Thiel Asks the question: What Important Truth do very few people agree with you on?
Going Zero to One
The next Bill Gates or Mark Zuckerberg won’t make the next Microsoft or Facebook
“Today’s best practices will lead to dead ends”
What valuable company is nobody building?
- Creating value is not enough. You need to capture the value you create.
- Google creates less value, yet captures more
- Airline create a lot of value yet capture very little.
- Google is worth 3x the all of the airlines combined. The reason. Google stands along (perfect competition and monopoly).
Google is a very capitalistic company
- They’ve done this without competition. They beat out Microsoft and yahoo in around 2002.
Failure Usually Gets you no where
- People don’t learn from failure the way pop culture suggests.
- Most of the time people don’t even understand how or why they failed.
We Innovate Ourselves out of Problems
- Innovation is going to lead us in an increasingly globalized economy.
Deliver 10X Value and be 10X better than your competition
- Instead of hoping for a 10% improvement over your competition. To stick out you need to be 10X better.
When Starting Out Copy More:
If you purely innovate you take a huge amount of risk. If you stand on the shoulders of giants who have done similar things your path is already created. When you start out just practice copying others.
Start Small and Monopolize:
Every start-up should start with a small market
- You can never start to small
- If you think your market is too big, it definitely is.
- Zuckerberg started at Harvard and Harvard only. He first aimed at the cool people who he knew would spread it. Then he moved to other Universities and stayed at the University level. Everyone wanted an .edu address.
- Sam Walton Started extremely small that he was able to penetrate the larger companies and learn more.
Big Idea 1: Founders should aim to create monopolies.
• Because a business’ current value is the sum of its discounted future profits, the businesses that maximize long-term profits are the most valuable.
• competition increases costs.
• So, to maximize profits and minimize costs, a startup should prohibit competitors from developing.
• In other words, founders should build monopolies.
Four attributes characterize monopolies.
1. Proprietary technology.
Google has a proprietary search algorithm which makes it the best in the world. It was the first search algorithm that was 10X better than everything else out there.
2. Network effects that enable the business to grow faster as it scales.
Facebook spread because of the network effect. It was viral and allowed people to create communities where they could be social.
3. Economies of scale which reduce the costs of growth over time.
Software companies can make future versions of their product and distribute it at ever decreasing prices.
4. A brand. All of these elements create barriers to entry that defend the future profits of the startup and reinforce monopoly power.
People are loyal to brands. Brands create comfort. A good business allows people to be comfortable.
Big Idea 2: Disruption is the wrong mind-set.
•Today’s mantra of disrupting industries focuses startups on existing competitive markets.
•Competitive markets reduce profits to zero.
• Most disruptive companies are better, faster, and cheaper versions of incumbents’ products.
•Without a fundamental cost advantage, a cheaper product is a less profitable product. Consequently, the disruptive company offering the product is less valuable. Instead of disrupting, founders should be focused on creating new markets and technologies where none exist.
Big Idea 3: The four lessons we learnt from the dot-com era are wrong.
The turbulence of the dot-com era engendered a more conservative startup development philosophy: the Lean Startup. Thiel argues the major concepts of Lean Startup don’t create the most valuable types of companies and monopolies. Really he’s encouraging us to think bigger.
1.LS Make incremental advances :PT Incremental advances don’t lead to defensible technology. BA your technology or product needs to be 10X better than all previous generations.
2.LS Stay lean and flexible :PT A bad plan is better than no plan. BA Create a Plan even if it takes you a long time.
3.LS Improve on the competition :PT Competitive markets destroy profits. BA Dating Websites compete with each other and erode profits.
4.LS Focus on product, not sales :PT Superior sales and distribution can create monopoly, even without product differentiation. The converse is not true. BA The Amazon Effect