# Most successful entrepreneurship is unproductive

Suppose Fred opens up a car repair shop in a city which has none already. He offers to fix the vehicles of Whoville and repair them for money; being the first to offer the service to the town, he has lots of happy customers.

In an abstract sense Fred is making money by creating lots of value (for people that need their cars fixed), and then capturing some fraction of that value. The BATNA of the customers Fred services was previously to drive around with broken cars, or buy new ones. As a result of his efforts, Whoville as a town can literally afford to spend less time building or purchasing cars. 

But then let's say Tom sees how well Fred is doing, and opens up an identical car repair business ~1 mile closer to the city center. Suddenly most of Fred's customers, who use a simple distance algorithm to determine which car repair business to frequent, go to Tom. 

Now, Tom has certainly provided his customers a bit of value, because it is nicer to be closer to the city center. But the marginal value he's provided to Whoville isn't nearly enough to account for the value of his new business. Mostly, Tom has just engineered a situation where customers that previously patronized a business owned by Fred now patronize his. 

In fact, if there were fixed costs involved in building the shop that exceeded the value of the shorter travel distance, society as a whole might literally be net-poorer as a result of Tom's efforts. This is all true in spite of the fact that the business itself has no negative externalities and appears productive to external observers. Tom's business *once created* is a productive one, but the *decision to start a new business* was rent-seeking behavior.

Most new businesses tend to be rent-seeking in this sense. That's because it's much easier to make a slightly more enticing offer than your competitors, than it is to innovate so much that you can pay yourself from the surplus. Consider:

*   The venture capitalist who optimizes his due diligence process to spot new seed-stage startups a couple weeks earlier than others can. He's not any better at picking startups, and he's selling an undifferentiated commodity (money), yet he's able to snap up many of the obvious opportunities by leveraging a suite of social media crawlers. The founders shrug and take the same money they would have accepted a month, but the VC becomes very rich.
*   The sushi restauranteur who creates the 11th sushi chain in downtown SF. He labors all day on his product, just like the rest of the restaurant owners. The sushi is only slightly better, enough to grow the market by 2%, but the net result of his marketing is that 15% of the rest of the city's customers move to him.
*   The technology founder who starts the third payroll company. By [hook or by crook](https://techcrunch.com/2025/06/05/rippling-calls-deel-a-criminal-syndicate-and-claims-4-other-competitors-were-spied-on-too/), he manages to snag a portion of their competitors' important leads. The startups for whom payroll software is an afterthought don't really care, but they go with the company in front of them, and the business succeeds on the back of revenue that would have gone to others.

In all of the above cases, the businesses aren't extracting money from the *consumer*, who is either unaffected or mildly privileged by the competition. But they're not creating value either. They're just pulling money from other entrepreneurs & shareholders of already-existing competitors. 

Most businesses are like this, but not all. Consider:

*   **Google**; almost tautologically, the market size of "search" as a category when Google was founded was orders of magnitude smaller than it is today, so while they originally competed with an existing incumbent, mostly they've captured new value they've created. 
*   **AirBNB**; while their users are taking some business from providers of short-term rentals, most of the effect of AirBNB is to create new housing supply and then, protected from extractive entrepreneurship by network effects, extract a small fee for it.
*   **Nvidia;** the gap between using CPUs and using GPUs for AI & graphics processing is so large that there was basically no "alternative" to Nvidia for its current enterprise applications. The kinds of work that GPUs are now applied to simply didn't get done before they existed. 

The largest technology companies tend to be obviously not rent-seeking in retrospect, partly because their market caps are so high that they literally could not have pulled money any other way.