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The bread factory and plumber turn a little bit of risk into a little bit of money. A company like Google or Goldman Sachs turns a lot of risk into a lot of mo

The bread factory and plumber turn a little bit of risk into a little bit of money. A company like Google or Goldman Sachs turns a lot of risk into a lot of money, if they manage the risk so it pans out, or a lot of risk into losing a lot of money otherwise. GP's description is actually quite astute. The legal concept of a "corporation" exists solely to pool risk and limit downside; it originally came from shipping voyages in the early age of colonialism, where a significant portion of vessels simply sank with all hands, but one successful voyage would make everyone involved wealthy beyond belief. Basically every business endeavor you do involves some risk, because the future is unknowable. The plumber might fall into the sewers and drown, the bread factory might be contaminated with E-coli and get shut down by public health after getting sued by all the customers it got sick. But certain endeavors, the ones like the plumber or the bread factory, have largely been studied, systematized, and structured to maximize the chance of success. These are low risk, but they're also low reward, because low risk invites lots of competitors. Other endeavors like writing complex software systems or predicting financial markets fail all the time, and that's why succeeding at them is so lucrative.

kortilla 4y ago
No, this falsely equivocates risk with innovation and just regular opportunity. It’s not a given that low risk with low innovation required will have high competition. This is especially true the smaller the market. On the other end of the spectrum, there are very high risk businesses with no innovation and stiff competition (e.g. dealing illegal drugs). Your argument is just about investment diversity, not about the purpose of a company.
- thworp 4y ago
  > On the other end of the spectrum, there are very high risk businesses with no innovation and stiff competition (e.g. dealing illegal drugs). This made me laugh out loud. I'd say drug dealing is one of the most innovative businesses around. At the high level, cartels are constantly inventing new methods of smuggling and money laundering. At a low level, dealers were first adopters for text messengers, crypto messengers, cryptocurrency marketplaces etc. I'd say this makes them more innovative than most startups (who often just re-invent traditional business but done online). Dealers even make profits!
  - kortilla 4y ago
    Some dealers do some innovative things sure. But most are just use violence and local neighborhood knowledge to stay hidden. “Using a burner phone” is a 20+ year old trope and it was pay phones before that. Not exactly innovation. The people that made crypto currency market places were pretty innovative. The dealers that used them weren’t. They are the equivalent of people who discovered eBay in the 90s. Early adopters, not innovators.
- wpietri 4y ago
  If a market is sufficiently small as to be not big enough for competition, that strikes me as pretty high risk of becoming too small for any players at all. E.g., think of the main street of a small town. My mom lived in a town that had one grocery store, one gas station, one restaurant. All of them were marginal operations. And there were a lot of empty storefronts on the main drag, places that were no longer sustainable and had gone under.
JohnFen 4y ago
> The bread factory and plumber turn a little bit of risk into a little bit of money. Plumbers make excellent money, not a "little bit". I don't know about bread factories, but I assume they do well too.
- nostrademons 4y ago
  It's relative. A good plumber with his own small business might make half a million a year. A bread factory probably makes in the low millions, if they're anything like the small businesses (eg. box factories, hot tub supplies, auto repair shops) I know. Google makes $60 billion, and Goldman Sachs makes $11B. That's 5 orders of magnitude. Plumbers and bread factories make good money compared to salaried W-2 employees (even compared to Googlers, sometimes), but this again is a risk/money tradeoff. When you choose to work for a big company, you are trading off the risk that your efforts will be useless vs. a guaranteed payday that lets the company keep all the rewards if they're successful. In software it's trivially easy to make the opposite risk vs. reward tradeoff: just incorporate the company yourself and get acquired, in which case you get nothing if your efforts are unsuccessful but keep the full market value of your product if they are.

kortilla 4y ago

No, this falsely equivocates risk with innovation and just regular opportunity. It’s not a given that low risk with low innovation required will have high competition. This is especially true the smaller the market. On the other end of the spectrum, there are very high risk businesses with no innovation and stiff competition (e.g. dealing illegal drugs). Your argument is just about investment diversity, not about the purpose of a company.

thworp 4y ago
> On the other end of the spectrum, there are very high risk businesses with no innovation and stiff competition (e.g. dealing illegal drugs). This made me laugh out loud. I'd say drug dealing is one of the most innovative businesses around. At the high level, cartels are constantly inventing new methods of smuggling and money laundering. At a low level, dealers were first adopters for text messengers, crypto messengers, cryptocurrency marketplaces etc. I'd say this makes them more innovative than most startups (who often just re-invent traditional business but done online). Dealers even make profits!
- kortilla 4y ago
  Some dealers do some innovative things sure. But most are just use violence and local neighborhood knowledge to stay hidden. “Using a burner phone” is a 20+ year old trope and it was pay phones before that. Not exactly innovation. The people that made crypto currency market places were pretty innovative. The dealers that used them weren’t. They are the equivalent of people who discovered eBay in the 90s. Early adopters, not innovators.
wpietri 4y ago
If a market is sufficiently small as to be not big enough for competition, that strikes me as pretty high risk of becoming too small for any players at all. E.g., think of the main street of a small town. My mom lived in a town that had one grocery store, one gas station, one restaurant. All of them were marginal operations. And there were a lot of empty storefronts on the main drag, places that were no longer sustainable and had gone under.

JohnFen 4y ago

> The bread factory and plumber turn a little bit of risk into a little bit of money. Plumbers make excellent money, not a "little bit". I don't know about bread factories, but I assume they do well too.

nostrademons 4y ago
It's relative. A good plumber with his own small business might make half a million a year. A bread factory probably makes in the low millions, if they're anything like the small businesses (eg. box factories, hot tub supplies, auto repair shops) I know. Google makes $60 billion, and Goldman Sachs makes $11B. That's 5 orders of magnitude. Plumbers and bread factories make good money compared to salaried W-2 employees (even compared to Googlers, sometimes), but this again is a risk/money tradeoff. When you choose to work for a big company, you are trading off the risk that your efforts will be useless vs. a guaranteed payday that lets the company keep all the rewards if they're successful. In software it's trivially easy to make the opposite risk vs. reward tradeoff: just incorporate the company yourself and get acquired, in which case you get nothing if your efforts are unsuccessful but keep the full market value of your product if they are.