Zero to One: Notes on Startups, or How to Build the Future
TL;DR
Globalization is doomed without technological innovation.
To succeed, you have to build and maintain a monopoly.
- Why are monopolies critical?
- Capitalism and competition are opposites. Monopoly leads to high interest which allow us to invest in the future.
- How do we position ourselves?
- Our whole world is built based on this premise and emphasizes on diversification in education & skills.
- Get leaser focused early onto develop stand-out skills.
- How to build a monopoly?
- Develop a 10x better, 0-to-1 type of offering for a niche market.
- Avoid competition and global domination.
- How to protect monopoly?
- Network effects: The more user, the greater the value for each user.
- Economies of scale: The larger the volume, the lower the production cost.
- Branding: Lowers distribution cost.
Chapter 1: The Challenge of the Future
Vertical progress by technology innovation instead of horizontal progress by globalization is what let us advance into the future.
- Future is distinctive because it is different, not because it hasn’t happened yet.
- Globalization alone is unsustainable. New technology is needed.
New technology often comes from startups.
- It can’t be done in big organization nor alone.
- Small size enables new thinking.
Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resources, globalization without new technology is unsustainable.
Chapter 2: Party Like It’s 1999
Dot-Com Bubble: The late 1990s saw a rush of investment in internet companies, leading to inflated valuations and an eventual market crash.
Four Lessons from the Dot-Com Bubble:
- Make Incremental Advances: After the bubble, people sought safety in smaller, incremental advances rather than bold innovations.
- Stay Lean and Flexible: The Lean Startup methodology became popular, advocating for flexibility and a focus on customer feedback.
- Improve on the Competition: Entrepreneurs started focusing on creating slightly better versions of existing products.
- Focus on Product, Not Sales: There was a shift in focus from aggressive sales tactics to perfecting the product.
Counterintuitive Truth: The opposite of these lessons are more likely to be true. Making bold bets, having a solid plan, aiming to be a monopoly, and understanding that sales matter just as much as the product.
“Madness is something rare in individuals — but in groups, parties, peoples, and ages, it is the rule. - Friedrich Nietzsche”
Chapter 3: All Happy Companies Are Different
The key to exceptional success is not in competing but in building a monopoly through uniqueness.
- Monopolists disguise their monopoly by framing their market as the union of several to escape from unwanted attention.
- Non-monopolists exaggerate their distinction by defining their market as the intersection of various.
- “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.”
- “Creative monopolists give customers more choices by adding entirely new categories of abundance to the world.”
- “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.”
Chapter 4: The Ideology of Competition
Competition is a destructive force instead of a sign of value.
Chapter 5: Last Mover Advantage
Characteristics of monopoly:
- Proprietary Technology: 10x better proprietary technology makes the product difficult to replicate.
- Invent something new is the clearest way to make 10x improvement.
- Radically improve an existing solution.
- Superior integrated design like Apple.
- Network Effects: makes a product more useful as more people use it.
- Start small and grow from there.
- Economies of Scale: Build business that gets stronger as it gets bigger.
- Software business has near zero marginal cost of reaching more customers.
- Branding: A strong brand is a a powerful way to claim a monopoly.
- Branding needs substance as foundation to work.
Building a monopoly:
- Start small: Start by dominating a small market instead of getting 1% of a $100 billion market.
- Scaling up: Gradually expand into related and broader markets with discipline.
- Don’t disrupt: Avoid competition as much as possible.
- “the value of a business today is the sum of all the money it will make in the future.”
- “You must study the endgame before everything else.” - José Raúl Capablanca
Chapter 6: You Are Not a Lottery Ticket
- Definite Optimism: I believe the future will be better than the present, and I know how to do it.
- Apollo Program put 12 men on the moon.
- Indefinite Optimism: I believe the future will be better, but I don’t know how exactly.
- Bankers make money by rearranging the capital structures of existing companies.
- Definite Pessimism: I believe the future will be bleak, and I know how to prepare for it.
- Indefinite Pessimism: I believe the future will be bleak, but I have no idea what to do about it.
- Nobody is in charge in Europe.
Startups that trying to make a “minimum viable product” and iterate from there without a bold plan is an example of indefinite optimism and will lead to local maximum instead of global maximum.
Chapter 7: Follow the Money
Power law: small number of investments generate the vast majority of returns
Concentration: make few investments and focus on few startups with exponential growth.
- “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”
- “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.”
Chapter 8: Secrets
Go for secrets as they can give you an edge and there still plenty to uncover.
- Conventions are easy and unsatisfying
- Secrets are hard and satisfying
- Mysteries are impossible and unsatisfying
In order to be happy, every individual “needs to have goals whose attainment requires effort, and needs to succeed in attaining at least some of his goals.” A great company is a conspiracy to change the world
Chapter 9: Foundations
It’s more important to get things right at the beginning of the business.
The important thing is to get the team right to avoid misalignment in interest
- 3 concepts:
- Ownership: Who legally owns the company’s equity. Typically founders and investors.
- Control: Who governs the company’s affairs. Typically board of directors.
- Possession: Who runs the company ona day-to-day basis. Typically CEO and the management team.
Misalignment example: CEO with trivial portion of the stock will be incentivized to produce good quarterly results to keep high salary and bonuses instead of planning for the long term.
- Everyone involved in the company should be full-time, either on the bus or off the bus.
- Incentivize using equity in stead of cash to make everyone in the company broadly aligned for long term interest.
Chapter 10: The Mechanics of Mafia
Recruiting principle:
- Prioritize passion for startup’s mission over talent to form a mafia culture.
- Show cdd “the opportunity to do irreplaceable work on a unique problem alongside great people”.
- Compartmentalize roles on individual level to eliminate competition.
Company culture’s linear spectrum:
- Cults: everyone within the company is unique and firmly believes in the mission
- Consultants: everyone within the company is replaceable.
Chapter 11: If You Build It, Will They Come?
Startups should care about sales just as much as they care about the product.The distribution is the bottle neck for a business.
CLV (Customer Lifetime Value) > CAC (Customer Acquire Cost)
The more expensive the product-> bigger sales costs-> more important to sale
Look around, if you don’t see a salesperson, you’re the salesperson.
Chapter 12: Man and Machine
Technology is complementarity instead of substitution.
PayPal used a combination of computer algorithms and human analysts to detect fraudulent transactions, which also inspired the creation of Palantir.
Chapter 13: Seeing Green
7 questions every business should get right
- Engineering: Create breakthrough technology instead of incremental improvements.
- Timing: The right time to start the business.
- Monopoly: Start with a big share of a small market.
- People: The right team.
- Distribution: Not just create but deliver the product.
- Durability: Defensible market position 10 and 20 years into the future.
- Secret: Identify unique opportunities that others don’t see.
Chapter 14: The Founder’s Paradox
Founders are important not because they are the only ones who’s work has value, but rather because a great founder can bring out the best work from everybody at his company.
Conclusion
4 scenarios for the future:
- recurrent collapse
- plateau
- extinction
- takeoff
Our task today is to find singular ways to create the new things that will make the future not just different, but better—to go from 0 to 1.