A Summary — Zero To One by Peter Thiel

A chapter-wise summary of the lessons I learned from this book and some interesting points I came across.

The Basics

-> The next Bill Gates won’t build an operating system and the next Larry Page and Sergey Brin won’t make a search engine. It’s easier to copy a model than to create something new. Doing what we already know takes the world from 1 to n. Every new creation takes us from 0 to 1.

-> Unless a company invests in creating new things, it will fail in the future no matter how big its profits remain today.

-> Humans don’t decide what to build from a catalog of options; instead, by creating new technologies we rewrite the plan of the world. Technology allows us to do more with less, enhancing humans’ fundamental capabilities.

The Challenge of the Future

-> What is the meaning of “future”? If society doesn’t change for 100 years, the time has just passed but the future hasn’t arrived. The future is a time when the world will look different from what it is today.

-> Progress is of two types:

1. Horizontal — Globalization (1 to n). Taking things that work somewhere and implementing them everywhere else.
2. Vertical — Technology (0 to 1). Building something that has never existed before.

-> We usually divide countries into two categories — developed and developing. This points to the development of countries reaching a convergence. But if you think about it, if the billions of people in India start living the way that Americans do (meaning the same quality of life and access to basic resources), it will result in an environmental catastrophe since resources are scarce. Therefore, globalization is not the final answer. The future of the world will be defined by technology more than globalization. Globalization without new technology is unsustainable.

-> It’s hard to develop new things in big organizations. Hierarchies move slowly and are risk-averse. Startups operate on the principle that you need to work with other people to get stuff done but also need to stay small enough so that you can innovate and create. The main strength of startups is new thinking which is even more important than nimbleness.

Party Like It’s 1999

-> Madness is rare in individuals but exists greatly in groups, parties, and nations.

-> What happened leading up to the dot com bubble of the 1990s?

1. By mid-1990, the US was in recession. The downturn ended in March 1991 but recovery was slow. The manufacturing sector never really recovered fully which led to a service-based economy. Competition for jobs rose in the US.
2. Silicon Valley was moving slowly. The internet had yet to take off due to restrictions on commercialization and a lack of user-friendly browsers.
3. In 1993, the Mosaic browser was launched to the public. Mosaic later became Netscape which released its Navigator browser in 1994. Navigator’s market share quickly grew to 80% in less than 12 months from its launch. Netscape was able to IPO in 1995 even though it wasn’t yet profitable.
4. Other tech companies were booming too — Yahoo! IPO in 1996 and Amazon IPO in 1997. Share prices of tech companies had multiplied. Tech investors had money flying around. This escalated asset values more than they were worth.
5. The East Asian financial crisis hit in 1997. The Ruble crisis hit in 1998 — Russia had defaulted on its debt and this had a negative effect on markets in the US.
6. Europe also wasn’t doing well. The Euro launched in 1999 — and it devalued after its launch. In mid-2000 G7 central bankers had to prop it up with a multi-billion dollar intervention.
7. In the backdrop of the dot com craze, the world wasn’t doing great. The internet seemed like the only way forward for a better future.

-> The dot com bubble lasted from September 1998 to March 2000. It led to a Silicon Valley gold rush — startups with crazy valuations, exuberant investors, and money being thrown around. The most “successful” companies embraced a model where they lost money as they grew. This was unsustainable. In the 90s, it was not obvious to think of companies as money-making machines. No loss was too big to be described as an investment in a brighter future. The 90s were a time when people developed in going from 0 to 1.

-> Four lessons were learned from the dot com crash:

1. Make incremental advances — Grand visions inflated the bubble, so they should not be indulged. Dismiss plans that are measured in years instead of quarters. Small incremental steps are the safest way forward.
2. Stay lean and flexible — Making plans for your business is arrogant and inflexible. Instead, try different things out, iterate, and experiment. [This idea does not support companies with long-term visions. The main reason behind being flexible is so that we can quickly adapt and develop a product that will immediately satisfy the needs of today, stay popular in the market and bring in money.]
3. Improve on the competition — Don’t try to create a new market prematurely. Build your business by improving already recognizable products already offered by successful competitors.
4. Focus on products but not sales — If your product requires salespeople to sell it, it’s not good enough. [This rose from the idea that bubble-era advertising turned out to be wasteful.]

-> The above lessons have become the core of the start-up world today. But the opposite of these principles is probably more correct -

1. It is better to risk boldness than triviality — vertical growth is unpopular at first but is even more or equally as important as horizontal growth.
2. A bad plan is better than no plan.
3. Competitive markets destroy profits.
4. Scale matters as much as the product.

-> After the dot com crash, globalization replaced technology as the hope for the future. To build the next generation of companies we must abandon the dogmas created after the crash. This doesn’t mean the opposite ideas are automatically true. How much of business today is shaped by mistaken reactions to past mistakes? The most contrarian thing is not to oppose the crowd but think for yourself.

All Happy Companies Are Different

-> A company could create a lot of value without becoming very valuable itself. Creating value is not enough — you also need to capture some of the value that you create. For example, airline companies bring in a lot of money but capture very less of it and hence do not have great profit margins. Whereas, a company like Google might bring in lesser money but captures more of it which leads to great profit margins.

-> Two models in economic theory that describe this:

1. Perfect Competition — Every firm in a competitive market is the same and sells the same product. Producer supply meets consumer demands. No firm has any market power and the market determines the product prices. If there is money to be made, new firms will enter the market, increase the supply and drive the prices down, and as a result, negate the profits that attracted them in the first place. If too many firms enter the market, they will start making losses and close shop which will lead the prices back to sustainable levels. In the long run, no company makes economic profits under perfect competition.
2. Monopoly — A monopoly owns the market and can set its own prices. Since there is no competition, it produces products and prices them in a way that maximizes profits.

Capitalism and competition are opposites. Capitalism is about the accumulation of capital and under perfect competition all profits get competed away.

There are two extremes — perfect competition & monopoly, and most firms are closer to one extreme. Regardless of where a firm lies on this spectrum, they have incentives to bend the truth and lie:

1. Monopoly Lies — Monopolists lie to protect themselves. Showcasing a company’s monopoly invites being scrutinized and audited. Therefore, to protect their monopoly profits, such companies exaggerate the powers of their non-existent competition. Monopolists disguise their monopoly by framing their market as the union of several large markets.
2. Competitive Lies — Non-monopolists claim that they are superior to the rest and one of a kind to differentiate them from the competition. Entrepreneurs are biased to understate the competition by describing their market so narrowly that they dominate it by definition. This is done in trying to convince investors/customers that they are exceptional instead of seriously considering whether that’s true. This is often a mistake and a key question to ask is — is there a relevant market for this product/service and is it objectively exceptional? Also, if your business is in a competitive environment you cannot differentiate yourself by focusing on trivial factors. Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets.

-> A competitive business has to fight hard due to a lack of profits and such an ecosystem pushes people toward ruthlessness. Such business is focused solely on profit margins (so that they can survive) and hence they cannot plan for a long-term future. Comparing this to a monopoly — they don’t have to worry about competition and can care about things beyond money such as worker satisfaction, quality products, and making an impact on the world. The only thing that can allow a business to transcend the daily brute struggle for survival is monopoly profits.

-> Monopoly Capitalism:

• A monopoly is good for everyone on the inside but what about the rest of society? Monopolies are only bad in a world where nothing changes — in a static world, monopolists are just rent collectors. But the world is dynamic and we can invent new and better things. Creative monopolists [products that benefit everybody and provide profits for the creator] give customers more choices by adding abundance to the world instead of creating artificial scarcity. They are good for society and make the world a better place. The government recognizes this and helps creates monopolies by granting patents to new inventions and also tries to audit them to try to prevent cases of bad monopolies.
• History of progress shows that better monopoly businesses replace incumbents that hold back progress or fail to innovate. Good monopolies don’t strangle innovation. They drive progress because the promise of long-term profits provides a powerful incentive to innovate. Profits enable them to make long-term plans and finance projects that businesses in a competitive environment can’t even think of.
• Monopoly is not a pathology, it is a condition of successful business and is a sign of progress. All happy companies are different — each one earns a monopoly by solving a unique problem. All failed companies failed to escape competition.

The Ideology Of Competition

-> Competition is an ideology and it extends beyond economics and business. It creates a struggle for survival and doesn’t benefit anyone — the more we compete, the less we gain. So why do people believe competition is good? It has been ingrained in us by our educational system which is obsessed with competition — grades, salary, status, and credentials. We start caring so much about winning and one-upping each other that we lose sight of why we started fighting, and what actually matters which inspired us to take this path in the first place. Competition is a destructive force.

-> War in business is destructive. It can cost a business its dominance.

-> Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past which leads to imitative competition.

-> Competition can make people hallucinate opportunities where none exist. Companies get obsessed with defeating their rivals because there are no differentiating factors to focus on. Companies start focusing on things like — who can price the product more aggressively, who has the best ads, etc, and lose sight of whether this is even a good market space to be in.

-> If you can’t beat a rival it may be better to merge. Winning is better than losing but everyone loses when the war isn’t worth fighting. Sometimes you have to fight for things that matter. Either don’t throw any punches or strike hard and end the fight quickly — a prolonged war will destroy both.

Last Mover Advantage

-> There are examples of loss-making companies being valued for a lot compared to profitable companies. What explains this? Investors expect these loss-making companies to capture monopoly profits in the future — the value of a business today is the sum of all the money it will make in the future. To properly value a business, you have to discount those future cash flows to their present worth since a given amount of money today is worth more than the same amount in the future (Discounted Cash Flow method of valuing a company). Most of the value of low-growth businesses is in the near term. High-growth startups often lose money initially before they can be profitable.

-> A company becomes valuable if it can grow and endure. Focusing on short-term growth might divert resources from focusing on deeper issues that might impact the company’s durability.

-> Characteristics of a monopoly:

1. Proprietary Technology — It makes your product difficult to replicate by others. Rule of thumb — proprietary technology must be at least 10x its closest substitute in some important dimension to lead to a real monopolistic advantage. Anything less than that will be considered a marginal improvement and will be hard to sell.
2. Network Effects — Network effects can make a product more useful as more people use it. To reap the benefits of network effects, the product has to be valuable to the first customers so that eventually the network can grow. If the product is only useful when a large number of people use it, then it will be difficult to build its initial customer base.
3. Economies of Scale — A monopoly business gets stronger as it gets bigger — the cost of creating a product can be spread out over ever greater quantities of sales. Software startups are especially benefited from this because a core group of engineers can create a software product that can scale to millions of users without much increase in the cost of the product. It is difficult for service-based companies to become monopolies because if they plan to expand their services to more clients, their operational costs also increase. A good startup should have the potential for great scale built into its first design.
4. Branding — Creating a strong brand name is a powerful way to claim a monopoly. Brand should be a result of good products and not the other way around (eg. Apple). No technology company can be built on branding alone.

-> Building a monopoly:

1. Start Small and Monopolize — Every startup should start with a small market (not non-existent). It’s easier to dominate a small market than a large one. The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors. A big market which is crowded by competition is a bad choice.
2. Scaling Up — Once you dominate a niche market you should gradually expand into related and broader markets.
3. Don’t Disrupt — As you plan to expand to adjacent markets, don’t disrupt and try to avoid competition as much as possible. But if you want to create something new, the act of creation is far more important than the old industries that might not like what you create (eg. Tesla).

-> If you’re the first entrant into a market, you can capture a significant market share while competitors are only getting started. But moving first is a tactic, not a goal. Generating future cashflows is more important than getting the “First Mover Advantage”. It’s better to be the last mover to make the last great development in a specific market and enjoy monopoly profits for the years to come.

You Are Not A Lottery Ticket

-> Does success come from luck or skill? We make our own luck by working hard.

-> Can you control the future? You can think of the future to take a definite form or a cloudy uncertain. If you think of it as definite, you can take action to make the future a reality. Instead of pursuing many things at a mediocre level, be great at something substantive to become distinguishable. If you are good at one or a few selected things, it helps you prepare for a future that can take a definite form. If you are mediocre at many things, you are ready for nothing, in particular, making the future seem hazy.

-> To better understand the future we can combine optimism/pessimism and definite/indefinite to yield 4 views:

1. Indefinite Pessimism — An indefinite pessimist believes in a bleak future but he has no idea what to do about it. The indefinite pessimists can’t know whether the decline will be fast or slow, catastrophic or gradual. All they can do is wait for it to happen and enjoy life until then.
2. Definite Pessimism — A definite pessimist believes in a bleak future and prepares for it.
3. Definite Optimism — He believes that the future will be better than the present if he plans and works to make it better.
4. Indefinite Optimism — He believes the future will be better but doesn’t know how and hence doesn’t make any plans.

Based on how we view the future, we take decisions and actions in the present.

-> How indefinite optimism takes form in real life:

1. Indefinite Finance — A definitely optimistic future would need engineers to design the technology of tomorrow so that people can live better lives. An indefinitely optimistic future requires more bankers and lawyers. Finance epitomizes indefinite thinking — it’s the only way to create money when you don’t know how to generate wealth. In an indefinite world, people prefer unlimited optionality since there is no plan. Money is more valuable than anything you could do with it. Only in a definite world money is a means to an end, not the end itself.
2. Indefinite Politics — The government is supposed to find solutions to complex problems in society. In the USA, entitlement spending (mandatory spending required by law — Medicare, Social Security, and other insurances) has been more than discretionary spending (optional spending by the government to fund departments, programs, and agencies) since 1975. To increase discretionary spending we would need specific plans to solve specific problems. But the indefinite nature of entitlement spending is assumed to solve everything by sending out money.
3. Indefinite Philosophy — There has been a shift to an indefinite attitude in political philosophers whose ideas are the foundations of both left and right (talking about the USA). In philosophy, politics, and business arguing over processes has led to failure to make plans for the future.
4. Indefinite Life — Insurers and statisticians in the 19th century were able to reduce death to a mathematical probability. It seems that we have accepted these probabilities and the fact that death is inevitable and random. We seem to have given up the search for the secrets of longevity. Biotech and pharma companies search for combinations of molecular compounds at random hoping that it will work. Instead of finding theories about how the biology in our bodies works, researchers just experiment with drugs stating that the underlying biology is hard. Since 1950, per billion dollars spent on R&D, the number of new drugs discovered has halved every nine years. Biotech startups are an extreme example of indefinite thinking. So has the difficult nature of biology become an excuse for biotech startups’ indefinite attitude? Indefinite optimism may pose a greater threat to the future of biotech than heavy regulations.

-> Is indefinite optimism sustainable? The future can’t get better if there are no plans for it. Definite optimism works when you build the future according to some plans. Definite pessimism works by building what has already been built. Indefinite pessimism works since no plans have been made for a future that is expected to be worse and so it will be worse. Progress without planning is called evolution. Darwin discovered that life tends to progress without any interference — random iterations and finally the best iteration wins. But does this also apply if we want to build a better society or a new business? People talk about lean startups that can adapt and evolve in the ever-changing markets since nothing can be known in advance. Lean startups are expected to iterate their way to success. Leanness is a methodology, not a goal. Making small changes to things that already exist might lead you to a local maximum, but it won’t help you find a global maximum. Iterations without a plan won’t take you from 0 to 1. Why should you expect your own business to succeed without a plan? In startups, intelligent design and planning work the best.

-> The power of planning explains the difficulty in evaluating private companies. When a big company offers to acquire a successful startup, it almost offers way too much or way too little. Founders only sell when they have no more concrete plans for the future in which case the startup is being overvalued. Definite founders with robust plans don’t sell, which means the offer wasn’t high enough. A business with a good definite plan will always be underrated in a world where people see the future as random.

-> Definite optimism is the correct way to move forward. Reject the power of chance. You are not a lottery ticket.

Follow The Money

-> Pareto’s Principle — 80/20 rule, for many outcomes, roughly 80% of consequences come from 20% of causes. This 80–20 distribution fits a wide range of cases, including natural phenomena and human activities.

-> What is the power law? The power law describes a functional relationship between two quantities where one quantity varies as a power of another. For example, the relationship between the side of a square and its area. Paretos’s distribution (based on Pareto’s Principle) is a power law probability distribution.

-> The Power Law of VC:

1. VC firms identify, fund, and profit from the exponential growth of early-stage startups. They raise money from institutions and wealthy people, pool it into a fund, and invest in technology companies that they believe will become valuable. A VC firm makes money when the companies in its portfolio become more valuable and either go public or get bought by larger companies. Most VC-backed companies fail and because of this a venture fund typically loses money at first. VCs hope the value of their investment will increase in the future, beyond the break-even point, when successful companies in their portfolio hit their exponential growth.
2. A mistake made by investors is in expecting that venture returns will be normally distributed — bad companies will fail, medium companies will stay flat and good companies will return 2x on investments. This strategy is followed so that the losers are counterbalanced by the winners and because of this investors “diversify” their investments. This method usually produces a portfolio of flops because venture investment returns follow a power law, a small handful of companies will radically outperform the others. If you focus on diversifying instead of investing in companies that can become very valuable, you’ll miss the gems in the first place. The best investment in a portfolio will outperform every other company combined.
3. This leads to two rules for VCs -
   - Only invest in companies that have the potential to return the value of the entire fund. The downside of this rule is that it eliminates a large number of possible investment opportunities — some companies succeed on a more humble level. But VCs must find a handful of companies that they believe in and back them with every resource. Every single company in a good portfolio must have the potential to succeed at a large scale.
   - Because rule number 1 is so restrictive, there can’t be any other rules.

-> Why do people not see the power law? The power law doesn’t reflect the daily experience and only becomes apparent over time. Investors spend most of their time attending to early-stage companies and making investments, and all they see on a day-to-day basis are relative levels of success between different companies (most of the companies they work with are by definition average), not exponential success and failure. It’s not intuitive for the human mind to think in exponential terms.

-> You should focus relentlessly on something you’re good at doing, but before doing that you must think hard about whether it will be valuable in the future. For the startup world, this does not mean you do your startup. People who understand the power law will hesitate more than others when it comes to founding a new venture — they know how tremendously successful they could become by joining companies when they are growing fast. The power law means that differences between companies will dwarf the differences in roles inside companies. You can’t trust a world that denies the power law to accurately frame decisions for you, so what’s more important is rarely obvious.

Secrets

-> Contrarian thinking is useful only if the world still has secrets to give up. If everything about the world is already determined and there is nothing else to discover/invent then there is no purpose in thinking about something in an alternate way.

-> Conventions (easy) — — — Secrets (hard) — — — Mysteries (impossible). Is something hard or impossible? The difference matters — you can achieve difficult things but you can’t achieve the impossible. In relation to business and startups the question — “What valuable company is nobody building?”, a secret is at the root of the existence of such a company. A secret is something important and unknown, something hard but doable.

-> Why aren’t people looking for secrets?

• Most of the physical frontiers on Earth have already been explored, there are no new places left apart from the ocean’s depths. The remaining geographical unknowns seem less accessible than ever. Explorers are a thing of the past.
• Incrementalism — Since childhood/school, we are taught to do things in a step-wise manner to succeed in the system we live in. If we go beyond this incremental growth, we won’t be awarded for it and because of this, it becomes discouraging to do what is important and out of the box.
• Risk Aversion — People are afraid to be wrong and make mistakes. The idea of being lonely but right and dedicating yourself to an idea that nobody believes in is hard.
• Complacency — Wealthy people and social elites have the most freedom to explore new frontiers. Why would they search for secrets if everything is going great for them as is?
• Flatness — As globalization expands people perceive the world as more homogenous and connected and because of this the world has become a single competitive marketplace. You are not just competing in your geography but also with the rest of the world. If anyone decides to find a worthwhile secret, they may think that probably someone in this world must have already explored this idea. This will discourage a person from even looking for secrets in a world that seems too big for an individual to contribute something unique.

-> When you stop believing in secrets you start to have an unreasonable trust in systems to be efficient. If systems in the world were so perfect wouldn’t we be living in a utopia? This creates a tendency to just be satisfied by achieving simple things and leaving all the difficult/hard things to be automatically “managed” by the system. For example, in the world of finance, the market is considered to be all-knowing and shouldn’t be questioned — then why do we have recessions and bubbles? Doesn’t this mean that there are extreme inefficiencies in existing systems? When a tech company stops believing in secrets it will decline.

-> You can’t find secrets without looking for them. If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth. There are so many problems in the world that can be solved and so much more to do in science, medicine, engineering, and technology. The same is true for business — so many companies have been built by believing in and looking for secrets beyond conventions that lead to an opportunity hidden in plain sight, eg: — Airbnb, Uber, and Facebook. The simplicity of some ideas is itself a secret. If such simple ideas can lead to valuable businesses, there must be many great companies still to start.

-> There are two types of secrets:

1. Secrets of Nature — We have to study an undiscovered aspect of the empirical world.
2. Secrets about people — They are things that people don’t know about themselves or things they hide because they don’t want others to know.

When thinking about what company to build there are two questions to ask — (1) What secret is Nature not telling you? (2) What secrets are people not telling you?

The best place to look for secrets is where no one else is looking. We mostly think in terms of what we’ve been taught. We have to think in terms of — are there any fields that matter but haven’t been standardized or institutionalized?

-> What do we do with secrets? Should you share your secret? It depends on your secret but it is rarely a good idea to tell everybody everything you know. There is a Goldilocks zone in between telling nobody and telling everybody — that’s a company.

Foundations

-> A startup with bad foundations cannot be fixed. Decisions made early on are very difficult to correct down the line and it may take a crisis before anybody will even correct them. A founder’s key responsibility is to make the right decisions and establish a good foundation in the beginning stages of their company.

-> Important things to get right early on:

• Founders — How well do the founders of a company complement each other? Do they have similar visions for the company? How well do they work together? How well do they know each other?
• Ownership, Possession, and Control — You need good people who get along, but you also need a structure to help keep people aligned for the long term. To anticipate sources of misalignment, it’s useful to understand three concepts -
  1. Ownership — Who owns the company and how is the company’s equity divided among founders, employees, and investors?
  2. Possession — Who runs the company on a day-to-day basis? — employees and founders.
  3. Control — Who formally governs the company’s affairs? — board of directors (founders and investors).

In theory, this division works smoothly but it also multiplies opportunities for misalignment. Most conflicts in a startup emerge between ownership and control — that is, between founders and investors. The potential for conflict increases over time as interests diverge. A board should be small to keep it more effective — it is easier to communicate, reach a consensus, and practice effective oversight. The worst you can do is to make your board too large. It is also crucial to choose every member of your board wisely. Even a single member of a board can cause problems and jeopardize the company’s future.

• Anyone who doesn’t own company equity or draw a regular salary from your company is fundamentally misaligned. Therefore, everyone involved in the company should be involved full-time. Part-time employees or consultants are biased to work for short-term gains. Also, working remotely should be avoided because misalignment can creep in whenever colleagues aren’t together full-time.
• For people to be fully committed, they should be properly compensated. As per Peter Thiel’s observations, a company does better the less it pays the CEO. If a CEO is paid a lot, he/she is biased to maintain the status quo for their benefit and becomes misaligned from the company’s long-term goals. A cash-poor executive (but ownership-rich) will work for the overall benefit of the company. High cash compensation teaches workers to claim value from the company as it already exists instead of investing their time to create new value in the future.
• Equity as compensation can orient people toward creating value in the future. However, it should be allocated very carefully. Since it is impossible to achieve perfect fairness when distributing ownership, founders keep the details secret. Equity is tied to a company and if the company doesn’t succeed, it’s worthless. Anyone who prefers equity over cash reveals a commitment over the long term. It’s the best way for a founder to keep everyone in the company broadly aligned.
• The most valuable company maintains an openness to inventing. A company continues to last as long as it is creating new things. The founding moment of a company happens only once and this is when you have the opportunity to set the rules that will align people to create value in the future. With the correct foundations, a company can last indefinitely.

The Mechanics Of Mafia

-> No company has a culture, every company is a culture — culture is not separate from the company. A culture is built when a group of people who believe in the same idea, theory, fact, or myth come together and identify themselves as a collective entity. The tangible manifestations or items associated with any culture are only a by-product of the like-mindedness of the people. The items don’t define a culture, and cultures cannot survive relying on the abundance of these items alone. Any (new or existing) culture thrives when a group of people believe in a mission and visualize that mission as a part of their own identity.

-> It’s not rational to spend so much time of your day with people you don’t like to work with. Durable relationships should be one of the goals of your time at work. Stronger relationships not only make us happier and better at work but also more successful in our careers beyond.

-> Recruiting is critical for a startup and it should never be outsourced. Along with talent, it’s equally as important to hire people who enjoy working together. The first few employees might be motivated by large equity or high responsibilities. But why should someone join your company as the 20th employee? They can get a job at big tech for more money and prestige. Generic answers given to this question generally are -

• You’ll get to work on challenging problems.
• You’ll get to work with smart people.
• Your ESOPs have the potential to multiply by a lot, etc.

There is nothing wrong with these answers but the same claims are made by every other startup out there. The good answers are the ones that are specific to your company -

• Answers describing your mission. There are many challenging problems in the world but a person resonates more with a vision than a challenge. Explain why your mission is compelling and that the company is doing something important that no one else is doing. This makes your mission unique. Do not just give generic points as to why your mission is “important”.
• Answers about your team. Explain why the company and the current team are a unique match for the candidate. If you can’t do that then they are probably not the right match.

Don’t describe company perks as they were a major differentiator. You don’t want people who are merely swayed by perks alone.

-> Job assignments aren’t just about relationships between workers and tasks but also about relationships between employees. In early-stage startups, it’s best to make every person responsible for doing one thing. Defining roles reduces conflict as it prevents overlaps between responsibilities. Eliminating competition makes it easier for everyone to build long-term relationships. Internal conflicts can be damaging to early-stage startups.

-> Good startups are less extreme cults. The difference is that cults are fanatically wrong about something important and people at a good startup are fanatically right about something that other people have missed. It’s okay if your company doesn’t make sense to conventional professionals.

If You Build It Will They Come?

-> What is distribution? A term for everything it takes to sell a product including marketing, advertising, and sales. People underestimate distribution — customers will not come by just building a great product. The best product doesn’t always win — circumstances independent of objective quality can determine if the product enjoys widespread adoption. Distribution shouldn’t be thought of as separate from the product. If you haven’t figured out an effective way to sell your product, you have a bad business no matter how good the product is. Superior sales and distribution can create a monopoly even with no product differentiation.

-> Differences between:

• Marketing — It is a business practice that involves identifying, predicting, and meeting customer needs. Marketing involves doing customer analysis, including market segmentation, market perceptions, and market sizing.
• Advertising — Advertising is the exercise of promoting a company and its products or services through paid channels. Not all advertising is intended to make people buy a product right away. It will embed subtle impressions in people that will drive sales down the line. Advertising is a component of marketing.
• Sales — The offer has been decided by marketing, advertising announced it, and now the pressure is on sales. Sales mean the front line of convincing the consumer “the price is right.” Sales is an orchestrated campaign to change surface appearances without changing the underlying reality. The priority of sales is persuasion, not sincerity.

-> Two important metrics in distribution:

1. Customer Lifetime Value — Total net profit earned on average over the course of a relationship with the customer.
2. Customer Acquisition Cost — Average amount spent on acquiring the customer.

CLV should be more than CAC. The higher the price of the product the lesser the demand is going to be. Therefore, you have to spend more to make a sale.

-> Different distribution methods:

1. Complex Sales — Sales that involve >$1M come under this category. These types of sales have low frequency and might also involve installation and services after the deal is done. Since these sales are large, every detail of the deal requires close attention and buyers want to talk to CEOs and not “salesmen”. Selling such products takes time and requires developing trust and relationships with customers. A successful business model should achieve 50–100% YoY growth over the course of a decade. This may seem slow but a good enterprise sales strategy starts small and once you have a pool of customers that are successfully using your product, you can move on to bigger deals.
2. Personal Sales — Average deals in the range of $10k to $100k come under this category. The selling is usually done by salesmen — the smaller the deal size the more salespeople or sales activity is required. The problem here isn’t about getting the details of a deal right but about exposing the product to a wide audience. An enterprise approach mostly doesn’t work with personal sales — the best way is to start with small groups/clients which will help to eventually spread the word (through the merit of the product) and expand itself to a larger customer base. Sometimes the product itself is a kind of distribution — as the adoption of a product increases it may lead to a chain reaction of more adoption.
3. Marketing and Advertising — It is for low-priced products that have mass appeal. TV commercials, billboards, online ads, attractive packaging, etc, are used to spread awareness about the product and catch the attention of potential buyers. If your CLV is low you cannot spend much on CAC and therefore need to find a way to broadcast your product to the largest audience possible at the cheapest price possible.
4. Viral Marketing — A product is viral if its core functionality encourages users to invite their personal circle to become users too. Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market.

Between personal sales and traditional advertising (no salespeople required) there is a dead zone. Some products might not have a good default distribution channel. Advertising would either be too broad or inefficient. This means that even if the product can provide value it is difficult to spread the word about it without a personal sales strategy. If the selling price of the product is less (the profits will be less even if the margin is high) then it is not feasible to hire salespeople to talk to potential customers.

-> The Power Law of Distribution: For a given business, a particular method of distribution will be exponentially more effective than others. It is better to get one distribution channel to work rather than to try several and not succeed in any.

-> A company has to also sell itself to employees and investors too. You should never assume that people will admire your company without a public relations strategy. Selling your company to the media is a necessary part of selling it to everyone else. The press can help attract customers and employees.

Man And Machine

-> Computers are complements for humans, not replacements. Some problems can be solved with computers alone but others require a combination of computers and humans. The most valuable businesses in the future will be the ones that empower humans and not make them obsolete. A man-machine symbiosis helps build great businesses.

-> Globalization means substitution — globalization describes an interdependence of nations around the globe fostered through free trade. An increase in the supply of workers that can work for low wages and provide the same quality of work can substitute the workforce of another geographical location. Also, as globalization continues people desire more than just subsistence which leads to a convergence in desires across the world and hence a competition for limited resources.

-> Technology means complementarity — Humans and machines are good at different things and this is a clear indication that there is a lot to benefit from working with computers. Also since computers don’t require any resources other than electricity, technology is a way to escape competition in a globalizing world. For example, LinkedIn didn’t replace recruiters rather it helped them do their jobs more effectively.

-> Strong AI — computers that surpass humans in every important way. It’s not clear if strong AI helps us achieve utopia or substitute humans out of existence. But this won’t happen anytime soon even if it is a real possibility. Indefinite fears about the future shouldn’t stop us from making definite plans today. Computers will help us to do things that were previously unimaginable.

Seeing Green

-> 7 questions that every business must answer:

1. The Engineering Question — Can you create breakthrough technology instead of incremental improvements? A company should have proprietary technology 10x better than its closes substitute. Incremental improvements to a product result in non-noticeable improvements to the end user.
2. The Timing Question — Is now the right time to start your company? Entering a slow-moving market can be a good strategy but only if you have a definite and realistic plan to take it over.
3. The Monopoly Question — Are you starting with a big share of a small market? Big markets have ruthless competition. If you can’t monopolize a unique solution in a new market (irrespective of size), you will have to face competition. In a high-competition market, companies try to prove their own uniqueness so much so that the submarket they are targeting is nonexistent. It’s best to start with a small submarket, dominate it, and then expand into broader markets.
4. The People Question — Do you have the right people and expertise in your team?
5. The Distribution Question — Do you have a way to deliver your product? Selling and delivering a product is as important as the product itself.
6. The Durability Question — Will your market position be defensible in the future? Every startup should plan to be the last mover in a particular market. Build technology by asking the question of what will the world look like in 10–20 years and how will my company fit in.
7. The Secret Question — Have you identified a unique opportunity that others haven’t? Having broad reasons as to why a company will succeed is not enough. Great companies have specific reasons for their success that other people don’t see.

-> What is social entrepreneurship? A business that directly generates social change or impacts a social cause. Social entrepreneurs aim to combine the economic power of a corporation with missions in the public interest of a non-profit. Most of the time they fail to accomplish any. A profitable business is not against the progress of society. By profiting, monopolies have the incentive to create better and more innovative products. The best problems to solve are the ones that nobody even tries solving. Doing something different is what allows businesses to profit by monopolizing and this is good for society.

The Founder’s Paradox

-> A plot of founders’ traits follows an inverse distribution. We expect opposite traits to be mutually exclusive but yet founders tend to oscillate between extreme traits. This strange combination of traits could be a result of nature or nurture.

-> Famous and infamous people have always served as vessels for public sentiment. During times of prosperity, they are praised, and during difficult times, they are blamed. Founders are extreme and contradictory figures and hence become an easy target to place the entire blame on during misfortune.

-> Taking the example of Steve Jobs and Apple, we can say that a unique and visionary founder can make authoritative decisions, inspire personal loyalty, and plan for the long term. Bureaucracies run by “professionals” usually act with short time horizons and don’t have grand visions. Businesses need founders and should be tolerant of those who may seem strange or extreme but this does not mean that they should worship a founder that thinks that they are self-sufficient gods. Founders are important not because they are the only ones whose work has value, but rather because a great founder can bring out the best from work from everybody at the company.

Stagnation Or Singularity?

-> Four possible patterns for the future of humanity as per Nick Bostrom:

1. Recurrent Collapse — An alternating cycle between prosperity and collapse.
2. Plateau — The world will converge toward a plateau of development similar to the life of the richest countries today. Therefore, the future will look a lot like the present.
3. Extinction — A collapse of humanity so severe that humans won’t survive.
4. Takeoff — An accelerating takeoff toward a much better future.

-> Extinction seems more probable than recurrent collapse. The knowledge underlying civilization is so widespread that a complete rebuilding of society from scratch seems improbable. In the modern day, due to high globalization and connectivity around the world along with advancements in weaponry, mass destruction is more likely.

-> A global plateau will be reached when globalization reaches every corner of the world and economic and lifestyle convergence takes place. This would lead to an increase in economic competition around the globe. High competition in a world with limited resources seems unsustainable. Without new technology to relieve pressure on resource consumption, a plateau will lead to conflict and drag humanity to extinction.

-> The end game of takeoff is the singularity. The singularity is believed to be superhuman artificial intelligence. We don’t know what the singularity will look like but maybe it doesn’t matter since we have to choose between nothing (extinction) or something. We can’t assume that the future will be better without working to create it today. This is why building things from 0 to 1 is important.