Money is a function of your identity, and its reach to others
This is my summary of the awesome podcast by Naval titled “How to Get Rich(without getting lucky)”. In short, you won’t get rich renting out your time where inputs (your time) and outputs (the value your create) are highly correlated. Instead, one way to get rich is by getting paid at scale (even when you are sleeping). That can be achieved by acquiring specific knowledge in an emerging domain, taking small risks, applying leverage. And iterating, learning, changing on all three aspects, cohesively, until a scalable identity-market fit is discovered.
Expressed mathematically, the simplified formula for getting rich looks as follows:
The formula shows that “Money is a function of your identity, and its reach to others’’. To get there, one has to keep asking the following questions until finding a working answer:
- What I’m good at? (Specific Knowledge)
- What the market values? (Accountability)
- How do I scale it? (Leverage)
This is the foundation that everything else is built upon, and tries to scale. One must have deep knowledge, experience, and obsession on a topic, no matter how narrow the latter is.
- Best in the world
- Flexible and keep changing
- Technical domain
- Emerging market
- Edge of knowledge
Building specific knowledge alone is not enough. Knowledge must be applied in new endeavors, challenged publicly, improved repeatedly, until it is valued by the market. Accountability can be achieved by:
- Not be afraid of failing publicly
- Embrace uncertainty
- Take small risks
- Allow frequent, small failures
- Let people criticize you
- Create new things from scratch
- Get paid proportional to your accountability
- Build your judgement (requires intellect and experience)
- Develop reputation
- Spot opportunities
- Be flexible and change
If not scaled, even deep knowledge valued by market is not enough to get rich. Knowledge and accountability must use leverage in order to create output asymmetric to the input.
- People (hard to manage)
- Capital (hard to obtain)
- Products with zero marginal cost of reproduction (a new form of leverage)
- Print and broadcast media (older)
- Internet and code (newer)
- Network effects: each new user adds value to the existing users
- Scale economies: the more you produce, the cheaper it gets
- Leverage is a multiplier of judgement
- Choose a profession where the input and the outputs are highly uncorrelated
- Tools and creativity are what create disconnection between inputs and outputs
- Own product, equity in a business, intellectual property.
And remember, getting rich won’t make you a better person. You still will be the same person, with ups and downs, unchanged.
PS: if the notes above do not make sense, listen to the podcast, a few times.