You raised a good point in bringing up that phrase "fair share." What is the fair share for someone who doesn't do anything? What should someone get for mere possession?
I'm asking not in the present-day legal sense (where the answer is, whatever's fair is whatever you've clawed out for yourself), but in the moral sense of how much should ownership of anything actually be worth if you're not continuing to put any effort into a venture, but are totally passive--a name on paper.
Where does "setting up and creating a thing and then profiting as an absent owner" cross over into rent-seeking?
One usually invest quite some saving in these endeavours. Say 10 years. You have three years of runway before getting resounding success or having to pack. At the end of these three years you have to compare your gains against what you'd have gained saving some more.
If you start your thing, the initial years will be in the red. If it works out in the end, you are looking to gain your saving back, plus the years of missed gains, plus the interest you'd matured having money
When you start grtting enough money to hire someone to maintain the company and start gaining passively you aren't actually passively gaining from the beginning: you are still a lot in the red. So it's moral to me wanting to keep a share of the company earnings, so I'd be able to sustain another venue.
Also it doesn't seem so bad to profit from an idea one had to enter a new market, niche or otherwise. Others are free to build their alternative after all but they didn't, so all the value from the idea is yours until challenged.
Presumably that person who "doesn't do anything" now spent many years working 12+ hours a day, 7 days a week, for zero pay building the business. It would not exist in any form without them.
Gilding the lily a bit there, aren't we? I've worked in half a dozen start-ups, and a few owner-started small businesses before that, and none of them had a founder that lived on zero pay for years (excluding the founder who came from an 'old money' family), and none of them worked 7/12+. Long hours, sure. Work on weekends, sure. Work 12+ hours every day as a normal way of life? Pull the other one.
Just because you can find the occasional person that does this, doesn't mean that they're a typical example.
So, someone spends 12+ hours a day, 7 days a week, for zero pay, for some period of time (say, a year), and for the rest of their life, they receive free money.
Tweak the numbers but that's what you're saying in a nutshell... and that's certainly the way the world works now.
Should it? Do we like the idea of "receive free money" because there is entrepreneurship involved? What if it someone who was born into owning a business? Do we still like the idea as much?
The other side of it is that the entire enterprise would theoretically not exist without that initial effort.
While it may not appear fair under certain ethical frameworks for someone to receive free money, it seems to be that the choice is "everyone gets nothing" versus "someone gets more than others because they created it".
in my experience, this is a red herring. I know very few founders who don't work harder after an acquisition or capital investment than before. Those who are sitting on the beach tend to have sold their interest.
It's not going to be "everyone gets nothing", because most of the employees have other options open to them. But why am I busting my ass, working those long hours, while you're not, and you're still going to get more than me?
But why am I busting my ass, working those long hours, while you're not, and you're still going to get more than me?
Because you're getting paid, presumably. Why does it matter if some hypothetical founder In absentia is making more than you or not? Know your own value and negotiate compensation that seems fair. If you want "free money for laying around" then negotiate a large portion of your own compensation as a percentage of the company's profits (or as stock in a company that offers dividends). Ownership isn't just for the founders.
Anyway, that aside, the truth is, most people in most companies aren't really "busting their ass", at least not all the time. They're coasting, doing just enough to not get fired, and spending plenty of time reading Dilbert, Techcrunch, Hacker News, Facebook, whatever. If people are busting their asses, they probably have what they consider a good reason. Something like:
1. They want a promotion / raise.
2. They are just plain passionate about what they are doing.
3. Their compensation is somehow tied to the performance of the company.
4. They're trying to impress somebody for whatever reason. Maybe so they can go on to start their own company.
I'm getting paid, but so are they. And seeing something like that makes it so that I work just hard enough to not get fired. Not the kind of extra mile stuff that these companies typically complain that they want to see from their employees.
Sure, absolutely. I don't advocate doing any "extra mile" stuff unless you have a damn good reason to. I mean, if you think you're in like to make CEO (or whatever) one day, then by all means, do whatever it takes. Otherwise, my feeling is, conserve as much of your mental/physical/emotional/spiritual/whatever energy as you can, to use on ends that DO matter to you.
Again, how long after that enterprise has existed should a person get to claim free money? I think that phrasing, "may not appear fair," is kind of a weaselly way to say "rent-seeking is ok and let's keep it" (which is, I get it, a common sentiment among people who think they might be the rentiers some day). I don't think it is good for society, certainly not the one I'd like to live in, though it sure is good for the person getting that free money.
(And yes, I know this is largely in the realm of hypotheticals, because it seldom happens that the owner is totally absent...)
If you've ever been paid interest on savings, paid into a pension, invested in the stock market, rented out a possession, or taken advantage of your relatively privileged upbringing as leverage over others you're a 'rent seeker' too. It's a meaningless epithet.
It's quite possible and moral for a business owner to invest money in a business, pay their employees a good wage and keep them happy, and extract profit in return for taking on more of the risk, and having capital in the first place. In fact, that's the way most businesses run, and they often depend on investors who merely provide capital too.
Now if they inherited the money, extorted it, or gained it illegally, perhaps you have a case that the situation is unfair, but the mere fact of exploiting capital in order to make more is not in any way morally dubious.
I don't know of anyone who defines "rent seeking" as broadly as you just have. You're getting at saying that any sort of money-lending with interest is "rent seeking" and that's not what I'm trying to get at either.
And I agree, business owners should be compensated for what they put into a business. Forever, if they don't keep putting something into it? I don't know about that.
You haven't defined it at all, and I think if you try, you'll find it hard to differentiate between the use of capital to start a business and the use of capital for one of the other activities I listed above which bring in income with no effort. All are using existing capital to earn more.
Forever, if they don't keep putting something into it? I don't know about that.
If you accept that banks should pay interest on deposits (forever), or shares should pay dividends (forever), then you accept that owners should receive money forever for an initial investment, just as other holders of capital do for other investments. There's nothing nefarious or unjust about it.
you're creating a straw man with this "forever" business that keeps paying a checked-out owner a huge dividend. you don't like the idea of it because it's impossible.
in reality, over the long term (years), they are either run into the ground, embezzled from, or sold.
management and ownership will always eventually overlap in any sustainable business.
I get the moral argument you're making, but there's a practical side to it, too.
In any capitalist system, the fruits (profits) of an income-generating asset (such as a business) accrue to the owners. Assuming that the idea of private property ownership exists, I can't think of any other coherent place for the profits to go, other than the owner.
Sometimes, a business might be an unexpected hit, taking off and generating revenues beyond the wildest dreams of the founder. Suddenly the company is flush with cash. Now assuming all the employees are fairly compensated, and all the company's other financial needs are met, then beyond a small buffer, what is there to do with the excess cash aside from paying it out as a dividend to the owner?
So I guess my point is that we can make moral hypotheticals all day (about whether it's "right" for the owners of a profitable company to get "free" money "forever" without necessarily "doing anything" further), but I'm not sure what other system we could put in place within a capitalist framework. If a company is treating its employees well, meeting all needs, and still generating an operating surplus, where else would you have that money go, if not to the owners?
Also I think your use of the term "rent-seeking" here is incorrect. A business owner receiving "passive" (or at least "not much active involvement") income from the business they own is kinda the antithesis of rent-seeking.
Rent-seeking behaviour is the attempt to increase your share of the wealth, by means other than generating additional wealth. When you're the one who owns a profitable company, you're the one generating that wealth.
The classic example of rent-seeking is someone installing a chain across a river that happens to run through their land, and then starting to charge people to pass through "their" bit of river. They add no value to the economy in doing this, no product is created nor any service rendered; they are simply extracting rents from river-users.
Another example might be when a company seeks to tilt laws/regulations in its favour (e.g. through lobbying), with the intention of increasing the share of the wealth without the business actually having to generate it. Just like the river, no additional wealth is generated as a result of this action: existing wealth is merely being redistributed (toward the rent-seeker) by government policy.
The key concept in rent-seeking being that wealth (the so-called "rent") is being captured by a party (the rent-seeker) without them generating it.
"Rent-seeking behaviour is the attempt to increase your share of the wealth, by means other than generating additional wealth. When you're the one who owns a profitable company, you're the one generating that wealth."
When you own a company, you and everyone else who shows up that day to work are the ones generating that wealth. Ownership by itself doesn't generate anything. Activity does.
>Assuming that the idea of private property ownership exists, I can't think of any other coherent place for the profits to go, other than the owner.
You are begging the question.
You start out with the assumption that all benefits accrue to the owner and then repeatedly conclude that the owner should receive all benefits (after distributing a "fair share" to everyone else [of which there is curiously still "extra share" available for the owner {who likely didn't contribute direct effort to help achieve the shares}]).
A business is not an "income-generating asset", it's a collection of individuals and policies that cooperate to achieve some end. Business as income-generating asset is a classic rent-seeker fallacy (although some may get away with it).
Removing the ability to create passive income streams removes the incentive to invest time and money. Entrepreneurship can be switched off like a light if the incentives are removed. When Entrepreneurship is extinguished, quality of life for everyone decreases.
People start businesses knowing the odds are long but the rewards are great if they pull it off.
There are those that complain about 'trust fund kids' who are born into wealth. They're a very tiny percentage of population, the wealth doesn't usually last many generations, and 'passing it on' is also a major motivator for many people.
For each douchebag with rich parents there are others who use their financial freedom to work on hard problems.
Charles Darwin was the grandson of Josiah Wedgwood. Wedgwood was one of the first industrial entrepreneurs and developed many business techniques still in use today. Darwin was an original 'trust fund kid' who used his financial freedom to pursue science and write his books, which changed the world for the better. There will be countless modern repetitions of this pattern, and you'd discard this type of benefit of inherited wealth at peril.
Like I said, what happened in the past doesn't matter. All the employees see is someone taking the bulk of the reward, for not doing much at all. Odds are, we had to replace all of their shit code, or they weren't able to write any of it to start with.
I don't see how failure or success changes that question of "is a lifetime of free money for some small value of work acceptable?" -- nor am I even saying "no free money ever".
I'm getting at, where does the passive ownership cross the line into rent-seeking?
Who said it was some "small value of work"??? Starting a company is FUCKING HARD, and the founders put in simply incredible amounts of effort in the early days. I mean, sure, it's different for different companies, but I know I've routinely worked 100+ hours a week for years with no vacation, sacrificed time with friends and family, sacrificed going out, partying, socializing and doing a lot of other things I enjoy, and even (stupidly) sacrificed my health to the point of having a heart-attack and almost dying. So yeah, if my company is ever successful enough to make a continuous profit, you're damn right I feel like I've earned my share of that future profit, even if I do decide to go lie on a beach somewhere and relax. The way I'm looking at it, I'll just be making up for all the times I didn't do that earlier on.
I'm getting at, where does the passive ownership cross the line into rent-seeking?
Who cares? Let's quit using "rent seeking" as some kind of pejorative. It's not, and it's nothing to make some big deal over.
You know, let's be honest--starting your first business is hard, because you have to learn about marketing, customer outreach, listening to people and connecting them with things they want, etc.
But 100 hours a week, for years? There's something bigger going wrong there--either you're trying to sell something people don't want, you've hired a lot of the wrong people, or whatever, I don't know. That's not typical, and it's certainly not praiseworthy.
As for that "indefinite free money for past work," again, you're free to say you want that, and right now it's certainly yours to try and put into a contract. I don't agree that it's moral or right or deserved, no matter how many 100 hour weeks you work.
There's something bigger going wrong there--either you're trying to sell something people don't want, you've hired a lot of the wrong people, or whatever, I don't know.
I'll just politely ask that you refrain from judging us when you don't know anything at all about our circumstances, situation, goals, etc.
That's not typical, and it's certainly not praiseworthy.
I never asked for any praise. In fact, I'll be the first to say that some aspects of my life have been downright stupid. My point was just to illustrate, through one example that I happen to be intimately familiar with, that starting a company is hard. Much, much harder than most people realize, if they haven't been through it.
As for that "indefinite free money for past work," again, you're free to say you want that, and right now it's certainly yours to try and put into a contract. I don't agree that it's moral or right or deserved, no matter how many 100 hour weeks you work.
But it's not "indefinite free money" anyway. It's "a percentage of the profits this company might make, relative to my ownership stake". The thing is, the company isn't guaranteed to make any certain amount of profit, or even any at all. At any time, things could take a downward turn, and any profit (and my cut thereof) could dry up. That's back to one of the main reasons that founders get a larger share, because they take on more risk... but you have to realize, there's no point where that risk ends. As long as a substantial portion of your income is tied to your company, whether your actively working or not, it's at risk. So it's not necessarily the cushy "sit back and enjoy your plunder" scenario you seem to be envisioning.
I'll remind you just as politely that when we post our experiences to public forums, judging comes part and parcel with that.
But, you know, I don't need to refer to your specific situation at all, and I stand by the statement: any business that requires 100 hours per week for years from anyone is either understaffed or (if it can't actually pay for people to do those hours) not really a viable business.
You can do what you want. If you want to work 150 hours a week, and scrape out 18 hours of sleep among those 7 days, go nuts, I don't really care. But to say "I'm a businessman, I have to put in 100 hours a week for years on end," no, sorry, I'm not buying that there's actually a very good business there, no matter what the business model is or who's involved.
And that says nothing about the questions about rent-seeking that kicked off this thread...
I'll remind you just as politely that when we post our experiences to public forums, judging comes part and parcel with that.
True, but no one here really has enough information to truly make those assessments. That said, I get what you're saying and I actually agree with you to a large extent. In our case, doing things the way we chose was not a reflection of anything specific about the business or the business model, it's been more a reflection of our beliefs and attitudes and principles.
And to be fair, if I had to do it all over again, I probably would change a few things. Not a lot, but some things. Like not neglecting my health. I just went out and spent an hour on my bicycle earlier tonight, getting some exercise in. That was a part of my life I let slip over the past few years. Never again... I learned that lesson the hard way, and thankfully I'm still here to benefit from it.
>>But 100 hours a week, for years? There's something bigger going wrong there--either you're trying to sell something people don't want, you've hired a lot of the wrong people, or whatever, I don't know. That's not typical, and it's certainly not praiseworthy.
You really need to get back to us after you've tried starting your own company. Even when you're not officially on the clock, it's impossible to put it out of your mind. I do not envy start-up founders; I'm quite happy with my inflated bay area engineer salary and up-to-date skillset that allows me to simply jump ship or swim to the next luxury yacht when the current one capsizes. (Honest) founders really pour their heart & soul into the business and have probably made some personal-life sacrifices and trade-offs.
Founders more than deserve the lion's share of any benefits yielded by the company.
And I'd say, you really need to step outside the YC bubble
YC has nothing to do with it. We're not a YC company, and we have taken no outside capital at all, which is one major reason I've been working so hard... because everything that needs to be done, falls on the founders to do. There is nobody else, since we can't afford to hire anybody. OK, we did have a paid intern one summer, but that's the only time we paid anybody anything.
Now, of course, you could say "well, then go raise a round and hire people". To which I can only say, we have made the decisions we made, for reasons that are important to us, and we are happy with them. I think the day will come when we will look to rise outside money, but it'll be when the time is right.
Anyway, just wanted to make it clear that my personal story has nothing to do with YC, or the "pressures of being a VC funded company" or anything of that sort.
I do know if I were talking to any of my business friends, and I said, "I've got a great new idea for a business. The model depends on me working 100 hours a week for years on end," they'd laugh.
It wouldn't sound like a serious venture, it'd sound like I was joking. (Or, to be totally honest, it'd sound like I was taking a mean-spirited dig at the internet startup people who think that's not just OK, but normal!)
I'm glad you made the decisions you did. I wouldn't be happy with any choice that threatened my health as severely as you've described above, but that's where my priorities lay, and I totally get that you have others.
I do hope you have success, and can stop working such long hours, and that it comes before you have to make further sacrifices to your health.
When you're truly passionate about what you do, how you do it, who you do it with and who you're doing it for it doesn't matter what the "normal" business world does. You end up doing what's right for your company at that moment.
I don't go to bed without reminding myself that this isn't just for me. It's for my employees (livelihood), my customers (their businesses) and my family (creating a better life).
When you frame it like that, hours just turn into numbers. It's irrelevant. Results matter.
IMO, it's not bull crap. I may not care about the little problem in solving today but I am mist certainly passionate about my company, my employees, our product and my family.
Take a look at the restaurant business. When you open a new restaurant, working from before opening to after closing every day is not atypical, even when you are selling something people want and have hired the right people. Going months without a day off is unsurprising. It may not be praiseworthy, but it's not something to look down your nose at either. Its just solid, honest hard work that's required to establish a restaurant from scratch. And if the restaurant is successful enough for the owner to try starting a branch, then the owner is going to have to split his time between the two, thereby expecting all the profit from the first restraunt while being at the new restaurant a majority of the time to get it running. Is that rent seeking, or free money for past work? Perhaps you think so, but I don't agree, and likely most people would not agree either.
With that definition, you may as well count sleeping as work too if you dream about your job. It sure is easy to work 24x7 when you count everything you do as work!
Then vote to raise taxes on revenues and inheritance. We need enough taxation to give everyone a reasonable standard of living, but not so much as to discourage private enterprise. I think it's achievable, given the recent growth in productivity.
Agreed, a hundred percent. I'm doing my own startup right now, even (not profitable, but revenue-positive!), so it's not like I have no dog in this big-picture race. Private enterprise is important. I also see how things are awful skewed in favor of the established money/power.
And as for voting on taxes on revenue/inheritance, I do, heh! A few years ago, here in Oregon, they tried to eliminate the estate tax (again), and I happily voted to keep it.
Actually, the past 70 years, of productivity gains accruing to labor and being fairly widely shared in society, is pretty atypical (over the past couple of hundred years). In most western societies (and other where records are available) those owning production (typically land, but sometimes factories) captured most of the wealth.
I'm asking not in the present-day legal sense (where the answer is, whatever's fair is whatever you've clawed out for yourself), but in the moral sense of how much should ownership of anything actually be worth if you're not continuing to put any effort into a venture, but are totally passive--a name on paper.
Where does "setting up and creating a thing and then profiting as an absent owner" cross over into rent-seeking?