Zero To One by Peter Thiel

If you are copying these guys, you aren’t learning from them.

The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.

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.

Horizontal or extensive progress means copying things that work—going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things—going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done.

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

Spreading old ways to create wealth around the world will result in devastation, not riches.

Start-ups 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.

Positively defined, a start-up is the largest group of people you can convince of a plan to build a different future.

Small size affords space to think.

“Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule,” Nietzsche wrote.

Conventional beliefs only ever come to appear arbitrary and wrong in retrospect; whenever one collapses, we call the old belief a bubble.

1. It is better to risk boldness than triviality. 2. A bad plan is better than no plan. 3. Competitive markets destroy profits. 4. Sales matters just as much as product.

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

Creating value is not enough—you also need to capture some of the value you create.

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.

Non-monopolists tell the opposite lie: “we’re in a league of our own.”

Suppose you want to start a restaurant that serves British food in Palo Alto. “No one else is doing it,” you might reason. “We’ll own the entire market.” But that’s only true if the relevant market is the market for British food specifically. What if the actual market is the Palo Alto restaurant market in general? And what if all the restaurants in nearby towns are part of the relevant market as well?

When you hear that most new restaurants fail within one or two years, your instinct will be to come up with a story about how yours is different.

If you lose sight of competitive reality and focus on trivial differentiating factors—maybe you think your naan is superior because of your great-grandmother’s recipe—your business is unlikely to survive.

Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets.

The competitive ecosystem pushes people toward ruthlessness or death.

Monopoly like Google is different. Since it doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products, and its impact on the wider world. Google’s motto— “Don’t be evil”

In business, money is either an important thing or it is everything.

In perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future.

Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate.

Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. 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.

Competed even harder for the standard badges of success.

But really it’s competition, not business, that is like war: allegedly necessary, supposedly valiant, but ultimately destructive.

War is costly business.

Competition can make people hallucinate opportunities where none exist.

If you can’t beat a rival, it may be better to merge.

Hamlet: Exposing what is mortal and unsure to all that fortune, death, and danger dare, Even for an eggshell. Rightly to be great Is not to stir without great argument, but greatly to find quarrel in a straw When honor’s at the stake.

If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most.

You miss the most important question you should be asking: will this business still be around a decade from now?

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

Proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate. 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.

The clearest way to make a 10x improvement is to invent something completely new. 

Network effects make a product more useful as more people use it.

Paradoxically, then, network effects businesses must start with especially small markets.

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.

A good startup should have the potential for great scale built into its first design.

Beginning with brand rather than substance is dangerous.

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. This is why it’s always a red flag when entrepreneurs talk about getting 1% of a $100 billion market.

Disruption also attracts attention: disruptors are people who look for trouble and find it.

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

It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision.

José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.”

Every culture has a myth of decline from some golden age, and almost all peoples throughout history have been pessimists.

But leanness is a methodology, not a goal. Making small changes to things that already exist might lead you to a local maximum, but it won’t help you find the global maximum.

When a big company makes an offer to acquire a successful startup, it almost always offers too much or too little: founders only sell when they have no more concrete visions for the company, in which case the acquirer probably overpaid; definite founders with robust plans don’t sell, which means the offer wasn’t high enough.

A business with a good definite plan will always be underrated in a world where people see the future as random.

“For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them” (Matthew 25:29).  

The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.

First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments.

VC’s must find the handful of companies that will successfully go from 0 to 1 and then back them with every resource.

The more you dabble, the more you are supposed to have hedged against the uncertainty of the future.

If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth.

As Faust tells Wagner: The few who knew what might be learned, Foolish enough to put their whole heart on show, And reveal their feelings to the crowd below, Mankind has always crucified and burned.

Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know.

“Thiel’s law”: a startup messed up at its foundation cannot be fixed.

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.

Now when I consider investing in a startup, I study the founding teams.

Founders should share a prehistory before they start a company together—otherwise they’re just rolling dice.

It’s very hard to go from 0 to 1 without a team.

It’s useful to distinguish between three concepts: • 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?

A typical startup allocates ownership among founders, employees, and investors. The managers and employees who operate the company enjoy possession. And a board of directors, usually comprising founders and investors, exercises control.

A board of three is ideal. Your board should never exceed five people, unless your company is publicly held.

However, anyone who doesn’t own stock options or draw a regular salary from your company is fundamentally misaligned.

A company does better the less it pays the CEO.

High pay incentivizes him to defend the status quo along with his salary, not to work with everyone else to surface problems and fix them aggressively.

A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole.

However, for equity to create commitment rather than conflict, you must allocate it very carefully. Giving everyone equal shares is usually a mistake: every individual has different talents and responsibilities as well as different opportunity costs, so equal amounts will seem arbitrary and unfair from the start.

Since it’s impossible to achieve perfect fairness when distributing ownership, founders would do well to keep the details secret.

Equity is a powerful tool precisely because of these limitations. Anyone who prefers owning a part of your company to being paid in cash reveals a preference for the long term and a commitment to increasing your company’s value in the future.

No company has a culture; every company is a culture.

I wanted paypal to be tightly knit instead of transactional.

Recruiting is a core competency for any company. It should never be outsourced.

You’ll attract the employees you need if you can explain why your mission is compelling: not why it’s important in general, but why you’re doing something important that no one else is going to get done.

Above all, don’t fight the perk war. Anybody who would be more powerfully swayed by free laundry pickup or pet day care would be a bad addition to your team.

Start-ups should make their early staff as personally similar as possible.

Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing.

What nerds miss is that it takes hard work to make sales look easy.

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

Tom Sawyer managed to persuade his neighbourhood friends to whitewash the fence for him—a masterful move. But convincing them to actually pay him for the privilege of doing his chores was the move of a grandmaster, and his friends were none the wiser.

Like acting, sales works best when hidden.

People who sell advertising are called “account executives.” People who sell customers work in “business development.” People who sell companies are “investment bankers.” And people who sell themselves are called “politicians.”

New customer might agree to become your biggest customer, but they’ll rarely be comfortable signing a deal completely out of scale with what you’ve sold before. Once you have a pool of reference customers who are successfully using your product, then you can begin the long and methodical work of hustling toward ever bigger deals.

Marketing and advertising work for relatively low-priced products that have mass appeal but lack any method of viral distribution.

Your company needs to sell more than its product. You must also sell your company to employees and investors.

Any prospective employee worth hiring will do his own diligence; what he finds or doesn’t find when he googles you will be critical to the success of your company.

Computers are complements for humans, not substitutes.

The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.

Computers are tools, not rivals.

We have let ourselves become enchanted by big data only because we exoticize technology.

1. The Engineering Question Can you create breakthrough technology instead of incremental improvements? 2. The Timing Question Is now the right time to start your particular business? 3. The Monopoly Question Are you starting with a big share of a small market? 4. The People Question Do you have the right team? 5. The Distribution Question Do you have a way to not just create but deliver your product? 6. The Durability Question Will your market position be defensible 10 and 20 years into the future? 7. The Secret Question Have you identified a unique opportunity that others don’t see?

Only when your product is 10x better can you offer the customer transparent superiority

Customers won’t care about any particular technology unless it solves a particular problem in a superior way.

And if you can’t monopolize a unique solution for a small market, you’ll be stuck with vicious competition.

The best sales is hidden.

There’s nothing wrong with a CEO who can sell, but if he actually looks like a salesman, he’s probably bad at sales and worse at tech.

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.

Perhaps every modern king is just a scapegoat who has managed to delay his own execution.

The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.

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Suyash Dev Gupta,

India, USA, Bangalore, New Delhi, speciality coffee, specialty coffee reviews, best business book review, latest book reviews, introvert blog

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© 2020 by Suyash Dev Gupta. 

Views and opinions expressed on this site are purely mine. They represent no one, but me.