Outsiders and insiders

I recently read Y Combinator co-founder Paul Graham’s essay entitled The Power of the Marginal. It’s a long read but well worth it.

The essay uses examples to highlight the advantages and disadvantages of being an outsider versus an insider. Paul defines insiders as eminent people who have achieved success in the eyes of a large audience. While this gives them an advantage in terms of their social status, this same social status brings disadvantages. For example, they feel forced to continue to cater to the needs of that audience. There is a constant demand for their time and this makes it difficult for them to work on what may appear to be obscure projects that would otherwise make them much happier.

The fact that insiders need to balance their internal expectations of themselves with the external expectations that society imposes on them creates an opportunity for outsiders. While outsiders may not have the same resources as insiders in terms of wealth and social status, they don’t have the pressure of external expectations. This gives them two very important advantages. The first is free time, and the second is the freedom to spend that time tinkering on those projects that they find genuinely interesting.

They have the opportunity to do things that insiders, and those working at insider organizations, don’t have the time to do. While the project they’re working on may appear marginal at first, the fact that it attracted their interest suggests that, if their intuition is right, it has a high potential value. And since outsiders don’t have a lot of resources to pursue their project, they learn to do a lot with little. For example, they work in small teams. There’s less delegation and this lowers the costs of information transmission, coordination, and monitoring. This allows them to focus on getting things done.┬áBecause of the natural advantages of being an outsider, startups can succeed despite their financial and social disadvantages relative to much larger insider organizations.

Interestingly, venture investors help outsiders become insiders. We identify outsiders and equip them with the two advantages of insiders: financial resources in the form of our investment and social resources in the form of our connections.

If the founders do their job as outsiders, and we do our job as insiders, then the startups we back also become insiders. And this creates opportunities for new outsiders to emerge.

Also published on Medium.