Here’s an entire class of approaches that I never hear about Silicon Valley types attempting. Perhaps that’s because there isn’t any money to be made there, or perhaps it’s because the problems aren’t as interesting or fun. Mostly though, I think it’s just salience of the problems. It’s the p<10^45 filter that Scott Alexander discusses in I can tolerate anything but the outgroup. But before I try and shed some light on the other side of the filter, let me describe why that category might be a bad place for a startup, and why you should do it anyway.
Broadly speaking, I would suggest you look at how the poor and working class spend their money, and try to find ways to make that radically cheaper or better. I suspect that entrepreneurs focusing on servicing the wealthy are a big reason why standard of living hasn’t gone up anywhere near as fast as the economy has grown. (Don’t get me wrong, things are better than they’ve ever been for most people, but there’s more money to be made by innovating on what the rich want than by improving things for the poor, so innovation is disproportionately focused on people who already have a high standard of living. Even if innovation on yachts eventually trickles down to affordable motor boats for the middle class, that does next to nothing for someone struggling to make rent.)
If I make $10k a year, maybe $4,200 will go to rent if I have my own room at $350/month. Food is next, then miscellaneous expenses like ATM fees, credit card debt, gas money, clothing, etc. If I make a little more, I might buy drugs or alcohol to take the edge off. More still, and I could fix a clunker and have my own car, and maybe be able to get a job that I don’t have a way to walk or get a ride to. (But if the car ever breaks down, I’d likely get fired for not showing up.) If I’m doing pretty well, maybe I’ll get luxuries like internet, phone, and health insurance.
This Pareto chart perspective suggests solutions. Income is the biggest problem, followed by rent, then all the miscellaneous necessities, then the luxuries and things to help advance in the future. I’ll discuss income first.
The root cause of pretty much all the problems is that there isn’t much demand for unskilled labor, so it’s hard to get more than 20 hours a week. If you go this route, you could help the most people by sending the jobs overseas. Once we lift the rest of the world out of poverty, maybe things will start getting better in the US. To tide us over though, it would be nice to have some jobs which are local by necessity. The service industry and construction have filled that niche, but they may be automated in the near future.
Automating construction might be a net good though, since it should make housing cheaper. There’s no shortage of space, and land is far cheaper than the house you put on it, so I assume the cost of making a trailer is what’s driving rent prices. If we could make much more durable trailers for the same price, or make ones that rot out just as quickly but are an order of magnitude cheaper, that should drive down rent prices.
Maybe it’s maintenance costs, though. I don’t think I’ve ever rented a house without mold issues and plumbing leaks. Why not build homes out of antibacterial material? I’ve always wondered why it’s so difficult to seal a basement properly. Maybe it isn’t, but the house cracks as the foundation settles. Is this for a dumb reason, like that cement without rebar is a little cheaper than with? Maybe an effective business plan would be to be a one-stop-shop for landlords and construction/maintenance, in order to make sure things get done right instead of cheap. Offer to do all inspection and maintenance for a set price per year, and make the money back in long term contracts by doing things right. Or maybe Yelp reviews are just a poor measure of the durability of craftsmanship, and so are useless for landlords trying to compare construction companies. It would be useful to have a way to determine who’s overcharging and who is legitimately doing better work. Same for car repair.
Moving down the ladder, food and miscellaneous expenses seem difficult to make much cheaper. (Although poor nutrition is a legitimate issue, even if most things marketed as nutritious are essentially scams.) With luck, marijuana legalization will give people a less harmful and cheaper way of escaping from reality for a bit. It would be interesting to see whether states where it has been legalized have seen an increase or decrease in use of alcohol and harder drugs. Is pot a gateway drug or a safer alternative?
Bitcoin has helped lower transaction fees in the third world, but hasn’t done much in the US yet. Cashing paychecks is expensive when there’s only 1 place in town to do it, and signing up for a bank account will just hit you with different fees. Both these will eat a couple percent of each paycheck. More credit unions would be a big deal, since this would give people a way to save or even invest. (Putting money in the bank is probably a dumb idea for most people.) A thought occurs to me here, though. Mine will deposit a check if I take a picture of it in their app, but that requires an expensive smartphone. Maybe it would be possible to make a paycheck-to-bitcoin service for people without a bank or phone? That would also give people the ability to buy and sell things online, if they have dialup or a phone. (Most places don’t have cable, but sometimes you can get free WiFi in things like hotel parking lots, if you live near a big enough town to have both cable and hotels.)
Moving on to non-essential items, we have cars and car repair. I can’t picture Uber ever being a big thing for the same reason there aren’t taxis anywhere but cities. Maybe self driving cars will change that, or maybe not. Maybe it’ll help people in cities, but they already have public transit. It might let cities can their public transit programs though, which would make them less of a tax burden on everyone who pays for them but doesn’t live in a city. I’d have to look up some figures to double check, but generally speaking cities get a disproportionately large amount of tax revenue pumped into them.
I suspect this may be a foreign concept for some, so let me make a hand-waving explanation. If the biggest cities in a state can get 51% of the vote, they can move most of the funding toward their home districts and suck the rest of the state dry. Politicians are almost always from the largest districts, so that means money is destined to move from the country to the cities. I think this is a big driver of Scott Alexander’s red tribe/blue tribe dynamic. It’s why country folk hate city folk so much, why they are so fiercely self-sufficient, and why they hate big government so much. They just never see any of the benefits themselves. (Yes I realize that city people joke about country folk being paranoid that the government is going to take their guns, or is out to get them. But, while it’s not as much of a conspiracy as most seem to think, there really are strong economic forces keeping them down.) Perhaps solving these problems would be necessary to keep the world’s nuclear powers politically stable.
One solution is to increase local town’s abilities to be self-sufficient as the big industries move out, and as service jobs disappear. Another is to find ways of making transactions without exchanging money, or off the books, so that it can’t be taxed. I’m not sure if workarounds to minimum wage laws are a net good, but Craigslist and eBay are popular for that reason.
Perhaps inner city poverty really is more severe, but I suspect that country poverty is more neglected. It also seems more tractable to me, but I’m only familiar with the rural first world, and I suspect the bulk of the good one could do would be in the third world. However, a priori it seems like cities don’t have any resources, while in the country there’s no shortage of rocks for concrete or timber for construction. There are more of these sorts of natural resources than we could ever possibly use, so it seems like it should be a solvable problem to get poor people the necessities they need to live.
So, attacking these sorts problems may not be optimal for revenue maximization, if your aim is to earn to give or something. It might be neglected enough to still be a good investment, though, due to the p<10^45 filter. If not, it still might be a good way to fund the development of technologies that actually do help people, and actually do change the world. There’s almost zero money in developing tools to sell to people in the third world, but if the first world has similar problems that might be enough to pay for the development of solutions.
Disclaimer: I’m not positive about several of the things I suggest here. I’m mostly just trying to convert the bits of common knowledge that I ordinarily wouldn’t think to question into an intellectual format. I’m trying to phrase things in such a way that someone can still get the gist even without the personal experiences to instantly think of examples of exactly what I’m talking about. If there are studies showing I’m wrong in some of these areas, I’d be curious to know. If so, at least maybe the Red Tribe makes a little more sense to people.
Automating construction might be a net good though, since it should make housing cheaper. There’s no shortage of space, and land is far cheaper than the house you put on it, so I assume the cost of making a trailer is what’s driving rent prices. If we could make much more durable trailers for the same price, or make ones that rot out just as quickly but are an order of magnitude cheaper, that should drive down rent prices.
This is what I have gathered:
Finding housing is not the hard problem. The hard problem is finding housing in a place you actually want to live. If you’re willing to live anywhere in America, there are lots of dying cities with abandoned houses for you to squat in. But you’re not going to get a job in those cities.
The reason housing is expensive in the places you want to live is because there are laws that restrict the creation of new housing (either directly or by making construction expensive through regulation). The reason those laws are in place are because of a mixture of
rent seeking on the part of existing homeowners who want to maintain the value of their houses
people who want the place they live to continue to be a nice place to live, and ability to afford expensive housing is the only means by which they are allowed to discriminate against people who will change that
Creating jobs doesn’t look to me like a task for a startup. Every startup that works automatically creates good jobs.
With luck, marijuana legalization will give people a less harmful and cheaper way of escaping from reality for a bit.
The evidence doesn’t suggest that marijuana legalization increases consumption.
Mine will deposit a check if I take a picture of it in their app, but that requires an expensive smartphone.
You get an Android smartphone for 29.99$. When the iPhone was introduced it was expensive but as technology progresses yesterday’s inventions get cheap and accessible to more people.
I’d have to look up some figures to double check, but generally speaking cities get a disproportionately large amount of tax revenue pumped into them.
Not in contrast to the tax revenue they raise. More government money get’s transferred from cities to rural parts then the other way around.
However, a priori it seems like cities don’t have any resources, while in the country there’s no shortage of rocks for concrete or timber for construction
Shipping rocks around is cheap. Inventing new ways of doing things with rocks is more important for generating new jobs and it’s generally done in cities where people with different ideas and skills congregate.
Thanks. Your 1st 4 comments look spot on. I was skeptical of the 4th one until googling it:
More government money get’s transferred from cities to rural parts then the other way around.
I was unsure whether the effect I claimed was as large as commonly believed, but I didn’t expect it to be outright false. I’ve found a couple thing confirming your point, and a likely bias page complaining that per capita spending is less in rural areas. Even if that’s true, it would just mean that rural areas collectively weren’t earning enough to pay their “fair share” in taxes. Not exactly prime material for the red tribe narrative.
Shipping rocks around is cheap
As I understand it, the price of things like gravel goes up pretty linearly with the distance to the nearest quarry. But the broader point is valid for lighter materials that you need less of to make something. I’m not sure which category concrete falls into. Ceramics are fairly dependent on use. There’s nothing wrong with shipping ceramics for space shuttle tiles or semiconductors around the world. That’s a bigger issue for large products with higher tighter profit margins.
When Mao prepared his Great Leap forward he thought that it doesn’t make sense to have the factories in the cities. He thought it would be much better to move them to the country-side.
That was one of the worst economic decisions in history, because a lot of those relocated factories stopped working.
It turns out that having factories near other factories is useful. Millions starved.
These days we know how to run a steel mill or a car man well enough to have it in a rural area but in the beginning they had to be in cities.
To make money as a startup, you need large margins above the marginal cost. You have to cover not only the development costs, but also the many iterations of development, marketing, and branding it will take to find the winning combination. The established competition doesn’t have this problem—they have a product and brand, they’ve already paid off the development costs, so they are happy to charge at marginal cost + a small profit. You on the other hand need to charge a high premium for your service, at least while starting out.
Guess who is really sensitive about costs, and will always pick the cheaper option? Poor people. Poor people will not pay more money to try your product. And because your costs are higher (until you reach scale), you can’t afford to charge less money.
Here’s an entire class of approaches that I never hear about Silicon Valley types attempting. Perhaps that’s because there isn’t any money to be made there, or perhaps it’s because the problems aren’t as interesting or fun. Mostly though, I think it’s just salience of the problems. It’s the p<10^45 filter that Scott Alexander discusses in I can tolerate anything but the outgroup. But before I try and shed some light on the other side of the filter, let me describe why that category might be a bad place for a startup, and why you should do it anyway.
Broadly speaking, I would suggest you look at how the poor and working class spend their money, and try to find ways to make that radically cheaper or better. I suspect that entrepreneurs focusing on servicing the wealthy are a big reason why standard of living hasn’t gone up anywhere near as fast as the economy has grown. (Don’t get me wrong, things are better than they’ve ever been for most people, but there’s more money to be made by innovating on what the rich want than by improving things for the poor, so innovation is disproportionately focused on people who already have a high standard of living. Even if innovation on yachts eventually trickles down to affordable motor boats for the middle class, that does next to nothing for someone struggling to make rent.)
If I make $10k a year, maybe $4,200 will go to rent if I have my own room at $350/month. Food is next, then miscellaneous expenses like ATM fees, credit card debt, gas money, clothing, etc. If I make a little more, I might buy drugs or alcohol to take the edge off. More still, and I could fix a clunker and have my own car, and maybe be able to get a job that I don’t have a way to walk or get a ride to. (But if the car ever breaks down, I’d likely get fired for not showing up.) If I’m doing pretty well, maybe I’ll get luxuries like internet, phone, and health insurance.
This Pareto chart perspective suggests solutions. Income is the biggest problem, followed by rent, then all the miscellaneous necessities, then the luxuries and things to help advance in the future. I’ll discuss income first.
The root cause of pretty much all the problems is that there isn’t much demand for unskilled labor, so it’s hard to get more than 20 hours a week. If you go this route, you could help the most people by sending the jobs overseas. Once we lift the rest of the world out of poverty, maybe things will start getting better in the US. To tide us over though, it would be nice to have some jobs which are local by necessity. The service industry and construction have filled that niche, but they may be automated in the near future.
Automating construction might be a net good though, since it should make housing cheaper. There’s no shortage of space, and land is far cheaper than the house you put on it, so I assume the cost of making a trailer is what’s driving rent prices. If we could make much more durable trailers for the same price, or make ones that rot out just as quickly but are an order of magnitude cheaper, that should drive down rent prices.
Maybe it’s maintenance costs, though. I don’t think I’ve ever rented a house without mold issues and plumbing leaks. Why not build homes out of antibacterial material? I’ve always wondered why it’s so difficult to seal a basement properly. Maybe it isn’t, but the house cracks as the foundation settles. Is this for a dumb reason, like that cement without rebar is a little cheaper than with? Maybe an effective business plan would be to be a one-stop-shop for landlords and construction/maintenance, in order to make sure things get done right instead of cheap. Offer to do all inspection and maintenance for a set price per year, and make the money back in long term contracts by doing things right. Or maybe Yelp reviews are just a poor measure of the durability of craftsmanship, and so are useless for landlords trying to compare construction companies. It would be useful to have a way to determine who’s overcharging and who is legitimately doing better work. Same for car repair.
Moving down the ladder, food and miscellaneous expenses seem difficult to make much cheaper. (Although poor nutrition is a legitimate issue, even if most things marketed as nutritious are essentially scams.) With luck, marijuana legalization will give people a less harmful and cheaper way of escaping from reality for a bit. It would be interesting to see whether states where it has been legalized have seen an increase or decrease in use of alcohol and harder drugs. Is pot a gateway drug or a safer alternative?
Bitcoin has helped lower transaction fees in the third world, but hasn’t done much in the US yet. Cashing paychecks is expensive when there’s only 1 place in town to do it, and signing up for a bank account will just hit you with different fees. Both these will eat a couple percent of each paycheck. More credit unions would be a big deal, since this would give people a way to save or even invest. (Putting money in the bank is probably a dumb idea for most people.) A thought occurs to me here, though. Mine will deposit a check if I take a picture of it in their app, but that requires an expensive smartphone. Maybe it would be possible to make a paycheck-to-bitcoin service for people without a bank or phone? That would also give people the ability to buy and sell things online, if they have dialup or a phone. (Most places don’t have cable, but sometimes you can get free WiFi in things like hotel parking lots, if you live near a big enough town to have both cable and hotels.)
Moving on to non-essential items, we have cars and car repair. I can’t picture Uber ever being a big thing for the same reason there aren’t taxis anywhere but cities. Maybe self driving cars will change that, or maybe not. Maybe it’ll help people in cities, but they already have public transit. It might let cities can their public transit programs though, which would make them less of a tax burden on everyone who pays for them but doesn’t live in a city. I’d have to look up some figures to double check, but generally speaking cities get a disproportionately large amount of tax revenue pumped into them.
I suspect this may be a foreign concept for some, so let me make a hand-waving explanation. If the biggest cities in a state can get 51% of the vote, they can move most of the funding toward their home districts and suck the rest of the state dry. Politicians are almost always from the largest districts, so that means money is destined to move from the country to the cities. I think this is a big driver of Scott Alexander’s red tribe/blue tribe dynamic. It’s why country folk hate city folk so much, why they are so fiercely self-sufficient, and why they hate big government so much. They just never see any of the benefits themselves. (Yes I realize that city people joke about country folk being paranoid that the government is going to take their guns, or is out to get them. But, while it’s not as much of a conspiracy as most seem to think, there really are strong economic forces keeping them down.) Perhaps solving these problems would be necessary to keep the world’s nuclear powers politically stable.
One solution is to increase local town’s abilities to be self-sufficient as the big industries move out, and as service jobs disappear. Another is to find ways of making transactions without exchanging money, or off the books, so that it can’t be taxed. I’m not sure if workarounds to minimum wage laws are a net good, but Craigslist and eBay are popular for that reason.
Perhaps inner city poverty really is more severe, but I suspect that country poverty is more neglected. It also seems more tractable to me, but I’m only familiar with the rural first world, and I suspect the bulk of the good one could do would be in the third world. However, a priori it seems like cities don’t have any resources, while in the country there’s no shortage of rocks for concrete or timber for construction. There are more of these sorts of natural resources than we could ever possibly use, so it seems like it should be a solvable problem to get poor people the necessities they need to live.
So, attacking these sorts problems may not be optimal for revenue maximization, if your aim is to earn to give or something. It might be neglected enough to still be a good investment, though, due to the p<10^45 filter. If not, it still might be a good way to fund the development of technologies that actually do help people, and actually do change the world. There’s almost zero money in developing tools to sell to people in the third world, but if the first world has similar problems that might be enough to pay for the development of solutions.
Disclaimer: I’m not positive about several of the things I suggest here. I’m mostly just trying to convert the bits of common knowledge that I ordinarily wouldn’t think to question into an intellectual format. I’m trying to phrase things in such a way that someone can still get the gist even without the personal experiences to instantly think of examples of exactly what I’m talking about. If there are studies showing I’m wrong in some of these areas, I’d be curious to know. If so, at least maybe the Red Tribe makes a little more sense to people.
This is what I have gathered:
Finding housing is not the hard problem. The hard problem is finding housing in a place you actually want to live. If you’re willing to live anywhere in America, there are lots of dying cities with abandoned houses for you to squat in. But you’re not going to get a job in those cities.
The reason housing is expensive in the places you want to live is because there are laws that restrict the creation of new housing (either directly or by making construction expensive through regulation). The reason those laws are in place are because of a mixture of
rent seeking on the part of existing homeowners who want to maintain the value of their houses
people who want the place they live to continue to be a nice place to live, and ability to afford expensive housing is the only means by which they are allowed to discriminate against people who will change that
Creating jobs doesn’t look to me like a task for a startup. Every startup that works automatically creates good jobs.
The evidence doesn’t suggest that marijuana legalization increases consumption.
You get an Android smartphone for 29.99$. When the iPhone was introduced it was expensive but as technology progresses yesterday’s inventions get cheap and accessible to more people.
Not in contrast to the tax revenue they raise. More government money get’s transferred from cities to rural parts then the other way around.
Shipping rocks around is cheap. Inventing new ways of doing things with rocks is more important for generating new jobs and it’s generally done in cities where people with different ideas and skills congregate.
Thanks. Your 1st 4 comments look spot on. I was skeptical of the 4th one until googling it:
I was unsure whether the effect I claimed was as large as commonly believed, but I didn’t expect it to be outright false. I’ve found a couple thing confirming your point, and a likely bias page complaining that per capita spending is less in rural areas. Even if that’s true, it would just mean that rural areas collectively weren’t earning enough to pay their “fair share” in taxes. Not exactly prime material for the red tribe narrative.
As I understand it, the price of things like gravel goes up pretty linearly with the distance to the nearest quarry. But the broader point is valid for lighter materials that you need less of to make something. I’m not sure which category concrete falls into. Ceramics are fairly dependent on use. There’s nothing wrong with shipping ceramics for space shuttle tiles or semiconductors around the world. That’s a bigger issue for large products with higher tighter profit margins.
When Mao prepared his Great Leap forward he thought that it doesn’t make sense to have the factories in the cities. He thought it would be much better to move them to the country-side.
That was one of the worst economic decisions in history, because a lot of those relocated factories stopped working. It turns out that having factories near other factories is useful. Millions starved.
These days we know how to run a steel mill or a car man well enough to have it in a rural area but in the beginning they had to be in cities.
Startup entrepreneur here.
To make money as a startup, you need large margins above the marginal cost. You have to cover not only the development costs, but also the many iterations of development, marketing, and branding it will take to find the winning combination. The established competition doesn’t have this problem—they have a product and brand, they’ve already paid off the development costs, so they are happy to charge at marginal cost + a small profit. You on the other hand need to charge a high premium for your service, at least while starting out.
Guess who is really sensitive about costs, and will always pick the cheaper option? Poor people. Poor people will not pay more money to try your product. And because your costs are higher (until you reach scale), you can’t afford to charge less money.
It’s a nice idea. It just doesn’t work.