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

by Blake Masters

Positively defined, a startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think.

Our first product let people beam money from one PalmPilot to another. However, nobody had any use for that product except the journalists who voted it one of the 10 worst business ideas of 1999. PalmPilots were still too exotic then, but email was already commonplace, so we decided to create a way to send and receive payments over email.

Anyone who claims to be able to do something great is suspect, and anyone who wants to change the world should be more humble.

All companies must be “lean,” which is code for “unplanned.” You should not know what your business will do; planning is arrogant and inflexible. Instead you should try things out, “iterate,” and treat entrepreneurship as agnostic experimentation.

Don’t try to create a new market prematurely. The only way to know you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors.

Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth.

the opposite principles are probably more correct: 1. It is better to risk boldness than triviality. 2. A bad plan is better than no plan. 3. Competitive markets destroy profits. 4. Sales matters just as much as product.

The most contrarian thing of all is not to oppose the crowd but to think for yourself.

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

Monopolists lie to protect themselves. They know that bragging about their great monopoly invites being audited, scrutinized, and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly—usually by exaggerating the power of their (nonexistent) competition.

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

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

Brand, scale, network effects, and technology in some combination define a monopoly; but to get them to work, you need to choose your market carefully and expand deliberately.

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.

You can also expect the future to be either better or worse than the present. Optimists welcome the future; pessimists fear it.

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. It’s no surprise that these fields all attract disproportionate numbers of high-achieving Ivy League optionality chasers;

progress without planning is what we call “evolution.” Darwin himself wrote that life tends to “progress” without anybody intending it. Every living thing is just a random iteration on some other organism, and the best iterations win.

Forget “minimum viable products”—ever since he started Apple in 1976, Jobs saw that you can change the world through careful planning, not by listening to focus group feedback or copying others’ successes.

When Yahoo! offered to buy Facebook for $1 billion in July 2006, I thought we should at least consider it. But Mark Zuckerberg walked into the board meeting and announced: “Okay, guys, this is just a formality, it shouldn’t take more than 10 minutes. We’re obviously not going to sell here.” Mark saw where he could take the company, and Yahoo! didn’t.

Venture capitalists aim to identify, fund, and profit from promising early-stage companies. They raise money from institutions and wealthy people, pool it into a fund, and invest in technology companies that they believe will become more valuable.

The same is true of private car services Lyft and Uber. Few people imagined that it was possible to build a billion-dollar business by simply connecting people who want to go places with people willing to drive them there. We already had state-licensed taxicabs and private limousines; only by believing in and looking for secrets could you see beyond the convention to an opportunity hidden in plain sight.

People who sell advertising are called “account executives.” People who sell customers work in “business development.” People who sell companies are “investment bankers.” And people who sell themselves are called “politicians.”

In 1997, IBM’s Deep Blue defeated world chess champion Garry Kasparov. Jeopardy!’s best-ever contestant, Ken Jennings, succumbed to IBM’s Watson in 2011.

The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.

The stark differences between man and machine mean that gains from working with computers are much higher than gains from trade with other people. We don’t trade with computers any more than we trade with livestock or lamps. And that’s the point: computers are tools, not rivals.

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. Maybe we still would have avoided these bad investments if we had taken the time to evaluate each company’s technology in detail. But the team insight—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.

Tesla’s technology is so good that other car companies rely on it: Daimler uses Tesla’s battery packs; Mercedes-Benz uses a Tesla powertrain; Toyota uses a Tesla motor. General Motors has even created a task force to track Tesla’s next moves. But Tesla’s greatest technological achievement isn’t any single part or component, but rather its ability to integrate many components into one superior product.

Tesla built a unique brand around the secret that cleantech was even more of a social phenomenon than an environmental imperative.

Paradoxically, the challenge for the entrepreneurs who will create Energy 2.0 is to think small.

Normal people aren’t like Oedipus or Romulus. Whatever those individuals were actually like in life, the mythologized versions of them remember only the extremes.

Primitive societies faced one fundamental problem above all: they would be torn apart by conflict if they didn’t have a way to stop it. So whenever plagues, disasters, or violent rivalries threatened the peace, it was beneficial for the society to place the entire blame on a single person, someone everybody could agree on: a scapegoat.

Howard Hughes’s arc from fame to pity is the most dramatic of any 20th-century tech founder. He was born wealthy, but he was always more interested in engineering than luxury. He built Houston’s first radio transmitter at the age of 11. The year after that he built the city’s first motorcycle. By age 30 he’d made nine commercially successful movies at a time when Hollywood was on the technological frontier. But Hughes was even more famous for his parallel career in aviation. He designed planes, produced them, and piloted them himself. Hughes set world records for top airspeed, fastest transcontinental flight, and fastest flight around the world.