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Salesmen are an exception. It's easy to measure how much revenue they generate, and they're usually paid a percentage of it. If a salesman wants to work harder, he can just start doing it, and he will automatically get paid proportionally more.

There is one other job besides sales where big companies can hire first-rate people: in the top management jobs. And for the same reason: their performance can be measured. The top managers are held responsible for the performance of the entire company. Because an ordinary employee's performance can't usually be measured, he is not expected to do more than put in a solid effort. Whereas top management, like salespeople, have to actually come up with the numbers. The CEO of a company that tanks cannot plead that he put in a solid effort. If the company does badly, he's done badly.

A company that could pay all its employees so straightforwardly would be enormously successful. Many employees would work harder if they could get paid for it. More importantly, such a company would attract people who wanted to work especially hard. It would crush its competitors.

Unfortunately, companies can't pay everyone like salesmen. Salesmen work alone. Most employees' work is tangled together. Suppose a company makes some kind of consumer gadget. The engineers build a reliable gadget with all kinds of new features; the industrial designers design a beautiful case for it; and then the marketing people convince everyone that it's something they've got to have. How do you know how much of the gadget's sales are due to each group's efforts? Or, for that matter, how much is due to the creators of past gadgets that gave the company a reputation for quality? There's no way to untangle all their contributions. Even if you could read the minds of the consumers, you'd find these factors were all blurred together.

If you want to go faster, it's a problem to have your work tangled together with a large number of other people's. In a large group, your performance is not separately measurable-- and the rest of the group slows you down.

Measurement and Leverage

To get rich you need to get yourself in a situation with two things, measurement and leverage. You need to be in a position where your performance can be measured, or there is no way to get paid more by doing more. And you have to have leverage, in the sense that the decisions you make have a big effect.

Measurement alone is not enough. An example of a job with measurement but not leverage is doing piecework in a sweatshop. Your performance is measured and you get paid accordingly, but you have no scope for decisions. The only decision you get to make is how fast you work, and that can probably only increase your earnings by a factor of two or three.

An example of a job with both measurement and leverage would be lead actor in a movie. Your performance can be measured in the gross of the movie. And you have leverage in the sense that your performance can make or break it.

CEOs also have both measurement and leverage. They're measured, in that the performance of the company is their performance. And they have leverage in that their decisions set the whole company moving in one direction or another.

I think everyone who gets rich by their own efforts will be found to be in a situation with measurement and leverage. Everyone I can think of does: CEOs, movie stars, hedge fund managers, professional athletes. A good hint to the presence of leverage is the possibility of failure. Upside must be balanced by downside, so if there is big potential for gain there must also be a terrifying possibility of loss. CEOs, stars, fund managers, and athletes all live with the sword hanging over their heads; the moment they start to suck, they're out. If you're in a job that feels safe, you are not going to get rich, because if there is no danger there is almost certainly no leverage.

But you don't have to become a CEO or a movie star to be in a situation with measurement and leverage. All you need to do is be part of a small group working on a hard problem.

Smallness = Measurement

If you can't measure the value of the work done by individual employees, you can get close. You can measure the value of the work done by small groups.

One level at which you can accurately measure the revenue generated by employees is at the level of the whole company. When the company is small, you are thereby fairly close to measuring the contributions of individual employees. A viable startup might only have ten employees, which puts you within a factor of ten of measuring individual effort.


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