By Peter Thiel, Blake Masters
Provocative thoughts and controversial ideas regarding Start-ups and technology. Although I do not agree with Peter Thiel all the time, I find his perspectives challenging and edifying.
This is a must for whoever is founding a tech start-up, and a great read for whoever is on an entrepreneurial project.
Amazon Page for details
My Rating: 8 / 10
Click Here to Read My Notes
Provocative thoughts and controversial ideas regarding Start-ups and technology. Although I do not agree with Peter Thiel all the time, I find his perspectives challenging and edifying.
This is a must for whoever is founding a tech start-up, and a great read for whoever is on an entrepreneurial project.
Amazon Page for details
My Rating: 8 / 10
Click Here to Read My Notes
The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.
Today’s “best practices” lead to dead ends; the best paths are new and untried.
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.
“What important truth do very few people agree with you on?
“Most people believe in x, but the truth is the opposite of x.
In a world of scarce resources, globalization without new technology is unsustainable.
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.
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.
If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.
The first step to thinking clearly is to question what we think we know about the past.
Everyone learned to treat the future as fundamentally indefinite, and to dismiss as an extremist anyone with plans big enough to be measured in years instead of quarters.
Globalization replaced technology as the hope for the future. Since the ’90s migration “from bricks to clicks” didn’t work as hoped, investors went back to bricks (housing) and BRICs (globalization). The result was another bubble, this time in real estate.
To build the next generation of companies, we must abandon the dogmas created after the crash.
Instead ask yourself: 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.
Creating value is not enough—you also need to capture some of the value you create.
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. So why do people believe that competition is healthy?
More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking.
For the privilege of being turned into conformists, students (or their families) pay hundreds of thousands of dollars in skyrocketing tuition that continues to outpace inflation. Why are we doing this to ourselves?
Why do people compete with each other? Marx and Shakespeare provide two models for understanding almost every kind of conflict.
According to Marx, people fight because they are different. The proletariat fights the bourgeoisie because they have completely different ideas and goals (generated, for Marx, by their very different material circumstances). The greater the differences, the greater the conflict.
The hazards of imitative competition may partially explain why individuals with an Asperger’s-like social ineptitude seem to be at an advantage in Silicon Valley today. If you’re less sensitive to social cues, you’re less likely to do the same things as everyone else around you.
Simply stated, the value of a business today is the sum of all the money it will make in the future.
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.
Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.
As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
Or you can radically improve an existing solution: once you’re 10x better, you escape competition. PayPal, for instance, made buying and selling on eBay at least 10 times better.
You can also make a 10x improvement through superior integrated design.
Then Apple released the iPad. Design improvements are hard to measure, but it seems clear that Apple improved on anything that had come before by at least an order of magnitude: tablets went from unusable to useful.
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.
Software startups can enjoy especially dramatic economies of scale because the marginal cost of producing another copy of the product is close to zero.
Many businesses gain only limited advantages as they grow to large scale. Service businesses especially are difficult to make monopolies.
A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly.
But the big question is what products Yahoo! will actually create. When Steve Jobs returned to Apple, he didn’t just make Apple a cool place to work; he slashed product lines to focus on the handful of opportunities for 10x improvements. No technology company can be built on branding alone.
The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
Silicon Valley has become obsessed with “disruption.” Originally, “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices, improve the product over time, and eventually overtake even the premium products offered by incumbent companies using older technology.
The concept was coined to describe threats to incumbent companies, so startups’ obsession with disruption means they see themselves through older firms’ eyes.
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.
As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you. 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.
In this one particular at least, business is like chess. Grandmaster José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.
Every company starts in unique circumstances, and every company starts only once. Statistics doesn’t work when the sample size is one.
From the Renaissance and the Enlightenment to the mid-20th century, luck was something to be mastered, dominated, and controlled; everyone agreed that you should do what you could, not focus on what you could not.
Ralph Waldo Emerson captured this ethos when he wrote: “Shallow men believe in luck, believe in circumstances.… Strong men believe in cause and effect.
Process trumps substance: when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options.
A definite view, by contrast, favors firm convictions. 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.
Today a grand plan coming from a schoolteacher would be dismissed as crankery, and a long-range vision coming from anyone more powerful would be derided as hubris.
In the 1950s, Americans thought big plans for the future were too important to be left to experts.
To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely.
The rest of their generation was left behind, but the wealthy Boomers who shape public opinion today see little reason to question their naïve optimism. Since tracked careers worked for them, they can’t imagine that they won’t work for their kids, too.
When Baby Boomers grow up and write books to explain why one or another individual is successful, they point to the power of a particular individual’s context as determined by chance. 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.
Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth.
Only in a definite future is money a means to an end, not the end itself.
We are more fascinated today by statistical predictions of what the country will be thinking in a few weeks’ time than by visionary predictions of what the country will look like 10 or 20 years from now.
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.
Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.
But the most important lesson to learn from Jobs has nothing to do with aesthetics. The greatest thing Jobs designed was his business.
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.
We have to find our way back to a definite future, and the Western world needs nothing short of a cultural revolution to do it.
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.
And monopoly businesses capture more value than millions of undifferentiated competitors.
we don’t live in a normal world; we live under a power law.
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.
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.
First, only invest in companies that have the potential to return the value of the entire fund.
because rule number one is so restrictive, there can’t be any other rules.
VCs must find the handful of companies that will successfully go from 0 to 1 and then back them with every resource.
At Founders Fund, we focus on five to seven companies in a fund, each of which we think could become a multibillion-dollar business based on its unique fundamentals.
If even investors specializing in exponentially growing startups miss the power law, it’s not surprising that most everyone else misses it, too.
The power law is not just important to investors; rather, it’s important to everybody because everybody is an investor.
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.
If there are many secrets left in the world, there are probably many world-changing companies yet to be started. This chapter will help you think about secrets and how to find them.
Kaczynski argued that modern people are depressed because all the world’s hard problems have already been solved. What’s left to do is either easy or impossible, and pursuing those tasks is deeply unsatisfying.
Kaczynski’s methods were crazy, but his loss of faith in the technological frontier is all around us.
Second is risk aversion. People are scared of secrets because they are scared of being wrong.
the world is “flat.” Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself: 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? This voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique.
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.
In economics, disbelief in secrets leads to faith in efficient markets. But the existence of financial bubbles shows that markets can have extraordinary inefficiencies.
You can’t find secrets without looking for them.
If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth.
The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers.
But we will never learn any of these secrets unless we demand to know them and force ourselves to look.
There are two kinds of secrets: secrets of nature and secrets about people.
Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world.
Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know.
So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?
Secrets about people are relatively underappreciated. Maybe that’s because you don’t need a dozen years of higher education to ask the questions that uncover them: What are people not allowed to talk about? What is forbidden or taboo?
You would notice that monopolists downplay their monopoly status to avoid scrutiny, while competitive firms strategically exaggerate their uniqueness. The differences between firms only seem small on the surface; in fact, they are enormous.
There’s plenty more to learn: we know more about the physics of faraway stars than we know about human nutrition. It won’t be easy, but it’s not obviously impossible: exactly the kind of field that could yield secrets.
Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know.
The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside.
If a CEO collects $300,000 per year, he risks becoming more like a politician than a founder. High pay incentivizes him to defend the status quo along with his salary, not to work with everyone else to surface problems and fix them aggressively.
A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole.
However, high cash compensation teaches workers to claim value from the company as it already exists instead of investing their time to create new value in the future.
Any kind of cash is more about the present than the future.
Equity is the one form of compensation that can effectively orient people toward creating value in the future.
Bob Dylan has said that he who is not busy being born is busy dying.
only at the very start do you have the opportunity to set the rules that will align people toward the creation of value in the future.
This leads to a second, less obvious understanding of the founding: it lasts as long as a company is creating new things, and it ends when creation stops.
Why work with a group of people who don’t even like each other? Many seem to think it’s a sacrifice necessary for making money. But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational.
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.
So we set out to hire people who would actually enjoy working together. They had to be talented, but even more than that they had to be excited about working specifically with us.
You probably can’t be the Google of 2014 in terms of compensation or perks, but you can be like the Google of 1999 if you already have good answers about your mission and team.
The early PayPal team worked well together because we were all the same kind of nerd. We all loved science fiction: Cryptonomicon was required reading, and we preferred the capitalist Star Wars to the communist Star Trek.
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.
But entrepreneurs should take cultures of extreme dedication seriously.
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.
The geek classic The Hitchhiker’s Guide to the Galaxy even explains the founding of our planet as a reaction against salesmen.
Distribution may not matter in fictional worlds, but it matters in ours. We underestimate the importance of distribution—a catchall term for everything it takes to sell a product
But advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later.
What nerds miss is that it takes hard work to make sales look easy.
All salesmen are actors: their priority is persuasion, not sincerity. That’s why the word “salesman” can be a slur and the used car dealer is our archetype of shadiness.
People who sell advertising are called “account executives.” People who sell customers work in “business development.” People who sell companies are “investment bankers.” And people who sell themselves are called “politicians”
There’s a reason for these redescriptions: none of us wants to be reminded when we’re being sold.
The engineer’s grail is a product great enough that “it sells itself.” But anyone who would actually say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling something (and thereby contradicting himself).
The polar opposite business cliché warns that “the best product doesn’t always win.
Economists attribute this to “path dependence”: specific historical circumstances independent of objective quality can determine which products enjoy widespread adoption.
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.
Superior sales and distribution by itself can create a monopoly, even with no product differentiation.
Advertising can work for startups, too, but only when your customer acquisition costs and customer lifetime value make every other distribution channel uneconomical.
A product is viral if its core functionality encourages users to invite their friends to become users too.
You must also sell your company to employees and investors.
Selling your company to the media is a necessary part of selling it to everyone else.
Even if your particular product doesn’t need media exposure to acquire customers because you have a viral distribution strategy, the press can help attract investors and employees.
Everybody has a product to sell—no matter whether you’re an employee, a founder, or an investor.
Dale Earnhardt Jr. needn’t feel threatened by them, but the Guardian worries (on behalf of the millions of chauffeurs and cabbies in the world) that self-driving cars “could drive the next wave of unemployment.
“Software is eating the world,” venture capitalist Marc Andreessen has announced with a tone of inevitability.
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.
When a cheap laptop beats the smartest mathematicians at some tasks but even a supercomputer with 16,000 CPUs can’t beat a child at others, you can tell that humans and computers are not just more or less powerful than each other—they’re categorically different.
Properly understood, technology is the one way for us to escape competition in a globalizing world.
Complementarity between computers and humans isn’t just a macro-scale fact. It’s also the path to building a great business.
I continued to think about this after we sold PayPal in 2002: if humans and computers together could achieve dramatically better results than either could attain alone, what other valuable businesses could be built on this core principle?
Better technology in law, medicine, and education won’t replace professionals; it will allow them to do even more.
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?
replacement by computers is a worry for the 22nd century.
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?
Whatever your industry, 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” and your business will fail. If you nail all seven, you’ll master fortune and succeed.
A great technology company should have proprietary technology an order of magnitude better than its nearest substitute.
Companies must strive for 10x better because merely incremental improvements often end up meaning no improvement at all for the end user.
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.
Great companies have secrets: specific reasons for success that other people don’t see.
Whatever is good enough to receive applause from all audiences can only be conventional, like the general idea of green energy.
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.
There simply aren’t enough resources in the world to replicate old approaches or redistribute our way to prosperity.
The macro need for energy solutions is still real. But a valuable business must start by finding a niche and dominating a small market.
Are all founders unusual people? Or do we just tend to remember and exaggerate whatever is most unusual about them? More important, which personal traits actually matter in a founder?
The most famous people in the world are founders, too: instead of a company, every celebrity founds and cultivates a personal brand.
That year Peter Jennings could plausibly ask, “Who is more important in the world today: Bill Clinton or Bill Gates? I don’t know. It’s a good question.” The U.S. Department of Justice didn’t limit itself to rhetorical questions; they opened an investigation and sued Microsoft for “anticompetitive conduct.” In June 2000 a court ordered that Microsoft be broken apart. Gates had stepped down as CEO of Microsoft six months earlier, having been forced to spend most of his time responding to legal threats instead of building new technology. A court of appeals later overturned the breakup order, and Microsoft reached a settlement with the government in 2001. But by then Gates’s enemies had already deprived his company of the full engagement of its founder, and Microsoft entered an era of relative stagnation. Today Gates is better known as a philanthropist than a technologist.
Jobs’s return to Apple 12 years later shows how the most important task in business—the creation of new value—cannot be reduced to a formula and applied by professionals.
Apple’s value crucially depended on the singular vision of a particular person.
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.
The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.
Our task today is to find singular ways to create the new things that will make the future not just different, but better—to go from 0 to 1. The essential first step is to think for yourself.
Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.
Today’s “best practices” lead to dead ends; the best paths are new and untried.
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.
“What important truth do very few people agree with you on?
“Most people believe in x, but the truth is the opposite of x.
In a world of scarce resources, globalization without new technology is unsustainable.
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.
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.
If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.
The first step to thinking clearly is to question what we think we know about the past.
Everyone learned to treat the future as fundamentally indefinite, and to dismiss as an extremist anyone with plans big enough to be measured in years instead of quarters.
Globalization replaced technology as the hope for the future. Since the ’90s migration “from bricks to clicks” didn’t work as hoped, investors went back to bricks (housing) and BRICs (globalization). The result was another bubble, this time in real estate.
To build the next generation of companies, we must abandon the dogmas created after the crash.
Instead ask yourself: 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.
Creating value is not enough—you also need to capture some of the value you create.
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. So why do people believe that competition is healthy?
More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking.
For the privilege of being turned into conformists, students (or their families) pay hundreds of thousands of dollars in skyrocketing tuition that continues to outpace inflation. Why are we doing this to ourselves?
Why do people compete with each other? Marx and Shakespeare provide two models for understanding almost every kind of conflict.
According to Marx, people fight because they are different. The proletariat fights the bourgeoisie because they have completely different ideas and goals (generated, for Marx, by their very different material circumstances). The greater the differences, the greater the conflict.
The hazards of imitative competition may partially explain why individuals with an Asperger’s-like social ineptitude seem to be at an advantage in Silicon Valley today. If you’re less sensitive to social cues, you’re less likely to do the same things as everyone else around you.
Simply stated, the value of a business today is the sum of all the money it will make in the future.
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.
Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.
As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
Or you can radically improve an existing solution: once you’re 10x better, you escape competition. PayPal, for instance, made buying and selling on eBay at least 10 times better.
You can also make a 10x improvement through superior integrated design.
Then Apple released the iPad. Design improvements are hard to measure, but it seems clear that Apple improved on anything that had come before by at least an order of magnitude: tablets went from unusable to useful.
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.
Software startups can enjoy especially dramatic economies of scale because the marginal cost of producing another copy of the product is close to zero.
Many businesses gain only limited advantages as they grow to large scale. Service businesses especially are difficult to make monopolies.
A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly.
But the big question is what products Yahoo! will actually create. When Steve Jobs returned to Apple, he didn’t just make Apple a cool place to work; he slashed product lines to focus on the handful of opportunities for 10x improvements. No technology company can be built on branding alone.
The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
Silicon Valley has become obsessed with “disruption.” Originally, “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices, improve the product over time, and eventually overtake even the premium products offered by incumbent companies using older technology.
The concept was coined to describe threats to incumbent companies, so startups’ obsession with disruption means they see themselves through older firms’ eyes.
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.
As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you. 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.
In this one particular at least, business is like chess. Grandmaster José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.
Every company starts in unique circumstances, and every company starts only once. Statistics doesn’t work when the sample size is one.
From the Renaissance and the Enlightenment to the mid-20th century, luck was something to be mastered, dominated, and controlled; everyone agreed that you should do what you could, not focus on what you could not.
Ralph Waldo Emerson captured this ethos when he wrote: “Shallow men believe in luck, believe in circumstances.… Strong men believe in cause and effect.
Process trumps substance: when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options.
A definite view, by contrast, favors firm convictions. 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.
Today a grand plan coming from a schoolteacher would be dismissed as crankery, and a long-range vision coming from anyone more powerful would be derided as hubris.
In the 1950s, Americans thought big plans for the future were too important to be left to experts.
To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely.
The rest of their generation was left behind, but the wealthy Boomers who shape public opinion today see little reason to question their naïve optimism. Since tracked careers worked for them, they can’t imagine that they won’t work for their kids, too.
When Baby Boomers grow up and write books to explain why one or another individual is successful, they point to the power of a particular individual’s context as determined by chance. 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.
Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth.
Only in a definite future is money a means to an end, not the end itself.
We are more fascinated today by statistical predictions of what the country will be thinking in a few weeks’ time than by visionary predictions of what the country will look like 10 or 20 years from now.
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.
Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.
But the most important lesson to learn from Jobs has nothing to do with aesthetics. The greatest thing Jobs designed was his business.
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.
We have to find our way back to a definite future, and the Western world needs nothing short of a cultural revolution to do it.
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.
And monopoly businesses capture more value than millions of undifferentiated competitors.
we don’t live in a normal world; we live under a power law.
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.
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.
First, only invest in companies that have the potential to return the value of the entire fund.
because rule number one is so restrictive, there can’t be any other rules.
VCs must find the handful of companies that will successfully go from 0 to 1 and then back them with every resource.
At Founders Fund, we focus on five to seven companies in a fund, each of which we think could become a multibillion-dollar business based on its unique fundamentals.
If even investors specializing in exponentially growing startups miss the power law, it’s not surprising that most everyone else misses it, too.
The power law is not just important to investors; rather, it’s important to everybody because everybody is an investor.
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.
If there are many secrets left in the world, there are probably many world-changing companies yet to be started. This chapter will help you think about secrets and how to find them.
Kaczynski argued that modern people are depressed because all the world’s hard problems have already been solved. What’s left to do is either easy or impossible, and pursuing those tasks is deeply unsatisfying.
Kaczynski’s methods were crazy, but his loss of faith in the technological frontier is all around us.
Second is risk aversion. People are scared of secrets because they are scared of being wrong.
the world is “flat.” Given that assumption, anyone who might have had the ambition to look for a secret will first ask himself: 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? This voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique.
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.
In economics, disbelief in secrets leads to faith in efficient markets. But the existence of financial bubbles shows that markets can have extraordinary inefficiencies.
You can’t find secrets without looking for them.
If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth.
The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers.
But we will never learn any of these secrets unless we demand to know them and force ourselves to look.
There are two kinds of secrets: secrets of nature and secrets about people.
Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world.
Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know.
So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?
Secrets about people are relatively underappreciated. Maybe that’s because you don’t need a dozen years of higher education to ask the questions that uncover them: What are people not allowed to talk about? What is forbidden or taboo?
You would notice that monopolists downplay their monopoly status to avoid scrutiny, while competitive firms strategically exaggerate their uniqueness. The differences between firms only seem small on the surface; in fact, they are enormous.
There’s plenty more to learn: we know more about the physics of faraway stars than we know about human nutrition. It won’t be easy, but it’s not obviously impossible: exactly the kind of field that could yield secrets.
Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know.
The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside.
If a CEO collects $300,000 per year, he risks becoming more like a politician than a founder. High pay incentivizes him to defend the status quo along with his salary, not to work with everyone else to surface problems and fix them aggressively.
A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole.
However, high cash compensation teaches workers to claim value from the company as it already exists instead of investing their time to create new value in the future.
Any kind of cash is more about the present than the future.
Equity is the one form of compensation that can effectively orient people toward creating value in the future.
Bob Dylan has said that he who is not busy being born is busy dying.
only at the very start do you have the opportunity to set the rules that will align people toward the creation of value in the future.
This leads to a second, less obvious understanding of the founding: it lasts as long as a company is creating new things, and it ends when creation stops.
Why work with a group of people who don’t even like each other? Many seem to think it’s a sacrifice necessary for making money. But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational.
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.
So we set out to hire people who would actually enjoy working together. They had to be talented, but even more than that they had to be excited about working specifically with us.
You probably can’t be the Google of 2014 in terms of compensation or perks, but you can be like the Google of 1999 if you already have good answers about your mission and team.
The early PayPal team worked well together because we were all the same kind of nerd. We all loved science fiction: Cryptonomicon was required reading, and we preferred the capitalist Star Wars to the communist Star Trek.
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.
But entrepreneurs should take cultures of extreme dedication seriously.
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.
The geek classic The Hitchhiker’s Guide to the Galaxy even explains the founding of our planet as a reaction against salesmen.
Distribution may not matter in fictional worlds, but it matters in ours. We underestimate the importance of distribution—a catchall term for everything it takes to sell a product
But advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later.
What nerds miss is that it takes hard work to make sales look easy.
All salesmen are actors: their priority is persuasion, not sincerity. That’s why the word “salesman” can be a slur and the used car dealer is our archetype of shadiness.
People who sell advertising are called “account executives.” People who sell customers work in “business development.” People who sell companies are “investment bankers.” And people who sell themselves are called “politicians”
There’s a reason for these redescriptions: none of us wants to be reminded when we’re being sold.
The engineer’s grail is a product great enough that “it sells itself.” But anyone who would actually say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling something (and thereby contradicting himself).
The polar opposite business cliché warns that “the best product doesn’t always win.
Economists attribute this to “path dependence”: specific historical circumstances independent of objective quality can determine which products enjoy widespread adoption.
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.
Superior sales and distribution by itself can create a monopoly, even with no product differentiation.
Advertising can work for startups, too, but only when your customer acquisition costs and customer lifetime value make every other distribution channel uneconomical.
A product is viral if its core functionality encourages users to invite their friends to become users too.
You must also sell your company to employees and investors.
Selling your company to the media is a necessary part of selling it to everyone else.
Even if your particular product doesn’t need media exposure to acquire customers because you have a viral distribution strategy, the press can help attract investors and employees.
Everybody has a product to sell—no matter whether you’re an employee, a founder, or an investor.
Dale Earnhardt Jr. needn’t feel threatened by them, but the Guardian worries (on behalf of the millions of chauffeurs and cabbies in the world) that self-driving cars “could drive the next wave of unemployment.
“Software is eating the world,” venture capitalist Marc Andreessen has announced with a tone of inevitability.
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.
When a cheap laptop beats the smartest mathematicians at some tasks but even a supercomputer with 16,000 CPUs can’t beat a child at others, you can tell that humans and computers are not just more or less powerful than each other—they’re categorically different.
Properly understood, technology is the one way for us to escape competition in a globalizing world.
Complementarity between computers and humans isn’t just a macro-scale fact. It’s also the path to building a great business.
I continued to think about this after we sold PayPal in 2002: if humans and computers together could achieve dramatically better results than either could attain alone, what other valuable businesses could be built on this core principle?
Better technology in law, medicine, and education won’t replace professionals; it will allow them to do even more.
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?
replacement by computers is a worry for the 22nd century.
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?
Whatever your industry, 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” and your business will fail. If you nail all seven, you’ll master fortune and succeed.
A great technology company should have proprietary technology an order of magnitude better than its nearest substitute.
Companies must strive for 10x better because merely incremental improvements often end up meaning no improvement at all for the end user.
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.
Great companies have secrets: specific reasons for success that other people don’t see.
Whatever is good enough to receive applause from all audiences can only be conventional, like the general idea of green energy.
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.
There simply aren’t enough resources in the world to replicate old approaches or redistribute our way to prosperity.
The macro need for energy solutions is still real. But a valuable business must start by finding a niche and dominating a small market.
Are all founders unusual people? Or do we just tend to remember and exaggerate whatever is most unusual about them? More important, which personal traits actually matter in a founder?
The most famous people in the world are founders, too: instead of a company, every celebrity founds and cultivates a personal brand.
That year Peter Jennings could plausibly ask, “Who is more important in the world today: Bill Clinton or Bill Gates? I don’t know. It’s a good question.” The U.S. Department of Justice didn’t limit itself to rhetorical questions; they opened an investigation and sued Microsoft for “anticompetitive conduct.” In June 2000 a court ordered that Microsoft be broken apart. Gates had stepped down as CEO of Microsoft six months earlier, having been forced to spend most of his time responding to legal threats instead of building new technology. A court of appeals later overturned the breakup order, and Microsoft reached a settlement with the government in 2001. But by then Gates’s enemies had already deprived his company of the full engagement of its founder, and Microsoft entered an era of relative stagnation. Today Gates is better known as a philanthropist than a technologist.
Jobs’s return to Apple 12 years later shows how the most important task in business—the creation of new value—cannot be reduced to a formula and applied by professionals.
Apple’s value crucially depended on the singular vision of a particular person.
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.
The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.
Our task today is to find singular ways to create the new things that will make the future not just different, but better—to go from 0 to 1. The essential first step is to think for yourself.
Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.