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> It's easier now to start and grow a company than it has ever been. That means more people start them, that those who do get better terms from investors, and t

> It's easier now to start and grow a company than it has ever been. That means more people start them, that those who do get better terms from investors, and that the resulting companies become more valuable. This may be a quibble, because I think Paul Graham really means a certain type of high-growth startup in mind when he says "start a company". But the rate of new business formation in the US has fallen off a cliff in the past few decades.[1] The number of new companies as a percent of total businesses is 44% lower in 2012 than it was in 1978. Again, I think this is different than what Paul Graham is talking about. When he says "many more people are starting companies", I think he's thinking more about a SaaS startup than a McDonalds franchise. Obviously that fits in much more with the theme of how people generate massive fortunes. Nobody becomes a billionaire from starting a landscaping service or an auto body shop. But still, I think it's important to keep the context in mind. In the larger sense, entrepreneurship in America is very much dead. That doesn't mean that it isn't thriving in a specific Silicon Valley subculture, that to be fair makes massive contributions to the broader economy. But it should make us question what makes the Valley so different from Main Street, USA. If not just to figure out how to export the model from Palo Alto to Oklahoma. [1]https://www.inc.com/magazine/201505/leigh-buchanan/the-vanishing-startups-in-decline.html https://www.inc.com/magazine/201505/leigh-buchanan/the-vanis...

mdorazio 6y ago
I had the exact same thought when I read pg's statement, "Why are people starting so many more new companies than they used to, and why are they getting so rich from it?". People aren't starting so many more new companies than they used to - they're starting significantly fewer, and that's a bad thing. pg is obviously focused on the tech side of businesses, but if you look at the US business climate more broadly, tech is a poor indicator for what's been happening the last several decades.
davesque 6y ago
Actually, I think this is almost the perfect response to his article. It's not hard to imagine that a guy who made his fortune off of startups would be biased to think that everyone should create a startup and get rich that way. So, after correcting for rich guy tunnel vision, the statement "more people are starting companies" translates to "more people are starting technology companies in Silicon Valley." And of course, as you point out, the reality that the rest of the country is living in is conveniently ignored. So yeah, rich guy writes a blog article saying essentially "people should just do what I did" and water is wet.
- jdgoesmarching 6y ago
  Agreed. Maybe unpopular opinion, but entrepreneur insights from CEOs are rarely valuable because no individual contribution outweighs sheer luck. Every day millions of people make smart decisions, take good risks, and work hard without significantly improving their conditions. It is pure survivorship bias to think individuals are capable of more than slightly nudging the cosmic needle if it happens to land near the right place. It makes people uncomfortable to think that success is mostly a matter of luck. I am extremely lucky to be where I am in my career, and I greatly respect people who can admit this instead of rambling about “hustle.”
  - ritchiea 6y ago
    Not even just luck, there are biases in who gets funding in the first place. PG himself says he's biased toward founders that remind him of Zuckerberg and other past founders. That group is very predominantly white and affluent with a small cut of Asian-american and affluent and a small cut of other. It helps a lot to have an affluent background when you start a tech company because, like a lot of other risky endeavors, even though the potential rewards are enormous it's a lot less initial earnings than just joining a company as an employee. And you worry whether if your company doesn't take off and get its next round of funding in a few months if it'll be harder to get that first job. And you may be poorer than you were pre-startup. Not to mention that poorer kids might not ever see starting a tech startup as an option. Both because of the biases in which founders get funding and because they may culturally never have the option floated to them.
  - MomoXenosaga 6y ago
    I recall the 1999 tech bubble. Lots of companies went under in the crash that might have made it today. There is a ton of VC money in Sillicon Valley again.
    - hnick 6y ago
      So where is that VC money getting spent besides salaries? What's the modern equivalent of selling shovels to the miners? AWS?
troygoode 6y ago
He specifically addresses this in footnote [3].
- criddell 6y ago
  And he tries to spin it: > So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops. He might like to point out that the decrease is disproportionately higher among those types of businesses that are part of a thriving community, but the reality is the overall number of businesses being started has gone down.
- jessaustin 6y ago
  When I say people are starting more companies, I mean the type of company meant to grow very big. There has actually been a decrease in the last couple decades in the overall number of new companies. But the vast majority of companies are small retail and service businesses. So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops. The news has gone from bad to worse. Winner-take-all regulations, customs, and market manipulations are good for Bezos, but not for normal humans and not for the economy as a whole. It has been even worse in pandemic time, since the small shops just closed down while the bigger firms were somehow exempted from those requirements.
JMTQp8lwXL 6y ago
> Nobody becomes a billionaire from starting a landscaping service or an auto body shop. If that's your terminal investment, correct. But if you take that $100k you earned from your landscaping service, or in Buffet's case, selling newspapers and detailing cars, you can continue to apply business acumen and perhaps one day reach $1 Billion. Wealth begets more wealth.
jefftk 6y ago
[3] When I say people are starting more companies, I mean the type of company meant to grow very big. There has actually been a decrease in the last couple decades in the overall number of new companies. But the vast majority of companies are small retail and service businesses. So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops. People sometimes get confused when they see a graph labelled "startups" that's going down, because there are two senses of the word "startup": (1) the founding of a company, and (2) a particular type of company designed to grow big fast. The statistics mean startup in sense (1), not sense (2).
- bo1024 6y ago
  This seems to contradict his analogy between 2020 to, say, 1890. Instead of a bunch of people starting small local businesses and gaining moderate wealth, we have winner-take-all dynamics.
  - WalterBright 6y ago
    > winner-take-all You can buy stock in winning companies and get your share of the winnings.
    - harimau777 6y ago
      That's only the case if you can afford to buy the stock (and more specifically afford to buy enough of the stock to make a difference).
      - dlp211 6y ago
        Not to mention that you miss out on one of the bigger wealth building opportunities, the IPO. While not true for every company, tech IPOs have been gangbusters as of late. I would have loved to invest in AirBnb at their last evaluation before IPO. But that is only available to the truly wealthy.
        6y ago
crispyambulance 6y ago
When Paul Graham says "get rich" it goes without saying that he means "billionaire rich" by virtue of being a founder of a unicorn that goes IPO. That's nice for those that can do it but it's such a tiny number of people, it's irrelevant and non-actionable advice for practically everyone. Right off the bat, he's talking about the "100 Richest". What about people that run a business and make a good living and some profit for themselves and their employees doing innovative stuff? Is that too inconsequential to even mention because VC's aren't interested?
- Applejinx 6y ago
  Paul Graham's world doesn't include those. They are doing it wrong by his rules.
throwaway0a5e 6y ago
You're a successful machinist/plumber/accountant/chiropractor/electrician/IT specialist/etc with a couple decades under your belt working for other people. In decades past you'd strike out on your own. In 2021 you look at the regulatory environment and overhead costs of starting a business, say "screw that" pick it up as a side gig and find a day job where you can coast. Maybe if you have some special love for the IRS you make an LLC and call yourself a consultant. This change has affected both the blue collar trades and a growing share of white collar professions these days. The larger of a headache it is to be Real Business(TM) the larger the potential upside needed to justify it. Unless you think your ideas are gonna change your industry or you plan to become the regionally dominant player in your niche why start a real business when a cash only side gig will scratch that itch most of the time?
vmception 6y ago
> The number of new companies as a percent of total businesses is 44% lower in 2012 than it was in 1978. .... because the number of total businesses is so much higher already? The number of existing businesses that didn't create a subsidiary for an additional business line is higher? That data point doesn’t tell you enough of anything. I’m glad it got you to look in that general direction, so now let's dig deeper.
maerF0x0 6y ago
> Nobody becomes a billionaire from starting a landscaping service or an auto body shop. few, but actually it's quite reasonable to expect to become a millionaire as show in [1], given the age of the book I'd extrapolate to multimillionaire https://www.goodreads.com/book/show/998.The_Millionaire_Next_Door https://www.goodreads.com/book/show/998.The_Millionaire_Next...
- brg 6y ago
  The statistic that PG didn't write about but seems to pertinent is that the number of millions has increased more than 10 fold from 1980 to 2020. 1992 story: https://www.washingtonpost.com/archive/politics/1992/07/11/number-of-us-millionaires-soars/99185778-fb35-4771-b012-7183b91215c7/ https://www.washingtonpost.com/archive/politics/1992/07/11/n... Recent statistic: 18.6 million families, https://spendmenot.com/blog/what-percentage-of-americans-are-millionaires/ https://spendmenot.com/blog/what-percentage-of-americans-are...
kenneth 6y ago
Note he addresses this directly in the corresponding footnote.

mdorazio 6y ago

I had the exact same thought when I read pg's statement, "Why are people starting so many more new companies than they used to, and why are they getting so rich from it?". People aren't starting so many more new companies than they used to - they're starting significantly fewer, and that's a bad thing. pg is obviously focused on the tech side of businesses, but if you look at the US business climate more broadly, tech is a poor indicator for what's been happening the last several decades.

davesque 6y ago

Actually, I think this is almost the perfect response to his article. It's not hard to imagine that a guy who made his fortune off of startups would be biased to think that everyone should create a startup and get rich that way. So, after correcting for rich guy tunnel vision, the statement "more people are starting companies" translates to "more people are starting technology companies in Silicon Valley." And of course, as you point out, the reality that the rest of the country is living in is conveniently ignored. So yeah, rich guy writes a blog article saying essentially "people should just do what I did" and water is wet.

jdgoesmarching 6y ago
Agreed. Maybe unpopular opinion, but entrepreneur insights from CEOs are rarely valuable because no individual contribution outweighs sheer luck. Every day millions of people make smart decisions, take good risks, and work hard without significantly improving their conditions. It is pure survivorship bias to think individuals are capable of more than slightly nudging the cosmic needle if it happens to land near the right place. It makes people uncomfortable to think that success is mostly a matter of luck. I am extremely lucky to be where I am in my career, and I greatly respect people who can admit this instead of rambling about “hustle.”
- ritchiea 6y ago
  Not even just luck, there are biases in who gets funding in the first place. PG himself says he's biased toward founders that remind him of Zuckerberg and other past founders. That group is very predominantly white and affluent with a small cut of Asian-american and affluent and a small cut of other. It helps a lot to have an affluent background when you start a tech company because, like a lot of other risky endeavors, even though the potential rewards are enormous it's a lot less initial earnings than just joining a company as an employee. And you worry whether if your company doesn't take off and get its next round of funding in a few months if it'll be harder to get that first job. And you may be poorer than you were pre-startup. Not to mention that poorer kids might not ever see starting a tech startup as an option. Both because of the biases in which founders get funding and because they may culturally never have the option floated to them.
- MomoXenosaga 6y ago
  I recall the 1999 tech bubble. Lots of companies went under in the crash that might have made it today. There is a ton of VC money in Sillicon Valley again.
  - hnick 6y ago
    So where is that VC money getting spent besides salaries? What's the modern equivalent of selling shovels to the miners? AWS?

troygoode 6y ago

He specifically addresses this in footnote [3].

criddell 6y ago
And he tries to spin it: > So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops. He might like to point out that the decrease is disproportionately higher among those types of businesses that are part of a thriving community, but the reality is the overall number of businesses being started has gone down.
jessaustin 6y ago
When I say people are starting more companies, I mean the type of company meant to grow very big. There has actually been a decrease in the last couple decades in the overall number of new companies. But the vast majority of companies are small retail and service businesses. So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops. The news has gone from bad to worse. Winner-take-all regulations, customs, and market manipulations are good for Bezos, but not for normal humans and not for the economy as a whole. It has been even worse in pandemic time, since the small shops just closed down while the bigger firms were somehow exempted from those requirements.

JMTQp8lwXL 6y ago

> Nobody becomes a billionaire from starting a landscaping service or an auto body shop. If that's your terminal investment, correct. But if you take that $100k you earned from your landscaping service, or in Buffet's case, selling newspapers and detailing cars, you can continue to apply business acumen and perhaps one day reach $1 Billion. Wealth begets more wealth.

jefftk 6y ago

[3] When I say people are starting more companies, I mean the type of company meant to grow very big. There has actually been a decrease in the last couple decades in the overall number of new companies. But the vast majority of companies are small retail and service businesses. So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops. People sometimes get confused when they see a graph labelled "startups" that's going down, because there are two senses of the word "startup": (1) the founding of a company, and (2) a particular type of company designed to grow big fast. The statistics mean startup in sense (1), not sense (2).

bo1024 6y ago
This seems to contradict his analogy between 2020 to, say, 1890. Instead of a bunch of people starting small local businesses and gaining moderate wealth, we have winner-take-all dynamics.
- WalterBright 6y ago
  > winner-take-all You can buy stock in winning companies and get your share of the winnings.
  - harimau777 6y ago
    That's only the case if you can afford to buy the stock (and more specifically afford to buy enough of the stock to make a difference).
    - dlp211 6y ago
      Not to mention that you miss out on one of the bigger wealth building opportunities, the IPO. While not true for every company, tech IPOs have been gangbusters as of late. I would have loved to invest in AirBnb at their last evaluation before IPO. But that is only available to the truly wealthy.
      - 6y ago

crispyambulance 6y ago

When Paul Graham says "get rich" it goes without saying that he means "billionaire rich" by virtue of being a founder of a unicorn that goes IPO. That's nice for those that can do it but it's such a tiny number of people, it's irrelevant and non-actionable advice for practically everyone. Right off the bat, he's talking about the "100 Richest". What about people that run a business and make a good living and some profit for themselves and their employees doing innovative stuff? Is that too inconsequential to even mention because VC's aren't interested?

Applejinx 6y ago
Paul Graham's world doesn't include those. They are doing it wrong by his rules.

throwaway0a5e 6y ago

You're a successful machinist/plumber/accountant/chiropractor/electrician/IT specialist/etc with a couple decades under your belt working for other people. In decades past you'd strike out on your own. In 2021 you look at the regulatory environment and overhead costs of starting a business, say "screw that" pick it up as a side gig and find a day job where you can coast. Maybe if you have some special love for the IRS you make an LLC and call yourself a consultant. This change has affected both the blue collar trades and a growing share of white collar professions these days. The larger of a headache it is to be Real Business(TM) the larger the potential upside needed to justify it. Unless you think your ideas are gonna change your industry or you plan to become the regionally dominant player in your niche why start a real business when a cash only side gig will scratch that itch most of the time?

vmception 6y ago

> The number of new companies as a percent of total businesses is 44% lower in 2012 than it was in 1978. .... because the number of total businesses is so much higher already? The number of existing businesses that didn't create a subsidiary for an additional business line is higher? That data point doesn’t tell you enough of anything. I’m glad it got you to look in that general direction, so now let's dig deeper.

maerF0x0 6y ago

> Nobody becomes a billionaire from starting a landscaping service or an auto body shop. few, but actually it's quite reasonable to expect to become a millionaire as show in [1], given the age of the book I'd extrapolate to multimillionaire https://www.goodreads.com/book/show/998.The_Millionaire_Next_Door https://www.goodreads.com/book/show/998.The_Millionaire_Next...

brg 6y ago
The statistic that PG didn't write about but seems to pertinent is that the number of millions has increased more than 10 fold from 1980 to 2020. 1992 story: https://www.washingtonpost.com/archive/politics/1992/07/11/number-of-us-millionaires-soars/99185778-fb35-4771-b012-7183b91215c7/ https://www.washingtonpost.com/archive/politics/1992/07/11/n... Recent statistic: 18.6 million families, https://spendmenot.com/blog/what-percentage-of-americans-are-millionaires/ https://spendmenot.com/blog/what-percentage-of-americans-are...

kenneth 6y ago

Note he addresses this directly in the corresponding footnote.