Insights from legendary entrepreneur Paul Graham about the growth of technology and startups
There’s a saying that the rich will keep on getting richer, and there is some truth in this phrase.
Paul Graham’s recent blog (the founder of Y Combinator) talks about how people become wealthy today by comparing the Forbes 100 wealthiest people list from the 1980s with the present one.
Of the 100, 60 inherited from an ancestor in the 1980s. Today that number is only 27, which is a substantial drop. It doesn’t mean, however, that people have stopped inheriting (I mean, who would ever reject that).
No, it’s just the fact that new contenders in the list have built their wealth off a different foundation. Your first guess might be hedge funds or something financial related, and although this might be true in a lot of cases, it’s in fact, a new contender of the list: tech entrepreneurs.
Why tech entrepreneurs?
The reality is many have been gifted the opportunity to create their own wealth in today’s digital age.
There is no doubt that although the founders of companies like Airbnb, Amazon, and Facebook came from fortunate backgrounds, all of them had to build their own wealth from developing a product or service from scratch.
Even if we look outside the top 100 most wealthy list, we see a common trend. Technology has since outpaced all other industries, including the dominant finance, real estate, and industrial industries.
Looking at the graph above, it wasn’t until 2018–2019 that technology started to outpace every industry (apart from health) and has skyrocketed in growth, especially with the pandemic.
But technology has been around for the last century.
IBM, after all, was founded in 1911, and many of the tech giants of today started in the 1970s to 1980s (Oracle, Microsoft, etc.).
So why is wealth being created in this sector that historically has been around for decades?
Technology companies now grow quicker
You may argue that companies like HP or Microsoft are massive giants of today but these companies formed in the 1980s. If you look at how long it took these companies to hit a billion dollars, it might be clearer.
HP took 25 years while Microsoft took 13 years.
Today, strong and high-growth startups can reach those numbers in less than 7 to 8 years. Just look at startups like Slack, Airbnb, and Uber that managed to catapult themselves into huge valuations in less than a decade of launching their business.
This is because technology is not only cheaper to build, but it’s also easier to distribute things around the world (after all that's the power of globalization). In return, this means faster growth for startups, which actually increases the value’ of a founder's stock. This means an entrepreneur could effectively accelerate their wealth much rapidly than in the past, creating this new wave of tech entrepreneurs making new pockets of wealth.
That’s why founders sometimes get so rich so young now. The low initial cost of starting a startup means founders can start young, and the fast growth of companies today means that if they succeed they could be surprisingly rich just a few years later. — Paul Graham
This is how a new wave of wealth is being built
It’s much easier to start companies even if you’re not building a company to ‘get rich’. In reality, if you create a product or service that is needed in the market and you manage to scale it quickly and efficiently, your company becomes valuable.
This, in return, means your stake in the company also becomes more valuable quicker, which of course, is the result of the new wave of wealth being built on tech.
In my opinion, with more IPOs and exits hitting the market, we will see even more entrepreneurs hitting the high rankings of the rich list, kickstarting this decade of wealth building.