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Book Zero to One by Peter Thiel - Detailed Notes and Summary

Discussion in 'Education, Learning, Books' started by Manchild_Unbound, Oct 18, 2017.

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  1. Manchild_Unbound
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    [​IMG]
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    This is one of the recommended books at the bottom of the Fastlane Forum. I've seen it recommended as essential reading elsewhere and I can certainly see why!
    What most stood out to me was how Peter Thiel has his own version of the CENTS commandments. Posed as questions, these are seven questions that any new business in any industry should have good answers to. These questions are from Chapter Eleven, so you'll see them twice in this thread.
    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?
    I went ahead and took my own notes of the book. While my notes are quite thorough, I would still recommend that you read the book for yourself. Besides the fact that I glossed over some specific stories, examples, and anecdotes; I can honestly say that I might have missed the point of certain sections.

    SUMMARY AND NOTES
    --------------------------------------------------------------------------------

    We are at a crucial point in history. We are at a point of economic and technological stagnation. The American economy has experienced next to no growth for many years. But the future can be wonderful if businesses and the individuals running them think differently.


    Every moment in business happens only once. The next Bill gates won't build an operating system. The next Larry Page or Sergey Brin won't make a search engine. And the next Mark Zuckerberg won't create a social network. If you are copying these guys, you aren't learning from them.


    Tomorrow's champions will not win by competing ruthlessly in today's marketplace. They will escape competition altogether, because their business will be unique.


    Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from Zero to One. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.


    If American business is going to succeed, we are going to need hundreds, or even thousands, of miracles. This would be depressing but for one crucial fact: humans are distinguished from other species by our ability to work miracles. We call these miracles technology. Technology is miraculous because it allows us to do more with less, ratcheting up our fundamental capabilities to a higher level.


    Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.


    Ch. 1 - The Challenge of the Future

    People who will make an impact in the future will not only think different, but have the courage to be polarizing and contrarian on a grand scale. This is why Peter Thiel asks job applicants about what truths most other people don't agree with them on, ie a "contrarian question."
    Brilliant thinking is rare, but courage is in even shorter supply than genius.

    Different, contrarian, polarizing thinking is what will shape the future.
    No one can predict the future exactly, but we know two things: it's going to be different, and it must be rooted in today's world. Most answers to the contrarian question are different ways of seeing the present; good answers are as close as we can come to looking into the future.

    Zero to One: The Future of Progress
    There is horizontal progress, which is copying or building upon things that work(1-n), and then there is vertical progress(0-1), which is where new things are created.
    [​IMG]



    On a worldwide scale, globalization is horizontal, but technology is vertical.
    [​IMG]



    Technology will prevent major environmental crises caused by the developing world.
    In a world of scarce resources, globalization without new technology is unsustainable.


    The baby boomers and the previous generations that preceded them created an unprecedented amount of wealth and economic growth. But ever since their advancements, the world has remained relatively stagnant.
    The smartphones that distract us from our surroundings also distract us from the fact that our surroundings are strangely old: only computers and communications have improved dramatically since midcentury.


    Startup Thinking
    Most new ideas begin with start-ups. Large organizations have hierarchies and bureaucracies that impede and sometimes punishes new ideas and innovation.
    A startup is the largest group of people you can convince of a plan to build a different future. A new company's most important strength is new thinking: even more important than nimbleness, small size affords space to think.


    Because this is what a startup has to do: question received ideas and rethink business from scratch.

    Ch. 2 - Party Like It's 1999

    What the majority believes and agrees on, especially in business, can be not only wrong but destructive.
    "Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule," Nietzsche wrote (before he went mad). If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.


    Even though the point of business is to make money, the actions of internet startups in the 1990's made this seem otherwise. They valued clicks and pageviews over revenue.

    Old destructive beliefs in business are later called bubbles. This is true for the dotcom bubble.
    The first step to thinking clearly is to question what we think we know about the past.


    A Quick History of the 90's
    The 90's is thought of today as a more prosperous and optimistic time, but it wasn't really so: there was the loss of manufacturing jobs in the United States, the East Asian Financial Crisis of 1997, the ruble crisis of Russia in 1998, and the new challenges of globalization.

    Existing companies couldn't handle the challenges of globalization, so they put much of their hopes in the internet to bring about a New Economy.

    Mania: September 1998 - March 2000
    In the late 90s, dotcom companies sprung up all over Silicon Valley. Investors and venture capitalists were throwing money at anything with a .com at the end of it. Peter Thiel was part of this boom with Paypal, which was able to get some much-needed funding before the bubble burst on March 2000.

    This crash led to a less optimistic outlook for the future.
    Globalization replaced technology as the hope for the future. Since the 90's migration "from bricks to clicks" didn't work as hoped, investors went back to bricks (housing) and BRICs (globalization; an acronym for five emerging nations: Brazil, Russia, India and China). The result was another bubble, this time in real estate.


    Four lessons from the dotcom crash:

    1. Make incremental advances - Grand visions inflated the bubble, so they should not be indulged … Small, incremental steps are the only safe path forward.
    2. Stay lean and flexible - All companies must be "lean" which is code for "unplanned."
    3. Improve the competition - You should build your company by improving on recognizable products already offered by successful competitors.
    4. Focus on products, not sales - Technology is primarily about product development, not distribution. Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth.

    The above aren't necessarily true. Opposite principles work just as well if not better:

    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.

    We still need new technology, and we need some of the optimism that caused the dotcom crash in the first place. The optimism of the 90's was a belief in Zero to One. What we need to do is abandon dogmas that resulted in the four erroneous lessons.
    How much of what you know about business is shaped by mistaken reactions to past mistakes? The most contrarian thing of all is not to oppose the crowd but to think for yourself.
     
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  2. Manchild_Unbound
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    Ch. 3 - All Happy Companies Are Different

    The contrarian question for business:
    What valuable company is nobody building? This question is harder than it looks, because your company could create a lot of value without becoming very valuable itself. Creating value is not enough—you also need to capture some of the value you create.

    Big profitable businesses might not be good businesses. Compare Google to airlines (Google had 21% profit margins in 2012, while airlines made a fraction of that).

    Economists believe in two models for business: monopoly and perfect competition.

    Perfect competition is an ideal in Economics but is mostly a myth. In a perfect competition scenario where businesses sell undifferentiated, homogenous products, there is no control on price and therefore price is driven down; the winner is who sells the cheapest and somehow is able to make profit.
    Under perfect competition, in the long run, no company makes an economic profit.

    A monopoly is basically a company that does one thing so good that no others can replicate its success in the same way. Google is a good example of a monopoly.
    The lesson for entrepreneurs is clear: if you want to create lasting value, don't build an undifferentiated commodity business.

    [​IMG]
    [​IMG]


    Lies People Tell
    Monopolies lie, and even create other ventures and products to protect themselves from governments. Google, for example, creates smartphones and robotics, but their monopoly is as a search engine (95% of their revenue, 68% market share).

    Competitive Lies
    Non-monopolies tell the world that they are unique and that they have a unique product or service that makes them stand out.
    Entrepreneurs understate the scale of competition, but that is the biggest mistake a startup can make.The fatal temptation is to describe your market extremely narrowly so that you dominate it by definition.

    Non-monopolists exaggerate their distinction by defining their markets as the intersection of various smaller markets.

    Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets.


    Ruthless People
    Companies that exist in perfect competition create an environment that is "dog-eat-dog." It's kill or be killed, as it were. The example here are restaurants, from small struggling joints to even fancy restaurants with Michelin stars.

    Ethics comes second to survival for these competitive firms. For a company to "do no evil" -- Google's motto -- it needs the luxury of high profits to be ethical.
    In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can't.

    Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.

    Monopoly Capitalism
    Monopolies are thought to be harmful to society.
    Do outsized profits come at the expense of the rest of society? Actually, yes: profits come out of customers’ wallets, and monopolies deserve their bad reputation -- but only in a world where nothing changes.

    Monopolies can be bad in a static world, but our world is dynamic. At their best, monopolies create more abundance and more options, and even new markets. Over time, as monopolies age and are plagued with the problems of large organizations, they create opportunities for innovation from startups. Moreover, a monopoly is not permanent.
    If the tendency of monopoly businesses were to hold back progress, they would be dangerous and we'd be right to oppose them. But the history of progress is a history of better monopoly business replacing incumbents.

    In the real world outside economic theory, every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.


    To borrow from Leo Tolstoy's Anna Karenina:
    All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.



    Ch. 4 - The Ideology of Competition

    Competition isn't all it's cracked up to be.
    Creative monopoly means new products that benefit everybody and sustainable profits for the creator. Competition means no profits for anybody, no meaningful differentiation, and a struggle for survival.

    Competition is an ideology that is glorified in free market economies. Even our education system drives our obsession with competition.

    War and Peace
    Businessmen and managers often compare business with war.
    War metaphors invade our everyday business language: we use headhunters to build up a salesforce that will enable us to take a captive market and make a killing. But really it's competition, not business, that is like war: allegedly necessary, supposedly valiant, but ultimately destructive.

    The more we compete, the less we gain.

    There is competition, mostly because it is part of human nature.

    Businesses aren't just competitive with other businesses, people inside a business will be competitive with each other, which is kind of ridiculous.
    Inside a firm, people become obsessed with their competitors for career advancement. Then the firms themselves become obsessed with their competitors in the marketplace. Amid all the human drama, people lose sight of what matters and focus on their rivals instead.

    In the 90's there were battles between the Pets websites such as Pets.com and Petopia.com. They competed for market share of the online pets market, attention from investors, and even on Superbowl ads. Because of so much time and effort wasted on pointless rivalries, Pets.com, one of the "winners" of this competition, went bust during the dotcom crash, losing over $300 million of investment capital.
    Winning is better than losing, but everybody loses when the war isn't worth fighting.

    Competition can make people hallucinate opportunities where none exists.

    Aspie programmers and engineers have the right idea, if by accident: they value creating and working on quality things rather than give up their convictions and wage pointless feuds for imaginary prizes.

    Peter Thiel had a rivalry with Elon Musk, or more specifically, their companies, Paypal and X.com. When the dotcom bubble started looming, they both agreed to join forces and merge their companies. The result was the long-term success of Paypal.
    If you can't be a rival, it may be better to merge.

    Sometimes you have to fight. Where that's true, you should fight and win. There is no middle ground: either don't throw any punches, or strike hard and end it quickly.


    Our human nature is what makes us compete and fight for pointless and petty things. This is not good for business.
    If you can recognize competition as a destructive force instead of a sign of value, you're already more sane than most.
     
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  3. Manchild_Unbound
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    Ch. 5 - Last Mover Advantage

    On the road to monopoly profits, long-term cash-flow is more important than short-term profits, as demonstrated by Twitter and the New York Times. Twitter has greater market value even though it lost money; this is because of its future value.
    A great business is defined by its ability to generate cash flows in the future.

    Simply stated, the value of a business today is the sum of all the money it will make in the future.

    In the Old Economy, a business would be seen as valuable based on profits and cash-flows in the present and the near-future.
    Technology companies follow the opposite trajectory. They often lose money for the first few years: it takes time to build valuable things, and that means delayed revenue. Most of a tech company's value will come at least 10 to 15 years in the future.

    Paypal had no profit at first but did have growing revenue. LinkedIn has made very little net income but its current state is monopolistic and its cash-flow projections over the next ten years are huge.
    For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn't.

    Zynga and Groupon are two companies that experienced fast growth but their customer base is fickle and their durability is uncertain.
    If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.

    Characteristics of Monopoly


    The following are common characteristics.
    1. Proprietary Technology - When a company has technology and software that exists only for that company. Google's search engine is its proprietary technology. Companies can have this when they invent something new.
    As a good rule of thumb, proprietary technology must be at least ten times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
    2. Network Effects - Where a network of people and institutions congregate around a product. Much like Facebook is popular because everyone's friends, family, and co-workers got on it. Even when it starts small, it's very valuable to its first customers.

    Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students—Mark Zuckerberg’s first product was designed to get all his classmates signed up, not to attract all people of Earth. This is why successful network businesses rarely get started by MBA types: the initial markets are so small that they often don’t even appear to be business opportunities at all.

    3. Economies of Scale - When a business is able to grow without any problems for the people running it. Twitter can keep on growing without adding many new features. Same is true for other burgeoning web and software companies.
    Software startups can enjoy especially dramatic economies of scale because the marginal cost of producing another copy of the product is close to zero.

    A good startup should have the potential for great scale built into its first design.

    4. Branding - Branding is what gives companies and products their identity and the perception of personality. Apple's brand starts with the design of its products all the way to the look and feel of its retail stores. There is danger in this aspect as some entrepreneurs feel tempted to focus on branding for their company but with little to no substance to the products.
    No technology company can be built on branding alone.

    Building a Monopoly
    It begins not just with the aforementioned characteristics, but with a carefully chosen market from which to expand.

    Start Small and Monopolize
    It begins with a niche and expands from there. Paypal started with Palm Pilots, then with eBay. Facebook started exclusively with Harvard students, then with all college students, then everyone else.
    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. Always err on the side of starting too small. The reason is simple: it’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.

    The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

    Reach a few thousand people who really needed your product.

    It’s always a red flag when entrepreneurs talk about getting 1% of a $100 billion market … cutthroat competition means your profits will be zero.

    Scaling Up
    By having small successes in specific niches, a company can carefully expand, "test the waters," and grow carefully. Amazon did this by first focusing on books before expanding its product categories to everything else. eBay started with niche interest groups like Beanie Baby collectors.
    Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets.

    The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

    Don't Disrupt
    Disruption refers to when companies come out with a low-priced product, improve it over time, and disrupt and overtake the market of formerly premium products. PCs disrupted the market for mainframes, and later on tablets and smartphones disrupted the market for PCs.
    If you think of yourself as an insurgent battling dark forces, it’s easy to become unduly fixated on the obstacles in your path. But if you truly want to make something new, the act of creation is far more important than the old industries that might not like what you create. Indeed, if your company can be summed up by its opposition to already existing firms, it can’t be completely new and it’s probably not going to become a monopoly.

    Disruption often gets attention, and this can lead to unwanted legal battles. This happened with Napster, which disrupted the music industry in a big way. Paypal caused only slight disruption to credit card companies at first since people would use them less in retail stores, but they won out in the end when Paypal expanded the market to include credit card payments.
    Don’t disrupt: avoid competition

    The Last Will Be First
    First mover advantage doesn't really exist, it's cashflow and durability that counts.
    It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision… Study the endgame before everything else.
     
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  4. Manchild_Unbound
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    Ch. 6 - You Are Not A Lottery Ticket

    People tend to think that there is luck and chance in the formation of successful companies. But the success of these companies is not an accident. No one in their right minds, especially not the serial entrepreneurs of Silicon Valley leave the rise or fall of their companies to chance.
    Whether success comes from luck or skill: Is there a way to settle this debate objectively? Unfortunately not, because statistics doesn’t work when the sample size is one.

    Did Bill Gates simply win the intelligence lottery? Was Sheryl Sandberg born with a silver spoon, or did she “lean in”? When we debate historical questions like these, luck is in the past tense. Far more important are questions about the future: is it a matter of chance or design?

    Can You Control Your Future?
    There are attitudes towards the world and the economy that are widespread. Attitudes shared not just by individuals and companies, but by entire nations. Nowadays, in the United States, there is an indefinite attitude towards the future.
    You can expect the future to take a definite form or you can treat it as hazily uncertain. 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.

    A more definite attitude is rarer, and indeed, requires a degree of faith. This is part of the reason students approach their education by engaging in a potpourri of activities (sports, student politics, extracurriculars, etc.). They seek to be "well-rounded" in order to get into good colleges and universities.
    Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one.​

    There's attitudes of optimism and pessimism towards the future. Some people or entire nations view the future with certainty or uncertainty. This creates four views: Indefinite Pessimism, Definite Pessimism, Definite Optimism, and Indefinite Optimism.
    [​IMG]

    Indefinite Pessimism
    The future seems bleak, but we can't know how it will unfold or what to do about it. With this attitude, all you can do is react to what happens and hope that it doesn't get worse. It's a very passive attitude. This is what modern Europe is like.
    All the indefinite pessimist can do is wait for it to happen, so he might as well eat, drink, and be merry in the meantime: hence Europe’s famous vacation mania.

    Definite Pessimism
    A certainty that the world of the future will be bleak. Knowing this, the best course of action is to prepare accordingly. This is what modern China is like.

    Definite Optimism
    The world of tomorrow is going to be great, and we have to work and plan for it so that it becomes great. This was the general attitude in the United States before the 1980s.
    Big plans for the future have become archaic curiosities.

    Indefinite Optimism

    The future will be better, but it is unclear how it will be better. It can also be called a cautious optimism. An indefinite optimist will hesitate in making concrete plans and sees no reason to anyway.

    This view is espoused by social commentators like Malcolm Gladwell, who argues that you can't take any one person's success without looking at it in the proper context. Gladwell strongly believes that luck and chance plays a huge role.
    But they miss the even bigger social context for their own preferred explanations: a whole generation learned from childhood to overrate the power of chance and underrate the importance of planning.

    Our Indefinitely Optimistic World

    Indefinite Finance
    It is because of the United States' indefinite optimism that banking and law are popular career choices for the Ivy-League bound.
    What could be a more appropriate reward for two decades of resume-building than a seemingly elite, process-oriented career that promises to "keep options open?"

    While a definitely optimistic future would need engineers to design underwater cities and settlements in space, an indefinitely optimistic future calls for more bankers and lawyers. Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth. If they don't go to law school, bright college graduates head to Wall Street precisely because they have no real plan for their careers.

    When an entrepreneur sells a company nowadays, no one in the world of finance—not the bankers, institutional investors—know what to do with it. They almost blindly try to create free cash flow by selling part of a company's shares and diversifying its portfolio.
    At no point does anyone in the chain know what to do with money in the real economy. But in an indefinite world, people actually prefer unlimited optionality; money is more valuable than anything you could possibly do with it. Only in a definite future is money a means to an end, not an end itself.

    Indefinite Politics
    The United States government has also adopted an indefinite character. The government focuses on providing insurance in the form of transfer-payment programs (Medicare, Social Security, Welfare, etc.). The attitude is that things will improve by sending out checks. There are no definite plans to solve specific problems.

    Indefinite Philosophy
    Philosophers of the past were mostly pessimistic including Plato and Aristotle. It wasn't until the nineteenth century that we had definite optimists with Karl Marx on the left, Georg Hegel in the center, and Herbert Spencer on the right. Since that time, philosophy has been mostly indefinitely optimistic.

    In philosophy, politics, and business, too, arguing over process has become a way to endlessly defer making concrete plans for a better future.
    [​IMG]

    Indefinite Life
    Throughout history, there has been efforts not only to extend life but to escape death entirely. While there have been leaps in seeking to extend longevity, those efforts have slowed down in our indefinitely optimistic modern world. Bio-tech companies and startups reflect this attitude in their smaller R&D budgets, teams made up of salaried lab researchers and consultants("lab drones"), and instead of refining definite standing theories about the human body, researchers do random experiments that don't challenge those theories. All of this is, combined with heavy government regulations, ultimately what is holding biotech companies back.

    Is Indefinite Pessimism Even Possible?

    Indefinite optimism is reflected in how people nowadays save money: they mostly don't. Companies that are doing well are profitable but hesitant to invest in new projects.
    Definite optimism works when you build the future you envision. Definite pessimism works by building what can be copied without expecting anything new. Indefinite pessimism works because it’s self-fulfilling: if you’re a slacker with low expectations, they’ll probably be met. But indefinite optimism seems inherently unsustainable: how can the future get better if no one plans for it?
    [​IMG]



    The answer to the above question of an unplanned future is Darwinian evolution applied on a global economic scale.

    Entrepreneurs in Silicon Valley start companies with an evolutionary mindset; they start "lean" so that their companies can "adapt" and "evolve" but all without making big plans. Instead companies make "minimum viable products" and listen closely to what customers want.
    But leanness is a methodology, not a goal. Making small changes to things that already exist might lead you to a local maximum, but it won’t help you find the global maximum. You could build the best version of an app that lets people order toilet paper from their iPhone. But iteration without a bold plan won’t take you from 0 to 1. A company is the strangest place of all for an indefinite optimist: why should you expect your own business to succeed without a plan to make it happen? Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.

    The Return of Design
    Steve Jobs was a perfectionist when it came to design. Industry analysts thought that Apple was merely creating a fad, but they failed to see the long-term plan behind the elegant designs of the MacBooks and iDevices. These devices were the first step towards a post-PC future.
    But the most important lesson to learn from Jobs has nothing to do with aesthetics. The greatest thing Jobs designed was his business. Apple imagined and executed definite multi-year plans to create new products and distribute them effectively. Forget “minimum viable products”—ever since he started Apple in 1976, Jobs saw that you can change the world through careful planning, not by listening to focus group feedback or copying others’ successes.

    A business with a good definite plan will always be underrated in a world where people see the future as random.

    You Are Not A Lottery Ticket
    For the time being, an indefinitely optimistic attitude will be the reigning attitude in the United States and will be for the foreseeable future. The solution comes down to individuals and ambitious startups with definiteness of purpose. Ultimately, we need to find our way back to a definite future.
    A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket.
     
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  5. Manchild_Unbound
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    Ch. 7 - Follow The Money

    It goes by many names: the Pareto Principle, the 80-20 rule, top-heavy, etc. Peter Thiel calls it the Power Law.

    The power law becomes visible when you follow the money: in venture capital, where investors try to profit from exponential growth in early-stage companies, a few companies attain exponentially greater value than all others... we don’t live in a normal world; we live under a power law.

    The Power Law of Venture Capital
    Venture capitalists are the people who fund ambitious startups. They raise money and take a percentage of returns. Most companies funded by VCs fail, but those that succeed grow exponentially and make a lot of money. In an ideal situation, a venture capitalist will have a few successes— 20% of the companies invested in will succeed. Some VCs, however, will have nothing but flops.
    This is because venture returns don’t follow a normal distribution overall. Rather, they follow a power law: a small handful of companies radically outperform all others. If you focus on diversification instead of single-minded pursuit of the very few companies that can become overwhelmingly valuable, you’ll miss those rare companies in the first place.
    [​IMG]
    Peter Thiel's Founders Fund was behind Facebook and Palantir, both of which showed the greatest return on investment.
    The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.

    Two rules for VCs:
    First, only invest in companies that have the potential to return the value of the entire fund … Second, because number one is so restrictive, there can’t be any other rules.

    VCs have a portfolio of companies that might succeed wildly, but there are never any guarantees which is exactly why VCs have portfolios. Once a given company in a portfolio does well, a VC will pour as much resources into it to fuel its growth. Founders Fund focuses on five to seven companies at one time.

    The way VCs find investments is almost like gambling.
    Whenever you shift from the substance of a business to the financial question of whether or not it fits into a diversified hedging strategy, venture investing starts to look a lot like buying lottery tickets. Once you think that you’re playing the lottery, you’ve already psychologically prepared yourself to lose.

    Why People Don't See The Power Law
    VCs don't often see the power law. Companies in a venture fund will have a similar beginning, over time some will fail, and it is only after several years that a fund will have one company see exponential growth.
    [​IMG]
    [​IMG]

    [​IMG]


    Less than 1% of new companies are venture-backed, but those that succeed create 11% of private sector jobs, and generate revenues equivalent to 21% of GDP.

    What to Do With The Power Law
    It's good to think of yourself as an investor in your own life. After all, choosing a career is choosing a line of work that you have judged will be valuable years from now. Starting a company is not just an investment of resources but of time.

    People sometimes treat their life as a portfolio with a "don't put your eggs in one basket" mentality. This is flawed.
    Life is not a portfolio. Any individual cannot “diversify” herself by keeping dozens of equally possible careers in ready reserve.

    Schools and colleges try to tell students that it doesn't really matter exactly what you do, and that it is a good idea to diversify your knowledge and skills.
    That is completely false. It does matter what you do. 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.

    Sometimes, at least in the world of tech startups, starting your own company might not give you the best return.
    You could have 100% of the equity if you fully fund your own venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $35 million now.)



    Ch. 8 - Secrets

    Great companies uncovered secrets.
    Our contrarian question: what important truth do very few people agree with you on?

    Contrarian thinking doesn’t make any sense unless the world still has secrets left to give up.

    The business version of our contrarian question: What valuable company is nobody building? Every correct answer is necessarily a secret. Something important and unknown, something hard to do but doable.
    [​IMG]

    Why Aren't People Looking for Secrets?

    It's easy to assume that in our modern world, there are no secrets left to be uncovered. Ted Kaczynski, the Unabomber, went on his bombing rampage because he felt that life had become too easy and that there was nothing left to strive for. He believed that humans need goals and challenges to strive towards in order to be happy and fulfilled. Kaczynski divided human goals into three groups:

    1. Goals that can be satisfied with minimal effort;
    2. Goals that can be satisfied with serious effort; and
    3. Goals that cannot be satisfied, no matter how much effort one makes.
    If everything worth doing has already been done, you may as well feign an allergy to achievement and become a barista.


    We don't believe in secrets because of four social trends: incrementalism, risk aversion, complacency, and "flatness."
    • Incrementalism: From an early age, we are taught that the right way to do things is to proceed one very small step at a time, day by day, grade by grade. If you overachieve and end up learning something that’s not on the test, you won’t receive credit for it. But in exchange for doing exactly what’s asked of you (and for doing it just a bit better than your peers), you’ll get an A.
    • Risk Aversion: People are scared of secrets because they are scared of being wrong. The prospect of being lonely but right—dedicating your life to something that no one else believes in—is already hard. The prospect of being lonely and wrong can be unbearable.
    • Complacency: Why search for a new secret if you can comfortably collect rents on everything that has already been done?
    • Flatness: As globalization advances, people perceive the world as one homogeneous, highly competitive marketplace: the world is "flat." If it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already?

    Cults don't spring up any more. Communists and Hare Krishnas promised its followers secrets that would lead to a utopia.
    We can be glad that there are fewer crazy cults now, yet that gain has come at great cost: we have given up our sense of wonder at secrets left to be discovered.

    The World According to Convention
    To not believe that there are secrets is to stagnate—this is true for justice, economics and business. Hewlett-Packard's decline is the result of a company going complacent—this plunged HP's value from $135 billion in 2000 to $23 billion today.

    The Case for Secrets
    People confuse goals that are impossible with goals that are hard. This was certainly the case with Pierre Fermat's Last Theorem, a math problem conjectured in 1637 and not solved until 1995 by Andrew Wiles.
    If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth.

    There are so many secrets left to uncover. We need a large-scale shift in mindset.

    Great companies like Uber, Airbnb, and Facebook discovered secrets. The needs of those markets were already being served (there were already taxis and limos before Uber; there were hotels, hostels, and even temporary lodging before Airbnb) but they discovered how to further serve those needs.
    Only by believing in and looking for secrets could you see beyond the convention to an opportunity hidden in plain sight.

    How to Find Secrets
    There are secrets in nature and then there are secrets about people. This lead to two questions:
    What secrets is nature not telling you? What secrets are people not telling you?

    Secrets about people are things that people don’t know about themselves or things they hide because they don’t want others to know.

    Secrets about people can be found by asking the following question:
    What are people not allowed to talk about? What is forbidden or taboo?

    Human secrets and natural secrets can uncover similar truths.
    Consider the monopoly secret again: competition and capitalism are opposites. If you didn’t already know it, you could discover it the natural, empirical way: do a quantitative study of corporate profits and you’ll see they’re eliminated by competition.

    Question to ask about secrets in business:
    What are people running companies not allowed to say?

    The above question was covered in Chapter 3.

    Secrets can be found where everyone else assumes that there are no more secrets. Human nutrition still has many long-standing myths that are still considered true. There are more secrets about nutrition than there are in astronomy and physics.
    Are there any fields that matter but haven’t been standardized and institutionalized?

    What To Do With Secrets
    First off, who do you let in on a secret you've discovered?
    Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know.

    So who do you tell? Whoever you need to, and no more. In practice, there’s always a golden mean between telling nobody and telling everybody - and that’s a company. The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.
     
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    Ch. 9 - Foundations

    Successful companies often get things right at the very beginning.

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

    Bad decisions made early on—if you choose the wrong partners or hire the wrong people, for example — are very hard to correct after they are made.


    Founding Matrimony
    The person you decide to start something with can make or break a venture early on. Luke Nosek, one of PayPal's co-founders, started a company with an MBA-type he met at a networking event. The relationship was not good and the company folded quickly before Luke went on to work in PayPal.
    Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce... if founders develop irreconcilable differences, the company becomes victim.

    Technical abilities and complementary skill sets matter, but how well the founders know each other and how well they work together matter just as much.

    Ownership, Possession and Control
    You need a team to build the type of company that can go from Zero to One, it's never a one-man operation. The roles of founders and early members have to be defined early on.

    Three simple but important 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?
    A typical startup allocates ownership among founders, employees and investors.


    To figure all this out will mean that a company will run smoothly. Distributing these functions, however, can cause misalignment. The most extreme example of misalignment is the DMV: a simple procedure of licensing vehicles becomes painful because of ineffective bureaucracy.

    Misalignment happens in major companies to the point that there is no room to innovate or to invest. Large companies can also reward short-term performance that may jeopardize overall durability.

    In startups, conflicts may arise in the board between investors and founders. Timing of an IPO is a common source of conflict.
    In the boardroom, less is more. The smaller the board, the easier it is for the directors to communicate, to reach consensus, and to exercise effective oversight … Choose wisely: every single member of your board matters. Even one problem director will cause you pain. And may even jeopardize your company's future.

    A huge board will exercise no effective oversight at all; it merely provides cover for whatever microdictator actually runs the organization. If you want that kind of free reign from your board, blow it up to giant size. If you want an effective board, keep it small.

    On The Bus or Off The Bus
    With the exception of accountants and lawyers, everyone should show up to work. No part-time employees, no remote working, and no consultants.
    As a general rule, everyone involved with your company should be involved full-time.

    Cash is Not King
    How much is a CEO is paid is important. If paid too much, a CEO will want to maintain the status quo instead of solving a company's problems aggressively and increasing a company's value. A CEO's pay will also set the standard for everyone else at the company.
    In no case should a CEO of an early stage, venture-backed startup receive more than $150,000 per year in salary.

    Cash is attractive. It offers pure optionality: once you get your paycheck, you can do anything you want with it. However, high cash compensation teaches workers to claim value from a company as it already exists instead of investing their time to create new value in the future … But even so-called incentive pay encourages short-term thinking and value grabbing. Any kind of cash is more about the present than the future.


    Vested Interests
    Having people be part-owners of a company from the beginning motivates them to create the company's future.

    Equity must be allocated carefully in order to avoid conflict and incentivize everyone.
    Giving everyone equal shares is usually a mistake: every individual has different talents and responsibilities as well as different opportunity costs, so equal amounts will seem arbitrary and unfair from the start. On the other hand, granting different amounts up front is just as sure to seem unfair. Resentment at this stage can kill the company, but there's no ownership formula to perfectly avoid it.

    The issue of fairness can be persistent throughout a company's growth. Early employees might have such a large amount of company ownership that they end up making more than later employees who add more value to the company.
    Founders would do well to keep details secret. Sending out a company email that lists everyone's ownership stake would be like dropping a nuclear bomb on your office.

    While equity isn't the perfect kind of incentive, it does keep everyone aligned with a founder's and/or the company's long-term vision.
    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.

    Extending the Foundation
    A company is founded only once, and things have to be done right at the beginning since it is an opportunity to set the rules so that value is created well into the company's distant future. In a poetic sense, the founding of the company isn't just its beginnings, the founding lasts as long as a company is creating value.


    Ch. 10 - The Mechanics of Mafia

    Silicon Valley is famous for the perks that come with working at the headquarters of the various companies there -- free massages, on-site sushi chefs. Of course, these perks are possible only because of the value and substance that was already there. Moreover, these things which make up "company culture"don't actually accomplish anything.
    "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.


    Beyond Professionalism
    In Peter Thiel's experience as a lawyer, he noticed that his co-workers rarely bonded outside the office. Paypal was different; it was a tight-knit group of people who cared for and supported each other and were excited to work together with a shared vision.
    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.

    Recruiting Conspirators

    Recruiting is extremely important for a growing company. It is something that should never be outsourced, especially in the early years. A good recruiter needs a good answer to this question:
    Why should the 20th employee join your company? Talented people don’t need to work for you; they have plenty of options. You should ask yourself a more pointed version of the question: Why would someone join your company as its 20th engineer when she could go work at Google for more money and more prestige?

    A good answer is unique and specific to every company. A good answer includes the company's mission and the team. You will also have to let the prospective employee know how he or she is fits in the company.
    You should be able to explain why your company is a unique match for him personally. And if you can’t do that, he’s probably not the right match.

    You’ll attract the employees you need if you can explain why your mission is compelling, why you’re doing something important that no one else is going to get done.

    No need to bring up silly perks like how pets are welcome.
    Just cover the basics like health insurance and then promise what no others can: the opportunity to do irreplaceable work on a unique problem alongside great people.


    What's Under Silicon Valley's Hoodies
    Silicon Valley is infamous for its style or lack thereof. Top engineers and coder often wear simple hoodies and t-shirts. But said t-shirts and hoodies often have the logos of the companies; it's their uniform.
    The startup uniform encapsulates a simple but essential principle: everyone at your company should be different in the same way—a tribe of like-minded people fiercely devoted to the company’s mission.

    Everyone in an early startup must share a philosophy and worldview.
    Most important, we (at Paypal) were all obsessed with creating a digital currency that would be controlled by individuals instead of governments. For the company to work, it didn’t matter what people looked like or which country they came from, but we needed every new hire to be equally obsessed.

    Do One Thing
    Every individual's responsibility should be distinguished from everyone else's. Role and job assignments aren't just about employees and their tasks, they're about the relationship between everyone working at the company.
    The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing.

    Defining roles reduces conflict. Most fights inside a company happen when colleagues compete for the same responsibilities.

    In order for a startup to survive, there must be a sense of peace between everyone working there. Strife within a company makes its susceptible to threats and conflict from outside.
    Internal conflict is like an autoimmune disease: the technical cause of death may be pneumonia, but the real cause remains hidden from plain view.

    Of Cults and Consultants
    The best kind of startups resemble cults if only for the obsession and dedication to the company's mission from everyone involved.
    The best startups might be considered slightly less extreme kinds of cults. The biggest difference is that cults tend to be fanatically wrong about something important. People at a successful startup are fanatically right about something those outside it have missed.
     
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    Ch. 11 - If You Build It, Will They Come?

    Sales and distribution is very important, even though engineers and other nerds often scoff at it. Without good marketing and distribution, it doesn't matter how awesome your product is. If it doesn't sell it might as well not exist. The film "Field of Dreams" lied to us.
    The Field of Dreams conceit is especially popular in Silicon Valley, where engineers are biased toward building cool stuff rather than selling it. But customers will not come just because you build it. You have to make that happen, and it’s harder than it looks.

    Nerds vs. Salesmen
    Nerds think they're immune to the power of advertising and sales, but they are not.
    Advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later.

    Nerds are used to a world of absolutes; that 2 + 2 = 4; something either works or it doesn't.
    Sales is the opposite: an orchestrated campaign to change surface appearances without changing the underlying reality.

    Nerds see what salespeople do, and assume that they're not doing real work.
    What nerds miss is that it takes hard work to make sales look easy.

    Sales is Hidden
    Sales is all about persuasion. The popular stereotype for salespeople are shady, obvious, fast-pitching, smooth-talking, used-car salesmen types. But the best salespeople, the grandmasters, hide their talents.
    Like acting, sales works best when hidden.

    People working sales hide behind job descriptions that don't allude to sales (account executives, business developers, and even investment bankers are professionals who sell companies).

    Sales is everywhere. Sales is all about putting things out there. These things can even be ideas and academic research.
    The most fundamental reason that even businesspeople underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.

    There is no such thing as a product that "sells itself."
    If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.


    How to Sell a Product
    A company can create a monopoly through superior sales and distribution.
    Two metrics set the limits for effective distribution. The total net profit that you earn on average over the course of 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 more a product costs, the more money has to be spent. It's worth the money however.

    Distribution methods can be plotted like so:
    [​IMG]

    Complex Sales
    A.k.a Enterprise Sales. This is for products that sell for millions of dollars. This is the realm of Elon Musk's SpaceX and Thiel's own Palantir. Every detail and step of the sales process requires special attention. A company could profit with just a few sales each year. Every sale is followed up with installation and other long-term services.

    Personal Sales
    For products within the price range of $10,000 to $100,000. This is where you assemble a salesforce in order to move the products to a large customer base.

    Distribution Doldrums
    This is known as a "Dead Zone" It's when you have something at a high price but not high enough to use salespeople. Advertising might not reach your target audience, and the target audience might not be willing to pay the price for a product in this price range.
    This is why so many small and medium-sized businesses don’t use tools that bigger firms take for granted. It’s not that small business proprietors are unusually backward or that good tools don’t exist: distribution is the hidden bottleneck.

    Marketing and Advertising
    This is where you see ads on television, print, and nowadays on social media and video streaming sites. This is to sell lower priced items like eyeglasses or laundry detergent.

    While some startups can afford TV commercials, they should resist the temptation to compete with large companies for memorable TV spots or PR stunts. During its PalmPilot days, PayPal hired James Doohan (Scotty from Star Trek) for a commercial. The commercial was a flop. Years later, Priceline hired William Shatner for their commercials and it was a hit.

    Viral Marketing
    The realm of social networks and online streaming videos.This is how Facebook and Paypal got started. This is when people share something with their network since every user leads to another user. And the more users, the better the product. PayPal began with 24 people and actually paid some initial users to use the service and to refer friends. This strategy worked and resulted in PayPal's exponential growth.
    Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market.

    The Power Law of Distribution
    To try and use every kind of marketing and sales method doesn't always work.
    Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. If you can get just one distribution channel to work, you have a great business. If you try for several but don’t nail one, you’re finished.

    Selling to Non-Customers
    You have to be able to sell your company to potential investors and employees.
    There is a “human resources” version of the lie that great products sell themselves: “This company is so good that people will be clamoring to join it.”

    A company needs a public relations strategy. The press can attract investors and employees.
    Selling your company to the media is a necessary part of selling it to everyone else.

    Nerds who instinctively mistrust the media often make the mistake of trying to ignore it.

    Any prospective employee worth hiring will do his own diligence; what he finds or doesn’t find when he googles you will be critical to the success of your company.



    Ch. 12 - Man and Machine


    There is a fear that computers and AI will replace most of human labor.
    But that premise is wrong: computers are complements for humans, not substitutes. The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.

    Substitution vs. Complementarity
    People fear that technology will replace workers, much in the same way Americans lost manufacturing jobs to Mexico.
    But the situations are very different: people compete for jobs and for resources; computers compete for neither.

    Globalization Means Substitutions
    People compete for labor. Free trade means that there's more competition for labor, and in the global marketplace, the supply of people willing to do repetitive tasks for small wages is large. People also compete for resources such as food, shelter, and fuel. As economies like China and India develop, there will be an even greater demand for these scarce resources.

    Technology Means Complementarity
    While computers can organize large amounts of data they have never been able to come up with plans or to make sense of and take decisive action on complicated problems.

    Computers are tools, not rivals.
    [​IMG]


    Computers don't compete for resources; all computers need is some electricity.

    Technology will be the key to escape competition in an ever-more globalized world.
    As computers become more and more powerful, they won’t be substitutes for humans: they’ll be complements.


    Complementary Businesses
    In 2000 as Paypal weathered the dotcom crash, it was losing millions to credit card fraud. Engineers at Paypal tried to automate a solution by studying the nature of fraudulent transactions. They were able to create software that spotted suspicious activity. It worked for a while, but thieves caught on quick. The next solution was a hybrid approach: have software spot any questionable transactions then have human analysts review them in detail. It worked, and because of this, PayPal had its first profitable quarter in 2002.

    Peter Thiel would use this same hybrid approach for Palantir, which went on to uncover terrorist networks, predict where insurgents planted IEDs in Afghanistan, take down the biggest child porn ring, and help banks and governments with high-level financial fraud detection.

    Palantir also solved and closed a gap left by intelligence agencies. The NSA relied almost solely on computers to analyze data, and the CIA relied almost solely on human spies for intelligence. Neither agencies had considered using a hybrid approach before Palantir.
    Advanced software made this possible, but even more important were the human analysts, prosecutors, scientists, and financial professionals without whose active engagement the software would have been useless.

    A large part of what doctors and lawyers do is communicate to people who are not in these professions. This is where computers will serve them.
    Better technology in law, medicine, and education won’t replace professionals; it will allow them to do even more.

    LinkedIn is currently used by most recruiters, but it doesn't replace them.

    The Ideology of Computer Science
    Academics and computer scientists are trying to find out how to make computers do small specialized tasks that humans can do.


    There is a huge interest in machine learning and big data. This is mostly because software can extract patterns through statistical analysis of various bits of information. This is how Netflix or Amazon automatically comes up with its recommendations.
    Today’s companies have an insatiable appetite for data, mistakenly believing that more data always creates more value. But big data is usually dumb data. Computers can find patterns that elude humans, but they don’t know how to compare patterns from different sources or how to interpret complex behaviors. Actionable insights can only come from a human analyst (or the kind of generalized artificial intelligence that exists only in science fiction).

    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?

    Ever-Smarter Computers: Friend or Foe?
    Some people are terrified that AI will become not only smarter than humans but also self-aware and therefore a threat to humans. AI at this level is called "strong AI." This is something that we won't have to worry about until the 22nd century or so.
    Technology is supposed to increase our mastery over nature and reduce the role of chance in our lives; building smarter-than-human computers could actually bring chance back with a vengeance.

    As we find new ways to use computers, they won't just get better at the kinds of things people already do; they'll help us to do what was previously unimaginable.
     
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    Ch. 13 - Seeing Green

    In the 21st century, there have been growing concerns about pollution and global warming. This created a need for clean, renewable sources of energy. Entrepreneurs and investors jumped on this growing demand for clean and alternative energy. The results were disastrous: in solar energy alone, 40 companies including Solyndra, MiaSole, SpectraWatt, Energy Innovations, Solaria, and Evergreen Solar abruptly went bankrupt almost as soon as they were started. This was another bubble: the cleantech bubble.

    Even though renewable energy is in high demand, many of these new companies made serious mistakes.

    Any company, no matter what industry, should be able to answer the following questions:

    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?
    Any great business plan must address every one of them … If you don’t have good answers to these questions, you’ll run into lots of “bad luck”.


    The Engineering Question
    Companies must have products that are 10x better than better than the closest substitutes. Many cleantech companies made only marginal improvements.

    The Timing Question
    The timing seemed to be perfect. But the truth is that these companies entered slow-moving markets with technology improving at a very slow pace. Solar cells for example started with 6% efficiency in 1954, and currently have improved to the point of 25% efficiency. Microprocessors on the other hand, have improved exponentially since their inception.
    Entering a slow-moving market can be a good strategy, but only if you have a definite and realistic plan to take it over. The failed cleantech companies had none.

    The Monopoly Question
    These new companies came in with a hope to capture a small percentage of a trillion-dollar energy market. As previously mentioned, that means ruthless competition and no profits. Every entrepreneur believed that his cleantech company had an edge. Moreover, these companies went in with expectations to capture a large market without dominating a small niche first before expanding.

    The People Question
    These cleantech companies were mostly started by pinstripe suit-wearing non-technical CEO types as opposed to the shirts and jeans-wearing nerds.
    At Founders Fund, we saw this coming. The most obvious clue was sartorial: cleantech executives were running around wearing suits and ties. This was a huge red flag, because real technologists wear T-shirts and jeans. So we instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings.

    The best sales is hidden. There's nothing wrong with a CEO who can sell, but if he actually looks like a salesman, he's probably bad at sales and worse at tech.


    The Distribution Question
    These cleantech companies were able to get investors and governments on board, but they never came up with a decent distribution plan.
    They learned the hard way that the world is not a laboratory: selling and delivering a product is at least as important as the product itself.

    The Durability Question
    Evergreen Solar filed for bankruptcy after it closed one of its factory due to competition from Solar manufacturers in China, which produced solar technology at much lower costs. The same thing happened to Energy Conversion Devices and Abound Energy, which was backed by the U.S. Department of Energy. This led to a huge $950 million lawsuit against Chinese manufacturers for attempted monopoly and predatory pricing.
    But was competition from Chinese manufacturers really impossible to predict? Cleantech entrepreneurs would have done well to rephrase the durability question and ask: what will stop China from wiping out my business? Without an answer, the result shouldn't have come as a surprise.

    Cleantech companies also didn't expect new developments in nonrenewable energy. The rise of fracking for natural gas led to gas prices dropping 70% since 2008, thus disrupting the business models for these cleantech companies and ultimately leading to their downfall.

    The Secret Question
    The fact that the world needs cleaner and renewable sources of energy is a conventional truth. This made it seem like there was an enormous business opportunity, but none of these companies uncovered anything unknown.
    Each of the casualties had described their bright futures using broad conventions on which everybody agreed. Great companies have secrets: specific reasons for success that other people don’t see.

    The Myth of Social Entrepreneurship
    These cleantech companies tried to be private for-profit corporations that pursued the public interest. They tried to be philanthropic like nonprofits, but make products that would earn them money; they aimed for the best of both worlds.

    If something is “socially good,” is it good for society, or merely seen as good by society? Whatever is good enough to receive applause from all audiences can only be conventional.

    Progress isn’t held back by some difference between corporate greed and nonprofit goodness; instead, we’re held back by the sameness of both. Just as corporations tend to copy each other, nonprofits all tend to push the same priorities. Cleantech shows the result: hundreds of undifferentiated products all in the name of one overbroad goal. Doing something different is what’s truly good for society—and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve.

    Tesla: 7 for 7


    Elon Musk's Tesla Motors Corporation was a cleantech company that survived the cleantech bubble and is a thriving business today. It answered all 7 questions:
    • Technology: The technology at Tesla is so good that it is used by other car companies like Daimler, Toyota, and General Motors. The Tesla cars themselves are very elegantly designed and work well.
    • Timing: Tesla secured a $465 million loan from the U.S. Department of Energy in January 2010 right before the cleantech bubble burst. Said government loan was only possible for that short period of time.
    • Monopoly: Tesla dominated the market for electric luxury sports cars. The first Roadster sold for $109,000 - about the same range as Mercedes, Porsche and Audi luxury sedans. Tesla now dominates both the electric sports car market and the luxury electric sedan market with its Model S.
    • Team: Elon Musk is both a great engineer and salesman as is the rest of the Tesla team.
    • Distribution: Tesla owns the entire distribution chain. It sells its vehicles at its own dealership, not unlike Apple. This gives Tesla complete control of the customer experience.
    • Durability: Tesla is now a bona fide and respected car company. It won their customers' trust and therefore has their loyalty for the foreseeable future.
    • Secrets: Those who could afford it didn't just want an environmentally-friendly car, they wanted one that was sleek and sexy.
    Tesla built a unique brand around the secret that cleantech was even more of a social phenomenon than an environmental imperative.

    Energy 2.0

    In spite of the cleantech bubble there is still very much a need for clean, renewable, alternative sources of energy. As countries like India and China continue to develop, there will be many more people seeking the same quality of life as in the Western World. This quality of life requires energy. Fossil fuels and other nonrenewable sources of energy will not be able to keep up with demand.

    No sector will ever be so important that merely participating in it will be enough to build a great company.

    Could successful energy startups be founded after the cleantech crash just as Web 2.0 startups successfully launched amid the debris of the dot-coms? The macro need for energy solutions is still real. But a valuable business must start by finding a niche and dominating a small market … Paradoxically, the challenge for the entrepreneurs who will create Energy 2.0 is to think small.
     
  9. Manchild_Unbound
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    Ch. 14 - The Founder's Paradox

    Many founders in Silicon Valley are eccentric, distinctive and unique. This includes the founding team of PayPal.

    The Difference Engine
    If you plot the differences between people—their strength or weakness, intelligence or lack thereof, whether they are an insider or outsider—can be plotted it on a graph and end up with a bell curve.

    [​IMG]



    When it comes to founders they have seemingly contradictory traits. They can be both outsiders and insiders, be both sullen jerks and charismatic, be enlightened yet cruel at the same time.
    [​IMG]

    These eccentric, contradictory traits in founders sometimes makes them famous. Sometimes it's even part of their personal brand.

    Where Kings Come From
    Founder figures with extreme and contradictory personalities are nothing new: this was true of Oedipus and Romulus and Remus. These kinds of people often became kings and this could work for or against them. During times of prosperity, these extreme figures were praised. During hard times, the general public placed all the blame them. Extreme founders often became scapegoats, and were often murdered. Today, in our supposedly more civilized society, modern kings are not scapegoats. At least not for the time being.


    American Royalty

    Entertainment celebrities are American royalty. American society builds them up only to bring them back down again. This was the case with Elvis Presley, Michael Jackson, and Britney Spears (even though she has gotten better).

    Technology founders, who are also celebrities in their own right, get the same treatment. They can be both worshipped and despised. This was the case with Howard Hughes.

    Bill Gates has gone through this. At one point, Microsoft was the largest company in the world and Bill gates the wealthiest in the world. The government got on Microsoft's case when the U.S. Department of Justice sued the company for anticompetitive conduct in June 2000. Bll gates stepped down as the CEO at this time, but because his attention was diverted towards legal battles, Microsoft entered a period of stagnation in his absence.

    The Return of The King
    Steve Jobs was eccentric and contradictory. Although he was a pot-smoking vegan hippie, he was also an effective leader at Apple. When he was kicked out in 1985, Apple went into a period of stagnation. When he came back to Apple in 1997, the company had lost $1 billion the year before and was facing bankruptcy. Even though Apple had talented engineers, they needed Jobs's vision and leadership.
    Apple’s value crucially depended on the singular vision of a particular person. This hints at the strange way in which the companies that create new technology often resemble feudal monarchies rather than organizations that are supposedly more “modern.” A unique founder can make authoritative decisions, inspire strong personal loyalty, and plan ahead for decades.


    The lesson for business is that we need founders. If anything, we should be more tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism.


    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 his company.


    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.
    And that's all there is to it.

    Once again:
    [​IMG]
    Amazon Link
     
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  11. The Abundant Man
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    This is bascally the entire book. Thanks for giving the book away for free! Very valuable
     

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