z on life

Let’s say you’re a brilliant hacker or any other breed of wild intelligence. You’re young, maybe high school, college, or shortly after, and show the potential to achieve enormous success and to make huge sums of money. You haven’t made it yet, though, so you haven’t hit a state of financial security and would obviously like to have more money than you do. You may need money to pay off college, or to quit worrying about paying the bills so you can focus on being entrepreneurial, or just want a bit more of a comfortable life now and pay it off later. So, if you’re in this scenario, would you sell life equity?

What exactly I mean by life equity is the following:

1. You find someone interested in your potential.
2. They give you X dollars up front.
3. You give them in return Y% of your earnings every year for life.

There’s lots of ways to do this like allocated the money in tranches subject to performance, a variable percentage of future earnings, etc. But let’s keep it simple. If a benefactor wanted to give you $1MM right now for 10% of all future money you made, would you do it? If not, what if it was 5% or even 2%? If yes, what if it was 20% or even 50%?

The pros:

1. You can stop worrying about baseline finances.
2. You can earn interest on the money you now have in the bank.
3. You can engage in ventures without seeking early external funding.
4. You can spend money to alleviate stress and increase professional performance.
5. You can get career help from your benefactor who has a vested interest in your success.
6. You can do things, go places, and help people you couldn’t before.

The cons:

1. If you’re really successful, you actually end up losing money on the deal.
2. Every year you have to think about how you traded a one-time gain for an annual loss.
3. If structured wrong, you may have incentive to do nothing after getting the money.
4. Being able to do anything you want is hugely distracting and a career detriment.
5. You are accountable to your benefactor for returning good money to him or her.
6. You now have a much weakened sense of urgency to go far in your career.

So would I do it? The truth is it depends on the numbers. A good deal is a good deal, and certainly money at different points in life has a different value, and for most people that utility curve is monotonically decreasing so money up front can be a rational choice. On the other hand, there is something special about making it on your own, not having things given to you, and having complete control. It should be the process of building success, not the financial reward itself, that is valuable in life. If you’re confident in yourself and have the basic necessities to live, I think the answer has to be no. So would I do it? Probably not, unless the deal was really good.

Cases where I think it does make sense:

1. The person is in abject poverty but shows huge potential. Even if it is just to pay for college, the money could make a huge difference.
2. The cash infusion can raise the expected career value of the person more than the annual percentage payment. This is like the minor league baseball player that recently wanted to do this very thing so he could practice instead of working two side jobs.
3. The person has a valid time-sensitive reason for needing money. Maybe it concerns the health or wellness of a family member or something else where the money loses its value sharply as time goes on.

But before the notion of ‘life equity’ could ever became a common financial product, there’s a couple things that need to be worked out:

1. How do you price such a risky and variable future cash flow?
2. Does equity lead to ‘voting rights’ for life decisions?
3. Is this purely financial? If not, how would intangible achievements (ie: Nobel Prizes) be split up?
4. What are the ramifications of people holding stock in others? Suddenly there can be a quantifiable benefit to favors and business relationships. Would this corrupt the flow of business dealings?

I am not sure this concept of life equity will ever exist above and beyond a few one-off cases. I have been told it has been tried in the past for very special scenarios and has not worked out (I don’t know when and where, but I am looking into that now). If it did, though, would you sell part of yourself? For how much and with what terms? It’s very interesting to think about. I’d love to hear some thoughts.

The most useful thing I have learned in my whole process of startups, and maybe even life for that matter, is the importance of the phrase “know what you don’t know”.

It is crucial to learn everything you can from everyone in your life, be it friends, family, engineers, venture capitalists, or complete strangers. Being able to learn means you know what you need to look for from each these interactions. Knowing what you need to look for means knowing what you don’t know. You should go into every interaction knowing exactly what new information you can extract. This isn’t selfish, it is merely efficient learning. Besides, you probably have lots of cool stuff to offer in return.

When people don’t know what they don’t know, they are bound to fail again and again. Unfortunately, this happens all the time, especially to those who are young or inexperienced. I have been definitely been guilty of it too, so I’m no exception. Knowing what you don’t know keeps you searching with tunnel vision, and if that great idea or strategy isn’t directly in front of you, you’re never going to hit it. From the perspective of success over a long period of time (let’s say, a career), this is so dangerous. It’s a recipe for having a long, tough, excruciating string of failures.

Not knowing what you don’t know is like tweaking variables in an equation to find the local maximum. Knowing what you don’t know means you are going to throw that whole notion away and find new variables you can to use to find the global maximum. Think outside the box, and throw away all of the artificial constraints you’ve put on your thought processes.

When planning, strategizing, or thinking, here’s some questions to think about:

1. What concepts have I previously written off as ‘not-relevant’ to me?

2. Who would have a new outlook on this and why?
3. What about me or my experience is limiting how I look at things?
4. Are there any tangential skill-sets or knowledge that I can acquire?
5. Can I draw intuition from whole other areas, industries, genres?

If you adopt the “know what you don’t know” mindset, you go through extremely fast cycles of self-revision, become a wider/deeper thinker, and convey to others that you have put ego or image aside in exchange for great self-advancement. That’s the mark of someone who wants to win.

I can’t help but quote a great book written by Neil Postman and Charles Weingartner called “Teaching as a Subversive Activity”, recommended by the wise Jared Kopf. Knowing what you don’t know is all about maximizing your ability to learn, and in this book they talk about the characteristics of learners. They say that good learners:

1. Have confidence in their ability to learn

2. Enjoy solving problems
3. Know exactly what is relevant to their survival
4. Rely on their own judgement to spot good and bad advice
5. Do not fear being wrong
6. Are not fast answerers
7. Are flexible
8. Have a profound respect for data and information
9. Do not need to have one irrevocable solution to a problem

It’s clear that many if not all of these things are drivers for or can be driven by knowing what you don’t know. Nice! I can rest easy knowing that someone who actually knows what they are talking about agrees with me.