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May 14, 2018 - February 20, 2019
The single word for vertical, 0 to 1 progress is technology.
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.
But it’s hard to blame people for dancing when the music was playing; irrationality was rational given that appending “.com” to your name could double your value overnight.
Since the ’90s migration “from bricks to clicks” didn’t work as hoped, investors went back to bricks (housing) and BRICs (globalization). The result was another bubble, this time in real estate.
if you want to create and capture lasting value, don’t build an undifferentiated commodity business.
Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets: British food ∩ restaurant ∩ Palo Alto Rap star ∩ hackers ∩ sharks Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets: search engine ∪ mobile phones ∪ wearable computers ∪ self-driving cars
Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. 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.
Winning is better than losing, but everybody loses when the war isn’t one worth fighting. When Pets.com folded after the dot-com crash, $300 million of investment capital disappeared with it.
Simply stated, the value of a business today is the sum of all the money it will make in the future.
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.
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.
Eroom’s law—that’s Moore’s law backward—observes that the number of new drugs approved per billion dollars spent on R&D has halved every nine years since 1950.
“Digital Darwinism,” “Dot-com Darwinism,” and “Survival of the Clickiest.”
Most businesses never need to deal with venture capital, but everyone needs to know exactly one thing that even venture capitalists struggle to understand: we don’t live in a normal world; we live under a power law.
The error lies in expecting that venture returns will be normally distributed: that is, bad companies will fail, mediocre ones will stay flat, and good ones will return 2x or even 4x.
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.
VCs must find the handful of companies that will successfully go from 0 to 1 and then back them with every resource. Of course, no one can know with certainty ex ante which companies will succeed, so even the best VC firms have a “portfolio.”
Indeed, the dozen largest tech companies were all venture-backed. Together those 12 companies are worth more than $2 trillion, more than all other tech companies combined.
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 if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $35 million as of this writing).
feign
“Thiel’s law”: a startup messed up at its foundation cannot be fixed.
irreconcilable
A board of three is ideal. Your board should never exceed five people, unless your company is publicly held. (Government regulations effectively mandate that public companies have larger boards—the average is nine members.)
If you’re deciding whether to bring someone on board, the decision is binary.
Ken Kesey was right: you’re either on the bus or off the bus.
If a CEO doesn’t set an example by taking the lowest salary in the company, he can do the same thing by drawing the highest salary. So long as that figure is still modest, it sets an effective ceiling on cash compensation.
Startups don’t need to pay high salaries because they can offer something better: part ownership of the company itself. Equity is the one form of compensation that can effectively orient people toward creating value in the future.
Bob Dylan has said that he who is not busy being born is busy dying. If he’s right, being born doesn’t happen at just one moment—you might even continue to do it somehow, poetically at least.
“Company culture” doesn’t exist apart from the company itself: no company has a culture; every company is a culture. A startup is a team of people on a mission, and a good culture is just what that looks like on the inside.
You should ask yourself a more pointed version of the question: Why would someone join your company as its 20th engineer when she could go work at Google for more money and more prestige?
But there are two general kinds of good answers: answers about your mission and answers about your team. You’ll attract the employees you need if you can explain why your mission is compelling: not why it’s important in general, but why you’re doing something important that no one else is going to get done. That’s the only thing that can make its importance unique. At PayPal, if you were excited by the idea of creating a new digital currency to replace the U.S. dollar, we wanted to talk to you; if not, you weren’t the right fit. However, even a great mission is not enough. The kind of recruit
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Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflict. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism.
Every company culture can be plotted on a linear spectrum: The best startups might be considered slightly less extreme kinds of cults.
ruse:
Tom Sawyer managed to persuade his neighborhood friends to whitewash the fence for him—a masterful move. But convincing them to actually pay him for the privilege of doing his chores was the move of a grandmaster, and his friends were none the wiser. Not much has changed since Twain wrote in 1876.
If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.
Superior sales and distribution by itself can create a monopoly, even with no product differentiation. The converse is not true. No matter how strong your product—even if it easily fits into already established habits and anybody who tries it likes it immediately—you must still support it with a strong distribution plan.
Two metrics set the limits for effective distribution. The total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value, or CLV) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost, or CAC). In general, the higher the price of your product, the more you have to spend to make a sale—and the more it makes sense to spend it. Distribution methods can be plotted on a continuum: Complex Sales
Luddites
people compete for jobs and for resources; computers compete for neither.
To understand the scale of this variance, consider another of Google’s computer-for-human substitution projects. In 2012, one of their supercomputers made headlines when, after scanning 10 million thumbnails of YouTube videos, it learned to identify a cat with 75% accuracy. That seems impressive—until you remember that an average four-year-old can do it flawlessly.
As computers become more and more powerful, they won’t be substitutes for humans: they’ll be complements.
And Max was able to boast, grandiosely but truthfully, that he was “the Sherlock Holmes of the Internet Underground.”
America’s two biggest spy agencies take opposite approaches: The Central Intelligence Agency is run by spies who privilege humans. The National Security Agency is run by generals who prioritize computers.
We have let ourselves become enchanted by big data only because we exoticize technology. We’re impressed with small feats accomplished by computers alone, but we ignore big achievements from complementarity because the human contribution makes them less uncanny. 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?
cleantech companies crashed because they neglected one or more of the seven questions that every business must answer: 1. The Engineering Question Can you create breakthrough technology instead of incremental improvements? 2. The Timing Question Is now the right time to start your particular business? 3. The Monopoly Question Are you starting with a big share of a small market? 4. The People Question Do you have the right team? 5. The Distribution Question Do you have a way to not just create but deliver your product? 6. The Durability Question Will your market position be defensible 10 and 20
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The cleantech bubble was the biggest phenomenon—and the biggest flop—in the history of “social entrepreneurship.”
An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale. Cleantech companies faced the same problem: no matter how much the world needs energy, only a firm that offers a superior solution for a specific energy problem can make money. No sector will ever be so important that merely participating in it will be enough to build a great company.
