Zero to One

Zero to One

1: Challenge of the Future

Interview Question Thiel likes: What important truth do very few people with you agree on? The answer is unpopular and requires courage to say.

Most people believe in X, but because of lala I see Y. This core mindset will be applied to startups throughout the book.

Some initial definitions:

Horizontal Progress

From one to n. Take something known and apply it somewhere else. Globalization.

Vertical Progress

From zero to one. Inventing something new. Do something previously unknown.
This book focuses on this part.

Startups

Hard to create new ways of thinking and working in the bureaucracy of a big company.

2: Party like its 1999

Investors and Industry's learnings from the dot com crash:

• Make incremental advances. Grand visions are not safe.
• Stay lean and flexible. (lean = code for unplanned). Planning is arrogant and inflexible.
• Improve on the competition. Don't try to create a new market prematurely.
• Focus on product. Not sales. Only sustainable growth is viral growth.

Opposite principles might just be as true - if not more.

• Better to risk boldness than triviality.
• A bad plan is better than no plan.
• Competition kills margins / profits.
• Sales matters just as much as product.

3: All Happy Companies Are Different

Monopoly

All the same to economists:

• bullies: lobbying, destroying competition unfairly
• technological: innovation and advancements noone can compete with

This book focuses on the technological aspect and seems monopolies desirable in that regard. Companies that went from zero to one.

How does one define a market? Monopolists disguise their monopoly by broadening the definition of their market. As A restaurant you can say you are the only British restaurant in Zurich and try to differentiate that way.

Monopolists can afford to think about other things than money.

The whole chapter makes an argument on why monopolies are good. They are a relic of economists, whose foundation bases on a thermodynamic model from the 19th century. It assumes reaching an equilibrium at the end. Which differs from what we see.

4: The Ideology of Competition

The belief in competition starts at school, where everyone is fit into the same system and graded.
War references are all over business talk. Salesforce, Headhunters.
If you can't beat a competitor it might be better to merge.
If you have to fight, do it quick and win. Hit hard.
Recognize competition as a distraction more than value.

5: Last Mover Advantage

How do we build a monopoly business? They are all unique, but share some points:

1. Proprietary Technology: Makes it difficult or impossible to replicate. Must be at least 10x better than competition for it to grow into a monopoly. Easier to make something new. The improvement can also be in design improvement, usability etc.
2. Network Effect: Product gets better the more people use it. Still needs to be useful at a small market. Products usually start small, that they barely seem like a market opportunity and likely not considered by MBA graduates.
3. Economies of Scale: Product gets stronger the bigger it gets. Services are e.g. difficult.
4. Branding: Strong Brand. Apple strongest in tech space. Only works with the fundamentals in place. You cannot build a strong branding on a shit product.

Chose your small starting market. Always err on the side of too small. Reason: it's easy to dominate a small market. Few concentrated market, that ideally are not served by anyone other.
Once you create and dominate the niche market, start growing from there. Takes discipline to expand gradually.

Amazon: First only sell books. Offer bigger selection than others. Nr1 choice for niche book lovers. Add: CD, Software. Step by step.
Facebook: Start with getting own class to sign up to it.
Ebay: Auction start with beeny-baby.
Paypal: Transaction for frequent Ebay sellers.

Don't disrupt. Make net-positive impact. Don't anger others. Avoid competition as much as possible.

Moving first is a tactic, not a goal. What really matters if cash flow in the future. Last mover can do the latest great addition to a niche market and move from there.

6: You are not a lottery ticket

Is entrepreneurship luck? Book gives a non-answer. He seems to lean towards skill as multiple people have founded multiple unrelated billion-dollar businesses. He then goes into four categories of definite, indefinite optimistic and pessimistic views.

People born in the 1940s had gotten better lifes without it having anything to do with them, resulting in naive optimism. This situation has changed for the average household.

The life path of college students.

Definitive world-view: Things end without change. Growth happens with technology. Money is a means to an end. Investments don't necessarily grow.
Indefinite world-view: Things will always grow. Invest broadly. No specific vision of the future. Focus on processes.

Entitlement spending has eclipsed discretionary spending. Government does not innovate and do drastic changes anymore.

How does indefinite optimism work? Everyone expects a better future, but noone plans for it. One attempt at explaining is darwinism. Startups should be "lean" and adapt to ever-changing world. This mindset will not yield in a zero-to-one startup.

It's hard to initiate change. Politicians and professors are set on their way. A startup is a way to change.

7: Follow the Money

VCs should only invest in ideas that can finance the entire portfolio as most companies fail. We tend to perceive normal distributions on most things. VC investments follow a power distribution.

8: Secrets

Which valuable, not yet existing company is there that is not impossible to build/create?

• easy
• moderate
• hard
• impossible

Trying to discover a secret is not a safe, incremental path.

"didn't someone other - smarter - already think about it?"
Inefficiencies and injustices in the market (slavery, housing crisis) are all signs that we are not in garden Eden with everything perfect.
There are still many secrets to solve:

• cure cancer, dementia
• new ways of making energy
• other forms of travel

Belief in secrets is powerful.

Two kinds of secrets:

• Secrets about nature: More in focus. Science.
• Secrets about people: Under-appreciated. Things that they don't know about themselves or are hiding. What is taboo?

Look where less people are looking? Topics not covered by schooling. New fields. Things outside the syllabus.

Nutrition is a good example to find secrets:

• limited research institutions
• current best knowledge is driven by big food lobby

What if you find a secret? Do you keep it?

• Only to the ones you need to know.
• Companies are groups of people that share a company secret. Thus, anyone you tell is part of "your company".

9: Foundations

A startup that messed up its foundation cannot be fixed.

• Co-Founder choice
• Ownership of the company
• Control of the company: Effective: Keep the board small
  Salary: avoid paying too much cash
  Equity distribution: not possible to make fully fair, thus better kept secret. Early vs late. Different skillsets. Equity keeps everyone broadly aligned.

10: Mechanics of Mafia

Recruiting should never be outsourced. People should be excited to work with the others.

Why should the 20th employee work for you?

General and undifferentiated pitches don't say anything on why an employee should join you.
A great mission with great people. Don't fight the perk war.

The opposite of a cult is a consulting firm. No passion, pure professionalism, people coming in and out. Your startup should be a cult of people of knowing one secret that the rest has missed.

11: If you build it, will they come?

Sales and marketing are important because they work.
Engineers fail to grasp sales. They add value by becoming experts at a technical skill. Their output can easily be evaluated: it works or it doesn't. Sales is the opposite.

Sales is an orchestrated campaign to change surface appearances without the underlying reality.

Nerds miss, that it takes hard work to make sales look easy. The core skill is persuasion. Like acting, sales work best when hidden.

A product so great, that sells itself is an engineers illusory dream.

Superior sales without better product can be a major differentiator. The higher the cost of the product, the higher the cost to make the sale.

Complex sales

7 figures+: might take months and years. Politics matters as much as the product.
Complex sales works best when you don't have any dedicated sales at all. They want to talk to the CEO anyway.

Personal Sales

Establish a process on how to make a sale and potentially build up a sales army.
Marketing & Advertising work for relatively low-priced products that have mass appeal.

Rather nail one sale-channel than half-ass all.

You will also have to sell to potential employees and investors. Selling to the media is part of it. You need a PR strategy.

12: Man and Machine

People: good at making plans and visions
Machine: good at reliably crunching large numbers
Computers are tools, not rivals.

Paypal Fraud detection was human in the loop. Boasting powers of human-computer symbiosis.

Most valuable companies of the future ask: How can computers help smart people solve problems?

13: Seeing green

Around 2004-2008 massive VC and government funding flowed into clean technology companies. However, many of those investments failed. Thiel argues, that many overlooked fundamental business principles and failed to create truly differentiated, defensible technologies.

Greentech companies rarely produced 10x companies.
Big market means fierce competition.
Great companies have secrets. Things that other people don't see but drive the business. Most companies were built on the open belief that, they want new sustainable technologies to emerge.

You might still want to start a cleantech company, but answer crucial questions at first.

• The Engineering Question: Can you create breakthrough technology instead of incremental improvements? Is your technology 10x better?
• The Timing Question: Is now the right time to start your particular business? Is the market ready, and are the foundational technologies in place?
• The Monopoly Question: Are you starting with a big share of a small market? Can you dominate a niche before scaling?
• The People Question: Do you have the right team? Are the founders and early employees aligned and capable?
• The Distribution Question: Do you have a way to not just create but deliver your product? How will you reach your customers effectively?
• The Durability Question: Will your market position be defensible 10 and 20 years into the future? Do you have a sustainable competitive advantage?
• The Secret Question: Have you identified a unique opportunity that others don't see? What important truth do very few people agree with you on?

You can't dominate a submarket if the submarket is fictional. Be honest in the evaluation. Finding such a niche in the energy sector might be tricky.

Every entrepreneur should think of themselves as the last mover. How will the world look like in 10 years and how will my business fit in?
What will stop China from wiping me out with lower pricing? If there is no answer to that, it should not come as a surprise.

14: The Founder's Paradox

What does it need in a founder for a company to succeed? A bit like monarchy vs democracy. A good founder can lead to fast and great changes, but wont last generations. The company should democratize over time.