Naval: Pareto optimal is another concept from game theory, along with Pareto superior.
Pareto superior means something is better in some ways while being equal or better in other ways. It’s not worse in any way. This is an important concept when you’re negotiating. If you can make a solution Pareto superior to where it was before, you will always do that.
It’s about multiplayer games where people respond based on what they think the other person’s response will be. He came up with a mathematical formalization to answer: How do you get people who cannot communicate with each other to coordinate?
Naval: The Kelly criterion is a popularized mathematical formulation of a simple concept. The simple concept is: Don’t risk everything. Stay out of jail. Don’t bet everything on one big gamble. Be careful how much you bet each time, so you don’t lose the whole kitty.
If you’re a gambler, the Kelly criterion mathematically formulates how much you should wager per hand, even if you have an edge—because even when you have an edge, you can still lose. Let’s say you have 51-to-49 edge. Every gambler knows not to bet the whole kitty on that 51-to-49 edge—because you could lose everything and won’t get to come back to the average.
Naval: So mental models are all the rage. Everyone’s trying to become smarter by adopting mental models. I think mental models are interesting, but I don’t think explicitly in terms of mental-model checklists. I know Charlie Munger does, but that’s just not how I think.
I’m a huge fan of Elizabeth Kraus, Sue Heilbronner, and the work they do through MergeLane.
Recently Elizabeth started a platform for the next generation of venture capitalists called Fund81. It includes a podcast, which has both a public section for everyone and a private section for the Fund81 members.
Elizabeth recently interviewed me for Episode 13 where we talked about maintaining mental health in the fast-paced venture capital world while supporting portfolio companies, colleagues, friends, and family wrestling with mental health issues. The public section follows.
Elizabeth and Sue – thanks for everything you and the team at MergeLane do for entrepreneurs and now other VCs.
Envy can give you a powerful boost, or it can eat you alive if you let it follow you.
Suffering through the wrong thing can motivate you to find the right thing
Nivi: Do you want to tell us about jobs you had growing up and the one that kicked off your fanatical obsession with creating wealth?
Naval: This gets a little personal, and I don’t want to humble-brag. There was a thread going around Twitter—Name Five Jobs You’ve Held—and every rich person on there was signaling how they’ve held normal jobs. I don’t want to play that game.
I’ve had menial jobs. There are people who had it worse than me and people who had it better than me.
One person pointed to the video I embedded, which I thought was great. It’s an extensive explanation of things in HBO’s Chernobyl that were either simply wrong or exaggerated. The video is entertaining as well as substantive, so it’s a good addition to the content from the show.
Separately, I listened to The Chernobyl Podcast on my drive up to Aspen about two weeks ago. If you watched the HBO Chernobyl docudrama, the accompanying podcast is a must listen. Peter Sagal (host of NPR’s “Wait Wait…Don’t Tell Me!) interviews Craig Mazin (Chernobyl Series Creator and Executive Producer.) Peter is an awesome host and he pulls out a ton
Naval: I was going to put that out as a concession to people who believe making money is evil and that the only way to make it is to be evil. But then I realized ethics is not necessarily something you study. It’s something you think about—and something you do.
This advice is for anybody who wants to be entrepreneurial
Nivi: Who is this advice targeted to? Is it for my Lyft driver? Is it for an Internet entrepreneur? Is it for somebody who wants to start a YouTube channel?
Naval: Because it comes from someone who’s steeped in Silicon Valley and tech companies, it’s always going to have a bias towards that.
But I think it’s good for anybody who wants to be entrepreneurial. Anybody who wants to control their own life. Anybody who wants to deterministically and reliably improve their ability to create wealth over time, is patient, and is looking at it for the long-haul.
The common mistakes people make on the path to creating wealth.
Nivi: We’ve finished discussing the tweetstorm. We’re going to spend some time on Q&A and discussing some of the tweets on the cutting room floor, that didn’t make it into the tweetstorm. My first question is:
Do you think there are some common failure modes or typical things that people do wrong when they’re trying to apply this advice?
Naval: A lot of people don’t understand what specific knowledge really is or how to quote unquote obtain it.
David and I are starting to get better at the podcast thing. It’s a new medium for both of us so we are learning and iterating quickly on what makes a good podcast interview. Any feedback – good and bad – is welcome.
This giant episode collects every interview between Naval and Nivi on How to Get Rich. These interviews are based on Naval’s tweetstorm.
The transcript has been edited for clarity.
1. Seek Wealth, Not Money or Status
The difference between wealth, money and status.
Naval is a prolific tech investor and founder of AngelList
Nivi: You probably know Naval from his Twitter account.
We’re going to be talking about histweetstorm on “How to get rich (without getting lucky).” We’re going to go through most of the tweets in detail, give Naval a chance to expand on them and generally riff on the topic. He’ll probably throw in some ideas that he hasn’t even published before.
Naval’s the co-founder of AngelList and Epinions. He’s also a prolific tech investor in companies like Twitter, Uber, and many more.
I’m the co-founder of AngelList with Naval. And I co-authored the Venture Hacks blog with him back in the day.
Naval: The How To Get Rich tweetstorm definitely hit a nerve and went viral. A lot of people say it was helpful and reached across aisles.
People outside of the tech industry, people in all walks of life, people want to know how to solve their money problems. Everyone vaguely knows that they want to be wealthy, but they don’t have a good set of principles to do it by.
Figure out what you’re uniquely good at and apply as much leverage as possible.
Figure out what you’re uniquely good at and apply as much leverage as possible
Nivi: You summarized this entire tweetstorm with two words. “Productize yourself.”
Naval: Productize and yourself. Yourself has uniqueness. Productize have leverage. Yourself has accountability. Productize has specific knowledge. Yourself also has specific knowledge in there. So all of these pieces, you can combine them into these two words.
Whenever you’re doing anything in business, if you’re looking towards the long-term of getting wealthy you should ask yourself, “Is this authentic to me? Is it myself that I am projecting?” And then, “Am I productizing it? Am I scaling it? Am I scaling with labor or with capital or with code or with media?” So it’s a very handy, simply pneumonic.
Get rich quick schemes are just someone else getting rich off you.
There are no get rich quick schemes
Nivi: We skipped one tweet because I wanted to cover all of the tweets on the topic of the long term. And the tweet that we skipped was, “There are no get rich quick schemes. That’s just someone else getting rich off you.”
Naval: This goes back to the world being an efficient place. If there’s an easy way to get rich it’s already been exploited. And there are a lot of people who will sell you ideas and schemes on how to make money but they’re just always selling you some $79.95 course or some audiobook or some seminar .
Which is fine, everyone needs to eat. People need to make a living. They might actually have really good tips but if they’re giving you actionable, high quality advice that acknowledges that it’s a difficult journey and will take a lot of time, then I think that’s realistic.
When you’re finally wealthy, you’ll realize it wasn’t what you were seeking in the first place.
When you’re wealthy, you’ll realize it wasn’t what you were seeking
Nivi: The last tweet on the topic of working for the long term is that “When you’re finally wealthy, you’ll realize it wasn’t what you were seeking in the first place. But that’s for another day.”
Naval: That’s a multi-hour topic in of itself. First of all I thought it was a really clever way to end the whole thing because it disarms a whole set of people who say, “What’s the point of getting rich?” Because there’s a lot of people who just like the status signal, virtue signal, against the idea of wealth creation or making money. So it was just a good way to disarm all of them.
But, it’s also true. In that the things that you really want in life, yes money will solve all your money problems but it doesn’t get you everywhere.
Most advice is people giving you their winning lottery ticket numbers.
The best founders listen to everyone but make up their own mind
Nivi: Regarding the guy who gets rich in five years, one of the tweets that you had on the cutting room floor was: avoid people who got rich quickly, they’re just giving you their winning lottery ticket numbers.
Naval: This is generally true of advice anyway, which is it’s back to Scott Adams, systems not goals. If you ask a specific person what worked for them very often it’s just like they’re reading out the exact set of things worked for them which might not be applicable for you. They’re just reading you out their winning lottery ticket numbers.
Nivi: We’re still talking about working for the long term, the next tweet on that topic is “Apply specific knowledge with leverage and eventually you will get what you deserve.” I would also add to that apply judgment, apply accountability and apply the skill of reading.
Naval: This one is just a glib way of saying that it takes time, even once you have all of these pieces in place, there is an indeterminate amount of time that you’re going to have to put in. And if you’re counting you’ll run out of patience before it actually arrives.
Businesses that seem like they’re in direct competition really aren’t
Nivi: I think when you’re being authentic, you don’t really mind competition that much. Yeah, it pisses you off and it inspires some fear and jealousy and all the other emotions that come along with it, but also you don’t really mind because you’re more oriented towards the goal and the mission and worst case you get some ideas from them. And there’s often ways to work with the competition in a positive way and it ends up increasing the size of the market for you.
Naval: Yeah sometimes it depends on the nature of the business. Silicon Valley tech industry businesses tend to be winner-take-all. At least the good ones. And so when you see competition it can make you fly into a rage because it really does endanger Continue reading “Play Stupid Games, Win Stupid Prizes”
Competition can lead you to playing the wrong game.
No one can compete with you on being you.
In entrepreneurship, the masses are never right.
Combine your vocation and avocation.
Competition will trap you in a lesser game
Nivi: This reminds me of your tweet about escaping competition through authenticity. It sounds like part of this is a search for who you are.
Naval: It’s both a search, and a recognition because sometimes when we search our egos, we want to be something that we are not. And our friends and family are better at telling us actually who we are, or looking back at what we’ve done is a better indicator of who we are.
Become the best in the world at what you do. Keep redefining what you do until this is true.
Find founder-product-market fit
Keep redefining what you do until you’re the best at what you do
Nivi: We just finished talking about the importance of working hard and valuing your time. Next there’s a few tweets on the topic of working for the long term. The first tweet is, “Become the best in the world at what you do. Keep redefining what you do until this is true.”
Naval: If you really want to get paid in this world, you want to be number one at whatever it is that you’re doing. And it can be niche, that’s the point. It can literally be, you’re getting paid for just being you.