It’s been a while! I guess personal blogging tends to fall by the wayside when working on a startup. (Though you can check out the Minno blog, where we’ve been slightly more active.) In fact, personal most things fall by the wayside — call it an occupational hazard.

The point of this post, though, is to showcase a new project we built, SoundRain. The full story is here, but the upshot is you can use Minno to sell your SoundCloud tracks. We’ve always thought that music is a great use case for Minno, and SoundCloud is one of the coolest music sites out there.

That’s a song that I wrote way back in high school, named after Yeona Chun, who was a JKC Young Scholar with me. Go ahead and listen — but if you laugh, you have to buy it.

It was only two posts ago that I wrote Google, and already I’m gone. What can I say? The food was great, the people were awesome (including Calvin, my roommate and partner-in-crime), and the company pretty much prints money. I always knew that Google would just be a waypoint on my journey to starting a company, though. The stars finally started to align, so I decided now was the time to give it a shot.

Calvin and I will be working on Minno, which is another take on micropayments. More on that as it develops. But one thing is for sure — wish us luck, because we’ll need it!

Oh, and for anyone wondering about what happened with Eric, we figure he must have heard about Minno. We’re expecting a call any minute

Everybody knows about income inequality. We know it’s probably not a good thing, c.p., and we know it’s getting worse. The rich get richer, and the poor get poorer. Such is life.

What If The Rich Deserve It?

It’s hard to say something that pisses people off more. On the right, they’re outraged for doubting it, and on the left they’re outraged for even hinting that it might be true. And on the face of it, one might agree with the liberals: A wealth distribution where the top 20% owns more than 80% of the wealth and the bottom 40% has nothing seems pretty much unpardonable. At least until you think about the last group project you did, where two of the five people alternated between doing nothing useful and getting in other people’s way. But nevertheless, I think the burden of proof should lie with the defenders of inequality.¹

Thus, the task is to construct an explanation for this inequality that doesn’t involve any nepotism, monopolism, or favoritism of any kind. If we can do that, then the inequality defenders have a real shot at a moral defense of their stance, regardless of any practical implications.

A Tennis Detour

Before we dive into the nitty-gritty details of real life, let’s look at a useful simplification: tennis.² Doing away with all the vestigial and esoteric scoring wrinkles, tennis can be approximated as follows: Two players compete for points. The best of five points wins a game. The best of five games wins a set. The best of five sets wins the match. We’ll use this model to pull apart of some the dynamics of tennis-like games.

Now, a surprising fact about professional tennis rankings is that they are relatively static. This is particularly surprising when one watches a tennis match, and sees a moderately ranked player rack up a substantial number of points on Roger Federer (or so I’m told). It might seem that the porousness of Federer’s defense belies his head-and-shoulders number one status.

Until you crunch the numbers.

In this chart, we show how the likelihood of winning games, sets, and matches varies with the likelihood of winning points. That is, we consider how the broader victories in tennis depend upon the smaller constituent victories. We let the probability of winning a point range from 0.3 to 0.7, and we consider how these changes affect the other types of victories. As you can see, the probability of winning a match ranges from 0.00036 — when one’s probability of winning a single point is 0.3 — to 0.99964 — when one’s probability of winning a single point is 0.7.

In other words, even if you win nearly a third of the points, your opponent is roughly 2,800 times better than you.³

Though this tennis demonstration may be unsurprising to you, it’s worth pinpointing exactly what causes the behavior. Tennis matches are won and lost based on the aggregation of many single points. For a quick test of your intuition, instead of a tennis point, consider an unfair coin that shows heads 70% of the time. Any single flip might show tails, but after 100 flips, it would be very surprising to see more tails than heads. Thus, heads is virtually guaranteed to win over tails.

A Generalization to Real Life

One of the most common complaints about a radically unequal distribution of wealth is that we’re all just human. Granted, some people may be smarter or work harder than others, but there’s just no way that a CEO making $10 million a year is 250 times “better” than a line worker making $40,000. Thus, such an income distribution is a priori unfair.

However, the tennis model outlined above provides a possible explanation. Certainly, the CEO is not 250 times better at any single task than a line worker. The worker probably could lead a project to completion using far less than 250 times the CEO’s budget, and when it comes to factory work, the CEO is almost certainly worse. But, just as a 70/30 point split in tennis virtually guarantees a match victory, a comparatively small skill differential may have tremendous impact on business victories. Thus, when the interests of the business are considered, a CEO might very well be worth 250 times the worker. In fact, with the value differential we saw in tennis, the CEO should be paid a salary of even more — $112 million.

Now, it’s one thing to draw a line between tennis and business, but we’ve left out all the details. After all, if one is just keeping tracking of points, the 70% tennis player ends up with only a little more than twice the points of the 30% player. Perhaps a CEO should only be paid twice as much as the factory worker? In order for the tennis model of value to apply within some other domain, two characteristics must be present:

1. Iterativity: The behavior within the domain must break into sequences of tasks, where a given actor’s skill persists across many tasks. Victories must occur after some number of iterations. Tennis matches are won by successive victories in points, games, and sets.
2. Winner takes most: The victor of each stage must collect the bulk of the rewards, regardless of how close the runners up were. (Clearly, the rewards in this context are the value created in whichever domain we’re considering — not the payment the victor receives in exchange. Jumping straight to payment would be begging the question). In tennis, the the tournament winner is the ultimate victor, whether he wins by a lot or a little.⁴

The iterativity serves to guarantee that “skill will out”. That is, the aggregation of a large number of trials will reveal small differences in skill level, just as we saw in the unfair coin example. The winner taking most simply means that the winner creates much more value compared to the runners up, even if the runners up put forth almost as good efforts.

It’s fairly obvious that iterativity is present in most parts of life. Skill at many tasks is correlated with general intelligence, and success at almost everything is highly dependent on work ethic and perseverance.

The winner also often takes most in the real world. The search divisions at Google, Microsoft, and IAC represent virtually all the equity value in the US search industry today. Alta Vista, Lycos, Excite, Cuil, Duck Duck Go, and all the rest are worth virtually nothing. Even though the underdogs are likely no more than few dozen times “worse” than the victors, they are worth thousands or millions of times less.⁵ On an individual level, even if a candidate is only slightly better than the others, she typically gets the job, and the salary and other rewards that come with it. More generally, the winner takes most whenever there are increasing returns to scale in skill level.

Yeah, So What?

This is all just theory, and the back-of-the-napkin sort at that. But it’s possible that, due to iterativity and increasing returns to skill, the value created by different people and companies will diverge widely. Society doesn’t need more than a handful of search engines, so the dozens of runners up — while they may be close in terms of search quality — are virtually value-less. Thus, if one receives compensation in proportion to one’s value to society — a system most people find just — we can expect a highly unequal distribution of income and wealth.⁶

However, there are large negative externalities associated with unequal distributions of wealth — eventually the mob decides that it wants more, and a revolution ensues, causing chaos and pain for everyone. Thus, it may be in society’s interest to underpay some people for the sake of stability. But what about the people who are underpaid relative to the value they create? How do you justly reward them and avoid a tyranny of the majority? It may sound crazy, but perhaps there really was a kernel of wisdom lying beneath all those medieval titles.⁷

I started at Google exactly two weeks ago. It’s mostly been training and meetings so far, but I’m slowly beginning to feel like I actually work there. At least I know where my building is, and, more importantly, where the best cafes are.

My first impressions seem to pretty much confirm what I learned during interviews: Googlers are smart. So far I’ve learned of probably half a dozen unreleased products that are truly amazing, both in daring and difficulty. They have great imagination, and the talent to execute on it. Moreover, Googlers’ intelligence isn’t confined to academia. They seem to be keenly aware of the landscape of the market. I haven’t seen any of the BigCo complacency that we might popularly imagine. Google has made plenty of missteps, to be sure, but I think they’ve made them with their eyes open.

Perhaps my final lesson from the first two weeks is that Larry and Sergey are funny. At my first TGIF meeting the duo presented together, and conveyed remarkable charisma, especially for computer geeks. It almost seemed as if they were MCs more than (or in addition to) brilliant executives. Toward the end of the meeting, Sergey recollected his favorite defunct Google product: Google boxer shorts. Apparently they were printed with, “I’m feeling lucky”.

I have often joked that if I won the lottery, the only thing I’d spend money on was an accountant to handle the paperwork. Though I may be a bit anomalous (in how much I hate wasting money and in how much I hate paperwork), relief from nuisance is incredibly valuable to many people. Just look at Apple’s Luddite-approved products.¹

However, as much as we might hate nuisances, they seem to love us. There are plane tickets to buy, and broken electronics to return, and utility bills to pay, and none of these is likely to go away any time soon.² The only question, then, is how we deal with them.

Shifting My Perspective

For me, the key to digging myself out from such piles of BS is changing my perspective. Instead of thinking of a boring task (with indefinite length — which makes it so much worse) as a nuisance, I’ve started to think of it as a siege. The task is the enemy, driven into its last stronghold, and whoever gives up first loses. Clearly, that can’t be me. I might be outing myself as a middle-school D&D nerd, but, in the right time and place, this can be practiced to great effect.

An illustrative example is provided by my experience paying taxes this spring. By mid-March or so, I had filled out all my tax information on TaxSlayer. I was just about ready to “e-file” my return, when I noticed that the program had failed to take the educational tax credit. This seemed odd to me, as I should have been eligible, but I spent several hours reading through the IRS literature just to make sure. Everything I read only confirmed my belief, but the program was resolute.

Down 15 bucks and more than a little peeved, I brought out the battering ram and gave TurboTax a try instead. Pleasantly surprised³ by the new interface (thanks Aaron Patzer?), I proceeded to re-enter all my information. Naturally, TurboTax said I owed even more. Setting my jaw, I called in the trebuchets and decided to just do the whole thing by hand. I typed, printed and mailed my return, and for a moment, it looked like the battle was won.

Then, in June, I got a letter from the IRS saying that I owed them a couple thousand dollars. And that I was being charged interest on the amount, and that a penalty would follow. Piqued, shaken, but resolute, I gave them a call. I explained my position, listed the exact worksheets and publications I was referencing, and held my breath. The arrows whistled over the city walls. After about 20 minutes of hold — punctuated by a couple of brusque requests for table and page numbers — the woman I spoke with had to admit defeat. Apparently, I had interpreted the tax code correctly, and it was their error. The gates burst open, and the nuisance was vanquished.

Taxes and Beyond

I have attempted to apply this same indefatigable attitude to all parts of my life. Following up with people via email, making sure paperwork is processed in a speedy fashion — it seems to be useful everywhere. I’m not doing chores, I’m sieging a fortress, and I’ll be damned if I give up. Each step I take in a slow-moving bureaucratic process is a step toward victory. Rather than feeling impatience or dread, I’m possessed by a strange sort of maniacal glee (well, sometimes anyway). Clearly, this can be taken too far — it is important to always be polite, and not to be seen as too pushy. And for some things, it’s just not worth it. The rest of the time, though, I think it’s good to enjoy the fight.