Paul Graham
· 13 min · Original

Making Startups Powerful

One of the most useful heuristics I have when doing office hours with startups is to ask: what would make this company more powerful? Asking how the company could make more money is a good heuristic too, but it tends to yield incremental improvements. Whereas thinking about how to make it more powerful will sometimes make it orders of magnitude more valuable.There are a lot of different variants of this question, depending on the type of company. Is there a way to transform the company from a mere component supplier into the one that owns the relationship with the customer? Or the related question: is there a way to make the money flow through it? It's always good when money flows through you. [1]Is there a way to create something akin to an app store, where other companies can build upon your product? Then all their efforts to create valuable things make you more valuable too. Ideally this is combined with owning the customer relationship and making the money flow through you. [2]Network effects make companies more powerful, and I almost always think about how to introduce them. I treat it as a kind of challenge to see if there's a way to get network effects even in things you wouldn't expect to have them. [3] It's surprising how often it can be done. And when it can, this sometimes transforms the idea completely; what had been a service is now a marketplace. The deluxe version is full app store, but if there's no more direct way to do it, you can often induce network effects by letting your users share something. For example, if you opt in, we'll tell you how you're doing compared to other users. The obvious AI variant is to let your users opt in to training your model on their interactions with it. Many will resist that, but if some don't, the model they get to use…

Paul Graham
· 13 min · Original

How Universities Should Prepare Founders

How should universities prepare students to start startups? Y Combinator is in the perfect position to answer this question, because we get them next. We're like grad school. And because YC has had 20 years to refine its model of what a promising founder looks like, you probably won't find a better target.What do the YC partners look for? It's surprisingly simple. They want people who are good at building things and have a habit of doing it.The hard part of startups is product: knowing what to build, and being able to build it. And that kind of knowledge comes from studying computer science or mechanical engineering or molecular biology, not management or finance. [1]So the way to prepare undergraduates to become successful founders is not to give them some new curriculum focused on "entrepreneurship". It's to do what universities already do best — to teach them computer science and mechanical engineering and molecular biology. [2]Indeed, preparing students to start startups is closer to the ideal of liberal education than preparing them for almost any other kind of career. Startups succeed or fail based on how much customers like the product. Customers don't care what the founders studied in college. So founders are free to study whatever they want, as long as they get good at building things.But building should be understood in a very broad sense. It doesn't mean all would-be founders have to study some form of engineering. Almost any kind of expertise that could be described as building or creating could be useful. It was useful to Steve Jobs to have studied calligraphy, for example; it was one of the reasons Apple dominated desktop publishing. So while math and science and engineering and design tend to be good bets, I would not want to draw a sharp line around…

Paul Graham
· 10 min · Original

How to Earn a Billion Dollars

(This is based on a talk I gave at the Oxford Union.)Since this is apparently the future prime ministers' club, I'm going to tell you about something it would be good if more politicians understood: I'm going to tell you how people become billionaires. I hope this will be useful to you even if you don't plan to go into politics. Those of you who don't become prime minister can become billionaires instead.The reason I know about this topic is that 21 years ago Jessica and I started something called Y Combinator. If you haven't heard of Y Combinator, it's a cross between an investment firm and a school for startup founders. 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.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.She wasn't saying, of course, that it's impossible to become a billionaire. Obviously that's possible. Nor was she talking about the distinction between income and capital gains. She wasn't making a point about accounting. What she meant was that it's impossible to get that rich without doing something bad — without cheating in some way.A couple days later I was talking to the founder of a startup I'd funded. I began by asking, as I usually do when I meet a founder, what her growth rate was. 93% last month, she said. I pointed out that this meant her net worth was also growing at 93% a month.…

Paul Graham
· 3 min · Original

How to Convert Between Wealth and Income Tax

How do you convert between wealth and income tax? If a government imposes a wealth tax of 1%, what's the equivalent in income tax?It's clear from the way most politicians talk about the subject that they not only don't know the answer, but don't even realize there's such a question.In fact the conversion rate between them is about 20. A wealth tax of 1% is equivalent to an income tax of 20%.To convert between wealth and income tax rates, you have to divide by the rate of return on capital. The conversion rate of 20 comes from assuming that the risk-free rate of return is 5%. Historically that's an optimistic assumption. 4% might be more realistic. But 5% will do. [1]If we run through an example it will be clear how this works. Suppose you have $100, you're getting a 5% rate of return on this capital, and there's a 20% income tax. The 5% rate of return means at the end of one year your $100 has made you another $5. But you have to pay 20% of that, or $1, in income tax, so your after-tax income is $4. At the end of the year, after paying taxes, you have $100 + $4 = $104.Now suppose instead of a 20% income tax, there's a 1% wealth tax. At the end of the year your $100 has made you another $5, as before. But that year you had to pay 1% of your $100, or $1, in wealth tax. So at the end of the year you have $99 + $5 = $104.Each 1% of wealth tax is equivalent to 20% of income tax.It's clear that politicians don't get this from the way they talk about a "mere 1%" wealth tax. None of them would speak of adding a "mere 20%" to the income tax rate, even though that's mathematically the same thing. [2]Politicians understand that an additional 20% income tax would be a lot. And indeed a US state that added 20% to its top income tax rate would have extraordinarily high…

Paul Graham
· 33 min · Original

The Brand Age

In the early 1970s, disaster struck the Swiss watch industry. Now people call it the quartz crisis, but in fact it was a compound of three separate disasters that all happened at about the same time.The first was competition from Japan. The Swiss had been watching the Japanese in the rear view mirror all through the 1960s, and they'd been improving at an alarming rate. But even so the Swiss were surprised in 1968 when the Japanese swept all the top spots for mechanical watches at the Geneva Observatory trials.The Swiss knew what was coming. For years the Japanese had been able to make cheaper watches. Now they could make better ones too.To make matters worse, Swiss watches were about to become much more expensive. The Bretton Woods agreement, which since 1945 had fixed the exchange rates of most of the world's currencies, had set the Swiss Franc at an artificially low rate of .228 USD. When Bretton Woods collapsed in 1973, the Franc shot upward. By 1978 it reached .625 USD, meaning Swiss watches were now 2.7 times as expensive for Americans to buy. [1]The combined effect of foreign competition and the loss of their protective exchange rate would have decimated the Swiss watch industry even if it hadn't been for quartz movements. But quartz movements were the final blow. Now the whole game they'd been trying to win at became irrelevant. Something that had been expensive — knowing the exact time — was now a commodity.Between the early 1970s and the early 1980s, unit sales of Swiss watches fell by almost two thirds. Most Swiss watchmakers became insolvent or close to it and were sold. But not all of them. A handful survived as independent companies. And the way they did it was by transforming themselves from precision instrument makers into luxury brands.In the process…

Paul Graham
· 4 min · Original

The Shape of the Essay Field

An essay has to tell people something they don't already know. But there are three different reasons people might not know something, and they yield three very different kinds of essays.One reason people won't know something is if it's not important to know. That doesn't mean it will make a bad essay. For example, you might write a good essay about a particular model of car. Readers would learn something from it. It would add to their picture of the world. For a handful of readers it might even spur some kind of epiphany. But unless this is a very unusual car it's not critical for everyone to know about it. [1]If something isn't important to know, there's no answer to the question of why people don't know it. Not knowing random facts is the default. But if you're going to write about things that are important to know, you have to ask why your readers don't already know them. Is it because they're inexperienced, or because they're obtuse?So the three reasons readers might not already know what you tell them are (a) that it's not important, (b) that they're obtuse, or (c) that they're inexperienced.The reason I did this breakdown was to get at the following fact, which might have seemed controversial if I'd led with it, but should be obvious now. If you're writing for smart people about important things, you're writing for the young.Or more precisely, that's where you'll have the most effect. Whatever you say should also be at least somewhat novel to you, however old you are. It's not an essay otherwise, because an essay is something you write to figure something out. But whatever you figure out will presumably be more of a surprise to younger readers than it is to you.There's a continuum of surprise. At one extreme, something you read can change your whole way of…

Paul Graham
· 7 min · Original

Good Writing

There are two senses in which writing can be good: it can sound good, and the ideas can be right. It can have nice, flowing sentences, and it can draw correct conclusions about important things. It might seem as if these two kinds of good would be unrelated, like the speed of a car and the color it's painted. And yet I don't think they are. I think writing that sounds good is more likely to be right.So here we have the most exciting kind of idea: one that seems both preposterous and true. Let's examine it. How can this possibly be true?I know it's true from writing. You can't simultaneously optimize two unrelated things; when you push one far enough, you always end up sacrificing the other. And yet no matter how hard I push, I never find myself having to choose between the sentence that sounds best and the one that expresses an idea best. If I did, it would be frivolous to care how sentences sound. But in practice it feels the opposite of frivolous. Fixing sentences that sound bad seems to help get the ideas right. [1]By right I mean more than just true. Getting the ideas right means developing them well — drawing the conclusions that matter most, and exploring each one to the right level of detail. So getting the ideas right is not just a matter of saying true things, but saying the right true things.How could trying to make sentences sound good help you do that? The clue to the answer is something I noticed 30 years ago when I was doing the layout for my first book. Sometimes when you're laying out text you have bad luck. For example, you get a section that runs one line longer than the page. I don't know what ordinary typesetters do in this situation, but what I did was rewrite the section to make it a line shorter. You'd expect such an arbitrary constraint to make…

Paul Graham
· 7 min · Original

What to Do

What should one do? That may seem a strange question, but it's not meaningless or unanswerable. It's the sort of question kids ask before they learn not to ask big questions. I only came across it myself in the process of investigating something else. But once I did, I thought I should at least try to answer it.So what should one do? One should help people, and take care of the world. Those two are obvious. But is there anything else? When I ask that, the answer that pops up is Make good new things.I can't prove that one should do this, any more than I can prove that one should help people or take care of the world. We're talking about first principles here. But I can explain why this principle makes sense. The most impressive thing humans can do is to think. It may be the most impressive thing that can be done. And the best kind of thinking, or more precisely the best proof that one has thought well, is to make good new things.I mean new things in a very general sense. Newton's physics was a good new thing. Indeed, the first version of this principle was to have good new ideas. But that didn't seem general enough: it didn't include making art or music, for example, except insofar as they embody new ideas. And while they may embody new ideas, that's not all they embody, unless you stretch the word "idea" so uselessly thin that it includes everything that goes through your nervous system.Even for ideas that one has consciously, though, I prefer the phrasing "make good new things." There are other ways to describe the best kind of thinking. To make discoveries, for example, or to understand something more deeply than others have. But how well do you understand something if you can't make a model of it, or write about it? Indeed, trying to express what you understand is…

Paul Graham
· 28 min · Original

The Origins of Wokeness

The word "prig" isn't very common now, but if you look up the definition, it will sound familiar. Google's isn't bad: A self-righteously moralistic person who behaves as if superior to others. This sense of the word originated in the 18th century, and its age is an important clue: it shows that although wokeness is a comparatively recent phenomenon, it's an instance of a much older one.There's a certain kind of person who's attracted to a shallow, exacting kind of moral purity, and who demonstrates his purity by attacking anyone who breaks the rules. Every society has these people. All that changes is the rules they enforce. In Victorian England it was Christian virtue. In Stalin's Russia it was orthodox Marxism-Leninism. For the woke, it's social justice.So if you want to understand wokeness, the question to ask is not why people behave this way. Every society has prigs. The question to ask is why our prigs are priggish about these ideas, at this moment. And to answer that we have to ask when and where wokeness began.The answer to the first question is the 1980s. Wokeness is a second, more aggressive wave of political correctness, which started in the late 1980s, died down in the late 1990s, and then returned with a vengeance in the early 2010s, finally peaking after the riots of 2020.What was political correctness, exactly? I'm often asked to define both this term and wokeness by people who think they're meaningless labels, so I will. They both have the same definition: An aggressively performative focus on social justice. In other words, it's people being prigs about social justice. And that's the real problem — the performativeness, not the social justice. [0]Racism, for example, is a genuine problem. Not a problem on the scale that the woke believe it to be, but a…

Paul Graham
· 3 min · Original

Writes and Write-Nots

I'm usually reluctant to make predictions about technology, but I feel fairly confident about this one: in a couple decades there won't be many people who can write.One of the strangest things you learn if you're a writer is how many people have trouble writing. Doctors know how many people have a mole they're worried about; people who are good at setting up computers know how many people aren't; writers know how many people need help writing.The reason so many people have trouble writing is that it's fundamentally difficult. To write well you have to think clearly, and thinking clearly is hard.And yet writing pervades many jobs, and the more prestigious the job, the more writing it tends to require.These two powerful opposing forces, the pervasive expectation of writing and the irreducible difficulty of doing it, create enormous pressure. This is why eminent professors often turn out to have resorted to plagiarism. The most striking thing to me about these cases is the pettiness of the thefts. The stuff they steal is usually the most mundane boilerplate — the sort of thing that anyone who was even halfway decent at writing could turn out with no effort at all. Which means they're not even halfway decent at writing.Till recently there was no convenient escape valve for the pressure created by these opposing forces. You could pay someone to write for you, like JFK, or plagiarize, like MLK, but if you couldn't buy or steal words, you had to write them yourself. And as a result nearly everyone who was expected to write had to learn how.Not anymore. AI has blown this world open. Almost all pressure to write has dissipated. You can have AI do it for you, both in school and at work.The result will be a world divided into writes and write-nots. There will still be some people…

Paul Graham
· 16 min · Original

How to Think for Yourself

November 2020 There are some kinds of work that you can't do well without thinking differently from your peers. To be a successful scientist, for example, it's not enough just to be correct. Your ideas have to be both correct and novel. You can't publish papers saying things other people already know. You need to say things no one else has realized yet. The same is true for investors. It's not enough for a public market investor to predict correctly how a company will do. If a lot of other people make the same prediction, the stock price will already reflect it, and there's no room to make money. The only valuable insights are the ones most other investors don't share. You see this pattern with startup founders too. You don't want to start a startup to do something that everyone agrees is a good idea, or there will already be other companies doing it. You have to do something that sounds to most other people like a bad idea, but that you know isn't — like writing software for a tiny computer used by a few thousand hobbyists, or starting a site to let people rent airbeds on strangers' floors. Ditto for essayists. An essay that told people things they already knew would be boring. You have to tell them something new. But this pattern isn't universal. In fact, it doesn't hold for most kinds of work. In most kinds of work — to be an administrator, for example — all you need is the first half. All you need is to be right. It's not essential that everyone else be wrong. There's room for a little novelty in most kinds of work, but in practice there's a fairly sharp distinction between the kinds of work where it's essential to be independent-minded, and the kinds where it's not. I wish someone had told me about this distinction when I was a kid, because it's one of the most…

Paul Graham
· 4 min · Original

Keep Your Identity Small

February 2009 I finally realized today why politics and religion yield such uniquely useless discussions. As a rule, any mention of religion on an online forum degenerates into a religious argument. Why? Why does this happen with religion and not with Javascript or baking or other topics people talk about on forums? What's different about religion is that people don't feel they need to have any particular expertise to have opinions about it. All they need is strongly held beliefs, and anyone can have those. No thread about Javascript will grow as fast as one about religion, because people feel they have to be over some threshold of expertise to post comments about that. But on religion everyone's an expert. Then it struck me: this is the problem with politics too. Politics, like religion, is a topic where there's no threshold of expertise for expressing an opinion. All you need is strong convictions. Do religion and politics have something in common that explains this similarity? One possible explanation is that they deal with questions that have no definite answers, so there's no back pressure on people's opinions. Since no one can be proven wrong, every opinion is equally valid, and sensing this, everyone lets fly with theirs. But this isn't true. There are certainly some political questions that have definite answers, like how much a new government policy will cost. But the more precise political questions suffer the same fate as the vaguer ones. I think what religion and politics have in common is that they become part of people's identity, and people can never have a fruitful argument about something that's part of their identity. By definition they're partisan. Which topics engage people's identity depends on the people, not the topic. For example, a discussion…

Paul Graham
· 7 min · Original

How to Disagree

March 2008 The web is turning writing into a conversation. Twenty years ago, writers wrote and readers read. The web lets readers respond, and increasingly they do—in comment threads, on forums, and in their own blog posts. Many who respond to something disagree with it. That's to be expected. Agreeing tends to motivate people less than disagreeing. And when you agree there's less to say. You could expand on something the author said, but he has probably already explored the most interesting implications. When you disagree you're entering territory he may not have explored. The result is there's a lot more disagreeing going on, especially measured by the word. That doesn't mean people are getting angrier. The structural change in the way we communicate is enough to account for it. But though it's not anger that's driving the increase in disagreement, there's a danger that the increase in disagreement will make people angrier. Particularly online, where it's easy to say things you'd never say face to face. If we're all going to be disagreeing more, we should be careful to do it well. What does it mean to disagree well? Most readers can tell the difference between mere name-calling and a carefully reasoned refutation, but I think it would help to put names on the intermediate stages. So here's an attempt at a disagreement hierarchy: DH0. Name-calling. This is the lowest form of disagreement, and probably also the most common. We've all seen comments like this: u r a fag!!!!!!!!!! But it's important to realize that more articulate name-calling has just as little weight. A comment like The author is a self-important dilettante. is really nothing more than a pretentious version of "u r a fag." DH1. Ad Hominem. An ad hominem attack is not quite as weak as mere name-calling.…