Book Summary — Zero to One

Source: www.amazon.com

🚀 The Book in 3 Sentences

1. The best startup guideline book
2. Cover most dimensions that startup founders should know
3. Several articles from a Paypal founder.

🎨 Impressions

Fun reading. The content in this book might not new since it was referenced by many articles but it is still a great book that contains information about the startup environment.

🙍‍♂️ Who Should Read It?

Startup founders should read it!! For someone who is not directly related to startup, reading only a book summary may be enough.

✍️ My Top 3 Quotes

• Don’t just focus on near-term growth but think about business a decade from now.
• No company has a culture; every company is a culture.
• The best place to look for secrets is where no one else is looking.

📒 Summary + Notes

1. Future Trend

• There are 2 forms of a future of progress: horizontal and vertical.
• Horizontal or extensive progress = globalization: copy things that work (1 to n).
• Vertical or intensive progress = technology: do new things (0 to 1).
• Globalization without technology is not sustainable due to limited resources.
• New technology tends to come from startups, a group of people who plan to build a different future.

2. Lessons from the dot-com crash

• The first step to thinking clearly is to question what we used to believe.

Lessons learned from the dot-com crash in 2000

1. Anyone who wants to change the world should be more humble. Small, incremental steps are the only safe path forward.

2. Stay lean (unplanned) and flexible.

3. Improve the competition. Don’t try to create a new market prematurely.

4. Focus on product, not sales.

However, the opposite of these 4 lessons is probably more correct.

1. It is better to risk boldness than triviality.

2. A bad plan is better than no plan.

3. A competitive market destroys profits.

4. Sales matters just as much as a product.

• To build the next generation of companies, we must abandon the dogmas created after the crash.

3. Perfect competition & Monopoly

Economists use 2 market models: perfect competition and monopoly.

• Perfect competition: markets achieve equilibrium when producer supply meets consumer demand. Every firm in a competitive market is undifferentiated and sells the same homogeneous products.
• Monopoly: owns its market, so it can set its own prices.
• There’s an enormous difference between perfect competition and monopoly,
• “Monopoly,” we mean the kind of company that’s so good at what it does that no other firm can offer a close substitute.
• Monopolists lie to protect themselves by exaggerating the power of their (nonexistent) competition like unions of several large markets.
• Non-monopolists tell the opposite lie that exaggerating their distinction by defining their market as the intersection of various smaller markets.
• Monopolists can afford to think about things other than making money since they don’t have to worry about the competition while non-monopolists can’t.
• In a static world, a monopolist is just a rent collector but the world we live in is dynamic: it’s possible to invent new and better things to give customers more choices by adding entirely new categories of abundance to the world.
• All happy companies are different: each one earns a monopoly by solving a unique problem.

4. Avoid Competition

• Creative monopoly means new products that benefit everybody and sustainable profits for the creator.
• In a competitive world, the firms lose sight of what matters and focus on their rivals instead. This drives the cost to be higher.

5. Building a monopoly

• A great business is defined by its ability to generate cash flows in the future.
• Technology companies often lose money for the first few years to build valuable things. Then, they will generate revenue 10 to 15 years in the future.
• Don’t just focus on near-term growth but think about business a decade from now.

Monopoly 4 characteristics: proprietary technology, network effects, economies of scale, and branding.

1. Proprietary technology

• Makes your product difficult or impossible to replicate.
• The most substantive advantage.
• Invent products that are at least 10 times better than their closest substitute in some important dimension.

2. Network effect

• Make a product more useful as more people use it.
• Your product must be valuable to its very first users.

3. Economies of scale

• Gets stronger as it gets bigger: the fixed costs of creating a product can be spread out over greater quantities of sales.

4. Branding

• Create a strong brand
• Beginning with the brand rather than the substance is dangerous.

Building a monopoly

1. Start small and monopolize

• Every startup should start with a very small market.
• It’s easier to dominate a small market than a large one.
• A small market doesn’t mean nonexistent.
• It was much easier to reach a few thousand people who really needed our product than to try to compete for the attention of millions of scattered individuals.
• The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

2. Scaling up

• Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets.

3. Don’t disrupt

• “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices.
• startups’ obsession with disruption means they see themselves through older firms’ eyes.
• Creating a new thing is more important than the old industry.
• Avoid competing with any large competitor (old industry).

Last mover advantages

• Being the first mover doesn’t do you any good if someone else comes along and unseats you.
• Be the last mover who makes the last great development in a specific market instead.

6. Definite/Indefinite & Optimistic/Pessimistic Future

• If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it.
• if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.
• Optimists welcome the future; pessimists fear it.

• Indefinite optimism will have progress without planning that is “evolution”
• Leaning is the methodology of making small changes to existing things.
• It is better to have a definite long-term plan.

7. The Power Law

• Never underestimate exponential growth or power law.
• “Pareto principle” or 80–20 rules: 20% actions have 80% impact.
• A venture fund makes money when the companies in its portfolio become more valuable.
• Venture return follows the power law. Only the best-invested company can yield a return more than the rest combined, so VCs should only invest in companies that have the potential to return the value of the entire fund.
• The power law is important to everybody as well such as choosing a career.

8. Secret

• What valuable company is nobody building? It is a secret: something important and unknown, something hard to do but doable.
• Many people believe that the world’s hard problems have already been solved and there is no secret left.
• If a company stops believing in secrets, it will enter a decline phase.
• You can’t find secrets without looking for them. If you think something hard is impossible, you’ll never even start trying to achieve it.
• There are two kinds of secrets: secrets of nature and secrets about people. Natural secrets exist all around us; to find them. Secrets about people are things that people don’t know about themselves or things they hide.
• Secrets about people are relatively underappreciated.
• The best place to look for secrets is where no one else is looking.
• If you find a secret, you should know that every great business is built around a secret that’s hidden from the outside, so don’t tell everybody.

9. Foundations

• “Thiel’s law”: a startup messed up at its foundation cannot be fixed.
• Bad decisions made early on are very hard to correct after they are made.
• As a founder, your first job is to get the first things right because you cannot build a great company on a flawed foundation.
• Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce.
• It’s not just founders who need to get along. Everyone in your company needs to work well together.
• You need good people who get along, but you also need a structure to help keep everyone aligned for the long term.
• it’s useful to distinguish between three concepts: • Ownership: who legally owns a company’s equity? • Possession: who actually runs the company on a day-to-day basis? • Control: who formally governs the company’s affairs?
• Early-stage startups are small enough that founders usually have both ownership and possession.
• Most conflicts in a startup erupt between ownership and control — that is between founders and investors on the board.
• Your board should never exceed five people unless your company is publicly held.
• Everyone you involve with your company should be involved full-time except outside lawyers and accountants
• For people to be fully committed, they should be properly compensated.
• A company does better the less it pays the CEO.
• Startups don’t need to pay high salaries because they can offer part ownership of the company.
• Giving everyone equal shares is usually a mistake.

10. Company Culture

• No company has a culture; every company is a culture.
• Time is the most valuable asset, so spend it working with people who envision a long-term future together.
• Stronger relationships would make us not just happier and better at work but also more successful in our careers.
• Recruiting is a core competency for any company. It should never be outsourced.
• You should be able to explain why your company is a unique match for recruiting personally.
• Everyone at your company should be different in the same way, fiercely devoted to the company’s mission.
• Startups should make their early staff as personally similar as possible due to limited resources.
• Make every person in the company responsible for doing just one thing and every employee’s one thing was unique.
• Every company culture can be plotted on a linear spectrum between nihilism (consultants) and dogmatism (cults)

11. Sales matter

• Customers will not come just because you build it, so sales is also important.
• Sales works best when hidden since none of us wants to be reminded when we’re being sold.
• Superior sales and distribution can create a monopoly, even with no product differentiation.
• The total net profit that you earn on average throughout 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).
• The higher the price of your product, the more you have to spend to make a sale

• You must also sell your company to employees and investors.

12. Man & Machine

• Computers are complements of humans, not substitutes since they are in different categories.
• The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.
• Technology is the one way for us to escape competition in a globalizing world.

13. Important questions.

There are 7 questions that every business must answer

1. The Engineering Question Can you create breakthrough technology (10x better) 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 years into the future?
7. The Secret Question Have you identified a unique opportunity that others don’t see?

14. The Founder’s Paradox

• Startup CEOs can be cash-poor but millionaires on paper.
• Startup founders usually have extreme characteristics to lead companies beyond mere incrementalism.