Why It's Safe for Founders to Be Nice (2015)
paulgraham.com
paulgraham.com
As Pink Floyd said in a song "You have to be trusted by the people that you lie to, so that when they turn their backs on you. You'll get the chance to put the knife in."
As someone who lost out on a billion dollar business, be nice, but watch out for knives in the back. Often those knives are in the form of law firms.
For me it was around what I thought was a carefully crafted contract. Long story by my partner seized all of the IP, than said "sue me". It was specifically prohibited in the contract, but I was not in a position at the time to spend a LOT of money fighting a team of lawyers.
Unfortunately what my team had made look easy was beyond the capabilities of the team he hired to replace us. So the product floundered.
I think you've bested me a fair few times. :)
Oh and lawyers are expensive.
I suspect the only people for whom partnerships could in anyway make sense are lawyers.
I've made a ton more money having partners than I would have without.
I suspect that many developers haven't REALLY had to deal with Machiavellian people before, and in that respect, I was fortunate to come to coding from a more cutthroat business environment in which I had already been screwed multiple times. What doesn't kill you etc.
> What doesn't kill you etc.
[tongue in cheek] Reading between the lines there, does it mean you were the one doing the stabbing in the back ?
;-)
Serious question (assuming the above wasn't the case), how do you deal with the Machiavellian people without turning into one of them?
I think to be aware of the possibly modes of power play and betrayal people avail themselves of, and to guard yourself against them, does not imply that you have to use them against innocents.
Personally, I have lost a ton of money as a result of having partners.
Now I have a personal rule: if I can't afford to hire someone for their skills or expertise, I can't afford them.
When I see someone trying to make a power move, I stay as far away from them as possible. These people could only sustain that life with alcohol, smoking and just whatever else. I remember my boss at a marketing company would take shots early in the morning and our office was full of hard alcohol everywhere that you would think you were at a bar. Is the stress worth it in the end? You reap what you sow...trying to make a quick buck is never worth it.
>After some other mistakes, I learned to go into business only with people whom I like, trust, and admire. As I noted before, this policy of itself will not ensure success: A second- class textile or department-store company won't prosper simply because its managers are men that you would be pleased to see your daughter marry. However, an owner - or investor - can accomplish wonders if he manages to associate himself with such people in businesses that possess decent economic characteristics. Conversely, we do not wish to join with managers who lack admirable qualities, no matter how attractive the prospects of their business. We've never succeeded in making a good deal with a bad person.
They want you to believe you're paranoid, delusional, manic for considering the possibility that they may not have your best interests at heart. While it's true that skepticism can be taken to an unhealthy extreme, most people are too gullible, not too skeptical.
Ironically, promoting the "everyone is nice, don't worry, nothing can hurt you if you give everything away" perspective is itself evidence that they don't have your best interests at heart. Non-hostile people don't begrudge those who are attempting to practice reasonable due diligence and "deal hygiene". Good deals are good for everyone, and that means that you shouldn't need to worry about how "nice" something is or isn't.
This essay links out to a sister essay about how few business people are "mean". They certainly don't seem mean; conspicuous mean-spiritedness is not an attractive attribute, and you'll have a hard time accumulating power if you exhibit it. On the other hand, you'll also have a hard time accumulating power by being a bleeding heart.
As an investor, pg has an incentive to encourage founders not to worry about how much they're giving away. As a semi-prominent/powerful player in Silicon Valley, he also has a PR image that must be maintained to prevent an undesirable level of scrutiny from either the press or the government.
We should not forget that pg's self-interest is to convince others a) to give things away without thinking about it; and b) to maintain a public persona as a businessman-philanthropist with net social benefit, as opposed to a realistic cynic who used his advantage in wits to excel.
Just like loopholes are legal, most of the time being not nice to people is legal.
Meaning, nothing stops YC companies to sign a treaty that paying taxes is part of being nice and decent citizens of the world. I'm talking about Dropbox, for an example.
Very often the moral police stops when it impacts you or your wallet. It's called a sacrifice for a reason.
Taxes are a legal obligation. If taxes aren't high enough, it's the government's job to fix that. Paying more taxes than you are legally obligated to pay is a disservice to shareholders, which in the case of a YC company includes almost all of your investors and employees.
Corporate taxes in particular are economically inefficient. Corporations are just straw men. Any money that a corporation earns is either paid out as dividends (at which point it's taxable as individual income) or reinvested into growing the company (at which point it turns into things like "salary", which is taxable as individual income).
The US in particular has exceptionally high corporate tax rates--among the highest in the developed world. And if you're going to choose a tax to avoid paying, US federal corporate tax is pretty much an ideal choice. Very little of that money goes to things like schools (which are paid for on the local and state level) or Medicare (which is paid for with payroll taxes). The biggest chunk of it pays for the US military, and a huge chunk of US military spending is pork for defense contractors.
In other words, US federal corporate taxes are largely a mechanism to redistribute money from corporations like Dropbox towards corporations like Blackwater and Lockheed Martin. And you think it's nice and decent of Dropbox to play along with this scheme?
US effective corporate tax rate after deductions is lower than the OECD average. Though by how much is up for debate.
PS: You can debate various points, but it's only 11% of total federal tax revenue.
This is especially true for tech companies, which have R&D tax credits and are able to shift much of their income offshore because their profits are based largely on intangibles (which can be moved by signing some contracts, as opposed to factories or restaurants, which are geographically fixed).
The most authoritative, recent report on the matter by the CBO:
https://www.cbo.gov/sites/default/files/115th-congress-2017-...
It clearly makes the case that the US is non-competitive with other G20 nations on the corporate tax rate. The US average corporate income tax rate for 2012, was 29%. In Canada it was 16%; Brazil 22%; China 19%; UK 10%; Germany 14.5%; Australia 17%; South Korea 20%; France 20%. How much more non-competitive can the US get exactly?
And when it comes to the OECD, the US is once again far from competitive:
"The most recent estimate comes from the World Bank and International Finance Commission, which put the United States’ effective rate for 2014 at 27.9 percent. That’s second-highest behind New Zealand among OECD countries and 15th-highest among the 189 countries measured."
http://www.politifact.com/punditfact/statements/2014/sep/09/...
What is total US corporate profit before taxes per year? And what's 27.9 percent of that.
Or from GAO: http://www.gao.gov/assets/660/654957.pdf
"For tax year 2010 (the most recent information available), profitable U.S. corporations that filed a Schedule M-3 paid U.S. federal income taxes amounting to about 13 percent of the pretax worldwide income that they reported in their financial statements"
https://en.wikipedia.org/wiki/Repatriation_tax_holiday dropped actual tax rate to 5.25% in 2004. Companies are more than happy to wait for the next one.
PS: Also of note a lot of overseas profit is anything as it's easy to pretend US operations only break even by shifting around costs on paper.
Apple's international subsidiaries net tens of billions in profits every year, after paying substantial taxes in their home countries. Those aren't taxable in the US until they are returned to the US. Since Apple would owe over 42% in income taxes to the state of California and the US government if they moved them, they keep them in Ireland instead. Which means they can't be paid as dividends to Apple shareholders.
The day Apple repatriates those profits they'll pay the full US corporate tax rate, which is currently one of the highest corporate tax rates in the free world. Then they'll pay the remainder as dividends, which will be taxed again at the shareholder level, for a total effective tax rate on those profits of over 50%. And that tax rate is not progressive, the little old grandma with apple stock in her savings pays the same rate as a billionaire.
The fact that it's only 11% of US income tax receipts is a great argument for abolishing corporate income taxes entirely. We can replace some of it by taxing dividends and capital gains at personal income rates (as long as capital gains are indexed to inflation). But the trillions of dollars in capital trapped overseas that will return to the US will more than fill the gap. And making the US a far more attractive place to invest, increasing our productivity and GDP growth. All of that will generate even more tax revenue.
People who think the corporate tax rate is fine or that corporations should pay even more are like a medieval tax collector complaining to the king that a farmer hasn't paid enough taxes. The king says, didn't they give us a third of their corn crop this year? Yes, says the tax collector, but they've saved a huge amount of seed-corn in their barn for next years planting, we should take a third of that too!
"In 2004, the United States Congress enacted such a tax holiday for U.S. multinational companies in the American Jobs Creation Act of 2004 (AJCA)) section 965, allowing them to repatriate foreign profits to the United States at a 5.25% tax rate"
5.25% is a long way from 35%.
Or goes into a giant pile of cash sitting somewhere offshore. How would you feel about a "you haven't paid out that money as a dividend and haven't reinvested it, fork it over now" tax?
Often, the offshore money is used as collateral for loans which are then used to reinvest in the company, because the interest is often cheaper than the tax.
Eliminate corporate tax and the cash hoarding problem goes away. If it doesn't, then maybe there can be an evidence-based solution to that problem.
We have decades of evidence that this doesn't work. I used to live in Kansas where the governor made a priority of his "March to Zero" on taxes, as a guaranteed sure-fire can't-fail way to make businesses happy and lead to more investment in business in the state, more businesses relocating there, more jobs, etc.
And it was a complete and utter failure. It is now in the process of being repealed by people who were left with no choice other than to admit it failed. It is time for people who advocate this to understand that while it may sound great when deduced theoretically from first principles, it does not work in the real world.
One big example: the elimination of taxes on business income did not suddenly result in much more efficient taxation, scrupulous payment of what was owed, and a boom in investment and expansion of businesses. It resulted in everybody and their brother scrambling to reclassify their personal income as the right kind of business income, in order to pay less tax. Revenue fell off a cliff and the state's deficit projections soared.
State rates are a small factor in corporate decisions, but not an overriding one like Apple's decision to leave hundreds of billions in Ireland, or to repatriate it and pay 42% to California and the US government, to pay the remainder to shareholders to pay 20% more taxes on.
Which, once again, is not Dropbox's problem to solve.
Or things like 'assets' such as property, cash on hand, holdings in other companies, which generally aren't taxed (or aren't taxed as salary/dividends are). Companies which do this for a long time are able to choose the moment (and sometimes the country) at which the assets are transmitted to investors. If they become big enough, they can even bully governments into changing laws to suit them.
I suggest you look at Berkshire Hathaway and evaluate this sentence in the context of that company:
> Any money that a corporation earns is either paid out as dividends (at which point it's taxable as individual income) or reinvested into growing the company (at which point it turns into things like "salary", which is taxable as individual income).
BRK pays Buffett a relatively tiny salary ($100k, another $400k in benefits, probably NetJet flights). It doesn't pay any dividends. Every dollar of after tax profit is reinvested in new businesses. Those businesses pay many people salaries and wages and those people pay many billions in taxes every year. Because of the faster compounding of Berkshires value this policy creates, when shareholders sell shares they are able to pay substantial taxes as well.
What does society gain from taking more of those profits and consuming them, instead of allowing them to be invested in supporting more jobs and creating more economic output?
Your reference to taxing assets is evidence of how completely lost you are on this topic. If a business owner invests to buy better production equipment (assets) that will increase the productivity of their workers so they can make more things with the same amount of work, it should be taxed for this decision?
Or in the case of cash on hand, which is usually retained earnings, i.e. after tax earnings that have been retained by the company for investment purposes. You really think it should be taxed again and again just because the company has it sitting in a bank account?
Our tax system is set up to tax profits and gains for very good reasons. Your tax system would be setup to make it expensive and dumb for anyone to invest or run businesses under it. If you don't like US corporations keeping overseas profits overseas, wait till tax codes changes you like force them to just become overseas corporations.
The best tax system, for conservatives, progressives, liberals, etc, is one that defers taxation of gains and profits until they are converted into individual income. It's why our retirement plans (401ks, IRAs) don't pay tax until withdrawals. It ensures their values compound far faster and gives far more incentive for people to save.
Allowing operating profits to be reinvested tax-free would also allow our GDP to grow much faster, and that will produce more available funds for social programs and spending (important if you are a progressive) and more wealth for citizens (important if you are a conservative).
Judging from e.g. Scandinavia, France, Germany etc, what they get from taxing companies is an excellent safety net for all citizens, healthcare available for all, good transport systems, good education systems etc and various other social goods. Basically, great and fair countries to live in.
You seem to be speaking as though the only possible social good is the productivity of businesses and that money that is taken in tax has effectively zero contribution to society. Standing in Europe [or Japan, or any developed economy outside the USA], that looks like a very strange thing to read.
You're basically arguing 'tax shouldn't exist because it slows companies down and generates no positive effect of it's own'. To which I will respond, "Nope. That's an ignorant argument."
Tax on companies should exist because it leads to strong public sectors that act as safety nets for societies (on an individual level, and also at corporate level during downturns).
Furthermore, companies want to stay alive by having continual government spending during a recession, they need to be putting some money in the public kitty gradually on an ongoing basis to pay for it.
I would add that your claim of reducing corporation tax provides more jobs is total junk: see the citations on the right hand side of this page: https://corporatetax.procon.org/
Job creation in the USA was highest under high corporate tax rates; and 'corporation tax holidays' are associated with massive job cuts. Still, 'facts have a well known liberal bias' so I suggest you do your own research.
Let's transfer a part of your argument to another situation and see what happens:
>If a business owner invests to buy better production equipment (assets) that will increase the productivity of their workers so they can make more things with the same amount of work, it should be taxed for this decision?
I'll rewrite this as:
>If a consumer invests to buy better equipment (assets) that will increase the productivity in their home, they should be taxed for this decision?
Yes. Because there are other needs in society beyond optimising the productivity of companies. The greatest benefits in the average citizen's life do not come from the tax efficiency or manufacturing efficiency of the companies they use products from, but from education and healthcare and policing and transport and environmental and 'safety net' and regulatory/standards systems. Stuff that needs tax.
You realize these are countries with lower corporate tax rates than the US?
> You seem to be speaking as though the only possible social good is the productivity of businesses and that money that is taken in tax has effectively zero contribution to society. Standing in Europe [or Japan, or any developed economy outside the USA], that looks like a very strange thing to read. You're basically arguing 'tax shouldn't exist because it slows companies down and generates no positive effect of it's own'. To which I will respond, "Nope. That's an ignorant argument."
That's a false argument you made, I never said anything of the sort.
> Tax on companies should exist because it leads to strong public sectors that act as safety nets for societies (on an individual level, and also at corporate level during downturns).
Taxes should exist to fund strong public sectors. That's not an argument for corporate income tax, since we can fund them with different taxes. Taxing corporate income at the personal level enables a far more progressive tax system, and the deferral of capital gains creates much more money to tax.
> I would add that your claim of reducing corporation tax provides more jobs is total junk: see the citations on the right hand side of this page: https://corporatetax.procon.org/ Job creation in the USA was highest under high corporate tax rates; and 'corporation tax holidays' are associated with massive job cuts. Still, 'facts have a well known liberal bias' so I suggest you do your own research.
Job creation in the USA was highest in the 1800s and early 1900s, before corporate income taxes were invented. In the 1950s productivity slowed significantly. Corporate taxes were so onerous in the 1950s that a substantial portion of US businesses switched to partnerships that didn't have to pay corporate income taxes.
And that fact that a small number of companies cut jobs after repatriating money suffers from both a logic and sample size issue. If Apple repatriates it's profits, it will pay them to it's shareholders. If it lays off employees later, that's unconnected, and more people will be getting hired at companies Apple shareholders invest their dividends in.
> Yes. Because there are other needs in society beyond optimising the productivity of companies. The greatest benefits in the average citizen's life do not come from the tax efficiency or manufacturing efficiency of the companies they use products from, but from education and healthcare and policing and transport and environmental and 'safety net' and regulatory/standards systems. Stuff that needs tax.
The fact that we have and can pay for all these things is because of the massive increase in productivity society has gone through since the stone age. Productivity increases makes society wealthier and enables people to pay more taxes to fund more government programs.
Or, its invested in assets whose utility is enjoyed by some subset of employees/investors and whose acquisition and other costs are deductible business expenses, so its taxed zero times.
Paying taxes is not synonymous with being nice. Filing a business tax return and paying all taxes owed is a legal obligation. Filing a personal return, if you owe taxes, is a personal obligation. If you do not owe taxes, you are not obligated to file a return; however, it is required if you would like to receive the refund you are owed.
There is no legal obligation to run your business in a way that maximizes taxes due to the government and no business operates in such a manner. I seriously doubt you could find many, if any, personal returns where a filer completes their return in a manner to pay the most taxes they can by ignoring legal deductions, credits, etc. Nice has nothing to do with it.
Arbitrary rules set by states is not a moral barometer.
I once had an auditor tell me that they are more suspicious of those who do not minimize taxes as they were those who fail to report income that the IRS is aware of but unreported on the return. Those who do not claim legitimate deductions are looked at as hiding something big per one examiner. She also stated that IRS examiners know all the "tips" for minimizing tax due and they certainly utilize every one applicable to their individual circumstances.
Oh and just as an aside, if you want to help the country beyond paying the minimum taxes that you legally owe, at any time a person can mail a check to the US Treasury with a letter that you would like said payment to be applied to deficit reduction.
However, while it may be safe to be nice, I don't think being nice is important to success in business. And I think that's what probably concerns more people. This kind of disappoints me though. I wish it were important to success to be nice, but my experience tells me otherwise. It's more important to right and just nice enough to get that across and be heard.
How do you maintain your power and influence while being nice? I feel like you could kill your self by performing really well and setting a stellar track record and then earn the privilege of being able to be nice and still be respected... or you just swing your proverbial dick around and slam anyone who won't listen to you and rule by fear. The net payoff seems to suggest favoring dickish people at the top. And sad to say it seems that way many times.
Also being nice can make people think you're weak and so it's harder to run a team with that mindset.
I think the more definite path to success is being intelligent, shrewd and a competitive person. If that implies being nice then so be it, otherwise it doesn't seem so relevant.
There's also different types of nice. Like superficial nice and genuine nice. Which are we referring to?
I do envy those charismatic leaders that are successful and earn the love of their colleagues and employees. That's something I'd love to aspire to.
I think when something new comes about it can't _look_ like something old if it wants to succeed. Basically it's hard to build a successful startup by looking like a cartoon businessman from the 80's, wearing a tie, being overtly and openly aggressive etc.
If you're building something new and "cool" you had to be playful, dress informally, wear hoodie or t-shirt, on the surface appear to be super nice and friendly. Of course business is business and at the end of the day someone is getting stabbed in the back. But before that day comes it is all hugs, smiles and pats on the back.
Anyone remember Google, how they succeeded not just by providing a better search experience, by also by building a "cool" company image -- playful bright colors, the whole "don't be evil" shtick, we'll feed you with gourmet food, etc. They were positioning themselves to be as different as possible from a traditional company.
Now the funny thing is, the image of the startup has also become cartoonish with the shows like the "Silicon Valley" running for a few years. So CEOs wearing hoodies, being all informal and superficially nice, open office spaces and so on is getting a bit stale.
I wonder what's next. Back to wearing ties and smoking cigars? Probably not. But I have heard people say they'd rather get back to having the previously derided and hated cubicles than doing the "cool" open office plan.
Maybe working remotely is the new thing? But some companies have been doing that for a while as well. I hope that's the next revolution, when large giants as Google and Facebook, who sell digital connectivity as their primary product embrace the digital connectivity themselves and don't require workers to be in a physical location to get work done.
Let's take Uber as an example of a company that a lot of people would call not nice: their prices are great (I think it's widely believed that the prices are VC-subsidized and unsustainable in the long term), but it's their growth strategy that a lot of people have problems with. I have never once heard Travis Kalanick criticized because Uber charged too much.
Uber has gotten a lot of criticism for surge pricing.
What I take from this article is the perception of being nice is important. But the reality between the lines is that nobody is in business to be nice (unless you're running a non profit). We're here to make money. If startup founders don't realize this someone else will, and they will eat their lunch.
> society at large is unquestionably a cesspit of low consciousness, and self-centered thinking
That's a heck of a personal projection :)
And pg disagrees with that last sentiment in the footnotes:
> Many think successful startup founders are driven by money. In fact the secret weapon of the most successful founders is that they aren't. If they were, they'd have taken one of the acquisition offers that every fast-growing startup gets on the way up. What drives the most successful founders is the same thing that drives most people who make things: the company is their project.
But to me and I think probably to most people who have an interest in creating a successful product or service, we the hackers and the makers don't want money just because we want money. We also don't want the money just so that we can have a private jet, ridiculously big mansion or other forms of luxury.
No doubt I would afford myself a higher living standard and some luxury on top if I had a lot of money but it's not my primary motivation, and again I think this is true of most of those who wish to create something.
I want my product to succeed because I believe in it. I believe that I can bring value to my customers. I believe that my solutions have properties that the products of my competitors don't. I believe that I can improve the lives of others, even if not in drastically new ways.
Now since I believe this it only makes sense that I want "unlimited" funds (i.e. there is no upper bound to the amount of money I would like for my business to have), so that I can grow a business that can reach as many people as possible and produce as many products as possible. I need money so that I can hire people, good people. I need money for everything that my business needs to do because without money I can't do it.
A recent news item about Uber drivers gaming the surge algorithm: http://www2.warwick.ac.uk/newsandevents/pressreleases/uber_d...
Existing satellite internet goes out to geosynchronous orbit which is much, much farther away.
https://en.wikipedia.org/wiki/Iridium_satellite_constellatio...
I've also read that the plan is for the constellation of satellites to number at 4425 satellites strong and for them to be using frequencies between 10GHz and 35GHz.
FWIW SpaceX claims the networks latency to be around 35ms.
Source: https://arstechnica.com/information-technology/2016/11/space...
Agreed. It is hard perhaps to see that in a tech hub city where there maybe multiple choices of internet or cable providers. In many areas there is only one. They can act like assholes and charge $80 for 1Mbps connection if they want.
The truth is that you not just need to be cunning, you need to be routine at it, so you can act nice while doing selfish things like removing founders without paying them out, putting competitors out of business, and telling guys who just spent the first three years of their child in your office instead of with their families that they need to clean out their desks. Without that ability what you can do is to sizzle nicely while being turned around in the pan.
If people are too "nice," we can totally go back to a hunter-gatherer way of life instead of keeping modern institutions alive. I imagine billions would die to get there from here. But, at least we would no longer need to make hard decisions like which poor sucker to fire.
This is a question that can be answered without even agreeing with me a bit.
If I believe that one can only make millions with fking people over then of course I think pg having millions already and making millions with YC means that he has been and still is fking people over.
Btw, have you considered that some people may think and evaluate without moral<->immoral evaluations?
“Gradually it was disclosed to me that the line separating good and evil passes not through states, nor between classes, nor between political parties either -- but right through every human heart -- and through all human hearts. This line shifts. Inside us, it oscillates with the years. And even within hearts overwhelmed by evil, one small bridgehead of good is retained. And even in the best of all hearts, there remains ... an unuprooted small corner of evil.” - Alexander Solzhenitzen
And as far as I know you can't overwrite violence with togetherness, but the other way around is easy.