Daily Balajisms - Founding vs inheriting
built-rich vs born-rich
Balaji Srinivasan uses his mental model of founding versus inheriting to assess the ability of legacy institutions, which he calls the inherited institutions, to innovate and even maintain their operations.
Alexander Hamilton created the first national bank and laid the foundations for the US Federal Reserve. The founders can build police and fire departments from scratch, the x-th generation of political heirs can barely run them.
It is 1000x more difficult to build a factory from scratch than to run it. Founders of a factory, who set up a new factory recently, can also innovate and change the production, from cranking out widgets to Covid masks and protective gear, when the pandemic hits. Heirs, on the other hand, can’t make such radical adjustments and they also lose capacity to maintain the factory over time.
Balaji mentions Facebook as a founder-run company that he is still bullish on. The radical change from Facebook to Meta, and the rebranding around metaverse and VR, might be controversial. But just the fact that Facebook pulled it off, is a proof point that only founders can do such radical shifts on such a scale.
Often factory managers are portrayed as lazy and bossy, oppressing workers, smoking cigars and relaxing with their legs crossed on a desk. Balaji Srinivasan acknowledges that sometimes it might be the case, but often the managerial talent of setting up a factory is underappreciated, because the mental work and planning is less visible.
Elon Musk is an example of a founder, in a league of its own, who can set up Gigafactories in a very short time and even get local authorities in China to change their joint-venture rules. He can compete with another founder-led company that has built its vertically integrated capabilities over decades – BYD. Tesla and BYD are the only two companies today that can make a profit on selling EVs.
The downstream media, like the NYT, are often critical of their competition – the tech founders - and lecture them for being rich. But there is a difference between built-rich and born-rich, explains Balaji. The woke phenomenon can be explained partially by the need for clickbait, and a turn from neutral journalism towards yellow journalism, once the advertising revenue of legacy media collapsed some ten years ago.
But often the elite institutions, like the NYT, are the wokest – because heirs, the born-rich class, feel guilty and they engage in, what Freud calls, projection – they project their nepotistic behavior onto others, like immigrant tech founders – who worked hard for their money, and didn’t rise to the top due to connections. They have built their backlinks gradually, one customer and reference at a time.
Balaji mentions the saying - amateurs talk strategy and professionals talk logistics. Satoshi Nakamoto created bitcoin. Vitalik Buterin developed Ethereum. And Jeff Bezos built Amazon from his humble office, while getting bad press like the famously silly Amazon.bomb article, that didn’t age well.
Balaji says, that legacy media, and other inherited institutions, aren’t just slightly off – their predictions can be magnitudes off from reality – more like 10,000x than 10%.