Zero to One(R)

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##Zero to One: Notes on Startups, or How to Build the Future

ISBN: 0804139296 READ: 2014-10-8 RATING: 9/10

Peter Thiel cofounded PayPal, Palantir and is a legendary entrepreneur and investor. In this book, he shows how we can find singular ways to create those new things.

Here is his talk in YC’ How to Start a Startup: Business Strategy and Monopoly Theory

  • EVERY MOMENT IN BUSINESS happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.

  • Of course, it’s easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.

  • Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

  • The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist;

  • If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress.

  • At the macro level, the single word for horizontal progress is globalization—taking things that work somewhere and making them work everywhere.

  • The single word for vertical, 0 to 1 progress is technology.

  • 1815 to 1914 was a period of both rapid technological development and rapid globalization. Between the First World War and Kissinger’s trip to reopen relations with China in 1971, there was rapid technological development but not much globalization. Since 1971, we have seen rapid globalization along with limited technological development, mostly confined to IT.

  • New technology tends to come from new ventures—startups.

  • The easiest explanation for this is negative: it’s hard to develop new things in big organizations, and it’s even harder to do it by yourself. Bureaucratic hierarchies move slowly, and entrenched interests shy away from risk.

  • At the other extreme, a lone genius might create a classic work of art or literature, but he could never create an entire industry. Startups operate on the principle that you need to work with other people to get stuff done, but you also need to stay small enough so that you actually can.

  • Startups operate on the principle that you need to work with other people to get stuff done, but you also need to stay small enough so that you actually can.

  • Dot-com mania was intense but short—18 months of insanity from September 1998 to March 2000.

  • But it’s hard to blame people for dancing when the music was playing.

  • Four big lessons from the dot-com crash: 1. Make incremental advances;2. Stay lean and flexible;3. Improve on the competition;4. Focus on product, not sales.

  • The most contrarian thing of all is not to oppose the crowd but to think for yourself.

  • The airlines compete with each other, but Google stands alone. Economists use two simplified models to explain the difference: perfect competition and monopoly.

  • If you want to create and capture lasting value, don’t build an undifferentiated commodity business.

  • In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can’t. In perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.

  • Monopoly is the condition of every successful business.

  • All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.

  • This is a simple truth, but we’ve all been trained to ignore it. Our educational system both drives and reflects our obsession with competition. Grades themselves allow precise measurement of each student’s competitiveness; pupils with the highest marks receive status and credentials.

  • Just as war cost the Montagues and Capulets their children, it cost Microsoft and Google their dominance: Apple came along and overtook them all. In January 2013, Apple’s market capitalization was $500 billion, while Google and Microsoft combined were worth $467 billion. Just three years before, Microsoft and Google were each more valuable than Apple. War is costly business.

  • Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

  • For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth.

  • Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.

  • As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.

  • This is why successful network businesses rarely get started by MBA types: the initial markets are so small that they often don’t even appear to be business opportunities at all.

  • A monopoly business gets stronger as it gets bigger: the fixed costs of creating a product (engineering, management, office space) can be spread out over ever greater quantities of sales. Software startups can enjoy especially dramatic economies of scale because the marginal cost of producing another copy of the product is close to zero.

  • When Steve Jobs returned to Apple, didn’t just make Apple a cool place to work; he slashed product lines to focus on the handful of opportunities for 10x improvements. No technology company can be built on branding alone.

  • The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors. Any big market is a bad choice, and a big market already served by competing companies is even worse.

  • The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

  • As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.

  • You’ve probably heard about “first mover advantage”: if you’re the first entrant into a market, you can capture significant market share while competitors scramble to get started. But moving first is a tactic, not a goal.

  • Startup messed up at its foundation cannot be fixed.

  • When you start something, the first and most crucial decision you make is whom to start it with. Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce.

  • •Ownership: who legally owns a company’s equity? • Possession: who actually runs the company on a day-to-day basis? • Control: who formally governs the company’s affairs?

  • In the boardroom, less is more. The smaller the board, the easier it is for the directors to communicate, to reach consensus, and to exercise effective oversight.

  • If you want that kind of free rein from your board, blow it up to giant size. If you want an effective board, keep it small.

  • A startup is a team of people on a mission, and a good culture is just what that looks like on the inside.

  • From the outside, everyone in your company should be different in the same way. On the inside, every individual should be sharply distinguished by her work.

  • The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing.

  • Nerds are used to transparency. They add value by becoming expert at a technical skill like computer programming. In engineering disciplines, a solution either works or it fails. You can evaluate someone else’s work with relative ease, as surface appearances don’t matter much. Sales is the opposite: an orchestrated campaign to change surface appearances without changing the underlying reality. This strikes engineers as trivial if not fundamentally dishonest. They know their own jobs are hard, so when they look at salespeople laughing on the phone with a customer or going to two-hour lunches, they suspect that no real work is being done. If anything, people overestimate the relative difficulty of science and engineering, because the challenges of those fields are obvious. What nerds miss is that it takes hard work to make sales look easy.

  • All salesmen are actors: their priority is persuasion, not sincerity.

  • Like acting, sales works best when hidden.

  • A product is viral if its core functionality encourages users to invite their friends to become users too.

  • Properly understood, technology is the one way for us to escape competition in a globalizing world.

  • Why do so many people miss the power of complementarity? It starts in school. Software engineers tend to work on projects that replace human efforts because that’s what they’re trained to do. Academics make their reputations through specialized research; their primary goal is to publish papers, and publication means respecting the limits of a particular discipline. For computer scientists, that means reducing human capabilities into specialized tasks that computers can be trained to conquer one by one.

  • Most cleantech companies crashed because they neglected one or more of the seven questions that every business must answer:
    • The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
    • The Timing Question: Is now the right time to start your particular business?
    • The Monopoly Question: Are you starting with a big share of a small market?
    • The People Question: Do you have the right team?
    • The Distribution Question: Do you have a way to not just create but deliver your product?
    • The Durability Question: Will your market position be defensible 10 and 20 years into the future?
    • The Secret Question: Have you identified a unique opportunity that others don’t see?
    • Great companies have secrets: specific reasons for success that other people don’t see.
  • Doing something different is what’s truly good for society—and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve.

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