MyLearnings

Zero To One

By Peter Thiel

Startups are human collectives that solve a problem which have either not been solved before, or not been solved in the best way possible but in an uncertain environment. A startup is not only about making improvements to exsting solutions but to create ones that are breakthroughs, that take status quo not from just x to x+1 but from 0 to 1.

Startups make the world better and create value for everyone, thus they must also create value for themselves. If a startup creates value but does not capture some for itself then it won’t be able to create value for long.
Competition is anti-thesis to capitalism. That might be a very strong statement but the basic idea is that competition causes margins to diminish and therefore every player is forced to keep on improving their efficiency against competition and they do not have much room for other considerations such as governance, society and environment. Therefore a startup must have a monopoly over the market it is serving. If startups think that trivial differentiating factors will make their product successful that is aking to saying that a restaurant will be a big hit only because of the owner’s grandma’s recepie.
Monopolies try to make themselves appear like a commodity businesses, one player among many. On the other hand competitive businesses always press the image that they are unique and differentiated. It’s important to be a monopoly and then hide this fact to save oneself from the scrutiny of world. People and governments do not like monopolies, but that does not make them bad. All starups must work towards being monopolies from the very start.
How to figure out if you’re a monopoly? Analyze your business along the following characteristics
1. Do you have proprietary technology? Is it at least 10 times better than the next best alternative?
2. Does your product benefit from network effect?
3. Will your product enjoy economies of scale? If the next unit sold does not cost you as much as the last unit or does not cost you at all then you’ll be formidable.
4. Is your product a brand? A brand is not just logos or bill board, a brand is an image that people associate immediately with your business. A brand is built everytime someone talks about it, every time your message reaches the senses of the public it works for or against your brand. A brand is an invaluable asset to a company, only as long as the product is 10x better.
Building a monopoly -
1. Start by capturing a large portion of a very niche market. Be careful to understand that a simple subset of a large market is not necessarily niche. Start serving the enthusiasts well, don’t worry about the money, a startup is supposed to generate cash in future. The perfect target market for a startup is is a small group of particular people connected together and served by few or no competitor.
2. After capturing and establishing yourself in the market start to scale up by looking around for associated markets to enter. Note that disruption is not always the best way to proceed because the larger fish may eat you if you threaten it. Instead try to generate value for the larger fish if possible in the long run.
First mover advantage is only a tactic not a goal. If you are the first mover, but then someone comes up and start to give you competition that is no good therefore start with getting an unsurmountable grip in the market, preferably niche, and then start to scale up even if it means being the last mover, it’s okay as long as you’re irreplacable. Grandmaster Jose Raul Capablanca - to succeed “you must study the endgame before everything else”.
Only in a definite future is money means to an end, not the end itself. It’s indefinite optimism that fuels finance and it’s astronomical gain, technological development however is a result of definite optimism i.e when we we not only know that future will be better but also how it will be better.
In philosophy, politics and business, too, arguing over process has become a way to endlessly defer making concrete plans for a better future.
A business with a good definite plan will always be underrated in a world where people see the future as random.
We have to think of a definite future, we are not a lottery ticket.
“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.” (Mathew 25:29) - a biblcal perpective on power law that states that 20% of the resources give 80% of the results.
For a venture capital fund to be succesful, return from it’s one or two most succesful bubsiness should be far greater than the combined value of all its other investments.
… once you think that you’re playing the lottery, you’ve already psychologically prepared yourself to lose.
There are two categorization of secrets. One from the source i.e. what is the secret about - nature (the physical world) or the people. The second categorization is about if it can be uncovered and with how much effort. There are easy secrets that can be uncovered fairly easily, there are hard secrets which take some effort to be uncovered but uncovering them are still possible and then there are impossible secrets which can never be uncovered no matter how much effort we put in.
Only by believing and in and looking for secrets could we see beyond the convention to an opportunity that is hiding in the plain sight.
Once you have secret it’s not the best idea to share it with everyone, but it won’t do you any good if you cannot share it with anyone. The people with whom the secret is shared and those who believe in it become your team.
Founders should share a prehistory before they start a company together-otherwise they’re just rolling dice.
If you do not count your relationships at your workplace as a fruit of your labour, then you have invested your time at the worng place.
Recruiting should be the core competency of a business, it shoud nver be outsourced.
Have a company pledge, to enforce a feeling of brotherhood (gender neutral) among your people.
Advertising matters because it works.
All salesmen are actors: their priority is pursuasion not sincerity.
Distribution is not just another aspect of the business, it has to be a part of the design of the product.
Superior sales and distribution could possibly create a monopoly, even without product differentiation. However, a 10X product can’t create a monopoly if it is bereft of world class sales and distribution.
With an effective distribution Customer Lifetime Value (CLV) > Customer Acquisition Cost (CAC). CLV is the value the customer generates for the business for as long as it is a customer.
Products with very low or zero CLV like content, needs viral marketing since any CAC is too much. For products that have a small CLV and does not have the potential to be viral, but which allows room for some CAC needs to be marketed e.g. mobile phones, FMCG products, retail products basically. Products that have high CLV needs a dedicated sales team. These are large purchases usually between purchases that require humans to convince other humans and it is profitable to do so. Eg. B2B products such as paper, equipment, Wealth Management, PMS etc. Finally there is the need for complex sales, the ones with the largest transaction size that are carried out by big organizations and governments. When millions of dollars are involved people need to speak to the CEO and not the VP of sales.
Organizations requiring complex sales model needs to grow their sales by 50%-100% YoY over a decade to be successful, as only a few sales bring in most of the revenue needed for the year.
A product can become viral if it makes the users invite other users to use the product.
You should never assume that people will admire your company without a PR strategy.
New technology is meant to complement human and not replace them. If they are built with the aim of replacing humans then they won’t work well. The most valuable businesses of the coming decade will be built by entrepreneurs who seek to empower people rather than replace them.
Computers are highly efficient at doing some specific tasks, but the world cannot run by completing specific tasks in silos, it needs coordination of these tasks. Humans are meant to do this, computers are just tools that improve the efficiency of humans. Even while working with humans we look for the people who are very efficient at their jobs, then why not use the most efficient tool available.
Computerss can crunch numbers but actionable insights can onl come from human analysts. The mot valuable companies in future won’t ask what problems can be solved with computers alone. Instead they’l ask: how can computers help humans solve hard problems.
With advancement computers will help us do tasks that were assumed to be impossible to do before. Example computer helped man to land on moon!
Any business must answer these questions before starting out -
1. Are you making a breakthrough or just an incremental improvement over an existing product. Your product should be at least 10X better than the next best competition. The easiest way to do that is to create something entirey new. Go form 0 to 1.
2. Is it the right time to start the business? Is the situation right, is there demand in the market, are regulations favourable?
3. Will the business be able to capture a very large share of a very small market as soon as it starts? Note that it is very important to correctly define your market while answering this question, people tend to overestimate how niche their market really is. If the business is capturing a well connected market that makes a large perentage of total market, then it will end up being a monopoly.
4. Is the team right? Without right team great ideas will not return any dividends. The team must share the vision and believe in it completely. Everyone should have just one, completely seperate responsibility.
5. Have you figured out an effective way to distribute your product? Remember it must ensure CAC < CLV.
6. Will you be able to defend your market position in 10-20 years? This is important because once you start your business, others will enter the market and try to change the status quo, circumstances will change too with development in science, technology and culture.
7. Do you and your team know and believe in a secret that others don’t?
Best salesman are always hidden, they will never let you know that you’re being sold a product and their designations too will not reveal their purpose.
There is nothing wrong with a CEO who can sell, but if they look like a saleman, they’re probably bad at sales and even worse at technology.
Doing something different is what’s good for society. The best problems are the ones nobody else ever tries to solve. Take the example of the PhD candiate who worked on blue LED thinking it was a dead field and he will be awarded a PhD. easily without any outcomes to show, but ended up getting a Nobel prize.
No sector will ever be so important that merely participating in it will be enough to build a great company.
The lessson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at any moment - hence they should be careful.
To believe you are invested with divine self-sufficiency is not the mark of a strong individual, but of a person who has mistaken the crowd’s worshipr-or jeering-for the truth. Always remember that you will have achievements and fame if and only if you are brilliant. You might not get it even if you’re brilliant. But never assume that you’re brilliant because you have achievement and fame, the world works in mysterious ways.
Our task today is to find singular ways to create new things that will make the future not just different, but better- to go from 0 to 1. Only by seeing our world anew, as fresh and strange as it was to the ancients who first saw it, can we both re-create it and perceive it for the future.