Founders vs Inheritors

(Update: This essay has been chosen as one of the winning submissions.🏆)

I.

These are my thoughts after reading Balaji’s post. Read that first, and then come back to read this.

I’ll start and end this discussion with India, the world’s largest democracy.

Indians are divided by class, and the society usually revolves around status games. That is changing in parts of the country that have embraced technology and innovation, but most people are used to playing status battles and zero-sum games. That is why politics is an integral part of everyone’s daily life starting from their tea time discussions, fueled by Whatsapp forwards and ending with social media posts.

In a country that still hasn’t managed to eradicate extreme poverty, the classes are distinct, fighting with each other and generally indifferent to the suffering of the classes a few tiers below them.

The majority of these status games are driven by the middle classes.

The upper middle class- consisting of a broad spectrum of families who have amassed significant wealth(generally by means of opening a local business or employment in fields like medicine and law) and they are not afraid to show it off.

The lower middle classes- consisting of a broad spectrum of families who are usually living paycheck to paycheck, but also trying to live beyond their means, lest those around them think lesser of them.

Indians care about what other people think more than they should.

It’s not always sunshine and rainbows and dance numbers as they are portrayed in Bollywood, but there’s one thing which everyone in this nation abides by- and that is the sense of justice and fairness.

This is the reason why there’s always a debate going on regarding nepotism- whether it is fair to hand over the reins of a company or name to a son/daughter regardless of the son/daughter’s qualifications. This discourse is mainly amplified in Bollywood where “Star Kids”, who are sons and daughters of famous actors/directors get more opportunities than their peers. But outside of the Bollywood bubble, this debate dwindles down when it comes to institutions and who inherits them.

The last public figure who came out against such policies by virtue of his actions was Ratan Tata, an industrialist who is known to give world’s philanthropists a proper competition when it comes to giving away their wealth to charity, who mentioned that the successor of Tata wouldn’t be someone holding a Tata name. He has backed it up, and the current CEO of Tata Sons is N Chandrasekaran and not someone with a Tata surname.

On the other hand, the current government of BJP made it a point to mention how nepotism was apparent in the opposition Congress party whereas BJP started from the grassroots without any major support of political families. The country remembers how the reins were handed over to Rajiv Gandhi on a silver platter, and it is fair to assume the nation as a whole doesn’t like this practice.

It is normal to hate those who seem to be given a golden ladder while there are deserving people dying on the steps. Indian culture has always upheld the virtue of hard work and criticized the exploitation of loopholes and habits of taking short cuts.

Inheriting a company, a name, a profession is widely considered to be inferior than founding of the same.

II.

Why, then, do we practice what we unanimously hate?

We know from Balaji’s post that inheriting doesn’t usually work out for the one who is inheriting an institution, and for the people of the institution themselves. But is it really that difficult to see why someone would choose this path despite the evidence against it?

Imagine for a moment that you’re a billionaire who has one son. You’ve had a long life. The company you’ve started is running fairly well. Your son, to your disappointment, isn’t the brightest tool in the shed. He doesn’t understand business as well as you do, and sometimes it feels like he doesn’t want to. He cares about people, yes, and is a good person, in your eyes, but he can never live up to the sweat and toil that you’ve put in to get the company to where it is today. His degree in Social Science wouldn’t help much either.

There are competent people who are more than capable of taking up the reins of the company. If we ignore that the board, and the investors get a say in who you pick, what are the chances you would pick your son, your own flesh and blood, to run your company over someone who is deserving to do so?

I’d put the odds over 60% and it is not too hard to see why.

Will the company eventually fail because of this decision? Probably.

Will you be there to see it fail? No.

This is one of the reasons why generational wealth doesn’t last more than a few generations. The ones who build wealth pass it on to those who don’t know how to build wealth, and rarely know how to sustain it. There are exceptions to this, but my argument still stands. At the end of the day, for the same reason that people regret not spending enough time with people they love on their deathbeds, even well informed founders will hand over the reins to their sons and daughters just because they love them.

This cycle will continue. That is why the market chooses what makes their lives better and easier. The market doesn’t care who you are or who your father was. It only cares about the value you can provide.

If there’s a founder out there who offers something better, you’ll slowly but surely fail. No amount of inherited wealth will save you.

III.

It is easy now.

The internet has enabled founding easier than ever before. Anyone with a working computer can create a business out of their basement. The wealth transfer is taking place all over the world, and wealth is going to those who are audacious enough to escape the system.

Under such circumstances, it is necessary that a lot of new businesses will fail. That is the nature of business. Mark Cuban says that business is the ultimate sport, where you’re playing 24/7 against competitors you’re not even aware of.

That is what makes this place so special. If you’re reading this right now, you have the means to start a company, a currency, even a nation-state or country all digitally. Individuals have more tools than ever, more free resources than ever, and thus, more power than ever to change the world.

Those who cannot adapt to this changing world will slowly perish, and that slow departure to the door will be led by age-old institutions first that rely on name value more than real value.

IV.

All governments in the world will play a part in this.

India played it’s part by creating the IndiaStack, integrating UPI and making digital payments accessible to the masses. Integrating crypto into it should be the next step towards innovation.

On the other side of the world, you can see countries suffering from inflation that didn’t prioritize productivity and chose short term growth.

USA will play a major part in global innovation too, as it’s the first country where people have managed to build trillion dollar tech companies.

Some mayors go out of their way to enable this level of innovation. This sets an important precedent. If done on a country-wide scale, this would cause countries like South Korea who closely follow USA to follow and implement the same approach.

With time, I’m sure everyone will come to the same conclusion. Elon Musk, in trying to achieve lofty dreams of colonizing mars, will end up creating tons of jobs for American people, jobs that don’t exist right now. Individual businesses succeeding means they are solving a problem, and for that solution, they are being rewarded.

Governments around the world will realize this opportunity of massive wealth creation that would empower every single human on the planet, hopefully before it’s too late.

Demonizing wealth isn’t the solution. All the growth of China can be attributed to them shifting to a pro-capitalist country with one small change.

IV.

Innovation will continue. That is inevitable. India will be the dark horse in this. Cities like Bangalore (which is dubbed as the Silicon Valley of India, and rightly so), Hyderabad, Pune have already become major destinations of the country’s hottest start-ups.

More states will probably follow. Cheap internet, 4G (and soon 5G), and a billion curious minds are at the forefront of the revolution that is already happening. Institutions which act as gatekeepers will soon learn that decentralized education is superior to inferior forms that involve tedious entrance exams and low acceptance rates.

Of course, a distant war breaking out and a host of other problems could slow this down, but it certainly can’t stop it. Individuals with inherited capital will eventually lose to founders who have cultivated experience.

Flipkart was started in India by two Amazon ex-employees. That is now a billion dollar company. Employees of Flipkart have gone on to start 200+ start ups in Bangalore itself.

In democracies, the most powerful thing we have is freedom. In this day and age, we can all use that to be founders, to be creators, and to create something of value that resonates with the world.

If we do, we will be rewarded with wealth that we have rightfully earned. More important than that, we will be rewarded with experience.

No amount of inherited wealth can replicate that.


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2 Comments

  1. Nice review and congrats for winning the 1729 review. Balaji always blows my mind with his thoughts.

    As you say,

    “Those who cannot adapt to this changing world will slowly perish, and that slow departure to the door will be led by age-old institutions first.”

    Liked by 1 person

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