Context: Post #5 in my sequence of private Lightcone Infrastructure memos edited for public consumption. Much of the advice in this might not apply to your situation, read with that context in mind.

Most things have diminishing marginal returns. I often repeat the Pareto Principle to others: "You can get 80% of the benefit here with the right 20% of the cost", which is a particularly extreme case of diminishing marginal returns.

But I think for much of the work that Lightcone does, the returns to effort are generally increasing, not decreasing.

To explain, let's start with the simplest toy case of a situation in which trying harder at something gets more valuable the more you are already trying: A winner-takes-all competition.

If you are in a competition where the top performer takes all winnings, then doing half as well as the other contestants predictably gets you 0% of the value. Indeed, inasmuch as you are racing against identical candidates that put in 99% of the possible effort, and your performance is a direct result of the effort you put in, all the value is generated by you going from 98% to 99%+. If you stopped at any point before then, you would gain nothing and all your effort would be wasted.

Winner-takes-all markets are particularly common in software, where the cost of distribution and the time to scale up distribution are approximately zero. If someone ships a better product than you, your users can often shift suddenly and all at once. But really almost every market is structured so that being the very best at something is a lot more valuable than being the second best. Inasmuch as performance is correlated with effort, this means the marginal returns to effort are increasing.

But winner-takes-all markets are not the only dynamic that causes increasing returns to effort. The next biggest factor is that coordination costs increase (roughly) with something like the square of the number of people involved.

Maintaining context on a project you are working on alone is easy. But when you bring someone else into the fold you suddenly have to think about how to split up the work, and coordinate on that work. This burden of coordination is often quite large. If you can avoid bringing in an extra person, the hours that you worked to prevent that are thus high return.

To make this point a different way: Imagine two people working 20 hours each, vs. one person working. A workforce of people that work 40 hours per week can tackle a much wider range of projects before they inevitably have to pay the overhead costs of coordinating. This means the labor of someone working 40 hours per week is more than twice as valuable as the labor of someone working 20 hours per week, i.e. returns to effort are increasing.

At larger scales, my guess is that the cost of naively coordinating a group of people roughly scales with the square of the number of people. Most naive coordination strategies involve keeping everyone in the loop on what everyone else is doing (resulting in n^2 messages needing to be exchanged to achieve that). To illustrate this more vividly, think about the costs of a daily or weekly all-hands/standup. An n-person meeting requires n updates, each with n people listening, resulting in n^2 minutes of time spent in the meeting.

This creates a strict upper bound on how large your teams can be without changing how you coordinate with each other: 

This graph shows how many productive work minutes you get when adding an additional person who works 40 hours a week, to a team that spends 2-60 minutes per week on each team member to keep them in sync with the rest of the team. If you spend 30 minutes of everyone's time per person to keep then in sync with everyone else, then if you try to scale that to 80 people, you have gained no productive hours, as it takes 40 hours just to keep everyone in sync with your last employee:

This is the obvious reason why we structure large organizations hierarchically and into departments, where each level of hierarchy and subteam formation reduces the amount of time we have to spend coordinating with them (while producing many other issues which I have talked about previously which cost you in different ways but usually also gets worse with each marginal employee). Evaluating the marginal coordination cost per employee for an organization that from time to time undergoes reorganizations and changes its corporate structure would be a lot more difficult, so let's for now grant the (admittedly naive) assumption that coordination costs increase continuously for each marginal employee. 

If we grant this, then this quadratic cost of course correspondingly creates (linearly) increasing marginal returns to increasing the productivity of each employee, holding a given workload fixed, as with each additional productive hour worked, you get to reduce your team size, which staves off the costs of coordination for longer:

These graphs show how much value a business of 400 employees produces (for each one of its employees, per week), assuming that they can translate one hour of effective employee effort into $100 of economic value. As you increase the number of hours each employee works, value produced increases superlinearly, producing ~$300 of value for the first 30 hours, ~$700 of value for the next 10 hours, and ~$1,667 dollars for the next 20 hours. Our assumptions imply that this specific business would not be able to pay its employees anything at all if they worked less than 20 hours as coordination costs would exceed available time.

This model suggests (and I do believe it) that if you can trade how intensely you work across different periods of your life, that you will produce more value if you make more extreme choices. Working extremely intensely for your 20s and 30s, but working very little later on, is a better (economical) choice than working normal hours for most of your life (with many many caveats, some of which I will cover in the rest of this post). 

Paul Graham covers some related ground in "How to Make Wealth": 

Economically, you can think of a startup as a way to compress your whole working life into a few years. Instead of working at a low intensity for forty years, you work as hard as you possibly can for four. This pays especially well in technology, where you earn a premium for working fast.

Here is a brief sketch of the economic proposition. If you're a good hacker in your mid twenties, you can get a job paying about $80,000 per year. So on average such a hacker must be able to do at least $80,000 worth of work per year for the company just to break even. You could probably work twice as many hours as a corporate employee, and if you focus you can probably get three times as much done in an hour. [1] You should get another multiple of two, at least, by eliminating the drag of the pointy-haired middle manager who would be your boss in a big company. Then there is one more multiple: how much smarter are you than your job description expects you to be? Suppose another multiple of three. Combine all these multipliers, and I'm claiming you could be 36 times more productive than you're expected to be in a random corporate job. [2] If a fairly good hacker is worth $80,000 a year at a big company, then a smart hacker working very hard without any corporate bullshit to slow him down should be able to do work worth about $3 million a year.

Like all back-of-the-envelope calculations, this one has a lot of wiggle room. I wouldn't try to defend the actual numbers. But I stand by the structure of the calculation. I'm not claiming the multiplier is precisely 36, but it is certainly more than 10, and probably rarely as high as 100.

If $3 million a year seems high, remember that we're talking about the limit case: the case where you not only have zero leisure time but indeed work so hard that you endanger your health.

Startups are not magic. They don't change the laws of wealth creation. They just represent a point at the far end of the curve. There is a conservation law at work here: if you want to make a million dollars, you have to endure a million dollars' worth of pain. For example, one way to make a million dollars would be to work for the Post Office your whole life, and save every penny of your salary. Imagine the stress of working for the Post Office for fifty years. In a startup you compress all this stress into three or four years. You do tend to get a certain bulk discount if you buy the economy-size pain, but you can't evade the fundamental conservation law. If starting a startup were easy, everyone would do it.

And at this point I do have to issue a warning. Lightcone does not appear to be the kind of project that becomes exit-ready for you in 4 years. While I think the value we provide for the world is enormous, giving your all for 4 years here will not leave you with a nest egg that will last you the rest of your life and allow you to relax. Such is the fate of working in charity instead of business. This should obviously reduce your willingness to invest in Lightcone the way you would invest in co-founding a startup. 

Meta: The below is more directly aimed at Lightcone employees, but I actually think it generalizes quite well! Beware of people telling you that it is of great importance to invest more into their specific project and to abandon your other responsibilities. There be many skulls on this path.

I do believe the things I am saying here, but I would be reckless if at this point I didn't highlight the obvious fact that I, as your boss, will tell you that working more intensely, and investing more intensely into the company, will be good for you. Ultimately, how much you decide to invest into Lightcone is a negotiation between you and the organization, and of course I, as the person with the most control, will have many reasons to arrive at the conclusion that the right choice for you, my dear friend, is to give it all up for the company.

And indeed, if an alternative to working at Lightcone comes around, or some other priority in your life starts looming larger, I think the arguments here bite against working here and to invest more into those other things. Do those things with the intensity that you brought to working here. Do not spread yourself thin. And even more importantly, do not forget to explore. 

While locally each unit of effort might pay off more than the previous unit, you need to invest enough into search and exploration to find the right place to invest your efforts, which at a global scale, is still a much stronger predictor of a life well-lived than how hard you worked (even though both are IMO crucially important). So if you find that working intensely at Lightcone for a long time is making you worse at knowing that this is really the right place to invest so much in, then I encourage you to work marginally less, and spend more time exploring.

For example, I actively support creating space for people to work trial at other organizations while you work at Lightcone. You of course shouldn't expect that you can spend >20% of your weeks trialing at other places, but honestly, 5% (i.e. 2-3 weeks a year) doesn't seem crazy to me. 

Now, it's also important to clarify when it is not the case that marginal returns to effort are increasing, as often they are not. 

Some common situations where you should expect marginal returns to effort to be decreasing instead:

• You are working on a project that is not very coordination-bottlenecked and are trading off hours with a more coordination-focused bottleneck
• You are in a market with high distribution costs and sublinear returns to quality
• You are producing some input into a project that has diminishing effects on the project, and your efforts aren't fungible with other work that is more of a bottleneck
• You are getting something out of a project that you have diminishing marginal value in, more so than increasing your effort can compensate for (e.g. money in many cases)

Within your work at Lightcone, you will often want to half-ass a project. And sometimes even the total of all responsibilities given to you at Lightcone will not benefit that much from marginal effort. The times during which that happens are often good times to relax, explore more, and stock up energy for the times when the returns to effort be increasing again.