50 Points to help you Get your Startup to Pay, Pal!
Take notes...
In the spirit of the giving season, I thought to share 50 hard-hitting nuggets from a book I read in January of this year - Zero to One by Peter Theil.
On What it takes to Make a Difference
1. 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.
2. Today's "best practices" often lead to dead ends, the best paths are new and untried.
3. Copying things that work is Horizontal or Extensive Progress: 1 - n.
Doing new things leads to Vertical or Intensive Progress: 0 - 1
4. The first step to thinking clearly is to question what we think we know about the past.
5. (A quick history of the 90's) 4 Big Lessons:
- Make incremental advances
- Stay lean & flexible
- Improve on the competition
- Focus on the product, not sales
6. What matters more:
- It is better to risk boldness than triviality
- A bad plan is better than no plan
- Competitive markets destroy profits
- Sales matters just as much
7. How much of what you know about business is shaped by mistaken reactions to past mistakes?
8. What popular belief do you disagree with (and why)?
It is important to take on contrarian positions if you are to actually make remarkable dents in life and business.
9. The most contrarian thing of all is NOT to oppose the crowd, but to think for you, and create a new path.
10. WHAT VALUABLE COMPANY IS NOBODY BUILDING? - The business version of a contrarian question.
11. Your company/startup could create a ton of value without becoming very valuable itself.
12. Creating value is not enough -- you also need to capture some of the value you create.
On Monopolists & Competitive Lies
13. "Perfect competition" is the default state in Economics 101, where producer supply meets consumer demand.
14. Monopoly, on the other hand, owns the market and sets its own prices.
A simple illustration of Monopoly is a company so good at what it does that no other firm can offer a close substitute.
15. Companies that have a monopoly, tend to shy away from being identified as such. For example, Google might prefer to identify themselves as a tech or Ads company (where there is obviously more competition) as opposed to being listed under the search engine industry, of which they own the biggest chunk.
- On the other hand, non-monopolists sometimes claim to be "in a league of our own", often inflating what makes them stand out.
16. Non-monopolists often exaggerate their distinction by defining their market as the intersection of various smaller markets.
Monopolists by contrast, disguise their monopoly by framing their market as the union of several large markets.
17. The fatal temptation is to describe your market extremely narrowly so that you dominate it by definition.
18. Startups spend time trying to convince people that they are exceptional, instead of seriously considering whether that's true.
19. If you lose sight of competitive reality and focus on trivial differentiating factors, your business is unlikely to survive.
20. Creative monopolies give customers more choices by adding entirely new categories of abundance to the world.
21. "In the real world, every business is successful exactly to the extent that it does something others cannot."
Monopoly should therefore not be viewed as an 'exception', but rather as the condition for every successful business.
22. We preach and internalize competition, and infact our education system both drives and reflects it.
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.
On Valuation: Measuring what truly matters
23. A great business is defined by its ability to generate cashflows in the future.
The value of a business today is the sum total of all the money it will make in the future.
24. It takes time to build valuable things, and that often means delayed revenue.
Tech companies often lose money for the first few years. Most of a tech company's value will come at least 10-15 years in the future.
In March 2001, PayPal had yet to make a profit, but revenues were growing 100% year-over-year.
25. The overwhelming importance of future profits is counter-intuitive (even in Silicon Valley).
26. For a company to be valuable, it must grow and endure, but many entrepreneurs focus only on short-term growth.
The excuse is that growth is easy to measure, but durability isn't.
27. Those who succumb to measurement mania obsess about weekly active user statistics, monthly revenue targets, and quarterly earning reports.
You can hit those numbers and still overlook deeper, harder-to-measure problems that threaten the durability of your business.
28. If you focus on near-term growth above all else, you miss the most important question you should be asking: WILL THIS BUSINESS STILL BE AROUND A DECADE FROM NOW?
On Building Real Monopolies
29. There are different ways to stand out and some vital characteristics that could make a business a monopoly.
Proprietary technology + Network effects + Economies of Scale + Branding = Monopoly
30. (I) Proprietary Tech:
This is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate.
31. As a good rule of thumb: Proprietary tech must be at least 10 TIMES better than its closest substitute in some important dimension to lead to a real monopolist advantage.
For 10x improvement, you either Invent something completely new OR Radically improve on existing solution.
Except you are 10x better, you can't escape competition.
32. (II) Network effects: can be reaped through your product being valuable to its first users, when the network is necessarily small-- helping you create and 'mobilize' product evangelists.
33. 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.
34. (III) Economies of Scale: A monopoly business gets stronger as it gets bigger. Many businesses gain only limited advantages as they grow to large scale.
35. (IV) Branding: A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly. (Which brand today would you say is the strongest tech brand? That's right: Apple).
36. Beginning with brand rather than substance is dangerous.
No technology company can be built on branding alone.
On Choosing Market sizes & Scaling
37. To get the characteristics of monopoly (above) to work, you need to choose your market and expand deliberately.
38. Start Small & Monopolize.
Always err on the side of starting too small. The reason is simple: it's easier to dominate a small market than a large one.
39. If you think your initial market might be too big, it most certainly is.
It was much easier to reach a few thousand people who really needed our product, than to try to compete for the attention of millions of scattered individuals.
40. The Perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
41. Any big market is a bad choice. And a big market already served by competing companies is even worse.
42. Getting 1% of a $100 Billion market is a lot harder than it seems -- as a large market will either lack a good starting point or it will be too open to competition, making it so hard to reach that 1%.
43. A good case study of choosing a small market size and expanding over time is Amazon. They slowly expanded from books to other categories, continuing to add categories gradually, until it had become the world's general store--from first being the world's largest bookstore.
On Disruption
44. Startup's obsession with "disruption" means they see themselves through older firms' eyes.
Indeed if your business can be summed up by its opposition to already existing firms, it can't be completely new and it's probably not going to become a monopoly.
45. As you craft a plan to expand to adjacent markets, don't (plan to) disrupt: avoid competition as much as possible.
Ask yourself what moves will help you best steer away from competition (as a business that wants to become sustainably profitable).
46. In light of "first mover advantage"-- moving first is a tactic, not a goal.
What really matters is generating cash flows in the future, so being first mover doesn't do you any good if someone else comes along and unseats you
47. It's much better to have the "last mover advantage" where you make the last great development in a specific market and enjoy years or even decades of monopoly profits.
48. The way to have last mover advantage is to dominate a small niche and scale up from there, towards your ambitious long-term vision.
"Business is like chess". Grandmaster Jose Raul Capablanca aptly said: "You must study the endgame before everything else".
49. Does serial entrepreneurship not disprove the idea of luck and chance in entrepreneurship? With people like Steve Jobs, Jack Dorsey, and Elon Musk having created several multibillion dollar companies...
- If success was primarily luck, they probably won't exist.
50. You are NOT a lottery ticket. You are likely to succeed if you do the things you need to.
Bonus Point:
Instead of pursuing many-sided mediocrity and calling it "well-roundedness", a definite person determines the one best thing to do and then does it.
Instead of working tirelessly to make oneself indistinguishable, strive to be great at something substantive-- to be a monopoly of one.
Rooting for you, fam.
Keep Breathing.
Do leave a comment, I’m eager to connect with you. And if you felt this story was worth telling, then it’s definitely worth sharing.
Beautiful review and short points from the phenomenal book, Zero to One, by the exceptional, Peter Thiel. I will revisit the book again this week. We need more of this kind of book reviews. Thank you for always giving.