Books In Minutes: Zero to One
A great business is not only about becoming the monopoly of the business, but also enduring in the future. The value of the business is not whether it is profitable now, it is the sum of all the money it will make in the future.
Here are the 4 qualitative characteristics of a monopoly that would last:
- Proprietary technology - the technology that makes it 10x better than the closest substitute.
For example, Google's search algorithm, PayPal's online payment on eBay, Amazon's online bookstore, Apple's iPad...
- Network effects - the product is more useful as more people use it.
For example, Facebook.
- Economies of scale - a business having the costs that do not scale as it grows.
For example, software business.
For example, Apple.
Be careful, no technology company can be built on branding alone.
And there are 2 steps to build a monopoly:
Step 1: start small and monopolize
Start with a very small but existing market and dominate it. It is best that the small group of people is concentrated together and served by few or no competitors.
It is a red flag targeting on 1% of a $100 billion market.
Step 2: scale up
Once the niche market is dominated, expand into related a slightly broader market.
Caution: do not make disruption the goal
Disruption does not make you a monopoly, it makes you one of the competitors.
To succeed, you must study the endgame before everything else.
José Raúl Capablanca
Being first in the market does not ensure you the last man standing.
Many successful people ascribe their success to luck, but if that's the case, we are just reading stories about people who won the lottery.
If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you'll give up on trying to master it.
Many things in the real world are not distributed in bell curve, it is in power law - the wealth distribution, venture capital.
But we don't observe it easily, because it is a lagging indicator. For example, companies invested by a venture firm will show differences after years, it only becomes clear over time.
It's easy to come up with the strategy of "Don't put all eggs in one basket" when we can't see clearly yet which to choose, like how venture firms do. But as startup founders we can't devote ourselves into too many things, we must have the power law in mind:
You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.
People tend to classify things into either easy or impossible. But the hard things are the most important ones, and people stopped looking for them. Here's why:
- Human being has already explored the entire planet. It feels like nothing is inaccessible.
- We were taught to do exactly what is asked of, otherwise we receive no credit. Follow the instructions and make one small step at a time.
- Looking for secrets is risky. No one wants to be lonely and wrong.
- It's easy to make money from an established system. Why bother?
- The world is flat. "There must be someone else doing it already."
The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers.
The best place to look for secrets is where no one else is looking.
The golden mean between telling the secrets to nobody and telling to everybody is founding a company.
Every great business is built around a secret that's hidden from the outside.
A startup messed up at its foundation cannot be fixed.
Here's what could possibly go wrong and how to prevent it from happening:
co-founders: "choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce". People avoid to think about it beforehand, because it is not cool.
Solution: share a prehistory before starting a company together.
employees and managers: bureaucratic and ineffective teams cannot get things done.
Solution: beside cash, offer equity. "Equity can't create perfect incentives, but it's the best way for a founder to keep everyone in the company broadly aligned."
investors: investors on the board might want to take the company public while founders want to stay private.
Solution: keep the board small and choose the members wisely.
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.
Recruit the talented and personally similar people in the early days of your startup. Here are the two answers to why a recruit should join you instead of the others:
- Mission - not just why the mission is important in general, but why except your company, no one else is going to get done.
- Team - why your company is the unique match for the recruit personally, is the team the kind of people they want to work with?
don't fight the perk war, ... You probably can't be the Google of 2014 in terms of compensation or perks, but you can be like the Google of 1999 if you already have good answers about your mission and team.
Finally, a startup might not fail because of competition in the external environment, but probably because of competition internally. The solution is to make every person in the company responsible for doing just one thing.
Customers will not come just because we build it, we have to make that happen.
Nerds like us think advertising, marketing, and sales are just tricks, no one will be scammed. The product itself is either good or bad, and we can tell without getting tricked by its surface. But it is not true, the "trick" actually works on every one.
advertising doesn't exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later.
People underestimate the importance of sales because it is hidden intensionally. The grandmaster level of sales is selling to you without you noticing.
The two most important metrics for sales:
- Customer lifetime value - the total net profit earned on average during the time a customer uses the product
- Customer acquisition cost - the amount of money spent on average to acquire a new customer
CLV must exceed CAC
There are 5 distribution methods in terms of product prices, and most company will find only one of the methods works best for it
- complex sales - the average sale is around seven figure. Complex sales requires close personal attention in every detail, and it takes quite a long time for each deal to close. It might happens just 1-2 times a year, and it is often the CEO themselves who do the sales.
- personal sales - the average sale is between $10,000 and $100,000. The point is to establish a process that a sales teams can use to distribute the product to a wide audience.
- DEAD ZONE - you would want to avoid to price the product in the range that you can't afford salespeople and advertising is not effective, say $1000.
- marketing and advertising - the product has lower price, around $100, but is not fit for viral distribution.
- viral marketing - the core functionality of the product encourages users to invite their friends to become users.
Whoever is first to dominate the most important segment of a market with viral potential will be the last mover on the whole market.
poor sales rather than bad product is the most common cause of failure
Look around. If you don't see any salespeople, you're the salesperson.
computers are complements for humans, not substitutes.
How the rapid evolution of technology that changes human society now is fundamentally different from how globalization has done.
Humans supply jobs and demand resources, and we compete for them, because we are all alike. Globalization strengthens that.
Computers supply functionalities in specialized areas, and require only electricity, not even demanding it.
More importantly, we have intentionality. We are good at making decisions in complicated situations and bad at repetitive tasks and large amount of data. While computers are the opposite, they are good at processing data efficiently, but struggle to identify cats perfectly.
We're impressed with small feats accomplished by computers alone, but we ignore big achievements from complementarity because the ham contribution makes them less uncanny.
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?
Only a few clean tech companies survived after the bubble popped in the late-2000s even though it was a promising trillion dollars market.
Every startup must have answers to the seven questions:
- the engineering question - do you have a technology that is 10x better than your nearest substitute?
- 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?"
1% of a large market means competition.
- the people question - "Do you have the right team?"
- the distribution question - can you sell the product and grow the market?
- the durability question - "What will the world look like 10 and 20 years from now, and how will your business fit in?"
- the secret question - "Have you identified a unique opportunity that others don't see?"
An entrepreneur can't benefit from macro-scale insight unless his own plans begin at the micro-scale.
Founders are usually unusual in the way of having extreme opposite traits at the same time. These characteristics make us possible to lead companies beyond just incrementalism.
But be careful,
The lesson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at any moment.
Our job is to bring out the best work from everyone at the company, not just ours.
Among the four possible patterns for humanity's future - recurrent collapse, plateau, extinction, and takeoff (posthumanity) - described by Nick Bostrom, takeoff, in which we create new technology to make a monotonically better future, is more likely to happen.
But that future will not happen on its own, we have to create it from 0 to 1.