Entrepreneurship

Zero to One: Notes on Start-Ups, or How to Build the Future

Blake Masters & Peter Thiel

Peter Thiel founded PayPal and was one of the first to invest in Facebook, making him one of the most influential billionaires in Silicon Valley. His unique reasoning for evaluating new business will show you a new perspective on how to set up a startup and be successful. This summary will enable you to know the philosophy and advice of Peter Thiel, which was documented by one of his students (Blake Masters) in a chair at Stanford college. Thiel is today one of the most important investors in the world. This summary will show you that in a startup, going from “0 to 1” is more important than going “from 1 to n”.

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I Need To Go From Zero To One

For many people, the progress that we will have in the future is an interesting subject to think about. And for Thiel, progress can be divided between horizontal progress and vertical progress. Horizontal progress comes from expanding existing ideas and innovations and gradually improving these concepts. Globalization is an example of horizontal progress, as it helps to distribute existing technologies to more and more people around the world. But vertical progress, however, comes from creating something that did not exist before, as a new technology or an extremely efficient method to do something. Horizontal progress is “going from 1 to n” while vertical progress is “going from 0 to 1”. An example of horizontal progress would be the mass production of Tablets and their distribution to developing countries; An example of vertical progress would be the launch of the first iPhone, which brought about the smartphone revolution. As you can imagine, vertical progress is difficult to predict because you have to imagine something that does not yet exist. If you long to imagine what the future holds, you should be able to see the present critically. Thiel values the “contrary” and different visions of the mainstream. An interesting example is one of the questions he asks when recruiting candidates for his companies. He asks, “From what popular belief do you disagree? Why?” According to Thiel, only people who flee established conventions will be able to affect the future and go from zero to one.

Be The Master Of Your Destiny

There are many options and variables and, in a way, it is useless to try to prepare for the future. The important thing is to focus on creating the future that suits you best. You need to be an active person in building your future so that you can indeed be master of your destiny. Focus is crucial. In his Stanford course, Thiel emphasizes that students often enroll in a multitude of diversified extracurricular activities to graduate with a broad curriculum, but he argues that is not the best approach. For Thiel, the right path is to focus all of one’s energy on mastering just one subject so that the student can be the best at least on one thing. The focused effort is necessary for success. What has led masters like Steve Jobs and Thiel himself to found several successful companies was actually the power of this focus on being really good at a limited set of things.

Monopolies Are Good For Society And Innovators

People tend to associate monopolies with a terrifying business environment, with companies working to destroy each other, an erroneous view, according to Thiel. Competition seems to be a necessary economic stimulus as businesses try to constantly improve their products relative to others. However, monopolies are the actual creators of innovation. In a monopoly, it does not necessarily mean that you are being unfair to the competition but only doing something much better than others which in turn cannot survive. Creating something new that no other company can copy is essential to building a monopoly. Google is nothing more than a monopoly in the Internet search industry, having faced virtually no competition. That may seem unfair to other companies that would like to compete in the search business, but it is definitely good for users of Google’s search engine. It is simply years ahead of all his competitors.

Moreover, monopolies are good for society as they drive progress: they encourage other companies to create better solutions to expel the current dominant company. For example, if a company wants to compete in the search market today, it needs to invent a much better search engine than Google. And, if that happens, the beneficiaries will be the internet users. For Thiel, having a monopoly is a condition for running a highly profitable business because it allows the company to set its own prices and thus have high profits. If the product is not better than its competitors, prices will be clearly smaller to attract customers and compete in a low-margin market, which erodes profit margins. The best example, according to Thiel is the commercial aviation industry, where ticket prices are so low that airlines generate only a few cents of profit on every stretch of a passenger’s journey. Google, as a good monopoly, keeps more than 25 percent of its revenues as profits and has been able to generate billions in profits alone in recent years, more than the entire commercial aviation industry.

Invest in What You Can Not Copy

For Peter at present, the world still has many great secrets that most people still do not know or agree on. That makes it harder for them to be discovered because often people end up keeping in line with the status quo thinking and setting aside the contrary view that leads to innovation. Usually, secrets are so deeply embedded in society that it can take years to discover them. In technology, the key is to develop better software/product than your competitors, because that makes your position as a defensible market leader. A startup, to be successful, needs to pursue this kind of secret. Otherwise, it will be only a horizontal progress supplier, going from 1 to n and offering conventional products in a competitive and low-profit margins market.

The Day Is Slow, Prepare For Investing Years Of Your Life

An essential point for creating a monopoly with a startup is that it can take years for it to become profitable in an untapped market. Even if the company does not initially profit, it may still have value because the value is determined by the future profits of the business. Contrary to popular wisdom, lack of profits is not necessarily a bad thing. Thiel’s company, PayPal, is an illustration of this scenario: in 2001, when it did not generate any profits, Thiel projected the company’s revenue for the next few years and found that the biggest of Paypal’s value came from earnings that were expected a decade after. What’s important for a startup is to start small and expand slowly in a focused effort. Just like in career or study, it is not necessary to have a diverse curriculum but to be far superior in a limited set of things. Being the best in your business is crucial to dominating the market. The expansion should come only after mastering a specific segment with years of advantage over competitors. Jeff Bezos, the founder of Amazon, was aiming to become the largest online retailer in the world but began focusing on selling books on the internet. Only after Amazon has conquered, this market has it expanded to other categories, such as CDs and DVDs, to reach the position of the monopolist in all major categories of e-commerce. Today, e-commerce is synonymous with Amazon, and the company took more than 15 years to consolidate in this position. Be prepared to invest many years of your life in your startup.

Culture Is Essential In A Startup

The main piece for a startup to be successful are the people who make it up, after all, the companies are so small that the individual role of each of the few collaborators has exponential effects. Therefore, it is important, in addition to technical knowledge, the relationships between founders and early employees. Before investing in a company, Thiel not only analyzes the skills of the people involved, but also the personal connections between them. According to him, weak personal ties can harm a team. Before co-founding PayPal with Lucas Nosek, Thiel had invested in a company that Nosek had started with a nearly unknown and personal difference between the partners led the company to disappear along with Peter’s investment. Also, it is essential to ensure that the interests of the company’s partners are balanced. Investors and partners may have different interests, but the company can not suffer from serious misalignments. For example, the company’s founders may want to develop their products with mastery, at the correct speed, while investors can seek quick profitability. While these individual priorities are not necessarily contradictory, they can sometimes cause conflict, so it is critical to define how to address these differences from the outset, and the key to that is to create a strong culture with a clear vision and shared teamwork. A set of clear and shared values and habits is one of the determining factors of success in startups. A good example of a strong culture can be seen in Paypal where the team was so close that many of the original team members gathered to assemble several startups together in the future and created what came to be known as the “Paypal Mafia”, From where companies like Linkedin and Youtube appeared, among others.

Knowing To Sell Is Crucial For Success

In general, technologists and engineers prefer to focus on product development, but innovative products are useless unless a market is created to consume them. There are no products that people will buy if there is someone to sell them. To sell a product effectively, distribution is the keyword. That includes not only your sales channels but also the effort and organization to sell your products. To leverage and have effective distribution, you have to consider the potential of each customer before measuring the effort required to make the sale. At the Palantir data analysis company, also founded by Thiel, each contract becomes tens of millions of dollars, usually with clients such as large companies and even the US government and the FBI. In this case, unlike Paypal, the CEO makes the sale in person, because customers who spend millions expect personal involvement from the company’s executives. If the contracts do not bring in millions, but hundreds of thousands of dollars each, it would not be a time efficient use for a CEO, but you still need a solid sales force to represent your company. If you are setting up a startup, think from Day 1 about how to put together a competent sales team and how to put your product in front of the end user, always.

The Role Of The Founder

Founders are usually not ordinary people or easy to deal with, for their visions are contrary to the established in the world. They tend to be eccentric people, especially in the big cases of success. Among the founders of Paypal, almost all members are a bit eccentric and many of them, as children, had quite unusual hobbies, such as building PUMPS! That is important because business founders have very great responsibilities in creating a culture and vision for a startup and that idea is even more important than best management practices.

An example that illustrates this well and is quoted by Thiel is the return of Steve Jobs to Apple, 10 years after being expelled from the company. Shortly after his return, he has already brought in exceptional landmarks like the launch of the iPod. The iPod was a success, and Steve Jobs’s vision of a world where computing is mobile and pervasive was revealed when Apple launched the iPhone and iPad, creating Apple’s family of “post-PC devices.” The vision of Jobs revolutionized Apple (now the most valuable company in the world), created a cultural monopoly, after all the iPhone was light years of other devices on the market, and revolutionized the lives of consumers around the world.

Final Notes:

A startup can survive by making incremental improvements to existing products and services, but it will only really be giant if it can get a contrary view of the pre-established system and thereby create a monopoly where its product is so superior to competitors that it can set its prices And have high-profit margins.

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