WHAT TO DO WITH THE POWER LAW
The power law is not just important to investors; rather, it’s important to everybody
because everybody is an investor. An entrepreneur makes
a major investment just by
spending her time working on a startup. Therefore every entrepreneur must think about
whether her company is going to succeed and become valuable. Every individual is
unavoidably an investor, too. When you choose a career, you act on your belief that the
kind of work you do will be valuable decades from now.
The most common answer to the question of future value is a diversified portfolio:
“Don’t put all your eggs in one basket,” everyone has been told. As we said, even the
best venture
investors have a portfolio, but investors who understand the power law
make as few investments as possible. The kind of portfolio thinking embraced by both
folk wisdom and financial convention, by contrast, regards diversified betting as a source
of strength. The more you dabble, the more you are supposed to have hedged against the
uncertainty of the future.
But life is not a portfolio: not for a startup founder, and not for any individual. An
entrepreneur cannot “diversify” herself: you cannot run dozens of companies at the same
time and then hope that one of them works out well. Less obvious but just as important,
an individual cannot diversify his own life by keeping dozens of equally possible careers
in ready reserve.
Our schools teach the opposite: institutionalized education
traffics in a kind of
homogenized, generic knowledge. Everybody who passes through the American school
system learns
not
to think in power law terms. Every high school course period lasts 45
minutes whatever the subject. Every student proceeds at a similar pace. At college,
model students obsessively hedge their futures by assembling a suite of exotic and minor
skills. Every university believes in “excellence,” and
hundred-page course catalogs
arranged alphabetically according to arbitrary departments of knowledge seem designed
to reassure you that “it doesn’t matter what you do, as long as you do it well.” That is
completely false. It does matter what you do. You should focus relentlessly on
something you’re
good at doing, but before that you must think hard about whether it
will be valuable in the future.
For the startup world, this means you should not necessarily start your own company,
even if you are extraordinarily talented. If anything, too many people are starting their
own companies today. People who understand the power
law will hesitate more than
others when it comes to founding a new venture: they know how tremendously
successful they could become by joining the very best company while it’s growing fast.
The power law means that differences
between
companies will dwarf the differences in
roles
inside
companies. You could have 100% of the equity if you fully fund your own
venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by
contrast, is incredibly valuable (more than $35 million as of this writing).
If you do start your own company, you must remember
the power law to operate it
well. The most important things are singular: One market will probably be better than all
others, as we discussed in
Chapter 5
. One distribution strategy usually dominates all
others, too—for that see
Chapter 11
. Time and decision-making
themselves follow a
SECRETS
E
VERY ONE OF TODAY
’
S
most famous and familiar ideas was once unknown and unsuspected. The
mathematical relationship between a triangle’s sides, for example, was secret for
millennia. Pythagoras had to think hard to discover it. If you wanted in on Pythagoras’s
new
discovery, joining his strange vegetarian cult was the best way to learn about it.
Today, his geometry has become a convention—a simple truth we teach to grade
schoolers. A conventional truth can be important—it’s essential to learn elementary
mathematics, for example—but it won’t give you an edge. It’s not a secret.
Remember our contrarian question:
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