Five takeaways from Peter Thiel’s Zero to One: Notes on Startups, or How to Build the Future, as embodied by the following excerpts…
1. Thinking different:
“The most contrarian thing of all is not to oppose the crowd, but to think for yourself.”
2. Creating a durable monopoly:
“Monopolies usually share some combination of the following characteristics, which help them remain durable businesses”:
i. Proprietary technology: create something entirely new or make 10x improvements upon something preexisting (e.g. Amazon becoming the world’s largest bookstore with > 10x more books than Barnes & Noble)
ii. Network effects
iii. Economies of scale: business should get stronger as it grows, which should be inherent in its initial design
iv. Branding: become an icon identifiable with a small niche, then expand to other horizontals gradually; however, “you must study the endgame before everything else… A bad plan is better than no plan… [because the point of monopoly power is to] allow long term profits, this allows businesses to plan far into the future. Without a monopoly, companies’ thinking is always short term.”
3. Target market:
Startups should launch with direct sales to a small, concentrated user base to start a monopoly:
“Competitive markets destroy profits… Start small and monopolize…
“Every startup is small… Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market… it’s easier to dominate a small market…
“Rather than competing for the attention of a million scattered users… The perfect target market for a start-up is a small group of particular people concentrated in a group but served by few or no competitors.”
For example, after only 3 months of dedicated, direct selling, PayPal was able to service 25% of eBay’s most powerful users.
“The most valuable companies in the future will not ask what problems can be solved with computers alone, instead they’ll ask how can computers help humans solve hard problems.”
I call this “hybridity,” a combination of objective, data-driven, or automated computer processes and subjective, contextual, or discretionary human oversight.
5. The seven questions that every business must answer:
“Whatever your industry, every great business plan must address every one of them… even getting five or six correct might work”:
i. The Engineering Question: is this breakthrough technology? (see “Proprietary technology” above)
ii. The Timing Question: why is now the right time?
iii. The Monopoly Question: are you starting with a big share of a small market? (see “Target Market” above)
iii. The People Question: do you have the right team?
iv. The Distribution Question: do you have a way to market, distribute & deliver your product? Sales is the most important skill, without which there is no business.
v. The Durability Question: will company’s leadership position be defensible for 10 – 20 years? (see “Durable monopoly” above)
vi. The Secret Question: have you identified a unique opportunity that others don’t see? (i.e. “secret sauce”)
A more comprehensive synopsis can be found here: Book Notes
#Business #Startup #Management $EBAY #PayPal