i'm about to make a nuanced, technical argument, and i don't know if it's correct. if you understand it, your feedback is appreciated.
so, i believe information asymmetry is possible. i believe that many good ideas are in such a relationship with the world that the people who have them have an asymmetric advantage over those who don't: that possession of the idea equals wealth, as long as you are attempting to execute. (wealth in the net-present-value sense, not liquidity sense.)
this gives you the interesting situation that you can be walking along the road and, if you are the right person and respond properly, you can immediately in a bolt out of the blue become richer by the net-present-value of the idea you are just struck with: provided it is one of those asymmetric ones and you proceed to execute on it.
now. now, for the larger ideas (like Google), the net-present-value was in the millions. but if the people doing it had actually had millions of liquidity, they would not have been coding: they would have hired a coder.
so please assume p, where p is "a person with a net-present-value of $n million is currently coding something which will make money and then allow him to hire coders. assume that with probability 1 he will succeed."
as he is coding, before he actually has succeeded, what business is he in under p?
i would say he is in the information-arbitrage business. he is coding at $0/hour against the net-present-value of the idea he has. it seems to me kind of an arbitrage thing.
this is assuming p, which means that this is an assymetric condition where with probability 1 he pays off. obviously it becomes more complex as we get into probabilities other than 1 - but is this a fair conclusion about the startup hacker?
that he is arbitraging information asymmetry?
as i mentioned at the start of this comment, this is a technical argument and i'm not sure of its validity. any feedback is appreciated.
if you hate my assumptions (specifically, p) i still would appreciate to go with them as well as any other thoughts you may have, which you can address separately.
I think I understand and don't think that you are necessarily wrong but I'm not sure it is a particularly useful way to look at the world.
Enron was famous for booking predicted lifetime profits based on the ideas that they had and look how that turned out. It isn't logically wrong but it probably is too hard to do realistically, not just predicting the profits in the first place but updating them with circumstances.
If your person had his bolt in the blue and became richer the moment he/she heard about a competitor launching before them with a similar idea would instantly become poorer (as they wouldn't have the market to themselves) and they should remark their book value.
BTW without capitalised sentences and in stream of thought style I found this really hare to read. I suggest you work on the presentation before explaining it to anyone else.
sorry about the format, i'm intentionally trying to not so much to be accessible as to reach certain people who might already know. i'd like their feedback.
you are completely right that it's hard to peg the shift in present-wealth without a crystal ball, which nobody possesses - moreover, the future isn't even written.
so let's give you the crystal ball - it jumps wildly between valuation your net-present at a few million and hundreds of millions and sometimes billions and sometimes tens of billions and then millions again. it's useless.
but suppose that it is quite consistent that the idea is worth at least $20 million in net-present.
so, in this case - what is going on here when you, an only "competent" coder, are coding the idea yourself? Why would a millionaire code at a quality he could barely sell in the market (not being a coder), and which is just enough to show a prototype which gets funding, which gets the ball rolling, which... (all the things that lead to the net-present jumping between $20 million and billions, but never lower than the former).
So, what is going on here? Why is the person working at $0/hr producing work that's worth maybe $3-$4/hr? (buggy poor-quality spaghetti code php with no source control, for example.)
He is also directly losing a wage he could be earning elsewhere.
what is this behavior? What is going on here?
one answer could be, couldn't it, that he's producing low-quality, poor labor, because he has the chance to buy a chunk of a high-quality idea with it?
i mean, i personally know of a lot of stories of hundred-million dollar exits that started with an idea that the founder started following up on by-
- doing poor-quality accounting and business founding,
- poor quality legal research
- poor quality coding that had to be thrown away after his company was bigger
- poor quality biz dev that was mostly spinning company's wheels
a lot of other things of very low quality...
... but of quality just high enough that the idea pulls the company through, and his preconceptions can be changed by high-quality lawyers, his code is thrown away and rebuilt by real engineers, his b2b attempts are repeated by someone who can actually push deals through, his logo is replaced by a real logo that doesn't make you laugh, and so forht.
so, what just happened in this whole last example? what was the beahvior that led to it? (in abstract, theoretical, technical terms).
i want to know why he's buying his own low-price, low-quality labor, and why this works.
I agree with the logic but let me propose some additional benefits/reasons to do it yourself.
Freedom from responsibilities to others (employees, investors) could allow creativity.
Singular vision for the product without compromise.
No need to describe requirements to others.
Get a basic understanding of all areas while it is fairly simple before scale up (accounting etc.).
Also the pure logical case only really works when you have enough cash to invest yourself in building the business or you would have to put the effort into finding and managing investors.
The low quality version might actually be a good investment in the shift it makes in the external perception of value is sufficient.
so, i believe information asymmetry is possible. i believe that many good ideas are in such a relationship with the world that the people who have them have an asymmetric advantage over those who don't: that possession of the idea equals wealth, as long as you are attempting to execute. (wealth in the net-present-value sense, not liquidity sense.)
this gives you the interesting situation that you can be walking along the road and, if you are the right person and respond properly, you can immediately in a bolt out of the blue become richer by the net-present-value of the idea you are just struck with: provided it is one of those asymmetric ones and you proceed to execute on it.
now. now, for the larger ideas (like Google), the net-present-value was in the millions. but if the people doing it had actually had millions of liquidity, they would not have been coding: they would have hired a coder.
so please assume p, where p is "a person with a net-present-value of $n million is currently coding something which will make money and then allow him to hire coders. assume that with probability 1 he will succeed."
as he is coding, before he actually has succeeded, what business is he in under p?
i would say he is in the information-arbitrage business. he is coding at $0/hour against the net-present-value of the idea he has. it seems to me kind of an arbitrage thing.
this is assuming p, which means that this is an assymetric condition where with probability 1 he pays off. obviously it becomes more complex as we get into probabilities other than 1 - but is this a fair conclusion about the startup hacker?
that he is arbitraging information asymmetry?
as i mentioned at the start of this comment, this is a technical argument and i'm not sure of its validity. any feedback is appreciated.
if you hate my assumptions (specifically, p) i still would appreciate to go with them as well as any other thoughts you may have, which you can address separately.