?

I think Paul left out the fact that in order to grow that fast, you often need to commit crime.

Airbnb/Bed Boat, Neighbor, Swimply, Uber/Lyft, Bird/Lime, BlackJet, Waymo/Cruise, Splacer/Peerspace, Zenefits, Tilt, Loomis/Stablecoins, Coinbase, Worldcoin, Stripe, AngelList/Sydecar, Polymarket, Uniswap Labs, Doordash/Instacart/Postmates, CloudKitchens, Shef, Done Health, Forward Health, Cerebral, Pacaso, Sonder, 23andMe, Ro/Hims/Hers, Viome, Juul Labs, Oura Ring, Particle Health/Moxe Health, Roblox, YouTube, Popcorn Time, Kickstarter/Indiegogo, Republic/Wefunder, Deel/Remote, Lambda School, Make School, Mission Bit, WeWork, Oyster/Papaya Global, HiQ Labs, FlexPort, Katerra, Zipline, Starship Technologies/Serve Robotics, 3D Robotics, Anduril Industries, DraftKings/FanDuel, Cydia, Eaze, MindMed, Odin, Swarm Technologies, Starlink, Convoy/Uber Freight, Carvana, Tesla, VoltShare.... oh yeah, and OpenAI.

What do all of these companies have in common? They all manipulated markets, bent and broke laws in order to get that "exponential growth". They didn't want to wait around and find out if their businesses would be legally allowed to grow. So they just broke or worked around the law, with the intention of becoming billionaires. But that's okay, because growth rate! We're not doing anything bad, people want these things! Who cares if it might be illegal or the spirit of the law frowns on what we do? Money!!!

This is just one of the reasons why becoming a billionaire requires you to cheat. There's also the tax loopholes, the inducement to harm (both of the customer and by the customer), anti-competition, etc. In order to get these gains, you need to cheat, because if it were easy to do legally, ethically, and quickly, somebody already would have. It's corporate doping.

The arguments for or against it being possible to earn a billion units of currency seem to hinge on differences in understanding of the term "earn".

The pg view seems to assume that if there is a causal relationship between your actions and a billion dollars appearing in your bank account, then it counts as having earned that money.

The countering viewpoint seems to consider the words "earn" and "build" as having a similar relationships to money and buildings respectively. If I tell you I built the shed in my garden, then you'll probably take my word for it. If I tell you I built a skyscraper, you'll either call me a liar or understand me to mean that a large number of individuals built it at my request.

I think the second version is more useful and more accurate.

The problem is in accounting. A stake in a speculative asset that's valued at an absurd multiple of ARR isn't exactly the same kind of thing as owning all the property of a slum and extracting rent. I am for a wealth tax so long as it discriminates on the type of wealth, but we aren't ready for that conversation.

Paul has to update to trillion dollars now

Growth for the sake of growth is the ideology of the cancer cell.

Not all companies are growing because they are making their customers happy. Some are fully exploiting their customer, users, environment, etc.

This mindset is what makes capitalism very ugly, and im not sure how one backs off the throttle a bit to grow responsibly?

Holy smokes, one could call this condescending but assuming both politicians and an average reader don’t understand how exponents work feels a step above. And that’s before you get to the part where it’s all about a great idea and hard work and definitely zero exploitation while mentioning examples like Apple, Facebook or Airbnb.

"You not only don't have to cheat to make this happen, it will happen automatically if you just keep making customers happy."

Call me cynical but ...

AOC’s point is simply that when growing exponentially from 250M to 500M to 1B usually whether using exploitive rails one is conscious of or not - someone is bearing an unfair burden. That in 60 out of 60 examples of YC billionaires and all billionaires with maybe a few exceptions - people do not go out of their way to ensure nobody is getting hurt and everyone participates fairly. People are too excited about the exponential growth and their goals. I don’t even think it’s AOC’s main point that these people are at fault. Just that the system is at fault for not ensuring exploitation is minimized further for the rest of the 99%.

(Great essay on how to be a billionaire though. Could billionaires give back more? Yes. But creating market value like that is both worth celebrating and evolving.)

So who was the woman he mentioned growing her company at 93% a month?

Not quite on topic. But I feel there is an issue in politics where many non-wealthy people vote as if they are "temporarily inconvenienced billionaires." That is they endorse policies that favor billionaires, as they have some hope of being one someday.

pg should just get every founder to trade wallstreetbets style for a few days. they'll be doing this calculator exercise intuitively

How to make a billion:

Step 1: Have millions

The lack of genuine desire to understand each other is what is astonishing.

I don’t know where “the politician” went with that comment, but for me the more pressing conversation is whether we want a society where many are struggling and some make a billion dollars.

You benefited from society, clearly, which is not to say you didn’t work hard. But it seems entirely reasonable to me to ask you at that point to give back. We can knock plenty of people back to mere “hundred millionaire” status, they’ll be fine, and we can do a whole lot with that money.

> So you can imagine how astonished I was last month when an American politician said that it was impossible to earn a billion dollars. I felt like a skating coach hearing someone say that it's impossible to do a triple axel. Of course it's possible. It's hard, but it's possible.

"Earning a billion", to the skating coach, is like pulling off a dodeca-axel.

It's not gonna happen through mere pluck, and it's probably gonna involve a lot of other folks' work if it ever happens, who probably aren't gonna get that much of the glory.