This is a good book for anyone who wants to embark on entrepreneur path. The majority of the book is about why entrepreneur path is a much better option than traditional job route. If you want to learn how to start, you can read the section about Stair Step.
The key success to entrepreneurs is leverage. From old ancient Archimedes:
"Give me a lever long enough and a fulcrum on which to place it, and I shall move the world."
The secret to successful entrepreneurs is strategically-placed level and fulcrum. Rapid development of technology change the leverage points in accumulating wealth: money, meaning and freedom.
Entreprenuership is connecting, creating, and inventing systems - be they business, people, ideas, or processes.
A job is the act of following the operating system someone else created.
We are at the job peaks. High paying jobs are going away due to:
- Sharp rise in communication technology -> jobs start moving to Asia
- Machines, AI are killing white-collar jobs
- Traditional university degrees (including PhD) become abundant and less valuable than ever.
MBA and JDs jobs are not increasing while the number of people who enrolls in these program keep increasing.
When we seek job, we ask: "How do I get a job doing that?". It's a wrong question. A better question is: "How do I create a job doing that?".
The Cynefin framework.
This was developed by Dave Snowden after studying the management structure at IBM. A complicated problem would require further education to solve while a simple problem would require relatively less.
In 20th century, we started moving the workforce around the Cynefin graph. The rise of credentialism was the result of a need to train people to operate in the complicated domain. The modern educational system is built on the back of this premise - creating normal, common workers.
What this categorization ignores are the complex and chaotic domains. Times have changed. It's now less valuable than ever to understand how to follow directions and implement best practices.
It's the work of understanding and operating in the complex and chaotic systems - entrepreneurship - that's increasingly in demand.
How limits work
Eli Goldratt laid out "Theory of constraints" that any system with a goal has one limit and worrying about anything other than that limit is a waste of resources. To improve output, only focus on improving the bottleneck.
We can apply this principle to our day-to-day lives. 3 basic questions we need to ask:
- What is the system?
- What's the current limit?
- What's the obvious way to improve the limit?
While our first instinct is usually attempting to push harder, it's more valuable to figure out where to push.
The famous dictum, "If I had an hour to solve a problem, I would spend 59 minutes asking the right questions", recognizes that defining the system and its limit often makes the solution obvious.
A brief history of economy
The agricultural economy (1300-1700)
Natural resources were the primary source of wealth in the West. The wealthiest people were those that had the most natural resources. The land was the limit.
The Age of Discovery was characterized by the rapid and dramatic accumulation of land. Countries that acquired more lands became more powerful and wealthy.
The industrial economy (1700 - 1900): The rise of the rothschilds
This is the period when the West went from agricultural to an industrial economy. The limit shifted from land to capital. The dominant institution shifted from Nation-States to Banks, and the dominant player shifted from Kings to bankers.
Nathan Rothschild, a banker, was able to give loan to King Friedrich with a condition to create a parliamentary form of government. A banker dictated terms to a king without a need of hundreds of thousands army.
Three things shifted:
- The limited shifted: from land to capital
- The dominant institution shifted
- The dominant player shifted
The knowledge economy (1900-2000): the conquest of Corporation
As we transitioned from industrial to knowledge economy, banks became extremely effective at producing capital, but the economy didn't have enough knowledge to grow. The limit moved from capital to knowledge. Dominant players moved from bankers to CEOs.
In 1975, when IBM issued bonds, it told Morgan Stanley that it wanted to bring in Salomon Brothers, a move that never happened before. MS did not agree but IBM still went with the plan. The bond issue was a success and now corporation could dictate terms to banks.
The ascendence of the entrepreneur
In the current transition (the Fourth Economy), that looks like this:
- The limit is shifting from knowledge to entrepreneurship. Knowledge is abundant but the ability to handle complex and chaotic environments are rare.
- The dominant institution is shirting from Corporation to the Individual. What used to require large companies, technology, and globalization has now been made available to the individual or micro-multinational.
- The dominant player is shifting from CEO to Entrepreneur.
Globalization means you are no longer competing to be more knowledgeable than the person down the street, but more knowledgeable than 7 billion people.
Can you acquire entrepreneurship?
Limits empower us because they transform events into processes. Thinking in limits is process thinking, not event thinking.
When we define something as an event, as yes or no - healthy or unhealthy, wealthy or poor - we definite it too broadly to make any progress.
No one knows how to be perfectly healthy but everyone knows the can do to get healthier. People that succeed in getting healthier are the ones that start taking small steps.
Entrepreneurship is a skillset, a resource that can be acquired and invested in.
Entrepreneurship is safer than ever
We frequently avoid making choices not because the outcome is bad, but simply because it's unknown.
An example is when someone is rejected by a girl. It does not physically but metaphorically hurt.
The school teaches us that everything behaves like a bell curve (since it's fair - very dangerous concept). From grades to everybody's heights. The world's curve looks like extremistan where the top 1% are rewarded exponentially.
Don't be a turkey. A turkey is well-fed and it predicts the night before Thanksgiving that it would be ok based on historical data.
The longer we go in our careers and businesses without variation or randomness, the larger the amount of underlying risk we accumulate. There are also silent risks which one accumulates for a very long time and when everything hits us at once, we cannot handle the stress.
Moderate volatility is healthy. Large amount of volatility will kill you.
Thriving in extremistan: how NOT to be a turkey
Think about Rand, a person who quit his jobs and start companies or join smaller companies. He is not making lots of money at the beginning.
For Rand, not making money is feedback. There is no silent risk accumulating. He puts up a website and no one buys his bars, that's feedback. Money wasn't hitting his bank account, so he's changed the product; he's changed the marketing; sales are starting to improve.
Entrepreneurship is not without risk. However, the difference in how it deals with risk. The first is that entrepreneurship risk is more visible than the silent risk accumulated by people in most jobs. If money does not hit your bank account, you should be panic and take actions. Not so much when you are in a big corp.
The second skillset that entrepreneurs develop in the complex domain is how to deal with risk.
The long tail
Just like human genome sequencing, the barrier for entrepreneurship has come down dramatically faster than most people have realized. 3 primary forces of the Long Tail which have driven this shift:
- The democratization of the Tools of Production: Product creation costs are decreasing.
- Democratization of Distribution: Everyone is a media company.
- New markets are revealed every day.
The Internet makes it possible to start a business just by being clever and ambitious.
Inexperienced entrepreneurs make lots of assumptions and frequently lose money. Experienced entrepreneurs develop better gut instincts.
The Stair Stepping method
Many full-blown entrepreneurs today started freelancing on the side, then transitioned to consulting or freelancing full time, and some have chosen to release their own products.
Rob Walling created a Stair Step framework and it can be applied broadly
- Step 1 is to launch a product that sells for one-time fee and has a single marketing channel: SEO, paid Google or FB ad, a blog audience. Once you have experience building & launching and confidence, you can start expanding your toolbelt of relationships and skills.
- Step 2 is to launch enough of those one-time products that you're able to buy your time back. You can quit your consulting job. You can hire virtual assistance through UpWork.
- Step 3: now you get 40-60 hours a week to put in on your business, giving you a platform to launch bigger products, and projects from. This could be SaaS business, bigger eCommerce, etc.
Rob started his entrepreneurship by quitting his corporate job and moving into consulting as a computer programmer. As a consultant, he learnt how to run a business.
He then acquired some invoicing software in 2005 and used SEO to generate two to four thousands dollar per month. At this point, he has experience in SEO and talking with customers.
Since he had more time & money, he started scouting for other businesses to buy. He bought a website that sold bath towels, a business creating website themes and built up $2500 in profit. He then bought HitTail, Drip and other bigger and better businesses.
Stair step lets you build your momentum behind your trajectory by developing skills you need to run a company, relationships with other people. It might be hard at first but once you begin to create a track record of results, people will come and learn from you.
The return of apprenticeship
This section is similar to what I wrote in the post "Career starting hack".
The premise is straightforward: you find someone that is doing what you would like to be doing in 5 years and cut the deal: "I will come to work for you for cheap and I get training & knowledge from you in return". Warren Buffet, Joe Lonsdale, Ryan Holidays all started in similar way.
Advantages of this method include:
- Develop relationships with people in that industry.
- More effective in complex environment. The best ideas & approaches are not taught but come from the result of "gut feeling" (aka experience).
- You are not playing with your own money. Others are paying that for you.
Entrepreneurship is more profitable than ever
A brief history of work and jobs
If we look at modern day pre-NeoLithic, hunter/gatherer groups, they don't "have jobs" or "do work". They did whatever needed to survive. The idea of jobs today is a product of 2 major inflection points in human history:
- The Neolithic Revolution: human transitioned from nomadic hunter to settled farming communities. Wealth started building up and society had master & slaves.
- The second period is Industrial Revolution. As demands for specialized labor arose with the Industrial Revolution, individuals began doing more and more specific tasks.
As human, we love to work but dislike the obligation of it - the job-based paradigm. For 3000 years, we accepted that paradigm because it increased society material well-being. We accepted work as a disutility because it was necessary to survive as a society and worthy trade-off for us as individuals.
The limit has shifted. It's getting harder to find jobs, they are more risky, and less profitable. What has changed is that the kind of work needed to advance society taps into fundamental human drives now. Complex entrepreneurial works is both more valuable and more in line with traditional human drives.
More money, more freedom and more meaning
Fundamental human motivations come down to 3 things: money, freedom and meaning. Meaning and freedom are not luxuries to be put off later in life after you've "put in your time".
If we can structure meaning and freedom into work now, we see Tom Sawyer effect - work going from being an obligation to a choice. It's not something we are obligated to do but something we want to do. Hence the quality of work is better.
Interesting fact: professional poker players are very likely to become entrepreneurs because they know the expected value.
The least free are those whose reality is structured for them. Middle class people has created a greater degree of independence than before. But the most powerful are those who design both their own realities and the realities of others.
Great work - the kind of work that will create wealth in our lives and others' lives is not the product of obligation - it's the product of freedom.
What drives us?
We cultivate happiness through seeking something called flow. Flow, at its essence, is the ultimate natural expression of the human desire to grow and stretch.
Flow is the moment of struggling and reaching out your hand for a goal to overcome a challenge. When asked to cite the most enjoyable moment of their lives, people often recall raising a child or building a company.
For artist, commissioned work is usually worse than non-commissioned work.