Zero to One: Notes on Start Ups, or How to Build the Future

by Blake Masters

globalization without new technology is unsustainable.

Fed chairman Alan Greenspan warned that “irrational exuberance” might have “unduly escalated asset values.”

If your product requires advertising or salespeople to sell it, it’s not good enough:

Under perfect competition, in the long run no company makes an economic profit.

if you want to create and capture lasting value, don’t build an undifferentiated commodity business.

All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.

Simply stated, the value of a business today is the sum of all the money it will make in the future.

Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.

As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.

successful network businesses rarely get started by MBA types: the initial markets are so small that they often don’t even appear to be business opportunities at all.

A good startup should have the potential for great scale built into its first design.

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.

“Shallow men believe in luck, believe in circumstances…. Strong men believe in cause and effect.”

these, luck is in the past tense. Far more important are questions about the future: is it a matter of chance or

when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options.

indefinite optimists rearrange already-invented ones. Bankers make money by rearranging the capital structures of already existing companies. Lawyers resolve disputes over old things or help other people structure their affairs. And private equity investors and management consultants don’t start new businesses; they squeeze extra efficiency from old ones with incessant procedural optimizations.

But 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 the global maximum.

A business with a good definite plan will always be underrated in a world where people see the future as random.

The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.

An entrepreneur makes a major investment just by spending her time working on a startup. Therefore every entrepreneur must think about whether her company is going to succeed and become valuable. Every individual is unavoidably an investor, too.

“Thiel’s law”: a startup messed up at its foundation cannot be fixed.

Bad decisions made early on—if you choose the wrong partners or hire the wrong people, for example—are very hard to correct after they are made.

When you start something, the first and most crucial decision you make is whom to start it with.

you could achieve perfect alignment as long as you hire just the right people, who will flourish peacefully without any guiding structure.

As a general rule, everyone you involve with your company should be involved full-time.

Giving everyone equal shares is usually a mistake: every individual has different talents and responsibilities as well as different opportunity costs, so equal amounts will seem arbitrary and unfair from the start.

no company has a culture; every company is a culture.

defining roles reduced conflict.

Startups face an especially high risk of this since job roles are fluid at the early stages.

Watson, Deep Blue, and ever-better machine learning algorithms are cool. But the most valuable companies in the future won’t ask what problems can be solved with computers alone. Instead, they’ll ask: how can computers help humans solve hard problems?

Energy problems are engineering problems, so you would expect to find nerds running cleantech companies. You’d be wrong: the ones that failed were run by shockingly nontechnical teams. These salesman-executives were good at raising capital and securing government subsidies, but they were less good at building products that customers wanted to buy.

At Founders Fund, we saw this coming. The most obvious clue was sartorial: cleantech executives were running around wearing suits and ties. This was a huge red flag, because real technologists wear T-shirts and jeans. So we instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings.

never invest in a tech CEO that wears a suit—got us to the truth a lot faster. The best sales is hidden. There’s nothing wrong with a CEO who can sell, but if he actually looks like a salesman, he’s probably bad at sales and worse at tech.

Great companies have secrets: specific reasons for success that other people don’t see.