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November 28 - December 26, 2021
What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you.
Far more important are questions about the future: is it a matter of chance or design?
If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.
A definite view, by contrast, favors firm convictions. Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one. This is not what young people do today, because everyone around them has long since lost faith in a definite world. No one gets into Stanford by excelling at just one thing, unless that thing happens to involve throwing or catching a leather ball.
You can also expect the future to be either better or worse than the present. Optimists welcome the future; pessimists fear it.
Every culture has a myth of decline from some golden age, and almost all peoples throughout history have been pessimists.
An indefinite pessimist looks out onto a bleak future, but he has no idea what to do about it.
A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it.
To a definite optimist, the future will be better than the present if he plans and works to make it better.
Each generation’s inventors and visionaries surpassed their predecessors.
To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely.
Darwin’s theory explains the origin of trilobites and dinosaurs, but can it be extended to domains that are far removed? Just as Newtonian physics can’t explain black holes or the Big Bang, it’s not clear that Darwinian biology should explain how to build a better society or how to create a new business out of nothing.
Even in engineering-driven Silicon Valley, the buzzwords of the moment call for building a “lean startup” that can “adapt” and “evolve” to an ever-changing environment. Would-be entrepreneurs are told that nothing can be known in advance: we’re supposed to listen to what customers say they want, make nothing more than a “minimum viable product,” and iterate our way to success.
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. You could build the best version of an app that lets people order toilet paper from their iPhone. But iteration without a bold plan won’t take you from 0 to 1. A company is the strangest place of all for an indefinite optimist: why should you expect your own business to succeed without a plan to make it happen? Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.
Long-term planning is often undervalued by our indefinite short-term world.
The power of planning explains the difficulty of valuing private companies. When a big company makes an offer to acquire a successful startup, it almost always offers too much or too little: founders only sell when they have no more concrete visions for the company, in which case the acquirer probably overpaid; 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.
A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket.
never underestimate exponential growth.
In 1906, economist Vilfredo Pareto discovered what became the “Pareto principle,” or the 80-20 rule, when he noticed that 20% of the people owned 80% of the land in Italy—
This extraordinarily stark pattern, in which a small few radically outstrip all rivals, surrounds us everywhere in the natural and social world.
monopoly businesses capture more value than millions of undifferentiated competitors.
the power law—so named because exponential equations describe severely unequal distributions—is the law of the universe. It defines our surroundings so completely that we usually don’t even see it.
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.
The most common answer to the question of future value is a diversified portfolio: “Don’t put all your eggs in one basket,” everyone has been told. As we said, even the best venture investors have a portfolio, but investors who understand the power law make as few investments as possible. The kind of portfolio thinking embraced by both folk wisdom and financial convention, by contrast, regards diversified betting as a source of strength. The more you dabble, the more you are supposed to have hedged against the uncertainty of the future.
Our schools teach the opposite: institutionalized education traffics in a kind of homogenized, generic knowledge. Everybody who passes through the American school system learns not to think in power law terms.
Every university believes in “excellence,” and hundred-page course catalogs arranged alphabetically according to arbitrary departments of knowledge seem designed to reassure you that “it doesn’t matter what you do, as long as you do it well.” That is completely false. It does matter what you do. You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.
For the startup world, this means you should not necessarily start your own company, even if you are extraordinarily talented. If anything, too many people are starting their own companies today. 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 the very best company while it’s growing fast. The power law means that differences between companies will dwarf the differences in roles inside companies. You could have 100% of the equity if you fully fund your own venture, but
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However, you can’t trust a world that denies the power law to accurately frame your decisions for you, so what’s most important is rarely obvious. It might even be secret. But in a power law world, you can’t afford not to think hard about where your actions will fall on the curve.
A conventional truth can be important—it’s essential to learn elementary mathematics, for example—but it won’t give you an edge. It’s not a secret.
You can achieve difficult things, but you can’t achieve the impossible.
Recall the business version of our contrarian question: what valuable company is nobody building? Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. If there are many secrets left in the world, there are probably many world-changing companies yet to be started.
Why has so much of our society come to believe that there are no hard secrets left?
It might start with geography. There are no blank spaces left on the map anymore. If you grew up in the 18th century, there were still new places to go. After hearing tales of foreign adventure, you could become an explorer yourself.
Along with the natural fact that physical frontiers have receded, four social trends have conspired to root out belief in secrets. First is incrementalism.
Second is risk aversion.
People are scared of secrets because they are scared of being wrong.
Third is complacency. Social elites have the most freedom and ability to explore new thinking, but they seem to believe in secrets the least.
Fourth is “flatness.” As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is “flat.” Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself: if it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already? This voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique.
Very few people take unorthodox ideas seriously today, and the mainstream sees that as a sign of progress. We can be glad that there are fewer crazy cults now, yet that gain has come at great cost: we have given up our sense of wonder at secrets left to be discovered.
To say that there are no secrets left today would mean that we live in a society with no hidden injustices.
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.
The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers. There is more to do in science, medicine, engineering, and in technology of all kinds. We are within reach not just of marginal goals set at the competitive edge of today’s conventional disciplines, but of ambitions so great that even the boldest minds of the Scientific Revolution hesitated to announce them directly.
Great companies can be built on open but unsuspected secrets about how the world works. Consider the Silicon Valley startups that have harnessed the spare capacity that is all around us but often ignored.
only by believing in and looking for secrets could you see beyond the convention to an opportunity hidden in plain sight.
If insights that look so elementary in retrospect can support important and valuable businesses, there must remain many great companies still to start.
There are two kinds of secrets: secrets of nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?
Secrets about people are relatively underappreciated. Maybe that’s because you don’t need a dozen years of higher education to ask the questions that uncover them: What are people not allowed to talk about? What is forbidden or taboo?
Sometimes looking for natural secrets and looking for human secrets lead to the same truth.
