📚 Zero to One

February 16, 2024

Book Title
Zero to One
(non-fiction | strategy)

Author
Blake Masters and Peter Thiel

Review
The Challenge of the Future

Startups 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 that you actually can.

• Big organizations progress slowly due to large bureacracy.

Party Like It’s 1999

Advertising was too ineffective to justify the cost…
So we decided to pay people to sign up… new customers $10 for joining, … $10 more every time they referred a friend.

• Investment. Pay to attract a consistent influx of customers. Take a small fee on transactions.
• Each customer makes n transactions and thus make back the $10

1. It is better to risk boldness than triviality
2. A bad plan is better than no plan.
3. Competitive markets destroy profits.
4. Sales matter just as much as product.

• How much of these are based on anectdotal evidence?

All Happy Companies are Different

Under perfect competition, in the long run no company makes an economic profit.
…capitalism and competition are opposites.
Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away.

• Perfect Competition. New companies join the market. Supply exceeds demand. Prices decrease.
• Some companies fold. Prices back to equilibrium. Thus, competition is a slave to market price.
• Therefore, differentiate!!!

Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets:
> ex. British food n restaurant n Palo Alto
Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets:
> ex. search engine u mobile phones u wearable computers u self-driving cars

• Non-monoplists act like a monopoly
• Monopolists disguise their monopoly

Last Mover Advantage

…the value of a business today is the sum of all the money it will make in the future
…discount those future cash flows to their present worth

• Present value of a business is dependent on future cash flow

Monopolies share the following characteristics:

1. Proprietary Technology. Own a technology that works 10x better than competition or be the first to create it.
2. Network Effects. Use peer pressure or FOMO to your advantage. Market needs to be niche or unsaturated.
3. Economies of Sale. Service business have limitations for scaling whereas software has few workers that could reach millions.
4. Branding. Quality precedes simply branding yourself.

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.

…core progression - to first dominate a specific niche and then scale to adjacent markets.

• Amazon started small as an online catalog of books and then expanded to different markets.

Foundations

Equity is a powerful tool precisely because of these limitations. Anyone who prefers owning a part of your company to being paid in cash reveals a preference for the long term and a commitment to increasing your company’s value in the future.

• Equity vs Liquid Cash

The Mechanics of Mafia

Elon Musk - SpaceX, Tesla Motors Reid Hoffman - LinkedIn Steve Chen, Chad Hurley, Jawed Karim - YouTube Jeremy Stoppelman, Russel Simmons - Yelp David Sacks - Yammer Peter Thiel - Palantir

• Silicon Valley “PayPal Mafia”

If You Build It, Will They Come?

Two metrics set the limits for effective distribution

1. Customer Lifetime Value (CLV)
2. Customer Acquisition Cost (CAC)
   • The total net profit that you earn on average over the course of your relationship with the customer >
   • amount you spend on average to acquire a new customer
   • User these metrics to determine path to: Sales vs Viral Distribution vs Marketing/Advertising

Man and Machine

Watson, Deep Blue, … machine learning algorithms are cool. But 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?

• Computers are good for data processing, bad at basic judgments (that are otherwise simple for humans)

Seeing Green

One or more of the 7 Questions every business must answer:

1. The Engineering Question
   • Can you create breakthrough technology 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?

Tesla built a unique brand around the secret that cleantech was even more of a social phenomenon than an environmental imperative.

• Some truth to it’s success

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