This is the first part of a series on ‘wealth creation’. Check back next week for part 2.

If you wanted to get rich, how would you do it? I think your best bet would be to start or join a startup. That’s been a reliable way to get rich for hundreds of years. The word “startup” dates from the 1960s, but what happens in one is very similar to the venture-backed trading voyages of the Middle Ages.

Startups usually involve technology, so much so that the phrase “high-tech startup” is almost redundant. A startup is a small company that takes on a hard technical problem.

Lots of people get rich, knowing nothing more than that. You don’t have to understand physics to be a good pitcher. But I bet it could give you an edge to understand the underlying principles. Why do startups have to be small? Will a startup inevitably stop being a startup as it grows larger? And why do they so often work on developing new technology? Why are there so many startups selling new drugs or digital products, and none selling pans or laundry detergent?

The promise

The basic economic idea of a startup is that you compress your whole working life into a few years. You work your ass off for four years, instead of sitting on your ass for forty. Being productive pays off when you work in technology because being fast with new tech creates a premium. 

Let us take a minute to draw a brief sketch of the economic proposition; it would look something like this. If you’re a good developer and happen to be in your mid-twenties, you can get a job that earns you $100,000 per year. That means you, as a developer, must create at least $100,000 of value per year for your employer to make sure the company breaks even. If you also happen to be a corporate employee, you would probably work twice as many hours. 

Combine that with being focused consistently, and suddenly, you get three times as much done in an hour. Next, we get rid of your manager, the guy who would be your boss in the corporate jungle. This means no drag from convincing him that you should migrate to the cloud, and suddenly, we can multiply your productive output with a factor of two, at least. 

Last multiple that we can look at: how much smarter are you than your job needs you to be? Let’s suppose there is another multiple of three there. 

Now let’s add all those multipliers, and we’re looking at you being thirty-six times more productive than you need to be in a big company.

So, if a good developer creates $100,000 of value at a big company, then an intelligent developer without ‘Joe the Manager’ and his corporate bullshit should be able to do work that creates $3.6 million in value per year. 

This calculation has a lot of wiggle room, like most back-of-the-envelope calculations. Please don’t ask me to defend the actual numbers. But I stand by the basic idea behind the estimate. I’m not pretending your multiplier is precisely 36, but it is certainly more than 8, and probably seldom as high as 90.

If your reading this and thinking: ‘well, $3.6 million a year seems a little high’ (I thought the same at first), understand that we’re talking about the limit case. A scenario where you not only have zero leisure time but additionally work so hard that you risk your health.

To conclude the first part: startups are not magic. As quite briefly calculated, they don’t change the laws of creating wealth. They just define a point at the far end of the curve. Remember the following conservation law: if you want to create a million dollars in wealth, you have to survive a million dollars’ worth of pain. Let’s imagine working for the Post Office your whole life that would definitely be a way to earn a million dollars if you save every penny. But consider the stress of working for the Post Office, for fifty years. In a startup, you pack all this stress into three or four magical years. Sure, you’re getting a particular bulk discount if you buy the economy-size pain, but you still can’t evade the fundamental conservation law. If launching a startup were easy, everyone would do it.

But I want to be a billionaire?

A lot of people will think that $3.6 million a year seems high, but it will seem low to others. Three-point-six million? Sure, but how do I become a billionaire, like Bill Gates?

Okay, first thing: let’s not look at Bill Gates. It’s generally a horrible idea to use famous rich people as examples because the press only writes about the very richest, and they are outliers, most of the time. Let’s look at Bill Gates, he is an intelligent, determined, and hardworking chap, but if you have all that, you still won’t have enough to make as much money as he did. You also need something extra: luck.

Every company has a significant random factor that attributes to the company’s prosperity. Thus, all the amazing founders that you read about on Forbes and Inc. have a tremendous intelligence, work very hard, but they also all got the winning lottery ticket.  

Indeed, Bill is bright and dedicated, but Microsoft was incredibly lucky to have been the beneficiary of one of the most striking blunders in the history of business: the licensing deal for DOS. 

Bill absolutely did everything he could to guide IBM into making that horrible mistake, and he has exploited it amazingly, but if there had been one person with a brain on IBM’s side, Microsoft’s future would have looked very different. 

Naturally, Microsoft had little leverage over IBM at that time. The relationship between Microsoft and IBM existed because Microsoft was mainly a component supplier. Had IBM asked for an exclusive license from Microsoft, which they should have, then Bill would still have signed. It would, nonetheless, have been a good deal for Microsoft since IBM could easily have chosen any other operating system.  

But that was not what happened. Instead, IBM decided to sign a deal that would effectively diminish all its power in the market and give Microsoft the keys to control the PC standard. And since they handed Microsoft the keys to the PC market, the only thing left for Bill was to turn the key and begin applying their newly gained powers. Gates never had to make a bet on a bold decision, he relied on strategically playing with licensees and quickly reacting on more innovative products from competitors. 

Had IBM not made the mistake of handing Microsoft the keys to the PC standard, then Microsoft would never have been able to grow so explosively. Make no mistake, Microsoft would still have been very successful, but Bill would be near the bottom of the Forbes 400. 

You can get rich in a lot of ways, and this story is about just one route. This is a story about creating wealth and receiving money in return for it. I think it’s the easiest way, though. Let’s imagine using one of the other methods such as marriage, inheritance, theft, fraud, extortion, monopoly, counterfeiting, etc. The most enormous fortunes in human history probably involved several of these strategies. 

Two hundred years ago, each one of those methods might have been an excellent competitor against creating wealth. But these days we most countries have a robust justice system that makes all of these techniques illegal. So creating wealth is, legally, more straightforward. But that’s just one element. The second element is that creating wealth is also very easy. You just create something that people want.