Update: Greg Rader pointed out over email that my diagram was messed up in Economics 101 terms: the production frontier is usually convex and the utility/indifference curves concave. I had things the other way around. Total sloppiness on my part. In fixing the picture, an additional insight struck me: the normal outcome of such diagrams usually the achievable optimum somewhere in the middle, where it can “kiss” the most valuable concave utility curve. The interesting thing is that it is much easier to gamble with a surplus of money or a surplus of time, than it is to gamble with an optimal mix. This suggests WHY lifestyle design may be hard: you have to move away from your current optimum in order to gamble effectively. The normal way is to work harder than you want to, in order to accumulate the surplus money to gamble with. Lifestyle design moves away from the optimum in a different direction.
I’ve been thinking and writing about the idea of lifestyle businesses and lifestyle design for several years now, and attempting to actually play the game for a few months. It is not easy, and I have not been satisfied with how others have been framing the subject. In particular, I have been disturbed by the “anyone can do this, guaranteed” attitude of cheery optimism around the subject. Unqualified optimism of any sort immediately makes me skeptical. Perhaps this is because I am an engineer both by training and philosophical inclination. Engineering knowledge is usually expressed in terms of fundamental limits, conservation laws and constraints. So it was natural for me to frame the challenge of lifestyle design for myself with this time-money Pareto frontier diagram.
I’ve been criticized in the past for talking a lot about lifestyle design, and critiquing others’ ideas, but never actually adopting a definite position myself. So I am about to start taking one. In honor of my new home and the central role of gambling and risk-taking in my model, I am calling it the Las Vegas Rules.
I am going to bite off one little piece at a time, and point out differences compared to other models as I go along. This time, I just want to talk about the role of gambling in lifestyle design.
The Gambler’s Frontier
For those of you who are not familiar with the concept, a Pareto frontier represents a tradeoff constraint between two or more variables, time and money in this case. If you are inside the boundary, you can increase both money and time in deterministic ways until you hit the frontier, but if you are on the frontier you can only increase time at the expense of money, and vice versa. There is only one way to break out to the promised land beyond the Gambler’s Frontier, where you can have both money and time, and that is to gamble.
The red arrow is the new element in the picture, historically speaking, and represents my definition of lifestyle design: lifestyle design is gambling with time.
I’ll unpack that definition as I write more about this subject, but the basic idea is that the time-rich/cash-poor have an opportunity to gamble and place bets in ways they were never able to before. To repeat the biggest cliche in the lifestyle design movement, all you need is a laptop and an Internet connection.
Blogging is time-gambling. Answering questions on Quora or Stack Overflow is time-gambling. Fixing bugs in an open-source movement is time-gambling.
Money gambling generally yields direct returns in the form of cash flows. Time gambling generally yields indirect returns in the form of captive attention and social capital, which isn’t particularly easy to turn into cash, but it can be done (in very direct ways, as you guys have helped me demonstrate, to the tune of about $1800 so far, for 2011).
The indirect value is even higher, but more uncertain (all the consulting leads I’ve received have been directly or indirectly a result of this blog).
I think the reason so many people are over-optimistic about the potential of lifestyle design and lifestyle businesses is that they underestimate the amount of gambling involved. So it is important to understand what it means to gamble in this context.
The Basics of Gambling
Gambling is decision-making under conditions of information deficit. When you’ve squeezed all you can out of what you know and are left with noise, and still have choices left to make, and end up choosing randomly, you are gambling.
Gambling is for people who are out of ideas, but have resources left to invest.
This sounds terrible, but having a mind free of ideas and resources left to play with is one good definition of liberty. To have ideas without resources to place bets, is to be trapped.
There are two kinds of resources you can gamble with: time and money. It used to be much easier to gamble with money than with time. That is what has changed in recent times, hence my definition.
Newbie drinkers of the 4-hour Kool-Aid don’t seem to get this. They think lifestyle design is a guaranteed path out of their crappy lives in cubicle prisons and the burden of the middle-class life script, mortgage and all. A question I recently answered on Quora very clearly reveals the mental model many people have: Is it hard to build, market and maintain a web app that makes at least $1000 a month?
The question is heartwarming. It showcases a simple aspiration, a desire for a reasonable lifestyle based on trading time and creative effort for an income-generating capital asset and autonomy.
The goal is modest: a mere $1000/month passive cash flow, not millions. Just about enough to live very comfortably in (say) Bali, a place that have achieved a sort of mythic Shangri-La/El Dorado status for the lifestyle-design crowd.
What struck me very forcefully about the question was the extent to which it failed to acknowledge that any business idea is a gamble.
Without an element of gambling, the sort of lifestyle design model implicit in the question is far worse than the regular middle class lifestyle. If you are not willing to gamble, you shouldn’t attempt lifestyle design. Your paycheck is a much better deal. Engineers make this mistake most often; they assume that marketing is 99% a matter of pure skill, like engineering, that you can always lower the uncertainty by thinking harder and smarter. They don’t realize that marketing is at least 50% gambling. When you’ve done all the smartest marketing thinking you are capable of, half your uncertainty is still there. The best you can do is choose randomly.
You can tell an engineer asked this question even without reading further, because the question asks about how hard the work is. The gambler/marketer version of such questions is always how lucky do you have to be? The engineer asks about effort. The gambler/marketer asks about odds, and picks the game with the most favorable odds that he can find. 2/3 is better than 1/2. If I’d asked the question, I’d have phrased it as: how many apps do you have to publish in order to be fairly sure of having at least one hit that makes $1000 or more a month?
Lifestyle design isn’t a path to freedom. It is an opportunity to gamble your way to freedom. Which means you can lose, and end up worse off than if you had taken the traditional paycheck route. But unlike in the middle-class paycheck life, you have a non-zero chance of coming out on top.
A Slightly Malevolent Universe
Your attitude towards gambling naturally encompasses your views about the benevolence or malevolence of the universe. If you think random moves always pay off, you believe in a benevolent universe. If you believe they always backfire, you believe in a malevolent universe. I believe in a slightly malevolent universe. One where random moves backfire slightly more often than they pay off. I have a whole pseudo-scientific theology behind this belief, based on the laws of thermodynamics.
When you play against the universe, you may win occasionally in the short term, but over time, the slight edge that malevolence has will defeat you. If you can stay ahead for a human lifetime, you’re done. This is one reason why gambling games have such a primal appeal for us. They seem to mimic the universe.
When I arrived at this gambling-based definition of lifestyle design after some tortuous thinking, I felt a sense of relief. Here was a definition a no-free-luncher like me could live with. There were no perpetual motion machines here.
In writing my answer to the Quora question, I had to make up a reasonable comparison with a paycheck lifestyle. Working through some back-of-the-envelope numbers for the answer, I was struck by two things: just how truly confining the standard American middle-class life script is, and just how much money it takes to break it if you want to avoid the “design” part of lifestyle design and simply find a different way to pay for the same script.
The odds of lifestyle design time-gambling are stacked in such a way that you MUST break the middle-class life script, at least temporarily, in order to have a shot at coming out on top.
Middle-class life scripts emerge from a more basic implicit construct I’ll call the middle-class social contract. I’ll cover those next time. Breaking the script is about wriggling out of the contract.
Yes, I am starting a new series. And yes, there’s a danger I might abandon it halfway, either because I can’t keep it going, or because the model fails for me, or because it doesn’t do well enough to be worth continuing. It’s a time-gamble.