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Deleted78083
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This book was better than I remembered. It does not only give great business lessons, but life lessons as well. Peter Thiel is one of my favorite thinkers ever, and probably one of the most underrated businessmen and philosophers of our time.
The book is short, but this summary is long, very long. That is because the book is so dense in ideas.
To be honest, you shouldn't read the summary if you have not read the book.
Every moment in business happens once. The next Bill Gates and Zuckerberg won't make OS or social media companies. They did what they did because they saw the opportunity to solve a problem that had never been solve before. As such, if you are copying them (making OS and social networks) you are not learning from them.
Creating a company that does something we already know how to do is easy. It takes the world from 1 to n. Doing something new (that has never been done before) is hard. It takes the world from zero to one. The companies that do it are the ones that achieve explosive growth.
The best paths are new and untried. As such, the paradox of teaching entrepreneurship is that such formula does not exist.
Successful people find value in unexpected places and do so by focusing on first principles instead of focusing on formulas.
Brilliant thinking is rare, but courage is even in shorter supply than genius.
There are two types of progress: vertical, and horizontal. Horizontal progress is creating what has already been created. Vertical progress is doing something nobody has ever done before. Horizontal progress, on a macro level, is globalization. Globalization is simply repeating somewhere what has worked before. The concept that embodies going from zero to one is technology. It is inventing better ways of doing things. Globalization and tech are different, so they can happen at the same time.
1914-1971 saw rapid technological innovation and globalization. Since 1971, we've had a lot of globalization mainly. Most people think we have reached the peak of technology and that the future is only going to bring more of the same. But Thiel doesn't think so. If we keep on living the way we live, we won't have any future left anymore but we live in an unsustainable way Hence the need to create technology, as technology is the only tool we have to do more with less.
The vision of the future for our grandparents was flying cars and holidays on the moon. It was optimistic and definite. But this has not happened. Instead, we have inherited a very old world simply because we have stopped inventing new things.
This means that technology, innovation - building the future - is not automatic. It is engineered.
New technology tends to come from ventures - a group of people animated by the same mission. That's because it is hard to develop something in big organizations, and even harder to do it alone. Startup means working with others to get stuff done, but not with too many people so that...you can actually get stuff done.
Since a startup attempts to create that which has never been done before, it needs new thinking, which is a company's most important strength. Hence the contrarian question:
If you can identify a delusional popular belief, you can identify the contrarian truth that lies behind it.
When the tech bubble exploded, technological optimism faded. Everyone decided to treat the future as indefinite (unknown). Since technology had failed, globalization replaced it as the hope of the future. Investors took note that going from the real world to the digital world had not worked, so they went back to investing into the real world (real estate).
The result was another bubble, which exploded in 2008.
Those that stayed with tech learned four important lessons:
Unfortunately, the opposite of these lessons are probably more correct:
To build new technologies, we need to abandon the dogmas learned after the dot-com bubble crashed. That doesn't mean opposing them dogmatically. It means looking at what type of thinking is influenced by the mistakes of the past, and what isn't. It means looking at the best way to think through something to arrive to a desired result. It means going against the mainstream and looking for the truth that nobody sees.
And the most contrarian thing of all is not to oppose the crowd, but to think for yourself.
The business version of the question we asked above is "what valuable company is nobody building?" This question is tough, because while your company should create value, it should also capture some of this value to be valuable itself.
Eg: Airlines create a lot of value, but capture very little of it. Google creates less value, but captures more of it. As a result, Google is more profitable than airlines.
The airlines compete with each other, but Google stands alone. That's because Google is a monopoly, and they are a monopoly because they are the best (and by far) at what they do.
While it is assumed that capitalism develops in a perfect competition market, it is not empirically and economically true since firms wouldn't make profits in perfect competition. Furthermore, profits is what drives capitalism.
As such, if you want to capture value, you need to build a business which is singularily different than others, and that can enjoy its own monopoly.
Competition is for losers.
Businesses in real life are much closer to whether being monopolies or being in perfect competition than we actually think. The reason is that both of them lie about their situation. Monopolies have interests to say they are not monopolies (because of the antitrust laws) while firms in perfect competition have interests to say they are monopolies because their investors want ROI.
As such, money for a company is whether an important goal, or the only thing that matters. Because monopolies don't compete, they can afford to think about things that aren't directly related to money. Money is important, but it is not all. As such, these societies can explore, fail, innovate, and keep on growing.
For a restaurant though, the competition is so high that they can't afford to do that. They have neither the time, energy, or opportunity to do it. They are so focused on margin that they can't afford to think and plan the future.
Technically speaking, monopolies deserve their bad reputation - but only in a world that does not change. Since our world changes, monopolies are static. They are creative, because if they don't evolve, they know they won't survive. As a result, creative monopolies give customers more choices by inventing new products and services. Governments know that, and this is why they distribute patents.
The dynamism of new monopolies explains why old monopolies can't control and halt innovation. Apple iOS decreased Microsoft's Windows market share. We observe that the former didn't come to secure a position in the market: it came to destroy other monopolies. As such, monopolies drive progress because the idea of being a monopoly is a powerful incentive to innovate.
All happy companies are different: they solve a unique problem better than everyone else and enjoy monopoly perks. All unhappy businesses are the same: they failed to escape competition, and get stressed out because of it.
Creative monopoly = new products that benefit everyone + profits.
Competition = no profits, no innovation, and a struggle to survive.
Why do people think competition is healthy? Because it's an ideology, a truth people believe no matter what, without challenging its core. In reality, the more we compete, the less we gain. But since our entire society is based on competition (sports, school, politics, economics, military, dating...), we don't realize it.
Why do people compete? According to Marx, they compete because they are different. According to Shakespear, they compete because they are the same. And as they compete, they become more and more the same. In the world, of business, Shakespear is right.
Let's illustrate this with Google VS Microsoft. At first, they were completely different. One made a search engine, the other made an OS. Then they started competing and became similar (Bing VS Google, Word VS Docs, Onedrive VS Google Drive, Surface VS Nexus, Windows Phone VS Android, etc) and lost sight of what mattered most: building new things. Some years later, Apple came and overrode them both. That's because competition causes us to overemphasize old opportunities and slavishly copy what has worked in the past instead of wondering what new things we should create.
Sometimes, some types of competition deserve to be fought. But most don't. If competition with a rival becomes unproductive for everyone, don't fight them. Merge with them.
It's good to escape competition, but you must be able to keep this advantage in the long term. Your company needs to be built for sustainability.
Most of the time however, investors and entrepreneurs focus on direct growth because it is easy to measure and forget about durability because it is hard to measure, which makes no sense. Most tech companies will only make money in 10-15 years, hence the need to focus on sustainability if they hope to achieve profitability.
If you focus on short-term growth only, you miss the most important question you should ask: will this company still be around a decade from now?
1. Proprietary technology
Your technology must be at the very least ten times better to enjoy a real monopolistic advantage. The clearest way to make a 10X improvement is to invent something new. If you build something where there was nothing before, the increase in value is theoretically infinite.
You can make a 10X improvement by improving a product or a service, like Amazon did with bookstores. Or you can make it through superior design.
2. Network effect
They make a product more useful as more people use it. However, you will never reap them if the service you are proposing isn't valuable to the first user.
Network effects businesses must start in very small markets, markets that seem too small to be profitable, and scale from there on.
3. Economies of scale
A good startup should have the potential for great scale built into its first design. Services businesses, for example, are difficult to scale.
4. Branding
Brand must come after substance, not the other way around. A brand that sells nothing will eventually die (Yahoo).
These four characteristics define monopolies, should you choose the right market.
Start small and monopolize
Start small. Before dominating a huge market, you should dominate a very small market and expand from there on. It's better to start too small than too big.
It's better to serve a few thousands who really need what you make than to serve millions who don't care.
The ideal market for startups is a small group of particular people concentrated together and served by few or no competitors.
Scale up
Once you dominate your small market, extend to adjacent market. Slowly, but surely.
Don't disrupt
Disrupting means you will face competition, and that you see yourself in the eyes of your competitor. Don't try to disrupt. Try to add value to the overall market instead.
First mover advantage is not real in business because what matters is to make money in the long-term - and first movers only make money at the beginning. It's much better to be the last mover. Make the greatest last development to a product or a service and go and enjoy your monopoly.
To do so, "you must study the endgame before everything else." That means you need to have a vision of the world you want to achieve.
An important question in business is whether success is a matter of luck or work.
Objectively, it is impossible to say. Empirically though, we observe that successful entrepreneurs are rarely successful only once. This would tend to confirm that success in business is a matter of skills - not luck.
Generations ago, luck was "engineered". Luck was preparation, dedication, and hard work to achieve a purpose. "Lucky people" believed they made their own luck. As such, calling someone lucky for their success was considered stupid.
When we call a company lucky, we assign the concept of "luck" to the past. When we think deep about it, that would mean that that company did something at a point A in time, which turned out to work at a point B later on.
As such, if we call a company lucky, this would mean that not the past, but the future, is just chance.
Is it, though? Is the future chance, or design?
It depends. If you think your future is certain, you will work to achieve that state. If you think the future is indefinite, you'll just leave it to chance and give up on trying to master it.
Indefinite attitude towards the future explains what's most dysfunctional in our world today. Process trumps substance. When peole do not know what to do, they use rules to assemble a portfolio of various options and choose the one that ends up being best.
This is how the schooling system works: students are taught everything and anything without thinking about the ultimate purpose of these skills.
A definite future is different. Instead of doing everything and nothing, the person will do that which will enable them to build their desired future.
This isn't what young people do today because everyone lost faith in a definite future. However, the optimistic indefinite often forget that the future, while indefinite, may end up being better....or worse.
An optimistic definite future defined the US between 1950 and 1960. It means that people knew that the future would be better than the present if one sought to work to realize it. In the 1950's in the US, people took big plans seriously and thought about how to make them work.
Unlike definite optimists, indefinite optimists expect the future to be better...but have no incentives nor desire to design it. Instead of inventing new products, they just upgrade existing ones. This describes the USA of today.
In China, the future is definite but pessimistic. This means that the future is known, but since it will be bleak, one needs to prepare for it. Every country is afraid that China will take over the world. China is the only country afraid that it won't.
In Europe finally, the future is both indefinite and pessimistic. People fear the future but have no idea what to do about it. As a result, nobody is in charge in Europe. Europeans just react to events as they happen, solving crisis after crisis, and hope things don't get worse. All they can do is wait for the future to degrade, eating and drinking, which explains Europe's famous vacation mania.
Indefinite finance
A definitely optimistic future needs engineers to build underwater cities and spaceships. A indefinitely optimistic future needs bankers and lawyers. Finance embodies indefinite thinking because it is the only way to make money when you have no idea how to create wealth (understand: value).
Bright people head to Wall Street because they have no real plan for their careers. They find out that finance itself is indefinite. Since no one knows nothing because no one has any vision, diversifying through investing into a portfolio of companies becomes the norm.
The indefiniteness of finance is weird. When a founder sells his company, he gets money but has no idea what to do with it, so he invests it in a bank. The bank has no idea what to do with it, so they invest it into different companies. The companies try to increase their share price by generating cash flows. They can then distribute dividends or buy shares back, and the whole cycle repeats.
Conclusion: no one knows what to do with money in an indefinite world. Money becomes more valuable than anything else you could do with it. So you seek to maximize its amount...for its own sake.
Indefinite politics
In the past, politicians were accountable to people in election times. Today, it is at all moment. Society is more focused on predicting what people will think in a couple of weeks (with polls) than it is at making big plans for the next ten or twenty years.
Since we have no idea of the society we are building, governments just mainly provide insurance for whatever problem we may hit next. Solutions to big problems are more insurance and more money, raising the level of entitlement within society as a result.
Indefinite life
We have been searchimg for the solution to eternal life for centuries. However, we have been making very little progress since the 1950's. The reason is that instead of diving deep into how the body works, pharmaceuticals companies just assemble a bunch of molecules hoping it will yield some results. They act with no purpose in mind, and no road map to achieve it.
They just do and try out random stuff.
Is indefinite optimism even possible?
The four types of views of the future, according to Peter Thiel.
What type of future are we headed towards? If housholds saved money, they could do something specific later on. If companies invested, they could reap the rewards of their investment. Unfortunately, neither of them do either.
So the question is: how can the future keeps on getting better if no one plans for it?
Definite optimism works when you build the future you want.
Definite pessimism works because you build what has already been built without expecting anything in return (China relentlessly copying the West).
Indefinite pessimism works because what you expected ultimately happened, and you were prepared for it.
Indefinite optimism though, is progress without planning. That's basically what evolution is: a bunch of genes trying new stuff at random, waiting for the one combination to work. In the startup world, indefinite optimism brought the "lean startup" method that "adapts and survives" in an "ecosystem" where they "compete" and must "evolve". However, lean is only a methodology, not a goal. The goal, since it is an indefinite world, does not exist. As a result, new companies only upgrade new products. They are not building anything new.
Marginal improvement to products that already exist will let you reach a local maximum, sure. But not a global one.
Many saw Steve Jobs as a master of design for his product. It's not wrong. However, he was especially skilled at designing a future and vision for his company. Jobs carefully planned all of Apple's goals years in advance. He knew where he was coming from, and knew where he was going. He started with the iPod in 2001, and kept on creating new products until people understood the vision he had all along 10 years later.
Jobs lived in a definite optimistic world with milestones to achieve. He could plan long-term, an underrated quality in an indefinite world. As long as he had goals for Apple, he wouldn't leave neither sell the company, and would keep on pursuing his milestones.
This explains why startups that sell always sell too high, or too low. When it is the founder that wants to sell, she us likely exiting the company because she does not have anymore vision. As such, the price of the startup is likely too high. When another company seeks to acquire the startup, it is likely to desire to buy too low because the founder is likely to have vision (which is why she hasn't sold yet).
We need to find a way back to a future we want to build. The best way to do that is with a startup. A startup is the largest unit over which you can have mastery, with the greatest potential impact on the world.
Getting back control over our future starts by rejecting the idea that Chance somehow plays a role, because Chance is not controllable.
You are not a lottery ticket.
The Pareto principle states that 20% of producers produce 80% of total output. This is possible due to the Power law, the law that explains exponential growth or compound interest.
This law is present everywhere, from economics to tomato production, to volcanoes (20% of volcanoes are responsible for 80% of the destruction).
This is particularly true in venture capital.
Most VCs invest in a wide range of companies hoping to find those that will make returns for their funds.
Most VCs are wrong. Venture returns don't follow a normal distribution (2 will fail, 6 will be average, 2 will be great). They follow the power law: a small number of them will create almost all of the value for the fund. As such, these are the ones you should focus on as a VC, instead of focusing on a wide range of companies. The rule is that your best investment will (and should) bring in as much or more than the total value of the fund. So you should invest in companies that have the potential to do that.
The reason why VCs among all people don't see the power law is that they live in the present. They spend more time with problematic companies, trying to fix them, than they do investing in their champions.
The power law is important to everyone because everyone is an investor (in time, effort, money, etc).
If you create a company, you should make sure that the company could experience the power law. Whatever choice you make, make sure it will be valuable decades from now.
In our indefinite world, the most common answer to the question of the future is to diversify. But it's dumb. Investors that understand the power law do not diversify. They make very few bets - and invest everything they have there.
You should do the same in life because life isn't a portfolio. A startup founder cannot diversify himself. You can't run twelve companies at the same time and hope one will work. You should choose one thing, one bet to make, and go all-in on that.
Unfortunately, school teaches the other way around. Every student learns a bit of everything to hedge against the future. People aren't creating their lives. They are preparing for it.
If you start your own company, you must remember the power law to operate it well and focus on the "one things" that work as the most important things are singular. One market will do much better than all the others. One distribution strategy will dominate all the others. And you will be much better than others at one thing.
Every one of today's most famous ideas were once a deep secret (Pythagora's theorem, for example). Your job is to unhearth these ideas with the two contrarian questions:
If there are many answers to these questions, there are many companies that are waiting to be started.
Ted Kaczynski, the Unabomber, pretends that in order to be happy, humans must solve problems. There are three types of problems to solve: easy, difficult, and impossible. Kaczynski thought that all the difficult problems had been solved and that it was why the general population is so depressed. What they resolve in their daily life is whether easy, which yields no satisfaction, or impossible, which yields frustration.
Kaczynski wanted to destroy society and technology to let people start over and solve difficult problems again. He was crazy, but his loss of faith is everywhere around us. People today love to go back into the cultural 60's and 80's when life was...lighter.
All fundamentalists think like Kaczynski. Everything is whether black or white, with no space for middle ground and complexity. The world is made out of easy truths and mysteries we cannot question or seek to solve. As a result, people no longer question.
Why?
It may have started with geography. In the 18th century, there were still a bunch of places to discover. But not anymore. On top of this, four social trends have taken away our wish to look for secrets.
You can't find secrets without looking for them. Furthermore, you also need faith that whatever it is you are trying to achieve is indeed, a secret, and not impossible to solve. If you think something is impossible, you'll never try to achieve it. Believing in secrets, as such, is an effective truth.
There are two types of secrets: secrets about people, and secrets of nature. Natural secrets live around us. To find them, one must study some undiscovered aspect of the physical world. Secrets about people are different. There are things people don't know about themselves or hide from others.
As such, when you build a company, you have to ask yourself two distinct questions: what secrets isn't nature telling you? What secrets aren't people telling you?
Natural secrets are often uncovered by scientists, and higher valued than people's secrets. However, the latter is often underrated, maybe because you don't need a PhD in physics to understand them. Questions to ask to find people's secrets are "what are people not allowed to talk about?" "What is forbidden, or taboo?"
Sometimes, looking for both natural and human secret lead to the same answer. Eg: the fact that capitalism and competition are opposite.
Whether you study this question from an economic point of view, or ask "what are people running companies not allowed to say?", you would find out the truth.
The best place to look for secrets is where no one else is looking.
Unless you have conventional belief, it's rarely a good idea to tell everybody everything that you know. As such, you should tell your secret to people you need to, and no more.
The middle between telling nobody, and telling everybody, is a company. The best entrepreneurs know this: every great business is built around a secret that's hidden from the outside.
A great company is a conspiracy to change the world. When you share the secret, the recipient becomes a fellow conspirator.
By walking the road others have walked before you and keeping your eyes open, you can find hidden paths. The paths you need to take.
A startup messed up at its foundation cannot be fixed. Beginnings are special because this is when the biggest rules, trends, and structure that will define the entity are established. They will no longer be changed afterwards, so they need to be well-established.
As a founder, your first job is to get the first things right as you cannot build a great company on a flawed foundation.
Choosing a co-founder is like getting married. If the founders develop irreconcilable differences, the company is the collateral.
Founders should share a pre-history before they start a company together - otherwise, it is just rolling dice.
Everyone in your company should work well together within a structure that helps them keep everyone aligned for the long term.
To anticipate fights, it is useful to distinguish between three concepts:
In practice, founders own, managers possess, and board controls. The more people you distribute these powers among, the more risks you may stumble upon misalignment.
Anyone working for your company should be involved full time. Consultants don't work because they don't care. Part-time doesn't work, and remote doesn't work either.
You are whether in the bus, or off the bus.
To get committed people, one should compensate them generously. However, not too generously. In fact, a company does better the less it pays its CEO. High pay for CEOs incentivizes them to defend the status quo and not take risks. Low pay for CEO sets the standard for everyone else.
High salaries teach workers to claim value from the company as it already exists instead of investing their time to create new value in the future.
Any type of cash, even compensation, is more about the present than the future.
Startups don't need to pay salaries because they can offer ownership, which is much better. However, to avoid disputes, equity should be distributed very carefully not to make anyone jealous. As such, it should remain secret.
Anyone who prefers equity over cash means they are deeply commited to the company. Equity can create incentives, and yet, everyone should remain broadly aligned.
Setting the rules that align people in the company will happen only once: at the founding, when it is inventing products and services. The best companies keep on inventing new products and as such keep on being "founded".
This moment stops when the company stops inventing anything new.
A company does not create a culture. It is a culture. People you work with should like each other and enjoy their respective company outside of work.
If you can't count durable relationships among your colleagues, you haven't invested your time well.
The PayPal mafia was built out of the fact that people they hired were excited to work with the PayPal founders. They were talented, sure, but they actually wanted to work together because they shared the same vision.
You should never outsource your recruiting.
When hiring, you should wonder why the person you are looking for would come and work for you when they could come work somewhere better. Don't propose them explosive shares, working with nice people, or on difficult problems - all companies do that. Offer them to work on the problems you are currently working on.
You will attract the best people if you can explain them why you're doing something important that no one else is doing. You should also see that your company is a perfect match for the employee you seek recruiting. Otherwise, don't hire.
Your company should promise to do irreplaceable work on a unique problem alongside great people.
From the outside, everyone in your company should be different in the same way. But they should all share the same obsession with the mission of your company.
The best way to handle employees is to make them responsible for just one thing. Defining roles not only yields better results, but it reduces conflicts as most fights happen when colleagues compete for the same responsibilities.
It's about eliminating competition between employees.
Cults are groups where members only hang out with each other and ignore their friends and families. Doing so, they may benefit from reaching certain truths denied to the outsiders.
The best startups are slightly less extreme than cults, the difference being that cults are wrong while startups are probably right.
Sales matter and is often underrated, especially by startups where engineers believe that because they are building cool stuff, customers will just come and buy them. This is not the case.
The reason why advertising matters is that it works.
Salesmen are actors and good salesmanship is hidden. That's because it happens without anyone being aware of it. This is why people working in sales, advertising or marketing have a title that has nothing to do with their actual position.
People who sell advertising are called account executives.
People who sell customers work in business development.
People that sell companies are called investment bankers.
And people that sell themselves are called politicians.
The most fundamental reason that even businesspeople underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.
If you have invented something new but have no way to sell it, you have a bad business - no matter how good the product is.
Superior sales and distribution can by themselves create a monopoly without a superior product. The opposite isn't true.
Two metrics set the limits for effective distribution. The customer lifetime value, and the customer acquisition cost.
The more expensive your product is, the more you have to spend on ads (and the more it makes sense to do so).
Complex sales
Deals in the 7-figures. These deals will happen once or twice a year, and you have to spend an enormous amount of time doing them (usually with governments). At this range, there is no salesperson in the company but the CEO.
These businesses succeed if they achieve minimum 50% of yearly growth for a decade.
Personal sales
It's about cultivating and growing relationships with people that need your product the most, starting at the bottom. If you try to sell the president when you should sell the employee, you will fail. Sell the employees first, and make your way to the top.
Distribution Doldrums (the dead zone)
In between personal sales, and traditional advertising, there is a dead zone.
Imagine you are selling a SaaS product for small and medium-sized businesses. The product doesn't make enough to justify salespeople, and advertising would be too broad for your target market.
This is why so many of these businesses don't use tools that bigger firms use. There are no good distribution channels.
Marketing and advertising
This channel works for low-priced products with mass appeal. This can work for a startup when the CLV and CAC make other channels non-viable.
Viral marketing
A product becomes viral when users invite their friends to use the product. Internet memes, viral videos are good ways to drive viral marketing.
What they did in PayPal was to pay customers to sign up and give them more money when they got a friend to sign up.
Whoever is first to dominate a market through viral marketing will be the last mover in the market.
The power law of distribution
Find THE sales channel which works.
Selling to other people than your customers
You don't only need to sell your product. You also have to sell your company to your employees and investors. That includes selling your company to the media.
Many worry machines will replace humans that will end up jobless. This, though, is wrong. Computers complete humans, they don't replace them.
The most valuable businesses will be built by entrepreneurs that seek to empower people rather than replace them.
Globalization means substitution
People compete for jobs and resources. Computers compete for neither. When globalization happened, a human in China replaced humans in Europe and the US. Humans do substitute humans, but machines don't do that.
As such, delocalization is not sustainable. The workers in China will get richer and eventually demand the same perks enjoyed by their Western counterparts.
Technology means complementarity
People and machines have far less in common than we think. They are good at different things.
The gains from working with computers are much higher than the gains from replacing people with other people.
Computers are tools that help humans be more productive, and they should be considered as such. Palantir builds software that helps analysts track that which they seek. They don't replace analysts altright.
As such, the real question to ask is how can computers help humans solve hard problems?
At the beginning of the 21st century, the green transition became an imperative and hundreds of companies were built to create green tech. Years later, most of these companies collapse. The reason is that they ignored the seven questions that every business must answer before being created.
1. The engineering question: can you create breakthrough technology instead of incremental improvement?
A company should have technology an order of magnitude better than its nearest substitute. You mus thrive for a 10X improvement.
2. The timing question: is now the right time to start the business?
3. The monopoly question: are you starting with a big share of a small market? Huge market are highly competitive.
4. The people question: do you have the right team? If the company is tackling a tech problem, it should mainly be ran by engineers, not business people and the other way around.
5. The distribution question: do you have a way to deliver your product?
6. The durability question: will your market position be defensible 10 and 20 years into the future? Are you the last mover in your market? Can other companies become better at we want to do than us (China)?
7. The secret question: have you identified a unique opportunity that others don't see?
Nail all seven, and your business will thrive.
There is the idea that companies have great power but are avid of profits. Likewise, NGOs are after the good of society but have weak power. In theory, social entrepreneurs want the best of both worlds. In practice, they often fail to do either.
There is ambiguity in the word "social". Does it mean it is good for society, or seen as good by society?
In reality, progress isn't held back by differences between corporate greed and nonprofit generosity. The problem is that both of them are exactly like their peers. NGOs push to resolve the same issues, and corporations all copy each other.
What is good for society is to do something different.
The best projects are overlooked, not cheered on.
The best problems to solve are the ones nobody else even tries to solve.
No sector will ever be so important that merely participating in it will be enough to build a great company. As such, don't seek to enter "multi-billion dollars markets".
Some people are extreme in certain things, but most people are in the middle. Plot everyone on earth in a graph and you'll get a normal distribution.
In this graph, founders usually end up on both ends of the graph. When you plot their traits, you get an inverse normal distribution (a dip instead of a hill).
Where do these traits come from? It's tough to say. However, founders often start off being a little different, and end up...even weirder at the end.
Take Richard Branson, Sean Parker, or even Lady Gaga. Are these people really how they are, or is it a stunt? Probably a bit of both.
Extreme founders are not new. Oedipus was extreme in its own way, Romulus as well. History only remembered the most extreme of people, and seldom forget about average people. The reason is because when society would be torned apart, society needed a scapegoat.
Like founders, scapegoats are extreme and contradictory. They are weak enough to be killed, but strong enough to be solely responsible for whatever miseries happened.
These are the roots of monarchy: every king is a living god, and every god, a murdered king.
From Gates to Jobs, history teaches us that founders are important. Not because they are the only ones whose work has value, but because they have the power to bring the best work out of everybody else. The single greatest danger for founders is to become so certain of their own myths that they lose their minds (Adam Neumann).
But an equally danger for every company is to lose all sense of myth and mistake disenchantment for wisdom.
No matter its trends, the future won't happen on its own. We cannot take for granted that the future will be better and that means we need to work to create it.
The essential first step is to think for yourself.
"Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both recreate it and preserve it for the future."
The book is short, but this summary is long, very long. That is because the book is so dense in ideas.
To be honest, you shouldn't read the summary if you have not read the book.
Chapter 1
Every moment in business happens once. The next Bill Gates and Zuckerberg won't make OS or social media companies. They did what they did because they saw the opportunity to solve a problem that had never been solve before. As such, if you are copying them (making OS and social networks) you are not learning from them.
Creating a company that does something we already know how to do is easy. It takes the world from 1 to n. Doing something new (that has never been done before) is hard. It takes the world from zero to one. The companies that do it are the ones that achieve explosive growth.
The best paths are new and untried. As such, the paradox of teaching entrepreneurship is that such formula does not exist.
Successful people find value in unexpected places and do so by focusing on first principles instead of focusing on formulas.
Brilliant thinking is rare, but courage is even in shorter supply than genius.
There are two types of progress: vertical, and horizontal. Horizontal progress is creating what has already been created. Vertical progress is doing something nobody has ever done before. Horizontal progress, on a macro level, is globalization. Globalization is simply repeating somewhere what has worked before. The concept that embodies going from zero to one is technology. It is inventing better ways of doing things. Globalization and tech are different, so they can happen at the same time.
1914-1971 saw rapid technological innovation and globalization. Since 1971, we've had a lot of globalization mainly. Most people think we have reached the peak of technology and that the future is only going to bring more of the same. But Thiel doesn't think so. If we keep on living the way we live, we won't have any future left anymore but we live in an unsustainable way Hence the need to create technology, as technology is the only tool we have to do more with less.
The vision of the future for our grandparents was flying cars and holidays on the moon. It was optimistic and definite. But this has not happened. Instead, we have inherited a very old world simply because we have stopped inventing new things.
This means that technology, innovation - building the future - is not automatic. It is engineered.
Chapter 2
New technology tends to come from ventures - a group of people animated by the same mission. That's because it is hard to develop something in big organizations, and even harder to do it alone. Startup means working with others to get stuff done, but not with too many people so that...you can actually get stuff done.
Since a startup attempts to create that which has never been done before, it needs new thinking, which is a company's most important strength. Hence the contrarian question:
If you can identify a delusional popular belief, you can identify the contrarian truth that lies behind it.
The Impact of the 2000 Tech Bubble
When the tech bubble exploded, technological optimism faded. Everyone decided to treat the future as indefinite (unknown). Since technology had failed, globalization replaced it as the hope of the future. Investors took note that going from the real world to the digital world had not worked, so they went back to investing into the real world (real estate).
The result was another bubble, which exploded in 2008.
Those that stayed with tech learned four important lessons:
- Make incremental advances instead of having grand visions. The grand visions projects (Webvan) had fallen completely.
- Stay lean and flexible. Entrepreneurship is experimentation and finding what works, not executing a vision.
- Improve products of the competition. The only way to know if you have a market is to test it with an already-existing customer.
- Focus on product, not sales. If you need sales, your product isn't good enough.
Unfortunately, the opposite of these lessons are probably more correct:
- It is better to risk boldness than triviality.
- A bad plan is better than no plan.
- Competitive markets destroy profits.
- Sales matter just as much as the product.
To build new technologies, we need to abandon the dogmas learned after the dot-com bubble crashed. That doesn't mean opposing them dogmatically. It means looking at what type of thinking is influenced by the mistakes of the past, and what isn't. It means looking at the best way to think through something to arrive to a desired result. It means going against the mainstream and looking for the truth that nobody sees.
And the most contrarian thing of all is not to oppose the crowd, but to think for yourself.
Chapter 3
All Happy Companies Are Different
The business version of the question we asked above is "what valuable company is nobody building?" This question is tough, because while your company should create value, it should also capture some of this value to be valuable itself.
Eg: Airlines create a lot of value, but capture very little of it. Google creates less value, but captures more of it. As a result, Google is more profitable than airlines.
The airlines compete with each other, but Google stands alone. That's because Google is a monopoly, and they are a monopoly because they are the best (and by far) at what they do.
While it is assumed that capitalism develops in a perfect competition market, it is not empirically and economically true since firms wouldn't make profits in perfect competition. Furthermore, profits is what drives capitalism.
As such, if you want to capture value, you need to build a business which is singularily different than others, and that can enjoy its own monopoly.
Competition is for losers.
Lies People Tell
Businesses in real life are much closer to whether being monopolies or being in perfect competition than we actually think. The reason is that both of them lie about their situation. Monopolies have interests to say they are not monopolies (because of the antitrust laws) while firms in perfect competition have interests to say they are monopolies because their investors want ROI.
As such, money for a company is whether an important goal, or the only thing that matters. Because monopolies don't compete, they can afford to think about things that aren't directly related to money. Money is important, but it is not all. As such, these societies can explore, fail, innovate, and keep on growing.
For a restaurant though, the competition is so high that they can't afford to do that. They have neither the time, energy, or opportunity to do it. They are so focused on margin that they can't afford to think and plan the future.
Monopoly Capitalism
Technically speaking, monopolies deserve their bad reputation - but only in a world that does not change. Since our world changes, monopolies are static. They are creative, because if they don't evolve, they know they won't survive. As a result, creative monopolies give customers more choices by inventing new products and services. Governments know that, and this is why they distribute patents.
The dynamism of new monopolies explains why old monopolies can't control and halt innovation. Apple iOS decreased Microsoft's Windows market share. We observe that the former didn't come to secure a position in the market: it came to destroy other monopolies. As such, monopolies drive progress because the idea of being a monopoly is a powerful incentive to innovate.
All happy companies are different: they solve a unique problem better than everyone else and enjoy monopoly perks. All unhappy businesses are the same: they failed to escape competition, and get stressed out because of it.
Chapter 4: The Ideology of Competition
Creative monopoly = new products that benefit everyone + profits.
Competition = no profits, no innovation, and a struggle to survive.
Why do people think competition is healthy? Because it's an ideology, a truth people believe no matter what, without challenging its core. In reality, the more we compete, the less we gain. But since our entire society is based on competition (sports, school, politics, economics, military, dating...), we don't realize it.
Why do people compete? According to Marx, they compete because they are different. According to Shakespear, they compete because they are the same. And as they compete, they become more and more the same. In the world, of business, Shakespear is right.
Let's illustrate this with Google VS Microsoft. At first, they were completely different. One made a search engine, the other made an OS. Then they started competing and became similar (Bing VS Google, Word VS Docs, Onedrive VS Google Drive, Surface VS Nexus, Windows Phone VS Android, etc) and lost sight of what mattered most: building new things. Some years later, Apple came and overrode them both. That's because competition causes us to overemphasize old opportunities and slavishly copy what has worked in the past instead of wondering what new things we should create.
Sometimes, some types of competition deserve to be fought. But most don't. If competition with a rival becomes unproductive for everyone, don't fight them. Merge with them.
Chapter 5: Last Mover Advantage
It's good to escape competition, but you must be able to keep this advantage in the long term. Your company needs to be built for sustainability.
Most of the time however, investors and entrepreneurs focus on direct growth because it is easy to measure and forget about durability because it is hard to measure, which makes no sense. Most tech companies will only make money in 10-15 years, hence the need to focus on sustainability if they hope to achieve profitability.
If you focus on short-term growth only, you miss the most important question you should ask: will this company still be around a decade from now?
Characteristics of a Monopoly
1. Proprietary technology
Your technology must be at the very least ten times better to enjoy a real monopolistic advantage. The clearest way to make a 10X improvement is to invent something new. If you build something where there was nothing before, the increase in value is theoretically infinite.
You can make a 10X improvement by improving a product or a service, like Amazon did with bookstores. Or you can make it through superior design.
2. Network effect
They make a product more useful as more people use it. However, you will never reap them if the service you are proposing isn't valuable to the first user.
Network effects businesses must start in very small markets, markets that seem too small to be profitable, and scale from there on.
3. Economies of scale
A good startup should have the potential for great scale built into its first design. Services businesses, for example, are difficult to scale.
4. Branding
Brand must come after substance, not the other way around. A brand that sells nothing will eventually die (Yahoo).
These four characteristics define monopolies, should you choose the right market.
Building a Monopoly
Start small and monopolize
Start small. Before dominating a huge market, you should dominate a very small market and expand from there on. It's better to start too small than too big.
It's better to serve a few thousands who really need what you make than to serve millions who don't care.
The ideal market for startups is a small group of particular people concentrated together and served by few or no competitors.
Scale up
Once you dominate your small market, extend to adjacent market. Slowly, but surely.
Don't disrupt
Disrupting means you will face competition, and that you see yourself in the eyes of your competitor. Don't try to disrupt. Try to add value to the overall market instead.
The last will be first
First mover advantage is not real in business because what matters is to make money in the long-term - and first movers only make money at the beginning. It's much better to be the last mover. Make the greatest last development to a product or a service and go and enjoy your monopoly.
To do so, "you must study the endgame before everything else." That means you need to have a vision of the world you want to achieve.
Chapter 6: You Are Not a Lottery Ticket
An important question in business is whether success is a matter of luck or work.
Objectively, it is impossible to say. Empirically though, we observe that successful entrepreneurs are rarely successful only once. This would tend to confirm that success in business is a matter of skills - not luck.
Generations ago, luck was "engineered". Luck was preparation, dedication, and hard work to achieve a purpose. "Lucky people" believed they made their own luck. As such, calling someone lucky for their success was considered stupid.
When we call a company lucky, we assign the concept of "luck" to the past. When we think deep about it, that would mean that that company did something at a point A in time, which turned out to work at a point B later on.
As such, if we call a company lucky, this would mean that not the past, but the future, is just chance.
Is it, though? Is the future chance, or design?
Can you control your future?
It depends. If you think your future is certain, you will work to achieve that state. If you think the future is indefinite, you'll just leave it to chance and give up on trying to master it.
Indefinite attitude towards the future explains what's most dysfunctional in our world today. Process trumps substance. When peole do not know what to do, they use rules to assemble a portfolio of various options and choose the one that ends up being best.
This is how the schooling system works: students are taught everything and anything without thinking about the ultimate purpose of these skills.
A definite future is different. Instead of doing everything and nothing, the person will do that which will enable them to build their desired future.
This isn't what young people do today because everyone lost faith in a definite future. However, the optimistic indefinite often forget that the future, while indefinite, may end up being better....or worse.
An optimistic definite future defined the US between 1950 and 1960. It means that people knew that the future would be better than the present if one sought to work to realize it. In the 1950's in the US, people took big plans seriously and thought about how to make them work.
Unlike definite optimists, indefinite optimists expect the future to be better...but have no incentives nor desire to design it. Instead of inventing new products, they just upgrade existing ones. This describes the USA of today.
In China, the future is definite but pessimistic. This means that the future is known, but since it will be bleak, one needs to prepare for it. Every country is afraid that China will take over the world. China is the only country afraid that it won't.
In Europe finally, the future is both indefinite and pessimistic. People fear the future but have no idea what to do about it. As a result, nobody is in charge in Europe. Europeans just react to events as they happen, solving crisis after crisis, and hope things don't get worse. All they can do is wait for the future to degrade, eating and drinking, which explains Europe's famous vacation mania.
Our indefinitely optimistic world
Indefinite finance
A definitely optimistic future needs engineers to build underwater cities and spaceships. A indefinitely optimistic future needs bankers and lawyers. Finance embodies indefinite thinking because it is the only way to make money when you have no idea how to create wealth (understand: value).
Bright people head to Wall Street because they have no real plan for their careers. They find out that finance itself is indefinite. Since no one knows nothing because no one has any vision, diversifying through investing into a portfolio of companies becomes the norm.
The indefiniteness of finance is weird. When a founder sells his company, he gets money but has no idea what to do with it, so he invests it in a bank. The bank has no idea what to do with it, so they invest it into different companies. The companies try to increase their share price by generating cash flows. They can then distribute dividends or buy shares back, and the whole cycle repeats.
Conclusion: no one knows what to do with money in an indefinite world. Money becomes more valuable than anything else you could do with it. So you seek to maximize its amount...for its own sake.
Indefinite politics
In the past, politicians were accountable to people in election times. Today, it is at all moment. Society is more focused on predicting what people will think in a couple of weeks (with polls) than it is at making big plans for the next ten or twenty years.
Since we have no idea of the society we are building, governments just mainly provide insurance for whatever problem we may hit next. Solutions to big problems are more insurance and more money, raising the level of entitlement within society as a result.
Indefinite life
We have been searchimg for the solution to eternal life for centuries. However, we have been making very little progress since the 1950's. The reason is that instead of diving deep into how the body works, pharmaceuticals companies just assemble a bunch of molecules hoping it will yield some results. They act with no purpose in mind, and no road map to achieve it.
They just do and try out random stuff.
Is indefinite optimism even possible?
What type of future are we headed towards? If housholds saved money, they could do something specific later on. If companies invested, they could reap the rewards of their investment. Unfortunately, neither of them do either.
So the question is: how can the future keeps on getting better if no one plans for it?
Definite optimism works when you build the future you want.
Definite pessimism works because you build what has already been built without expecting anything in return (China relentlessly copying the West).
Indefinite pessimism works because what you expected ultimately happened, and you were prepared for it.
Indefinite optimism though, is progress without planning. That's basically what evolution is: a bunch of genes trying new stuff at random, waiting for the one combination to work. In the startup world, indefinite optimism brought the "lean startup" method that "adapts and survives" in an "ecosystem" where they "compete" and must "evolve". However, lean is only a methodology, not a goal. The goal, since it is an indefinite world, does not exist. As a result, new companies only upgrade new products. They are not building anything new.
Marginal improvement to products that already exist will let you reach a local maximum, sure. But not a global one.
The Return of Design
Many saw Steve Jobs as a master of design for his product. It's not wrong. However, he was especially skilled at designing a future and vision for his company. Jobs carefully planned all of Apple's goals years in advance. He knew where he was coming from, and knew where he was going. He started with the iPod in 2001, and kept on creating new products until people understood the vision he had all along 10 years later.
Jobs lived in a definite optimistic world with milestones to achieve. He could plan long-term, an underrated quality in an indefinite world. As long as he had goals for Apple, he wouldn't leave neither sell the company, and would keep on pursuing his milestones.
This explains why startups that sell always sell too high, or too low. When it is the founder that wants to sell, she us likely exiting the company because she does not have anymore vision. As such, the price of the startup is likely too high. When another company seeks to acquire the startup, it is likely to desire to buy too low because the founder is likely to have vision (which is why she hasn't sold yet).
You Are Not a Lottery Ticket
We need to find a way back to a future we want to build. The best way to do that is with a startup. A startup is the largest unit over which you can have mastery, with the greatest potential impact on the world.
Getting back control over our future starts by rejecting the idea that Chance somehow plays a role, because Chance is not controllable.
You are not a lottery ticket.
Chapter 7: Follow the Money
The Pareto principle states that 20% of producers produce 80% of total output. This is possible due to the Power law, the law that explains exponential growth or compound interest.
This law is present everywhere, from economics to tomato production, to volcanoes (20% of volcanoes are responsible for 80% of the destruction).
This is particularly true in venture capital.
The power law in VC
Most VCs invest in a wide range of companies hoping to find those that will make returns for their funds.
Most VCs are wrong. Venture returns don't follow a normal distribution (2 will fail, 6 will be average, 2 will be great). They follow the power law: a small number of them will create almost all of the value for the fund. As such, these are the ones you should focus on as a VC, instead of focusing on a wide range of companies. The rule is that your best investment will (and should) bring in as much or more than the total value of the fund. So you should invest in companies that have the potential to do that.
Why people don't see the power law
The reason why VCs among all people don't see the power law is that they live in the present. They spend more time with problematic companies, trying to fix them, than they do investing in their champions.
What to do with the power law
The power law is important to everyone because everyone is an investor (in time, effort, money, etc).
If you create a company, you should make sure that the company could experience the power law. Whatever choice you make, make sure it will be valuable decades from now.
In our indefinite world, the most common answer to the question of the future is to diversify. But it's dumb. Investors that understand the power law do not diversify. They make very few bets - and invest everything they have there.
You should do the same in life because life isn't a portfolio. A startup founder cannot diversify himself. You can't run twelve companies at the same time and hope one will work. You should choose one thing, one bet to make, and go all-in on that.
Unfortunately, school teaches the other way around. Every student learns a bit of everything to hedge against the future. People aren't creating their lives. They are preparing for it.
If you start your own company, you must remember the power law to operate it well and focus on the "one things" that work as the most important things are singular. One market will do much better than all the others. One distribution strategy will dominate all the others. And you will be much better than others at one thing.
Chapter 8: Secret
Every one of today's most famous ideas were once a deep secret (Pythagora's theorem, for example). Your job is to unhearth these ideas with the two contrarian questions:
- What important truth do very few people agree with you on?
- What valuable company is nobody building?
If there are many answers to these questions, there are many companies that are waiting to be started.
Why aren't people looking for secrets?
Ted Kaczynski, the Unabomber, pretends that in order to be happy, humans must solve problems. There are three types of problems to solve: easy, difficult, and impossible. Kaczynski thought that all the difficult problems had been solved and that it was why the general population is so depressed. What they resolve in their daily life is whether easy, which yields no satisfaction, or impossible, which yields frustration.
Kaczynski wanted to destroy society and technology to let people start over and solve difficult problems again. He was crazy, but his loss of faith is everywhere around us. People today love to go back into the cultural 60's and 80's when life was...lighter.
All fundamentalists think like Kaczynski. Everything is whether black or white, with no space for middle ground and complexity. The world is made out of easy truths and mysteries we cannot question or seek to solve. As a result, people no longer question.
Why?
It may have started with geography. In the 18th century, there were still a bunch of places to discover. But not anymore. On top of this, four social trends have taken away our wish to look for secrets.
- Incrementalism: we are taugh at school that progress is made one small step at a time. If you end up learning more than asked, you won't get any marks for it. Rather, you get the highest mark to do what is expected of you.
- Risk aversion: People are scarred of secrets because they are scarred of being wrong. Being lonely and right is difficult enough. Being lonely and wrong is nearly impossible.
- Complacency: the elite are the ones best equipped to search for secrets, but why bother if you can collect rent and go home?
- Flatness: globalization has transformed the world in a global village. Prior to looking for secrets, people often wonder why someone smarter has done that before. This may dissuade them. The world has become too big for an individual to think they can solely change it.
The case for secrets
You can't find secrets without looking for them. Furthermore, you also need faith that whatever it is you are trying to achieve is indeed, a secret, and not impossible to solve. If you think something is impossible, you'll never try to achieve it. Believing in secrets, as such, is an effective truth.
How to find secrets
There are two types of secrets: secrets about people, and secrets of nature. Natural secrets live around us. To find them, one must study some undiscovered aspect of the physical world. Secrets about people are different. There are things people don't know about themselves or hide from others.
As such, when you build a company, you have to ask yourself two distinct questions: what secrets isn't nature telling you? What secrets aren't people telling you?
Natural secrets are often uncovered by scientists, and higher valued than people's secrets. However, the latter is often underrated, maybe because you don't need a PhD in physics to understand them. Questions to ask to find people's secrets are "what are people not allowed to talk about?" "What is forbidden, or taboo?"
Sometimes, looking for both natural and human secret lead to the same answer. Eg: the fact that capitalism and competition are opposite.
Whether you study this question from an economic point of view, or ask "what are people running companies not allowed to say?", you would find out the truth.
The best place to look for secrets is where no one else is looking.
What to do with secrets
Unless you have conventional belief, it's rarely a good idea to tell everybody everything that you know. As such, you should tell your secret to people you need to, and no more.
The middle between telling nobody, and telling everybody, is a company. The best entrepreneurs know this: every great business is built around a secret that's hidden from the outside.
A great company is a conspiracy to change the world. When you share the secret, the recipient becomes a fellow conspirator.
By walking the road others have walked before you and keeping your eyes open, you can find hidden paths. The paths you need to take.
Chapter 9: Foundations
A startup messed up at its foundation cannot be fixed. Beginnings are special because this is when the biggest rules, trends, and structure that will define the entity are established. They will no longer be changed afterwards, so they need to be well-established.
As a founder, your first job is to get the first things right as you cannot build a great company on a flawed foundation.
Founding matrimony
Choosing a co-founder is like getting married. If the founders develop irreconcilable differences, the company is the collateral.
Founders should share a pre-history before they start a company together - otherwise, it is just rolling dice.
Ownership, possession, and control
Everyone in your company should work well together within a structure that helps them keep everyone aligned for the long term.
To anticipate fights, it is useful to distinguish between three concepts:
- Ownership: who owns the company's equity legally?
- Possession: who runs the company on a day-to-day basis?
- Control: who formally governs the company's affairs?
In practice, founders own, managers possess, and board controls. The more people you distribute these powers among, the more risks you may stumble upon misalignment.
On the bus, or off the bus
Anyone working for your company should be involved full time. Consultants don't work because they don't care. Part-time doesn't work, and remote doesn't work either.
You are whether in the bus, or off the bus.
Cash is not king
To get committed people, one should compensate them generously. However, not too generously. In fact, a company does better the less it pays its CEO. High pay for CEOs incentivizes them to defend the status quo and not take risks. Low pay for CEO sets the standard for everyone else.
High salaries teach workers to claim value from the company as it already exists instead of investing their time to create new value in the future.
Any type of cash, even compensation, is more about the present than the future.
Vested interests
Startups don't need to pay salaries because they can offer ownership, which is much better. However, to avoid disputes, equity should be distributed very carefully not to make anyone jealous. As such, it should remain secret.
Anyone who prefers equity over cash means they are deeply commited to the company. Equity can create incentives, and yet, everyone should remain broadly aligned.
Extending the founding
Setting the rules that align people in the company will happen only once: at the founding, when it is inventing products and services. The best companies keep on inventing new products and as such keep on being "founded".
This moment stops when the company stops inventing anything new.
Chapter 10: the Mechanics of Mafia
A company does not create a culture. It is a culture. People you work with should like each other and enjoy their respective company outside of work.
If you can't count durable relationships among your colleagues, you haven't invested your time well.
The PayPal mafia was built out of the fact that people they hired were excited to work with the PayPal founders. They were talented, sure, but they actually wanted to work together because they shared the same vision.
Recruiting
You should never outsource your recruiting.
When hiring, you should wonder why the person you are looking for would come and work for you when they could come work somewhere better. Don't propose them explosive shares, working with nice people, or on difficult problems - all companies do that. Offer them to work on the problems you are currently working on.
You will attract the best people if you can explain them why you're doing something important that no one else is doing. You should also see that your company is a perfect match for the employee you seek recruiting. Otherwise, don't hire.
Your company should promise to do irreplaceable work on a unique problem alongside great people.
From the outside, everyone in your company should be different in the same way. But they should all share the same obsession with the mission of your company.
Do one thing
The best way to handle employees is to make them responsible for just one thing. Defining roles not only yields better results, but it reduces conflicts as most fights happen when colleagues compete for the same responsibilities.
It's about eliminating competition between employees.
Cults
Cults are groups where members only hang out with each other and ignore their friends and families. Doing so, they may benefit from reaching certain truths denied to the outsiders.
The best startups are slightly less extreme than cults, the difference being that cults are wrong while startups are probably right.
Chapter 11: If You Build It, Will They Come?
Sales matter and is often underrated, especially by startups where engineers believe that because they are building cool stuff, customers will just come and buy them. This is not the case.
The reason why advertising matters is that it works.
Sales is hidden
Salesmen are actors and good salesmanship is hidden. That's because it happens without anyone being aware of it. This is why people working in sales, advertising or marketing have a title that has nothing to do with their actual position.
People who sell advertising are called account executives.
People who sell customers work in business development.
People that sell companies are called investment bankers.
And people that sell themselves are called politicians.
The most fundamental reason that even businesspeople underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.
If you have invented something new but have no way to sell it, you have a bad business - no matter how good the product is.
How to sell a product
Superior sales and distribution can by themselves create a monopoly without a superior product. The opposite isn't true.
Two metrics set the limits for effective distribution. The customer lifetime value, and the customer acquisition cost.
The more expensive your product is, the more you have to spend on ads (and the more it makes sense to do so).
Complex sales
Deals in the 7-figures. These deals will happen once or twice a year, and you have to spend an enormous amount of time doing them (usually with governments). At this range, there is no salesperson in the company but the CEO.
These businesses succeed if they achieve minimum 50% of yearly growth for a decade.
Personal sales
It's about cultivating and growing relationships with people that need your product the most, starting at the bottom. If you try to sell the president when you should sell the employee, you will fail. Sell the employees first, and make your way to the top.
Distribution Doldrums (the dead zone)
In between personal sales, and traditional advertising, there is a dead zone.
Imagine you are selling a SaaS product for small and medium-sized businesses. The product doesn't make enough to justify salespeople, and advertising would be too broad for your target market.
This is why so many of these businesses don't use tools that bigger firms use. There are no good distribution channels.
Marketing and advertising
This channel works for low-priced products with mass appeal. This can work for a startup when the CLV and CAC make other channels non-viable.
Viral marketing
A product becomes viral when users invite their friends to use the product. Internet memes, viral videos are good ways to drive viral marketing.
What they did in PayPal was to pay customers to sign up and give them more money when they got a friend to sign up.
Whoever is first to dominate a market through viral marketing will be the last mover in the market.
The power law of distribution
Find THE sales channel which works.
Selling to other people than your customers
You don't only need to sell your product. You also have to sell your company to your employees and investors. That includes selling your company to the media.
Chapter 12: Man and Machine
Many worry machines will replace humans that will end up jobless. This, though, is wrong. Computers complete humans, they don't replace them.
The most valuable businesses will be built by entrepreneurs that seek to empower people rather than replace them.
Substitution VS complementarity
Globalization means substitution
People compete for jobs and resources. Computers compete for neither. When globalization happened, a human in China replaced humans in Europe and the US. Humans do substitute humans, but machines don't do that.
As such, delocalization is not sustainable. The workers in China will get richer and eventually demand the same perks enjoyed by their Western counterparts.
Technology means complementarity
People and machines have far less in common than we think. They are good at different things.
The gains from working with computers are much higher than the gains from replacing people with other people.
Complementary businesses
Computers are tools that help humans be more productive, and they should be considered as such. Palantir builds software that helps analysts track that which they seek. They don't replace analysts altright.
As such, the real question to ask is how can computers help humans solve hard problems?
Chapter 12: Seeing Green
At the beginning of the 21st century, the green transition became an imperative and hundreds of companies were built to create green tech. Years later, most of these companies collapse. The reason is that they ignored the seven questions that every business must answer before being created.
1. The engineering question: can you create breakthrough technology instead of incremental improvement?
A company should have technology an order of magnitude better than its nearest substitute. You mus thrive for a 10X improvement.
2. The timing question: is now the right time to start the business?
3. The monopoly question: are you starting with a big share of a small market? Huge market are highly competitive.
4. The people question: do you have the right team? If the company is tackling a tech problem, it should mainly be ran by engineers, not business people and the other way around.
5. The distribution question: do you have a way to deliver your product?
6. The durability question: will your market position be defensible 10 and 20 years into the future? Are you the last mover in your market? Can other companies become better at we want to do than us (China)?
7. The secret question: have you identified a unique opportunity that others don't see?
Nail all seven, and your business will thrive.
The myth of social entrepreneurship
There is the idea that companies have great power but are avid of profits. Likewise, NGOs are after the good of society but have weak power. In theory, social entrepreneurs want the best of both worlds. In practice, they often fail to do either.
There is ambiguity in the word "social". Does it mean it is good for society, or seen as good by society?
In reality, progress isn't held back by differences between corporate greed and nonprofit generosity. The problem is that both of them are exactly like their peers. NGOs push to resolve the same issues, and corporations all copy each other.
What is good for society is to do something different.
The best projects are overlooked, not cheered on.
The best problems to solve are the ones nobody else even tries to solve.
No sector will ever be so important that merely participating in it will be enough to build a great company. As such, don't seek to enter "multi-billion dollars markets".
Chapter 14: The Founder's Paradox
Some people are extreme in certain things, but most people are in the middle. Plot everyone on earth in a graph and you'll get a normal distribution.
In this graph, founders usually end up on both ends of the graph. When you plot their traits, you get an inverse normal distribution (a dip instead of a hill).
Where do these traits come from? It's tough to say. However, founders often start off being a little different, and end up...even weirder at the end.
Take Richard Branson, Sean Parker, or even Lady Gaga. Are these people really how they are, or is it a stunt? Probably a bit of both.
Extreme founders are not new. Oedipus was extreme in its own way, Romulus as well. History only remembered the most extreme of people, and seldom forget about average people. The reason is because when society would be torned apart, society needed a scapegoat.
Like founders, scapegoats are extreme and contradictory. They are weak enough to be killed, but strong enough to be solely responsible for whatever miseries happened.
These are the roots of monarchy: every king is a living god, and every god, a murdered king.
About Founders
From Gates to Jobs, history teaches us that founders are important. Not because they are the only ones whose work has value, but because they have the power to bring the best work out of everybody else. The single greatest danger for founders is to become so certain of their own myths that they lose their minds (Adam Neumann).
But an equally danger for every company is to lose all sense of myth and mistake disenchantment for wisdom.
Conclusion
No matter its trends, the future won't happen on its own. We cannot take for granted that the future will be better and that means we need to work to create it.
The essential first step is to think for yourself.
"Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both recreate it and preserve it for the future."
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