Note: Zero to One is Peter Thiel’s book on startups and product development. It’s also one of the best books I’ve read. These here are some highlights from my read of the book and I’ve post them as a reminder to myself. Once you are done with this post, buy the book.
All Happy Companies are Different
- All happy companies earn a monopoly by solving a unique problem.
- All failed companies are the same: they failed to escape competition.
Competition is a destructive force
- Recognize competition as a destructive force instead of a sign of value.
- Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.
- If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers won’t answer; instead you must think about the qualitative characteristics of your business.
- Escaping competition will give you a monopoly, but even a monopoly is only a great business if it can endure in the future.
- The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.
- If humans and computers together could achieve dramatically better results than either could attain alone, what other valuable businesses could be built on this core principle?
Every monopoly is unique, but they usually share some combination of the following characteristics:
- Proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
2. Network effects
- Network effects make a product more useful as more people use it.
- The most powerfully growing products do three things at once:
- They make you look smart to the people you invite.
- They give real value to you when the people you invite join.
- They give real value to the people you’ve invited once they sign up.
3. Economies of Scale
- A monopoly business gets stronger as it gets bigger: the fixed costs of creating a product (engineering, management, office space) can be spread out over ever greater quantities of sales.
- A good startup should have the potential for great scale built into its first design: therefore not needed too many customized features to gain users.
- A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly.
ON BUILDING A MONOPOLY
Start Small: Target Market
- The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
- Any big market is a bad choice
- A big market already served by competing companies is even worse.
- A large market will either lack a good starting point or it will be open to competition, so it’s hard to ever reach that 1%. And even if you do succeed in gaining a small foothold, you’ll have to be satisfied with keeping the lights on: cutthroat competition means your profits will be zero.
- Sequencing markets correctly is underrated, and it takes discipline to expand gradually.
- The most successful companies make the core progression— to first dominate a specific niche and then scale to adjacent markets— a part of their founding narrative.
- If your company can be summed up by its opposition to already existing firms, it can’t be completely new and it’s probably not going to become a monopoly.
- As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
- Selling and delivering a product is at least as important as the product itself.
- It’s better to think of distribution as something essential to the design of your product.
- 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.
- Sometimes the product itself is a kind of distribution.
- If you can get just one distribution channel to work, you have a great business. If you try for several but don’t nail one, you’re finished.
Marketing and Advertising
- Marketing and advertising work for relatively low-priced products that have mass appeal but lack any method of viral distribution.
- Advertising can work for startups, too, but only when your customer acquisition costs and customer lifetime value make every other distribution channel uneconomical.
- A product is viral if its core functionality encourages users to invite their friends to become users too.
ON PUTTING YOUR IDEA TO THE TEST
Seven questions every business must answer:
- The Engineering Question. Can you create breakthrough technology instead of incremental improvements?
- The Timing Question. Is now the right time to start your particular business?
- The Monopoly Question. Are you starting with a big share of a small market?
- The People Question. Do you have the right team?
- The Distribution Question. Do you have a way to not just create but deliver your product?
- The Durability Question. Will your market position be defensible 10 and 20 years into the future?
- The Secret Question. Have you identified a unique opportunity that others don’t see?
- While generic clean tech companies struggled to differentiate themselves, Tesla built a unique brand around the secret that clean tech was even more of a social phenomenon than an environmental imperative.
- Tesla’s greatest technological achievement isn’t any single part of component, but rather it’s ability to integrate many components into one superior product. Testa Model S sedan, elegantly design from end to end, is more than the sum of it’s parts.
- Doing something different is what’s truly good for society —and it’s also what allows a business to profit by monopolizing a new market.
- Sometimes the best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones that nobody else even tries to solve.