This is an Owner’s Economy, People!
March 16, 2016

It’s an owner’s world, and you can take your career in one of two directions. The first is to join the class who reaps the good or bad of their contributions to society. The second is to serve one of these owners.

There are common conceptions about both paths. Business ownership is seen as risky and unattainable, while employment is seen as a more stable, well trodden path. These perceptions are rooted in a grains of truth, but fall short in accounting for changes taking place in our society.

Once upon a time in post war America, manufacturing was the leading employer in the economy. By 1960, up to one in six workers was employed directly or indirectly by the auto industry alone. Despite being a time of great uncertainty, a middle class flourished across the United States, and labor commanded a livable middle class wage. While real wages have continued to grow over the past five decades, we as a nation were less encumbered by debt in 1960, and the share of wealth was more equitably distributed across society. Though I was not alive in 1960, plenty of accounts lead me to believe that the competition for a solid job felt far less daunting.

What’s Changed

For one, a college education was not the financial burden it is today. By most accounts, college tuition has outstripped the consumer price index by at least 300% since the 60s. On a separate note, the US was a manufacturer to the world in the post war years, since much of Europe and Japan was decimated in WWII. China and India were still dormant powers, and America retained a more competitive market economy than the rivaling Soviet superpower. Fast forward fifty years to a much different world. Automation and international competition have eaten into the employment prospects of working class Americans. While wages have risen, what it takes to get a high paying job has also leveled up significantly, requiring some combination of additional work and borrowing for most households.

The internet has exacerbated pressure on traditional employment and wages, as many online markets resemble winner take all profit distributions. Also of note, the largest of internet companies employ relatively few people compared corporations in other industries with similar revenue and earnings. Consider that Facebook earned about $3.7 billion in 2015 with about 12,000 employees. Over that same year, McDonalds earned around $4.5 billion, but with 420,000 people on its payrolls. Earnings are highly variable, and can be dressed up with accounting finesse, but this is more than a rogue data point, and similar examples are plentiful.

The internet has also made so much information readily available that companies can easily price shop for workers in the same way that consumers shop for goods. It’s also creating a nearly endless supply of freelance work, as corporations move toward more contract style work and away from full-time employment. In whole, this should be a boon for the world’s impoverished as they find new means of income, but will continue to apply downward pressure on the wages of employees in developed countries.

All in all, unless super-specialized, hard to automate, or protected by a union/government, the typical advanced economy worker is likely to continue seeing stagnant wage growth – there will still be good years interspersed, but the pace of technological improvement is likely to continue consolidating more responsibilities among fewer employees, and deflating both prices as well as wages — barring some sort of massive overhaul to our society and economy. This may be my personal view, but it is a perspective shared with Jaron Lanier and Martin Ford among other deep thinkers whose intelligence outguns mine.

During my first year out of college, and in my entry level job, the head of our department held a global town hall meeting streamed to all of our offices around the world. On it, he talked about the need to push forward with automation to keep costs low and beat the competition. He stressed that we needed to usher in the future, otherwise someone else would quickly pounce on the opportunity and strip our incumbent status away. He also argued (fiercely) that automation was a good thing, as it freed up our workforce to achieve higher responsibility and more impactful work. He cited a new group that was created, one that employed former data and administrative workers in roles that more closely resembled a Wall St. a research analyst’s.

In that closed system (our company), the senior manager’s promise seemed to hold water. The department grew for a couple of years before flattening out on headcount. However, viewing more broadly, Wall Street’s sell side research desks have precipitously declined from their glory days, partially due to regulation, and partially because computing and cheaper labor have rendered them less competitive. It appears through my glasses that more highly paid research analysts have lost more seats at the table than the automation created. Of course, the entire system is much more complex than this, but I foresee managers and tech executives continuing to make this argument about employees climbing the value chain, citing closed system examples, and ignoring the broader effects taking place.

I don’t have an absolute opinion on whether automation and outsourcing are universally good or bad – but I do believe that we are forced to reckon their unavoidable consequences. Creative destruction and automation are long-held concerns, however their ever increasing impact on our lives very well may be punctuating the sense of mistrust, aggravation, and disenfranchisement being tapped by politicians today. It’s part of human nature and capitalism to undercut, outperform, and take share from the competition. The thought “if I don’t do it, somebody else will” has agitated the itch of owners to automate and keep lean for a very long time. With the rate of technological change, in conjunction with the increased time investment of certifications and credentialing for employment, price signaling in the labor market has been undermined. It might take four years to earn a bachelors degree in marketing to find a $40,000/year entry level job. However, half of the content absorbed from that course of study may be obsolete by the time a student graduates in four years. There are people studying to become employed in sectors that will be automated or fundamentally changed within five years – and they don’t even realize that shit is hitting the fan.

Imagine choosing a major in part based on the high salary of graduates – say accounting. You spend five years in a rigorous program and pay $75,000 out of pocket. However, upon graduation, so many other people have responded to the price signal (a high advertised wage in the year of matriculation), that supply of labor in that industry is flooded, and wages are two thirds of what they once were. What’s worse is that the things you learned to do are easily computerized now as new technology emerged in the last two years. With the outlook for employment of the accounting profession looking dimmer, people flock to the remaining industries that signal high wages. The inflexibility and expense of college make it very difficult for people to remain agile as they see changes afoot. And these accounting graduates are basically stuck. They need to rely on connections, spinning their experience, or retooling to find employment that can alleviate the sunk cost financial burden of their college degree. I foresee much more of this as the needs of the private sector adjust more quickly than changes to educational curricula. This is just another reason the single stream of income employment model will continue to be taxed.

The Story

Most of us have been raised on a certain story: Go to school, get good grades, attend the best college you can “afford”, get a job at a big safe corporation, and then you can live off of your wages and have a comfortable lifestyle. It sounds like a clear plan – almost natural. It’s echoed by parents, the television, and teachers. Our schools condition us to seek grades and skills, going after external goals like straight As, honor role, or admission to that famed educational institution. Unfortunately, buying into these “gold medals” ties happiness and self worth to something judged by someone else – a grader. We are told that mistakes are bad, and that earning a good mark means that we are doing everything “right”. I’ve been disappointed in some of my relationships with the brightest and most gifted minds out there, who received the best educations in the world. Many of these very smart individuals never learned to think for themselves, and became addicted to the adulation and praise from others for doing well by somebody else’s standards. By the time they realize that a job at Google or JP Morgan isn’t quite the promised land, many don’t have the will or mental road map to do anything but grind out a 40 year career that doesn’t quite meet their high expectations set in youth.

There is nothing wrong with getting great grades and finding a solid starting job, let alone staying in a career that you love (even if it is at a large corporation). It’s also irresponsible to advocate for the “don’t settle for anything less than your dream job” thinking – that fool’s gold has gotten a whole different portion of the population into trouble. The point is that parents and teachers don’t distinguish that their grades and praise are guidance and means to an end, rather than the end itself. What seems problematic is that talented and driven individuals are developed into order takers, rather than leaders.

The perceived safety of a company job is extremely alluring, especially after living off of a steady paycheck for sometime. It’s such an easy path to go down because starting out, it’s very difficult to achieve a passive or side income that compares to a middle class salary. It is very easy to get “comfortable”, both in lifestyle and social perception. There are definitely times where I have told myself that a nice house, a couple of cars, and a few nice vacations would be good enough. But however tough it has been to pound into my skull, the wisdom of others has finally begun to prevail – that things do not alone buy security or happiness – in fact they tend to keep us up at night when we acquire near the limits of our means. You can live a nice lifestyle as an employee – the white picket fence and whole nine yards. However, that lifestyle is contingent upon you being valuable to a company, and your ability to fund that lifestyle is only as good as your ability to hold your sought after job. Transitioning to ownership has its own challenges, but allows you to remain accountable to yourself and shifts your incentives towards utilizing assets rather than trying to fit into somebody else’s picture. As the shelf life of specialized skills diminishes shorter and shorter, the staying power of assets and relationships grows more attractive. Ironically, playing offense by seeking your own opportunities may be the diversification you need to buffer your day job earnings and protect you in a downturn. If headwinds to employment are so strong, then why not try your hand in ownership?

Thinking Like an Owner

To augment your financial and career prospects through ownership does not require you to have an LLC or to own real estate. You don’t need employees, and you definitely don’t need a storefront or company car. Some of the wealthiest people own none of these things. They hold the rights to systems and brands, or they might own financial assets. Being an owner does not even require that you need to be an executive or leader – despite the relentless flaunting of eccentric tech billionaires in the business press. Instead, successful ownership relies on a way of thinking – that opportunities are there for the taking and not for you to be given. That short term sacrifices can be turned into long-term rewards. That a sense of autonomy outweighs the comfort of being given orders to execute.

Values like frugality, patience, and fiscal conservatism don’t require a certain net worth, but they do offer a bridge to ownership. Becoming an owner is not exclusive of employment. You can enjoy the benefits of both as you approach a stage where you have the luxury to choose one or the other in a more permanent sense. Taking ownership of our futures frees us from day-to-day distractions and can prevent us from compromising ourselves for economic gain.

Successful owners tend to think differently than employees. For one, employees fight to justify their purpose and responsibilities, while many owners will gladly hand off responsibilities to somebody who can do a job better than they can. I’ve worked with a number of people who have “boobie trapped” their roles to insulate themselves from layoff or firing. This might include refusing to train others, leaving no documentation on their work, or making cryptic threats about sabotaging a process if their job is threatened. What I find is that such protections are very effective, as managers do not want to default on their day to day operations, but only for a short time. In my brief tenure in the workforce, I have seen that these people aren’t the ones promoted, and they stay in their jobs until a consultant or other employee quietly figures out how to do what they’ve been hiding from everyone else. I do feel bad that they are compelled to make this choice – to preserve their jobs through obfuscation and warnings of mutually assured destruction. It feels like an act of surrender, where the worker refuses to grow, and cuts off any chance of promotion to hold onto what they currently have. The saddest part is that I could see the same thing happening to me if I stay in the workforce for 15 more years on payroll. Despite my love for learning, I have no doubt that new technology will rapidly speed up the education of tomorrow’s newcomers to the workforce. Whether I’d do something I’m not proud of to keep my place or not, I can only speculate, but I’m convinced that the pressure will only mount for tomorrow’s workforce to hold a job. Let’s hope I’m wrong, and I don’t plan to be an employee long enough to find out.

Conversely, I was surprised at first to discover that many business owners have an ego detached from any sort of low level task. After surveying business owners in my local area, I detected a much higher level scope of thinking – less attached to any sort of daily responsibility. They just wanted the the trains to run on time, and would often hire someone to ensure that. These owners were more concerned with the vision and the brand of a company, rather than how well they did on a project or their sales territory. They let managers and employees sort that out, and guided the team in the right direction.

Another difference between the employee’s mindset and the owner’s is a focus on investment versus consumption. Most business models required constant improvement and tweaking. Money made from a business must in portion be returned to support that endeavor further. Even savvy owners who create passive schemes usually need to reinvest some sort of time or money to preserve or grow the business. This usually comes before vacations, going out three days a week, or a nice new car. I’m not saying that business owners fail to afford themselves these things, just that they must come after the enterprise is nourished. This is more out of necessity than anything else from my observation, since a business owner who fails to invest resources loses their means of income. At that point, cutting back on lifestyle is not even enough to prevent insolvency.

On the flip side, my experience with colleagues and acquaintances has been that earnings are spent on consumption. Those making low incomes have no choice but to divert most of their earnings toward basic needs, as there is a certain cost of living that nobody can avoid. However, I’ve noticed a sense of struggling to get ahead among middle class workers as well. The poor in America are often criticized for a sense of entitlement, but I believe that humans more broadly struggle with entitlement. According to a 2015 Payscale survey, some two thirds of workers sampled believed they were underpaid, even when their salaries were at market rates. Even 35% of workers making higher than market salaries believed that they were paid below market. It would take a whole other article, and then some to even scratch the surface of a discussion about why our expectations tend to outpace reality – I think it’s too simple to say that all of today’s most widespread complaints are legitimate, or that everyone just needs to suck it up. Revisiting the pressure felt by my middle class colleagues and friends, as an outsider, I can see a great deal of cutting back that they could do. I think many mistake the discomfort of simplifying lifestyle with impossible barriers to getting ahead. Elon Musk does have an above average mind, but he was also willing to attempt living on one dollar of food a day for a month. I’d wager to guess that most of my peer group spends between ten and fifty dollars a day. I could go into alcohol, leisure, or housing, but I think you get the point. Most people do have room to get ahead, but will continue living paycheck to paycheck. This includes ladies and gentlemen earning six figures and beyond. The sense that we earned our paycheck, and that it’s ours may be satisfying in the short term, but it degrades our hopes of reaching an escape velocity where our earnings and investments begin to outstrip our expenses, making it easier and easier to get ahead. Virtuous habits are rewarded – instant gratification is just an escape.

One thing I will say is that I advocate for personal accountability, and that no matter how worthy a cause may be, waiting around for a political system to change things in your favor or mine is a poor strategy for getting results. If you feel like you are underpaid, this guide (Ultimate Guide to Getting a Raise and Boosting Your Income) and Ramit Sethi’s insights have literally altered the way I proceed with my career. The world is not fair, and I do sympathize for those who are left behind or are born with the deck stacked against them, but I don’t think that excludes us from making an effort to improve our situations.

Instead of cashing out earnings – invest them like an owner. Instead of giving yourself a break when you get home each night, take one evening a week to study for a certification to boost your earnings, save more, and get out of the rat race. Not everyone is paid fairly, and one way to alleviate that is to ask/work for more – another is to stop relying on a paycheck and start paying yourself with assets like a business or portfolio.

There are also more technical things that favor owners financially over employees. For instance, business and asset owners can write off certain expenses to achieve a lower tax rate than employees are charged at. Avenues such as loss harvesting, depreciation, and other expensing can leave an owner with very little in taxes to pay, even when they are yielding cash every month. Owners can also pay themselves a salary as an employee, but collect the rest of their earnings as an equity holder at the lower rate that the business is taxed at. Real estate is a great asset to hold in terms of tax advantages – these are in addition to the wealth that can be created by renting out a property over time (so long as you purchase at a reasonable price). I have at least one post on real estate investing in the works right now, and anyone who is curious at this moment can head over to for one of the best investing communities on the web. Long term capital gains taxes are lower than the rates paid by all but the lowest of tax brackets. Additionally, the relationships, purchasing power, and equity built in equipment or branding grows over your period of successfully operating. Being an owner can open doors, and there’s no need to wait until you are no longer an employee to start creating.

We are living in a world with large deflationary pressures. Technology is driving costs down, and companies, governments, and individuals have all taken on high levels of debt since the great depression. This leaves us in a period with little anticipation of inflation, explained extraordinarily well by Ray Dalio of Bridgewater Associates (the largest hedge fund out there) here: Ray Dalio – How the Economic Machine Works.
If interest rates are low, then savers and earners will continue to get burned. You won’t be able to expect raises as a given, and you’ll make very little money by keeping savings in a bank. Some assets will lose money, but a business, portfolio, or personal brand that you hold can offer the opportunity to grow beyond the challenges ahead. I look forward to your comments and thoughts below.

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