Zero To One - KeynesYouDigIt/Knowledge GitHub Wiki

  • Every moment in business happens only once- the next Bill Gates will not build an operating system
  • Doing what we already know takes the world from 1 to n, making something new takes it from 0 to 1

The Challenge of the Future

  • Interview question - "What important truth do very few people agree with you on?"
    • A bad answer is a hot take that a good amount of people would still agree with you on.
    • A good answer has the form "Most people believe X, but the truth is the opposite of X."
      • Good answers are not just contrarian. They point to overlooked solutions to interesting problems.
    • A good answer is as close as we can come to looking into the future
    • Courage is in shorter supply than genius
  • Kinds of progress:
    • Horizontal / extensive progress: More of the same. Globalization.
    • Vertical / intensive progress: Doing new things. Technology.
  • Splitting the world into "developed" and "undeveloped" implies that society has reached the end of the future
  • In a world of scarce resources, globalization without with technology is unsustainable.
  • Progress isn't automatic. The only technology that's radically improved since mid-20th century is IT.
  • Startups operate on the principle that you need to work with other people to get stuff done, but you need to stay small enough that you actually can
    • A startup is the largest group of people you can convince of a plan to build a different future

Bureaucratic hierarchies move slowly, and entrenched interests shy away from risk. In the most dysfunctional organizations, signaling that the work is being done becomes a better strategy for career advancement than actually doing work (if this describes your company, you should quit now).

Party Like It's 1999

  • If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.

Madness is rare and individuals, but in groups it is the rule. -Napoleon

  • The 90's are remembered well, but are mostly marked by an old world that couldn't keep up with globalization: manufacturing collapse, wars, the Russian economy collapsing, and the stock market tanking. Tech started to become the only thing going well.

The lessons startups have taken away from the dot-com crash:

Wrong Contrarian Truth
Make incremental advances It's better to risk boldness than triviality
Stay lean and flexible A bad plan is better than no plan
Improve on the competition Competitive markets destroy profits
Focus on the product, not sales Sales matters just as much as product

How much of what you know about business is shaped by mistaken reactions to past mistakes?

All Happy Companies Are Different

  • What valuable company is nobody building?
  • Creating value is not enough- you need to capture some of it too
  • If you want to create and capture lasting value, don't build an undiffrentiated commodity business
    • Perfect competition = Supply and demand are in equillibrium, products are homogenous, the price is set by the market
    • Monopoly = No other company can offer a close substitute, so it sets prices to maximize its profits
    • Capitalism and competition are opposites- competition erodes the accumulation of capital

Monopolists lie to protect themselves. Bragging about their monopoly invites audits, scrutiny, and attacks, so they exaggerate the power of their (non-existent) competition.

  • Google dominates search (68% compared with 19% for Yahoo! and 10% for Microsoft)
  • Google is 3.4% of the global advertising market
  • Google is 0.24% of the consumer tech market

Framing itself as "just another tech company" lets Google escape a lot of unwanted attention. Monopolists can afford to think about things other than making money.

Non-monopolists lie by understating the competition. They create market interections so narrow they dominate them by definition. They can't afford to think about anything other than money.

Monopolies are only bad if nothing ever changes. The reason the board game ends the way it does is that the properties on the board are fixed and their valuation never changes. History has been a progression of better monopoly businesses replacing monopoly incumbents. Monopoly is the condition of every successful business.

The Ideology of Competition

Competition has been indoctrinated in us by education via grades. We try to out-compete each other and "win" good grades, good schools, good jobs, and beat the creativity and adventure out of each other in the process.

With businesses, "combatants" look more or less alike, and it's not clear why they should be competing. Rivalry overemphasizes old opportunities and copy what has worked in the past. If you have to fight, do it quickly. Otherwise, merge or ignore.

Last Mover Advantage

Some businesses make a lot of money up front, and then lose their advantage to competition over time. A tech company loses money up front and then gets monopoly profits in the future.

  • For a company to be valuable, it must grow and endure, but most entrepreneurs only focus only short-term growth (because it's easy to measure)

"Will this business still be around a decade from now?"

Characteristics of monopoly:

  • Proprietary technology
    • A proprietary technology must be 10 times better than its closest substitute in some important dimension
    • You do something completely new, or radically improve an existing thing, or integrate a lot of things
  • Network effects
    • The challenge is they must also work as small networks (eg. social network for Harvard students), so they don't always immediately look like business opportunities
  • Economies of Scale
    • Hard to do with service businesses
  • Branding
    • Eg. Apple

Building a Monopoly

  • Start small and monopolize a small market- The perfect target is a small group of particular people concentrated together and served by few/no competitors
  • Scaling up- expand into other areas you can monopolize
  • Don't disrupt- Disruption is about threats to incumbents, you want to not compare yourself to incumbents at all because then you're competing. Focus on what you're building and not who you're fighting.
  • The last will be first- Make the last great development in a specific market and then enjoy years of monopoly

You Are Not A Lottery Ticket

If success is a matter of luck, than it doesn't matter what you do. Business books aren't "Winning the Lottery for Dummies."

Definite future: The future is knowable, so find the one best thing to do and then doing it.

  • Pessimistic: Everything is about to collapse, so we need to prepare.
  • Optimistic: Prepare for the future we want

Indefinite future: The future is unknowable, so be "well-rounded."

  • Pessimistic: Everything is getting worse, so we may as well make the best of it (Europe)
  • Optimistic: Rearrange the things we have, invent nothing new. Money is more valuable than anything you could possibly do with it.

Most biotech startups experiment with things that might work instead of refining definite theories about how bodies operate. Regulation may hold companies back, but indefinite optimism may be worse.

How can a better future be built if no one plans for it? Businesses need long-term plans.

Follow The Money

The power law defines our world. It only becomes clear over time, and is hard to see from the present.

In venture capital, succesful investments aren't normally distributed, they're power-law distributed. So, only invest in companies that have the potential to outperform the entire fund.

Life is not a portfolio that you want diversified returns on. It follows the power law, and you need to bet hard. The more you dabble, the more you have hedged against the uncertainty of the future. You should focus relentlessly on something you're good at doing that will be valuable in the future.

Secrets

Contrarian thinking doesn't make sense unless we still believe the world has secrets to give up. Secrets are hard to figure out; mysteries are impossible to figure out, and it's important to figure out the difference. In fundamentalism, there are easy questions which children should know, impossible questions that no one can know, and hard questions that have dogma and heresy.

Some consequences of thinking all of the hard problems are solved:

  1. Incrementalism- Going 1 to n instead of 0 to 1
  2. Risk aversion- Being afraid of being wrong
  3. Complacency- Why search for new secrets if you can collect rents on everything that has already been done?
  4. Flatness- Believing that if something were discoverable, someone else would have done it by now

Believing secrets are real is critical to discovering them. What secrets is nature not telling you? What secrets are people not telling you? Secrets about people are things that they don't know about themselves or hide from other people. What are people forbidden to talk about? What is forbidden or taboo? Look where no one else is looking. Are there any fields that matter but haven't been standardized and institutionalized?

Unless you have perfectly conventional beliefs, it's rarely a good idea to tell everybody everything that you know. There's a golden mean between telling nobody and telling everybody- and that's a company.

Foundations

Thiel's Law: A startup messed up at its foundation cannot be fixed.

Found a company with people that you personally like, that you have some history with. It's hard to go from 0 to 1 without a team.

Distinguish between:

  • Ownership: Who legally owns a company's equity? (Investors, founders, and employees)
  • Possession: Who actually runs the company day-to-day? (Managers and employees)
  • Control: Who formally governs the company's affairs? (Board)

It's easy for these to get misaligned.

Guidelines:

  • The ideal board size is 3, but no more than 5 unless publicly trade. Large boards offer effectively no oversight at all- it's just cover for whatever microdictator runs the organization.
  • Everyone involved with your company should be full-time, in person, on salary.
  • The CEO of a early-stage, venture-backed startup should never make more than $150k a year in salary. Too much incentivizes them to defend the status quo. Grabbing cash from a company overprioritizes getting value from the company now rather than investing in the future.
  • Keep everyone's equity secret (* Vince opinion - WTF??)

A founding lasts as long as the company is creating new things, and ends when the creation stops.

The Mechanics of Mafia

  • A company doesn't have a culture, it is a culture.
  • Individually talented people who don't like being together rarely works.
  • Why should the 20th emplyee join you instead of going to work for Google for more money and more prestige? Your answer needs to be differentiated. You need to attract people with your mission and your people.
  • Don't fight the perk war. Fulfill the basics and then promise what no one else can- the opportunity to do irreplaceable work on a unique problem alongside great people.
  • Hire the same kinds of nerds
  • Reduce factional strife by putting everyone in charge of exactly one thing
  • Cults tend to be fanatically wrong about something, whereas startup teams are fanatically right about something those outside it have missed. The opposite of cults is consulting (disassociated nihilism)

Since time is your most valuable asset, it's odd to spend it working with people who don't envision any long-term future together. If you can't count durable relationships among the fruits of your time at work, you haven't invested your time well--even in purely financial terms.

If You Build It, Will They Come?

  • Advertising doesn't exist to make you buy something right away, it embeds a subtle impression that will drive sales later
  • People overestimate the relative difficulty of science and engineering because the challenges of those fields are obvious, and underestimate the challenges of sales.
  • No one likes being sold to, so we hide the titles of sales people- "Account Executive", "Business Development", "Investment Bankers", "Politicians"
  • The distribution of a product is part of its design
  • Superior sales and distribution by itself can create a monopoly even with no product differentiation, but the converse is not true
  • distribution and sales channels also follow the power law. There's probably one that works for your product, it's size cost of customer acquisition and customer lifetime value all factor in to what channel is actually right
  • Your CLV (customer lifetime value) must exceed your CAC (customer acquisition cost).

Types of Sales

The power law applies- doing all of these won't work.

  • Complex sales ($100k+) involve high CAC, and the CEO is often the salesmen. 50%-100% YoY growth is good.
  • Personal sales ($10k-100k), and involves sales people selling to a wide audience
  • Doldrums ($1k-$10k), it's hard to effectively sell to small businesses. They either require a personal touch or are hard to target with advertising, but rarely have a CLV > CAC.
  • Advertising ($100-$1k) is good for low-priced items that have mass appeal but no viral distribution
  • Viral Marketing ($1-$100) relies on network effects. Whoever is the first to dominate the most important segment of a market with viral potential will be the last mover in the whole market. Get the most valuable users first. Once PayPal had the Ebay Powersellers, it was too difficult for anyone else to catch up, and they were able to get the Western Union unbanked people.

You also need a sales strategy for recruitment and PR.

Man and Machine

  • Computers are complements for humans, not substitutes
  • People are substitutes for each other, so people fear technology for the same reasons they fear globalization. People compete for jobs and resources; computers compete for neither.
  • Gains from trade are greatest when there's a big discrepancy in comparative advantage, but the global supply of workers willing to do repetitive tasks for an extremely small wage is extremely large.
    • The comparative advantage of humans and computers for many tasks is huge, so their trade gains are as well
    • All value from a technological gain goes to people. We get all the benefits of a hyper-specialized trade partner, but without having to compete with it for resources.
  • PayPal used computers to flag suspicious transactions and humans to make the final choice
  • How can computers help humans solve hard problems?

Seeing Green

The seven questions every business must answer:

  1. The engineering question: Can you create breakthrough technology instead of incremental improvements?
  2. The time question: Is now the right time to start your particular business?
  3. The monopoly question: Are you starting with a small share of a big 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 years into the future?
  7. The secret question: Have you identified a unique opportunity that other's don't see?

The problem with social entrepreneurship: If something is "socially good" if it is good for society, or only seen as good by society. (* vince's opinion - dafaq dude no. This completely ignores positive & negative externalities. Social entrepreneurship focuses heavily on positive externalities being a part of the business model - value that is not captured in the transaction and maybe not captured at all.)

Anything that is good enough to receive applause from all audiences can only be conventional, and true innovation requires something different. ( * vince's opinion - this is true.)

The Founder's Paradox

We should be more tolerant of founders who seem strange or extreme, because they will lead us out of incrementalism. Prominence and adulation for founders can never be enjoyed except on the premise that may be exchanged for notoriety and demonization at any moment.

((Epic quote. Emphasis added by Vince.))

Founders are important not because they are the only ones whose work has value, but rather because a great founder can bring out the best work from everybody at their company. That we need individual founders in all thier peculiarity does not mean that we are called to worship Ayn Randian "prime movers" who claim to be independent of everyone around them. In this respect, Ayn Rand was only a half-great writer: Her villains were real, but her heroes were fake. There is no Galt's Gulch. There is no secession from society. To believe yourself invested with divine self-sufficiency is not the mark of a strong individual, but of a person who has mistaken the crowd's worship--or jeering--for the truth. The single greatest danger for a founder is to become so certain of his own myth that he loses his mind. But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom.

Stagnation or Strategy?

A truly global plateau couldn't last indefinitely. Economic competition would lead to competition over scarce resources, and inevitably conflict. The solution is to embrace continued technological advancement.