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Paul Graham: "Hiring Is Obsolete"
Writer on creativity and digital culture claims that undergraduates are a great untapped resource for new companies.
By Jon Ippolito

Paul Graham, author of Hackers and Painters, has some surprising advice for undergrads in the essay excerpted below, Hiring Is Obsolete. His argument seems tailor-made for the U-Me New Media program--is he off his rocker or on the mark?


The three big powers on the Internet now are Yahoo, Google, and Microsoft. Average age of their founders: 24. So it is pretty well established now that grad students can start successful companies. And if grad students can do it, why not undergrads?

Like everything else in technology, the cost of starting a startup has decreased dramatically. Now it's so low that it has disappeared into the noise. The main cost of starting a Web-based startup is food and rent. Which means it doesn't cost much more to start a company than to be a total slacker. You can probably start a startup on ten thousand dollars of seed funding, if you're prepared to live on ramen.

The less it costs to start a company, the less you need the permission of investors to do it. So a lot of people will be able to start companies now who never could have before.

The most interesting subset may be those in their early twenties. I'm not so excited about founders who have everything investors want except intelligence, or everything except energy. The most promising group to be liberated by the new, lower threshold are those who have everything investors want except experience....

Product Development

Buying startups also solves another problem afflicting big companies: they can't do product development. Big companies are good at extracting the value from existing products, but bad at creating new ones....

Another reason big companies are bad at developing new products is that the kind of people who do that tend not to have much power in big companies (unless they happen to be the CEO). Disruptive technologies are developed by disruptive people. And they either don't work for the big company, or have been outmaneuvered by yes-men and have comparatively little influence....

The Open Cage

With both employers and investors, the balance of power is slowly shifting towards the young. And yet they seem the last to realize it. Only the most ambitious undergrads even consider starting their own company when they graduate. Most just want to get a job.

Maybe this is as it should be. Maybe if the idea of starting a startup is intimidating, you filter out the uncommitted. But I suspect the filter is set a little too high. I think there are people who could, if they tried, start successful startups, and who instead let themselves be swept into the intake ducts of big companies.

Have you ever noticed that when animals are let out of cages, they don't always realize at first that the door's open? Often they have to be poked with a stick to get them out. Something similar happened with blogs. People could have been publishing online in 1995, and yet blogging has only really taken off in the last couple years. In 1995 we thought only professional writers were entitled to publish their ideas, and that anyone else who did was a crank. Now publishing online is becoming so popular that everyone wants to do it, even print journalists. But blogging has not taken off recently because of any technical innovation; it just took eight years for everyone to realize the cage was open.

I think most undergrads don't realize yet that the economic cage is open. A lot have been told by their parents that the route to success is to get a good job. This was true when their parents were in college, but it's less true now. The route to success is to build something valuable, and you don't have to be working for an existing company to do that. Indeed, you can often do it better if you're not.

When I talk to undergrads, what surprises me most about them is how conservative they are. Not politically, of course. I mean they don't seem to want to take risks. This is a mistake, because the younger you are, the more risk you can take.

Risk

Risk and reward are always proportionate. For example, stocks are riskier than bonds, and over time always have greater returns. So why does anyone invest in bonds? The catch is that phrase "over time." Stocks will generate greater returns over thirty years, but they might lose value from year to year. So what you should invest in depends on how soon you need the money. If you're young, you should take the riskiest investments you can find.

All this talk about investing may seem very theoretical. Most undergrads probably have more debts than assets. They may feel they have nothing to invest. But that's not true: they have their time to invest, and the same rule about risk applies there. Your early twenties are exactly the time to take insane career risks.

The reason risk is always proportionate to reward is that market forces make it so. People will pay extra for stability. So if you choose stability-- by buying bonds, or by going to work for a big company-- it's going to cost you.

Riskier career moves pay better on average, because there is less demand for them. Extreme choices like starting a startup are so frightening that most people won't even try. So you don't end up having as much competition as you might expect, considering the prizes at stake.

The math is brutal. While perhaps 9 out of 10 startups fail, the one that succeeds will pay the founders more than 10 times what they would have made in an ordinary job. [3] That's the sense in which startups pay better "on average."

Remember that. If you start a startup, you'll probably fail. Most startups fail. It's the nature of the business. But it's not necessarily a mistake to try something that has a 90% chance of failing, if you can afford the risk. Failing at 40, when you have a family to support, could be serious. But if you fail at 22, so what? If you try to start a startup right out of college and it tanks, you'll end up at 23 broke and a lot smarter. Which, if you think about it, is roughly what you hope to get from a graduate program.

Even if your startup does tank, you won't harm your prospects with employers. To make sure I asked some friends who work for big companies. I asked managers at Yahoo, Google, Amazon, Cisco and Microsoft how they'd feel about two candidates, both 24, with equal ability, one who'd tried to start a startup that tanked, and another who'd spent the two years since college working as a developer at a big company. Every one responded that they'd prefer the guy who'd tried to start his own company. Zod Nazem, who's in charge of engineering at Yahoo, said:

    I actually put more value on the guy with the failed startup. And you can quote me!

So there you have it. Want to get hired by Yahoo? Start your own company....

The Man is the Customer

If even big employers think highly of young hackers who start companies, why don't more do it? Why are undergrads so conservative? I think it's because they've spent so much time in institutions.

The first twenty years of everyone's life consists of being piped from one institution to another. You probably didn't have much choice about the secondary schools you went to. And after high school it was probably understood that you were supposed to go to college. You may have had a few different colleges to choose between, but they were probably pretty similar. So by this point you've been riding on a subway line for twenty years, and the next stop seems to be a job.

Actually college is where the line ends. Superficially, going to work for a company may feel like just the next in a series of institutions, but underneath, everything is different. The end of school is the fulcrum of your life, the point where you go from net consumer to net producer.

The other big change is that now, you're steering. You can go anywhere you want. So it may be worth standing back and understanding what's going on, instead of just doing the default thing.

All through college, and probably long before that, most undergrads have been thinking about what employers want. But what really matters is what customers want, because they're the ones who give employers the money to pay you.

So instead of thinking about what employers want, you're probably better off thinking directly about what users want. To the extent there's any difference between the two, you can even use that to your advantage if you start a company of your own. For example, big companies like docile conformists. But this is merely an artifact of their bigness, not something customers need.

Grad School

I didn't consciously realize all this when I was graduating from college-- partly because I went straight to grad school. Grad school can be a pretty good deal, even if you think of one day starting a startup. You can start one when you're done, or even pull the ripcord part way through, like the founders of Yahoo and Google.

Grad school makes a good launch pad for startups, because you're collected together with a lot of smart people, and you have bigger chunks of time to work on your own projects than an undergrad or corporate employee would. As long as you have a fairly tolerant advisor, you can take your time developing an idea before turning it into a company. David Filo and Jerry Yang started the Yahoo directory in February 1994 and were getting a million hits a day by the fall, but they didn't actually drop out of grad school and start a company till March 1995.

You could also try the startup first, and if it doesn't work, then go to grad school. When startups tank they usually do it fairly quickly. Within a year you'll know if you're wasting your time.

If it fails, that is. If it succeeds, you may have to delay grad school a little longer. But you'll have a much more enjoyable life once there than you would on a regular grad student stipend....

A Public Service Message

I'd like to conclude with a joint message from me and your parents. Don't drop out of college to start a startup. There's no rush. There will be plenty of time to start companies after you graduate. In fact, it may be just as well to go work for an existing company for a couple years after you graduate, to learn how companies work.

And yet, when I think about it, I can't imagine telling Bill Gates at 19 that he should wait till he graduated to start a company. He'd have told me to get lost. And could I have honestly claimed that he was harming his future-- that he was learning less by working at ground zero of the microcomputer revolution than he would have if he'd been taking classes back at Harvard? No, probably not....

So while I stand by our responsible advice to finish college and then go work for a while before starting a startup, I have to admit it's one of those things the old tell the young, but don't expect them to listen to. We say this sort of thing mainly so we can claim we warned you. So don't say I didn't warn you.
Posted 2005-11-16 12:38:44 by Jon Ippolito
Comments on this story... (toggle all)

Google as the best case hiring scenario? [Jon Ippolito, 2005-11-16 12:36:30]

I know a number of New Media students who consider employment with Google as the best case scenario after graduation. Though Graham recommends against rushing into a McJob after graduation, nevertheless he assumes that the final trajectory of success will likely be a desk in a corporate office. Given the questionable ethics of even companies with the best intentions--see the story on "Google: God or Gorilla?" elsewhere on this site--what are the alternatives to conventional employment for college grads to realize their new media dreams?


Sold [James Scott, 2005-11-16 20:29:02]

After reading this encouraging article, I e-mailed it to a few of my friends. The people i choose to send it to where not just in NMD they were from all over the board, some not even attending college. I just never really thought in this sense before and find it amazing how much i did agree with him. The cage of the economy is open and i think well for me and most people i know the fear of not succeeding is great, and many would rather have the comfort of a job for a corporation or anywhere were they would not have to take the loss if the company did fail.


Interesting [Ian Marquis, 2005-11-17 11:48:38]

Making your own start-up is interesting, that's for sure. What makes me question it a little is whether everyone is really suited to that sort of thing. I know that I would personally rather create my own content...but I don't necessarily want to make a company. Not unless there's a real reason to be anything other than a traditional artist (in whatever combination of fields I choose). Honestly, neither of the two options (getting a traditional job / starting my own company) really appeal to me in the fullest sense. Granted, I'd rather have my own company, but at the moment it just sounds like a hassle.


interesting [Austin Soule, 2005-11-17 20:30:36]

I can see where Graham is coming from urging students to create their own start-ups. He is talking to my demographic right now. I have 6 months and then I receive a piece of paper that says I graduated from college. What I do with that peice of paper is my choice. He makes good points about taking risks now. While I'm young, I should take chances and try to be independant as long as I can. The worst thing that could happen is exactly what he said; I'll be broke and smarter. I'm already taking a risk. I'm going away for the summer to do what I want to do and am not getting paid hardly anything for it. But, I am making connections. The one thing I learned this summer is that its not what you know, but who you know. I'm a bit off-topic, Graham's advice is valid and should be used as we see fit, you can only win the jackpot if you throw a couple coins in the machine first.


Risk [Timothy Holt, 2005-11-17 13:29:53]

I guess the biggest thing i took from this article was that most people (including myself) are often afraid to take risks. Why not take a chance with a startup, i mean if it did pay off, im sure it would pay big if you struck the right market. Startups were something that i hadn't really thought of doing, i was thinking in terms of getting a job out of college. This has definelty given me a lot more insight, and made me re-think how the element of risk isn't as bad as it sounds. I think Paul is right on when he talks about disruptive people having disruptive ideas. I think a lot of startup companies come from disruptive ideas, i just need to formulate my own.


Re: Risk [Aerin Raymond, 2005-11-28 10:42:12]

I agree. Risks are hard to take, especially ones involving a large financial risk. the chances that whatever you do will succeed aren't great, and if you don't, you're out all this money you spent on this project you could have chosen not to do and saved yourself the time, trouble and money.
It is true, however, that the committed and determined are the ones who will take the risk, and that is a fairly good way to choose someone to hire for your company.
I personally would be afraid to take that risk, but that's human nature. It certainly doesn't mean I wouldn't work just as hard as someone who took the risk in the long run.


Food for thought, but... [John Bell, 2005-11-17 14:50:12]

I certainly see the logic in this article. And I agree with it, to a certain extent...but I don't necessarily agree with the assumption throughout the article that a freshly-minted BA or BS has nothing to lose. They may have less to lose than, say, a 40-year old with a family and a mortgage, but in our society there's still a long way you could fall from a 22-year old with an apartment, job, and maybe relationship.
That being said, I am more inclined to think of a startup as a possibility than before reading this article. Barring the risk, it would be one of my top options (probably behind grad school.) I'm still just not sold, though...I think I've seen too much of those 9 out of 10 people who tried and fell flat on their faces for me to be comfortable with it.


Something to think about [Sara McCormick, 2005-11-17 23:35:25]

It is kind of scary to think that I'll be graduating in less than six months. I find people constantly asking me now, "What are your plans next year?" I guess it is just expected that we either go on to grad school or get a job. Since I'm not interested in continuing school at this point, I guess the answer has to be to get a job. Well, that is the safe answer anyway. I think this article really opened my eyes to the whole idea of a startup. I've dabbled a bit in my own small business with doing some independent video production for the past two years, but never really thought of that as an option after I graduate. Yeah, it might be a risk, but even if it fails, we can always learn from it and move on.


Something to think about [Sara McCormick, 2005-11-17 23:35:36]

It is kind of scary to think that I'll be graduating in less than six months. I find people constantly asking me now, "What are your plans next year?" I guess it is just expected that we either go on to grad school or get a job. Since I'm not interested in continuing school at this point, I guess the answer has to be to get a job. Well, that is the safe answer anyway. I think this article really opened my eyes to the whole idea of a startup. I've dabbled a bit in my own small business with doing some independent video production for the past two years, but never really thought of that as an option after I graduate. Yeah, it might be a risk, but even if it fails, we can always learn from it and move on.


Startups [Eric Pierpont, 2005-11-20 16:27:03]

The idea of starting a company has always interested me, but after reading the article, it has only given me even more incentive. I agree that most undergrads are very conservative because we have been institutionalized our whole lives, being told what and what not to do. The thought of graduation alone is scary let alone trying to start a company after school knowing that 9 out of 10 companies fail. But you are only given one chance at life, and being young affords the ability to take big chances, so if your idea does take off, you will be rewarded handsomely, and if it doesn't you'll walk away with real world experience.


hmm [Lindsey McMorrow, 2006-11-04 22:30:10]

This article was interesting to read and I continuously go back and forth with agreeing and disagreeing with Graham's ideas. Starting your own business has many risks and when you read statistics such as 9 out of 10 startups fail, I certainly don't want to jump at the chance to waste my time and savings at something that will most likely fail. However, the point that running your own company is also very appealing along with the possible paybacks.

It is hard to fully digest the idea of discouraging (I don't know if that is the right word to describe Paul Graham's thoughts, but he isn't supporting it greatly) going to grad school or looking for a job after graduation. I've always had it in my mind this was what is best, so it has really got me rethinking my options after May.


Risk [Ryan Schaller, 2007-10-26 03:50:11]

I found this article to be an interesting read, and also to be very helpful for me to figure out what I should consider doing after graduating. I agree that risk is a difficult thing to take, but the benefits of taking risks seem to outweigh the pitfalls, especially when those risks land you a job as your own boss, making money for yourself and not for your "superiors". I'm not sure how successful I would be at starting up my own company (probably not very successful at all), but this article got me thinking about the possibilities.


"If you're [Alex Lessard, 2007-10-28 12:00:57]

"If you're young, you should take the riskiest investments you can find."

A huge impediment to creating a startup right out of college seems to be a fear of not having enough knowledge. For myself I keep thinking that I'll find a job and then work on my own projects once I get some experience under my belt. The truth of the matter is that the older you get and more rooted you get then the risker those risky projects become. The article talks about failed at 40 versus failing at 25, and being in more debt at 25 versus losing all your assets at 40 sounds much more appealing.

"Don't drop out of college to start a startup. There's no rush."

Be conservative until you know the risks are minimized? He gave the million hits a day reference for yahoo creators. How does this reflect with the "Quit your day job mentality" ?


"If you're [Alex Lessard, 2007-10-28 12:01:06]

"If you're young, you should take the riskiest investments you can find."

A huge impediment to creating a startup right out of college seems to be a fear of not having enough knowledge. For myself I keep thinking that I'll find a job and then work on my own projects once I get some experience under my belt. The truth of the matter is that the older you get and more rooted you get then the risker those risky projects become. The article talks about failed at 40 versus failing at 25, and being in more debt at 25 versus losing all your assets at 40 sounds much more appealing.

"Don't drop out of college to start a startup. There's no rush."

Be conservative until you know the risks are minimized? He gave the million hits a day reference for yahoo creators. How does this reflect with the "Quit your day job mentality" ?


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