Goktug Yilmaz's Reviews > Zero to One: Notes on Startups, or How to Build the Future

Seven questions EVERY business must answer:

1. Can you create breakthrough technology instead of incremental improvements?
2. Is this the right time to start your particular business?
3. Are you starting with a big share of a small market?
4. Do you have the right team?
5. Do you have a way to not just create but deliver your product?
6. Will your market be defensible 10 and 20 years into the future?
7. Have you identified a unique opportunity that others don’t see?

If you nail all 7 questions above, you will master a fortune and succeed. Even with 5 or 6 it might work

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- Every moment in business only happens once. The next Zuckerberg won’t make Facebook, nor the next Gates make Microsoft. If you are copying these guys, you aren’t learning from them.
- Whenever Thiel interviews someone for a job, he likes to ask: “what important truth do very few people agree with you on?”
- If you take one typewriter and build 100, you have made horizontal progress (1 to n). If you have a typewriter and build a word processor, you have made vertical progress (0 to 1).
- Globalization => Horizontal progress (1 to n). Taking things that work somewhere and making them work everywhere.
- Technology => Vertical progress (0 to 1).
- Start ups operate on the principle that you need to work with other people to get stuff done, but you also need to stay small enough so you actually can

- The most contrarian thing of all is not to oppose the crowd but to think for yourself
- Under perfect competition, in the long run no company makes an economic profit. Despite economics saying its best, it is actually the worst market to be in
- Monopolists lie to protect themselves. They know bragging about their great monopoly invites being audited, scrutinized and attacked. Therefore they pretend to be part of a bigger pie than they actually are.
- Example: In may 2014 Google had 68% of the search market(monopoly) yet Google markets themselves as being in the worldwide advertising market where they only own 3.4% of market.
- Remember what market you actually are in. If you justify your British restaurant in SF with logic “no-one else is doing it so we will dominate” you will likely fail. You are not competing with other british restaurants in SF, you are competing with all restaurants in SF.
- Non monopolists exaggerate their distinction by defining their market as the INTERSECTION of various smaller markets.
- Monopolists, by contrast, disguise their monopoly by framing their market as the UNION of several large markets.
- In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than money; non-monopolists can’t.
- Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
- Creative monopolists give customers more choice by adding entirely new categories of abundance.
- “If the tendency of monopoly businesses were to hold back progress, they would be dangerous and we would be right to oppose them. But the history of progress is a history of better monopoly businesses replacing incumbents”
- Monopoly is the condition of every successful 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
- Competition means no profits for anybody, no meaningful differentiation and a struggle for survival
- Our educational system both drives and reflects our obsession with competition
- Higher education is the place where people who had big plans in high school get stuck in fierce rivalries with equally smart peers over conventional careers like consulting and Investment banking
- “All Rhodes scholars had a great future in their past”
- War is costly business. Rivalry causes us to overemphasize old opportunities and slavishly copy what had worked in the past.
- “sometimes you do have to fight. where that’s true, you should fight and win. There is no middle ground: either don’t throw any punches, or strike hard and end it quickly.”
- Any firm with close substitutes will see its profits competed away. E.g. restaurants and nightclubs once people move to trendier/better alternatives
- For companies to be successful they must grow and ENDURE. Many entrepreneurs focus only on short term growth. Because growth is easy to measure, durability isn’t
- If you focus on near term growth above all else, you will miss the most important question: will this business still be around in a decade?
- As a good rule, proprietary technology must be at least 10 times better than its closest competitor in some important dimension to lead to a real monopolistic advantage
- The clearest way to make a 10x improvement is to invent something new
- You can also make a 10x improvement through superior integrated design. E.g. Ipad vs all preceding tablets
- Network effects can be powerful, but you’ll never reap them unless the product is useful to its very first users when the network is necessarily small.
- A good startup should have the potential for great scale built into its first design. E.g. twitter doesn’t need many more features to attract more users
- Many businesses gain limited advantages as they scale. Service businesses are especially difficult to make monopolies. Service businesses will never reach a point where a core group of people can provide something of value to millions –unlike software.
- When Steve Jobs returned to Apple, he didn’t just make apple a cool place to work; he slashed product lines to focus on the handful of opportunities for 10x improvements
- Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market. Because its easier to dominate a small market vs a large one
- 50-100% of a $50M market > 1% of $5B market (Same valuation)
- As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible
- Its much better to be the LAST mover – that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits
- When a big company makes an offer, it almost always offers too much or too little: founders only sell when they have no more concrete vision for company; in which case the acquirer probably overpaid. Founders with robust plans don’t sell, which means the offer wasn’t enough. E.g. Zuck refused $1B offer for FB in 2006 within 10 mins, as he knew it would be worth more

Venture Capital:

- 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.
- This leads to two rules for VCs:
1. Only invest in companies with potential to return entire value of fund. Rule 1 eliminates most companies.
2. Is that rule 1 is the only rule as it is so restrictive.
- The 12 biggest tech companies were venture backed. Combined they worth more than all other tech companies

- Too many people are starting their own company these days. It is better to be facebook employee #10 than to be CEO of your own company for the sake of being CEO. Differences between companies dwarf the differences in roles inside companies
- The actual truth is that there are many more secrets left to find, but they will only yield to relentless searchers
- When thinking what company to build, ask two questions: what secrets is nature not telling you? What secrets are people not telling you?
- A great company is a conspiracy to change the world; when you share the secret, the recipient becomes a fellow conspirator.
- A board of three is ideal, never exceed board of 5 unless it is publicly held.
- Hiring consultants doesn’t work, part time employees don’t work, even remote work should be avoided. Because misalignment creeps in when people aren’t together full time
- A company does better the less it pays the CEO
- A cash poor, equity rich executive will focus on increasing the value of the company as a whole
- If a CEO doesn’t take lowest salary then they should take highest one, as long as figure is modest as this effectively caps pay
- People who prefer equity over cash show long term commitment
- Don’t work with people you can't envision a long term future with
- When people ask why they should work for you vs prestige choice; focus on 2 things. Your mission and your team
- Above all do not fight perk war in reasons for people to work for you. Unique work > unique perks
- Everyone in your company should be different in the same way: a tribe of like minded people fiercely devoted to the company’s mission
- Best thing Thiel ever did at Paypal is make each person responsible for just one thing – defining roles reduced conflict

Sales:

- What nerds miss is that it takes hard work to make sales look easy
- Like acting, sales works best when hidden. None of us want to be reminded when we’re being sold
- 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
- Complex sales (>$1m sales) work best when you don’t have salesman at all. For Palantir the CEO spends 25 days per month on road selling product. At complex price point people want CEO not VP of sales
- In between personal sales (salespeople needed) and traditional advertising (no salespeople) there is a deadzone ($100 -$10k ish), where few sales methods are economical
- Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. If you can get just one distribution channel to work, you will have a great business.
- “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”

- Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market
- Any prospective employee worth hiring will conduct his own diligence; so what he finds on google will be critical to the success of your business.
- The best problems to work on are the ones nobody else even tries to solve


- Four principles for business:
a) it is better to risk boldness than triviality
b) a bad plan is better than no plan
c) competitive markets destroy profits
d) sales matter just as much as product