Diary of a Financier

Bookshelf update: Zero to One

In Bookshelf on Tue 13 Jan 2015 at 06:25

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.

4. “Complementarity”:

“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”)

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A more comprehensive synopsis can be found here: Book Notes

–Romeo

#Business #Startup #Management $EBAY #PayPal

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  1. […] is the case for Peter Thiel’s “durable monopoly” and Jeff Bezos’ “your job is to kill your own business.”  I wonder how […]

  2. […] Previously: Andreessen on product/market fit; Avoid the product trap […]

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