Founding

Every startup and every project starts as a hallucination. At the beginning, the idea is a word on a napkin. It doesn’t mean anything. You have to believe it can become much bigger than it is. Always, at every stage, you have to believe it is bigger than it is.

The founder is usually the only one who has the credibility to impose large short-term costs for larger long-term gains.

The East Coast of the US is very much about inheritance. It’s obviously about inherited wealth, but also inherited names, like Kennedy and Bush. People inherit entire institutions, like the Murdochs, Grahams, and Sulzbergers inherit newspapers.

This is very different from the West Coast model, which is about founding. SpaceX wasn’t inherited. Amazon was not inherited. Facebook was not inherited. These were built from scratch.

Founders are selected for legitimacy and competence. That’s different from being selected for legitimacy alone (through inheritance or an election). Founders start new systems from scratch.

Why is Mark Zuckerberg the CEO of Facebook? Because he founded Facebook. He didn't get three billion people to agree to make a twenty-year-old kid a CEO. Every single piece of support—an employee, a user, a customer buying ads, a backlink—he acquired over time. This was a series of one-to-one transactions where he gave each of them more than they’d gotten before, making mutually beneficial trades. Those resources piled in. It happened fast, as an exponential in this case, but it didn't happen in one incongruous jump in one day.

That's the difference between founding and inheriting—selecting for legitimacy and competence versus legitimacy alone.

The state has far more money than anyone else. But NASA is behind SpaceX because tech isn’t capital-limited; it’s competence-limited.

Many of our leaders today are selected for legitimacy, but not for competence. Legitimacy could mean they get companies because they are fifth-generation descendants. They could get factories handed down to them. It's legitimate. But that fifth-generation heir could not have built the factory in the first place. If the factory needs to switch from making T-shirts to making masks, the heir might be unable to do it.

Selecting for legitimacy often means the current leader of an institution couldn't have built it from scratch. The seventy-fifth mayor of New York or the fiftieth president of the US is not the same kind of person who can build a system from nothing.

Founders are neither dictators nor bureaucrats because they are legitimate and competent. The bureaucrat is selected by election, and the dictator is selected by power, but neither is selected for competence.

The selection mechanism really, really matters because it is not simply the current state of the system but how that state was achieved that is important for leaders to understand.

People tend to think an institution will endure just because it has so far. It’s hundreds of years old and blah, blah, blah. But I don’t think many institutions that predated the internet will easily survive the internet. These inherited institutions are incompetent and increasingly considered less legitimate. There’s a loss of faith in banks. There’s a loss of faith in the media. There’s a loss of faith in politics. There’s a loss of faith in secondary education and higher education.

We should think differently about institutions with leaders who founded rather than inherited.

The correct title for Musk, Chesky, Thiel, and other people who created wealth is “founder.” The correct title for East Coast scions of inherited wealth is “nepotist.” Simply describing people by their net worths ignores whether they created wealth. "Billionaires" do not exist as one category.

A startup is just one kind of vehicle. It's an important one nowadays, but so are open source projects, crypto protocols, nonprofits, and just individual tinkering. An individual inventor doesn't even need to be incorporated. There are many different vehicles. I wouldn't fixate too much on the vehicle. A startup is an important vehicle in the time and place we're in, but not the only one.

Don’t do a startup unless you’re ideologically driven to make it succeed. You need something beyond economic motivation, because startups are very hard. There are much lower-risk ways to earn money than a startup. Building a startup is an extremely stressful journey toward infinity.