Review

A contrarian author makes for a great book. He challenges conventional wisdom in places and offers a unique perspective on how to create a successful company. The central thesis is compelling, encouraging entrepreneurs to focus on building a monopoly by dominating a specific niche and scaling to adjacent markets. I think the Cold Start Problem linked below does a great job of building on this concept.

I also enjoyed his 7 questions that every company must answer. I’ve seen folks consistently undervalue distribution in my career, and believe the focus on that is justified too.

Zero to one provides valuable insights for any product manager looking to create a successful and sustainable company.

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The Innovator’s Dilemma

This book is a product management classic. A great framework for how disruptive technologies change market dynamics. It’s full of great insight for challengers and incumbents. The book is clearly well researched. The conclusions are both surprising and straight forward. A must for anyone trying to innovate and break into a market. Well worth the time.

andrewclark.co.uk

The Crux

I’m predicting this book will become a business classic. It is one of the best books on business strategy that I’ve come across. Good Strategy/Bad Strategy (it’s predecessor) had me agreeing with the theory, but I was left wondering how to put it into action. This book addresses that and gives you a framework to follow to create your strategy. This book can stand alone, so I’ll be recommending this ahead of Good Strategy/Bad Strategy from now on.

andrewclark.co.uk

Book Review and Summary: The Cold Start Problem by Andrew Chen

Get a comprehensive review and summary of the best-selling book "The Cold Start Problem" by Andrew Chen, the growth and product development expert. Learn about the key principles and practices for driving user acquisition and retention in the early stages of a product's lifecycle.

andrewclark.co.uk

Key Takeaways

The 20% that gave me 80% of the value.

• What important truth do very few people agree with you on
• Vertical progress, going from 0 to 1, requires doing something nobody else has ever done
• In a world of scarce resources, globalisation without new technology is unsustainable.
• A startup is the largest group of people you can convince of a plan to build a different future.

• It is better to risk boldness than triviality
• A bad plan is better than no plan
• Competitive markets destroy profits
• Sales matters just as much as product
• The most contrarian thing of all is not to oppose the crowd but to think for yourself

• What valuable company is nobody building?
• You need to create AND capture value
• Under perfect competition, in the long run no company makes an economic profit.
• A monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximises its profits.
• Monopolists conceal their monopoly by exaggerating the power of their (nonexistent) competition, and say their part of a larger market to make themselves look small
• Non-monopolists tell the opposite lie: exaggerate their distinction by defining their market as the intersection of various smaller markets
• Monopolists can afford to think about things other than making money; non-monopolists can’t. Monopoly profits are the only way to transcend the daily struggle for survival
• Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate.
• Monopolies can keep innovating with profits and finance ambitious projects that firms locked in competition couldn’t
• If your industry is in a competitive equilibrium, the death of your business won’t matter to the world; some other undifferentiated competitor will always be ready to take your place.
• Monopoly is the condition of every successful business.
• 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

• A creative monopoly → means new products that benefit people and provide stable profits for the creator
• Competition → means no profits, no meaningful differentiation, and a struggle for survival
• the more we compete, the less we gain
• Our education system trains us to compete → get locked into competition to become management consultants or investment bankers
• If you can’t beat a rival, it may be better to merge

• For a company to be valuable it must grow AND endure
• The value of a business is the sum of all the money it will make in the future
• but many entrepreneurs focus only on short-term growth
• Growth is easy to measure, but durability isn’t
• Don’t succumb to measurement mania and obsess about weekly active user statistics, monthly revenue targets, and quarterly earnings reports
• Look for deeper, harder-to-measure problems that threaten the durability of your business
• Focus on near-term growth and you miss the most important question:
• Will this business still be around a decade from now?
• Monopolies usually share some combination of the following characteristics:
1. Proprietary Technology (Tech): makes your product difficult or impossible to replicate, must be at least 10 times better than its closest substitute in some important dimension
2. Network Effects: make a product more useful as more people use iT. Network effect businesses must start with especially small markets.
3. Economies of Scale (Scale): fixed costs of creating a product (engineering, management) can be spread out over ever greater quantities of sales. Software startups enjoy dramatic economies of scale because the marginal cost of producing another copy of the product is zero
4. Branding (Brand). Polishing the surface doesn’t work without a strong underlying substance.

• Building a monopoly
• A combination of brand, scale, network effects, and technology in some combination define a monopoly → but in the beginning you need to choose your market carefully and expand deliberately at the start
• Start small with a small market and monopolise it. 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.
• Scaling Up. Once you create and dominate a niche market → gradually expand into related and slightly broader markets.
• Sequencing markets correctly is underrated, and it takes discipline to expand gradually
• First dominate a specific niche
• Then scale to adjacent markets
• Don’t Disrupt. The act of creation is far more important. Disruption also attracts attention → don’t pick fights you can’t win. As you expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
• The last will be first. Generating cash flows in the future is what matters. Being the first mover isn’t valuable if you’re unseated. Be the last mover → enjoy years or even decades of monopoly profits. Dominate a small niche and scale up from there → study the endgame before everything else.

Success is never accidental Jack Dorsey

• From 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 couldn’t.
• In an indefinite world, people actually prefer unlimited optionality; money is more valuable than anything you could possibly do with it.
• Thiel is not a fan of the lean startup approach: nothing can be known in advance, so listen to what customers say they want, make an MVP and iterate to success
• 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
• But iteration without a bold plan won’t take you from 0 to 1. Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.
• 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

• The best investment in a successful VC fund equals or outperforms the entire rest of the fund combined
• We don’t live in a normal world; we live under a power law
• Rule 1: Only invest in companies that have the potential to return the value of the entire fund
• Rule 2: Because rule number one is so restrictive, there can’t be any other rules
• VC’s still need a portfolio, Thiel focuses on 5-7 companies, each of which could be huge
• BUT life is not a portfolio
• An entrepreneur cannot diversify, you can’t run dozens of companies at the same time
• 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

• What valuable company is nobody building? Every answer is a secret: something important and unknown, something hard to do but doable
• To be happy we need to achieve goals that take effort:
• The trichotomy of the easy, the hard, and the impossible
• If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth.
• They can be learnt only if you demand to know them and force yourself to look.

• Thiel’s law: Every great company is unique
• Pick the right founder, you’ll need pre-history (technical abilities, complementary skills, and how you work together are key)
• Distinguish between three 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?
• The smaller the board the bette
• Everyone you involve with your company should be involved full-time
• Equity orientates people toward creating value in the future
• allocate it carefully, equal allocation is usually a mistake

• Do one thing → make every person in the company responsible for doing just one thing
• Everyone gets evaluated on their one thing
• Simplifies the task of management and reduces conflict
• Cultures of total dedication look crazy from the outside

• We underestimate the importance of distribution (everything it takes to sell a product)
• They won’t come → you need to make it happen and its hard
• Think of distribution as something essential to the design of your product
• Superior sales and distribution by create a monopoly, even with no product differentiation, but the converse is not true
• Two limiters of distribution:
• CLV: Customer Lifetime Value (total net profit you earn on the average customer over your relationship.
• CAC: the amount you spend on average to acquire a new customer
• CLV must exceed CAC. Higher priced products allow for higher costs of sales
• Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market
• Paypal targeted the most the 20,000 eBay PowerSellers who were constantly making payments
• The Power Law of Distribution: one distribution method is likely to be far more powerful than every other for any given business
• 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.

• Technology is the one way for us to escape competition
• Today’s companies have an insatiable appetite for data, mistakenly believing that more data always creates more value
• Ask how can computers help humans solve hard problems?
• Strong AI is like a cosmic lottery ticket: if we win, we get utopia; if we lose, Skynet.
• there is room in between for sane people to build a vastly better world in the decades aheah

7 Questions every company must answer

1. Engineering: Can you create breakthrough technology instead of incremental improvements?
2. Timing: Is now the right time to start your particular business?
3. Monopoly: Are you starting with a big share of a small market?
4. People: Do you have the right team?
5. Distribution: Do you have a way to not just create but deliver your product?
6. Durability: Will your market position be defensible 10 and 20 years into the future?
7. Secret: Have you identified a unique opportunity that others don’t see?

• Entrepreneurs are usually unusual people, be tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism

Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Chapter 1: The challenge of the future

• What important truth do very few people agree with you on?
• Makes a good interview question
• You have to think for yourself
• Requires courage to put forward something unpopular.
• Most people believe in x, but the truth is the opposite of x.
• The difference between horizontal and vertical progress:
• Horizontal progress → copying things that work, going from 1 to n (globalisation)
• Vertical progress → doing new things, going from 0 to 1 (technology)
• it requires doing something nobody else has ever done
• going from a typewriter to a word processor is vertical progress
• Most people thin think the future of the world will be defined by globalisation, but the truth is that technology matters more.
• In a world of scarce resources, globalisation without new technology is unsustainable.
• New technology isn’t a historic norm.
• Not much happened before the steam engine in 1760. We had a great run of rapid innovation from 1760 to 1970.
• Since then we’ve slowed down. Smartphones distract us from the fact that our surroundings are strangely old: only computers and communications have improved dramatically since
• New technology tends to come from new ventures—startups. It’s hard to develop new things in big organisations, and it’s even harder to do it by yourself.
• A lone genius can create a classic work of art → but he couldn’t create an entire industry
• A startup is the largest group of people you can convince of a plan to build a different future.

Chapter 2: Party Like it’s 1999

Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule Nietzsche

• If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.
• The Dot-com bubble was intense and short. There was money everywhere, losing money to grow became a popular strategy. Everyone was investing, and getting rich.
• In this kind of environment, acting sanely began to seem eccentric.
• Thiel gave new customers $10 for joining Paypal and $10 each time they referred somebody.
• When paying for customers exponential growth means an exponential cost structure.
• Thiel thought the costs were sane: given a large user base, PayPal had a clear path to profitability by taking a small fee on customers’ transactions.
• Raised funds just before the market collapsed

• Theil believes despite the dotcom bubble:
• It is better to risk boldness than triviality
• A bad plan is better than no plan
• Competitive markets destroy profits
• Sales matters just as much as product
• After the bust → we had no choice but to find ways to do more with less, it was also a peak of clarity.
• The most contrarian thing of all is not to oppose the crowd but to think for yourself.

Chapter 3: All happy companies are different

• What valuable company is nobody building?
• You need to create AND capture value.
• Airlines create value but can’t seem to capture it
• While Google stands alone
• This comes down to perfect competition and monopoly
• Under perfect competition, in the long run no company makes an economic profit.
• The opposite of perfect competition is monopoly.
• A competitive firm must sell at the market price
• A monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximises its profits.
• If you want to create and capture value, building an undifferentiated commodity business is a terrible idea
• There’s a bias for describing market conditions in self-serving ways:
• Monopolists conceal their monopoly by exaggerating the power of their (nonexistent) competition, and say their part of a larger market to make themselves look small
• Non-monopolists tell the opposite lie: exaggerate their distinction by defining their market as the intersection of various smaller markets
• Monopolists can afford to think about things other than making money; non-monopolists can’t. Monopoly profits are the only way to transcend the daily struggle for survival
• In a dynamic world, monopolies can invent and provide and better things. They give customers more choices by adding new categories.
• Governments are busy creating and hunting down monopolies:
• Granting patents to new inventions
• Prosecuting antitrust cases
• Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate.
• Monopolies can keep innovating with profits and finance ambitious projects that firms locked in competition couldn’t
• If your industry is in a competitive equilibrium, the death of your business won’t matter to the world; some other undifferentiated competitor will always be ready to take your place.
• Monopoly is the condition of every successful business.
• 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

4 The ideology of competition

• A creative monopoly → means new products that benefit people and provide stable profits for the creator
• Competition → means no profits, no meaningful differentiation, and a struggle for survival
• the more we compete, the less we gain
• Our education system trains us to compete → we learn the same subjects, get locked into competition to become management consultants or investment bankers.
• Competition is like war: allegedly necessary, supposedly valiant, but ultimately destructive
• Competition can make people hallucinate opportunities where none exist, and copy what worked in the past
• Pets.com vs. PetStore.com vs. Petopia.com vs. dozens of others → Each obsessed with defeating its rivals, precisely because there were no substantive differences to focus on
• If you can’t beat a rival, it may be better to merge
• Thiel conducted a 50/50 merger between PayPal and Elon Musk’s X.com, when they were in fierce competition at the time but had a common opportunity / risk became (the tech bubble in February 2000). As a unified team they were able to raise capital and ride out the dot-com crash

Chapter 5: Last mover advantage

• Escaping competition will give you a monopoly, but a monopoly is only a great business if it can endure the future. The value of a business is the sum of all the money it will make in the future
• Most of the value of low-growth businesses is in the near term. The opposite is true for a high-growth business
• Nightclubs or restaurants are growth businesses: they might have strong cash flow today, but customers can move on to newer and trendier alternatives.
• Technology companies often lose money initially, as it takes time to build valuable things, revenue is delayed, most of a tech company’s value will come at least 10 years in the future
• For a company to be valuable it must grow AND endure
• but many entrepreneurs focus only on short-term growth
• Growth is easy to measure, but durability isn’t
• Don’t succumb to measurement mania and obsess about weekly active user statistics, monthly revenue targets, and quarterly earnings reports
• Look for deeper, harder-to-measure problems that threaten the durability of your business
• Focus on near-term growth and you miss the most important question:
• Will this business still be around a decade from now?
• You must think critically about the qualitative characteristics of your business
• Monopolies usually share some combination of the following characteristics:
1. Proprietary Technology (Tech): makes your product difficult or impossible to replicate
• the most substantive advantage a company can have because it
• proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage
• The clearest way to make a 10x improvement is to invent something completely new
• Or you can radically improve an existing solution
• Once you’re 10x better, you escape competition
• Amazon’s first 10x improvement way to have at least 10 times as many books as any other bookstore
2. Network Effects: make a product more useful as more people use it
• To reap them you need your product to be valuable to its very first users when the network is necessarily small.
• Network effect businesses must start with especially small markets.
• Successful network businesses rarely get started by MBA types as the initial markets are so small
3. Economies of Scale (Scale): fixed costs of creating a product (engineering, management) can be spread out over ever greater quantities of sales
• A monopoly business gets stronger as it gets bigger
• Software startups enjoy dramatic economies of scale because the marginal cost of producing another copy of the product is zero
• A good startup should have the potential for great scale built into its first design
4. Branding (Brand)
• company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly
• Polishing the surface doesn’t work without a strong underlying substance.
• Apple for example has proprietary technologies, both in hardware and software
• Beginning with brand rather than substance is dangerous

• Building a monopoly
• A combination of brand, scale, network effects, and technology in some combination define a monopoly → but in the beginning you need to choose your market carefully and expand deliberately at the start
• Start small with a small market and monopolise it
• Always err on the side of starting too small.
• 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
• Any big market is a bad choice, one already served by competing companies is even worse. Large markets lack a good starting point or it will be open to competition
• If you succeed in gaining a small foothold, you’ll have to be satisfied with keeping the lights on: cutthroat competition means your profits will be zero.
• Scaling Up
• Once you create and dominate a niche market → gradually expand into related and slightly broader markets
• Jeff Bezos wanted all of retail, but started with books. There were millions to list, they had the same shape, easy to ship and the rare books had the most enthusiastic customers
• Amazon then had two options: expand the number of people who read books, or expand to adjacent markets.
• Amazon added categories until it had become the world’s general store
• You might come across barriers to scaling. Ebay monopolised the auction marketplace with network effects, but auctions are clunky for fast moving consumer goods so they’re somewhat limited to second hand, rare examples.
• Sequencing markets correctly is underrated, and it takes discipline to expand gradually
• First dominate a specific niche
• Then scale to adjacent markets
• Don’t Disrupt
• 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.
• It became a self-congratulatory buzzword for anything posing as trendy and new
• Think of yourself as battling dark forces, and you can become fixated on the obstacles in your path.
• The act of creation is far more important than the old industries that might not like what you create
• Disruption also attracts attention → don’t pick fights you can’t win.
• As you expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
• The last will be first
• Generating cash flows in the future is what matters
• Being the first mover isn’t valuable if you’re unseated
• It’s much better to be the last mover → make the last great development in a specific market and enjoy years or even decades of monopoly profits
• Dominate a small niche and scale up from there → study the endgame before everything else

Chapter 6: You are not a lottery ticket

• Serial entrepreneurs question our tendency to explain success as the product of chance.

Success is never accidental Jack Dorsey

• From the 14th 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 couldn’t.
• Prior generations believed in making their own luck by working hard.

Shallow men believe in luck, believe in circumstances…. Strong men believe in cause and effect Ralph Waldo Emerson

Victory awaits him who has everything in order—luck, people call it Roald Amundsen (first to reach South Pole)

• Can you control your future?
• You can think of the future as definite or random
• You be optimistic or pessimistic
• Indefinite pessimists: see a bleak future, and have no idea what to do about it
• Definite pessimists: believe the future is predictable but bleak, they prepare for it
• Definite optimists believe the future will be better if they plan and work to make it better
• work for years to build new products
• Indefinite optimists believe the future will be better, but not how, so they make no plans. They expect to profit from it, but sees no reason to design it concretely.
• indefinite optimists rearrange already-invented products
• At no point does anyone in the indefinite finance industry know what to do with money:
• 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 the end itself.
• 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.
• Indefinite optimism seems inherently unsustainable: how can the future get better if no one plans for it?
• Progress without planning is what we call “evolution”
• Thiel is not a fan of the lean startup approach: nothing can be known in advance, so listen to what customers say they want, make an MVP and iterate to success
• 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
• But iteration without a bold plan won’t take you from 0 to 1. Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.
• The Return of Design:
• Long-term planning is undervalued by our indefinite short-term world
• Jobs planned the iPod to be the first of a new generation of portable post-PC devices, but that secret was invisible to most people
• When a big company makes an offer to acquire a successful startup, it almost always offers too much or too little
• 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
• 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 endeavour 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.

Chapter 7 Follow the money

• Money makes money.
• VC returns follow a power law not a normal distribution
• A small handful of companies radically outperform all others
• The best investment in a successful fund equals or outperforms the entire rest of the fund combined
• We don’t live in a normal world; we live under a power law
• This implies two very strange rules for VCs:
1. Only invest in companies that have the potential to return the value of the entire fund
2. 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.
• You can’t know which companies will succeed, so VC’s still need a “portfolio.” But every company in a good venture portfolio must have the potential to succeed at vast scale.
• Thiel focuses on 5-7 companies, each of which could be huge
• BUT life is not a portfolio
• An entrepreneur cannot diversify, you can’t run dozens of companies at the same time
• An individual cannot diversify his own life by pursuing dozens of equally possible careers
• Our schools teach the opposite, a generic knowledge
• It does matter what you do.
• 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
• Time and decision-making themselves follow a power law, and some moments matter far more than others

Chapter 8 Secrets

• What valuable company is nobody building? Every answer is a secret: something important and unknown, something hard to do but doable
• Kaczynkski (unabomber) manifesto:
• To be happy we need goals whose attainment requires effort.
• Three types of goals
• Goals that can be satisfied with minimal effort
• Goals that can be satisfied with serious effort
• Goals that cannot be satisfied, no matter how much effort one makes
• This is the classic trichotomy of the easy, the hard, and the impossible.
• Why has so much of our society come to believe that there are no hard secrets left?
• Trends that haven’t helped:
• We’ve mapped the world
• Incrementalism
• Risk aversion
• Complacency
• Flatness
• 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 many more secrets left to find, but they will yield only to relentless searchers
• They can be learnt only if you demand to know them and force yourself to look.
• Great companies can be built on open but unsuspected secrets about how the world works
• The insights that supported huge internet businesses look elementary → there must be more
• There are two types of secrets:
• What secrets is nature not telling you?
• What secrets are people not telling you?
• Competition and capitalism are opposites
• Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know.
• Tell only the people you need to act on your secret → a company is a conspiracy to change the world

Chapter 9: Foundations

• Thiel’s law: Every great company is unique
• Get the first things right, because you cannot build a great company on a flawed foundation.
• The first and most crucial decision you make is whom to start it with
• Think of it like getting married, founder conflict is worse than divorce
• Things that matter:
• Technical abilities
• Complementary skill
• How well you know each other and work together (have a prehistory)
• It’s very hard to go from 0 to 1 without a team
• Distinguish between three 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?
• The smaller the board, the easier it is for the directors to communicate, to reach consensus, and to exercise effective oversight
• every single member of your board matters
• A huge board exercises no effective oversight
• If you want free rein have a huge board
• If you want an effective board, keep it small
• Everyone you involve with your company should be involved full-time
• Anyone who doesn’t take a salary or own stock is misaligned
• At the margin, they’ll be biased to claim value in the near term, not help you create more in the future
• For people to be committed they should be properly compensated
• A company does better the less it pays the CEO
• Low CEO pay also sets the standard for everyone else. Your commitment will be notice and emulated
• Or take a modest one and set a ceiling on cash compensation
• High cash compensation teaches workers to claim value from the company as it already → instead of investing their time to create new value in the future
• Equity orientates people toward creating value in the future
• allocate it carefully
• equal shares is usually a mistake → individuals have different talents and responsibilities as well as different opportunity costs, so equal amounts will seem arbitrary and unfair from the start.
• perfect fairness when distributing ownership is impossible, so keep the details secret.
• Being born doesn’t happen at just one moment. The founding moment of a company lasts as long as the company is creating new things

Chapter 10: The mechanics of mafia

• Every company is a culture. A team of people on a mission, and a good culture is just what that looks like on the inside.
• Thiel on Paypal culture:
• Relationships should be tightly knit and not transactional
• would make people happier and more effective (at Paypal and after)
• hired people who would enjoyed working together
• had to be talented, had to be excited
• Recruiting is a core competency
• Talented people don’t need to work for you; they have plenty of options
• You should be able to explain why your company is a unique match for the candidate personally
• Don’t fight the perk war → anyone swayed by free laundry pickup will be a bad addition to your team
• the opportunity to do irreplaceable work on a unique problem alongside great people.
• You can’t beat the Google of today in terms of perks, but you could be like the Google of 1999 if you already have good answers about your mission and team
• From the outside, everyone in your company should be different in the same way - a tribe of like-minded people fiercely devoted to the company’s mission
• Do one thing → make every person in the company responsible for doing just one thing
• Everyone gets evaluated on their one thing
• Simplifies the task of management and reduces conflict
• Your company should feel like a cult: members hang out only with other members, ignore the outside world → they experience strong feelings of belonging, and get access to the secret truths
• Cultures of total dedication look crazy from the outside

Chapter 11: If you build it, they will come

• Even though sales is everywhere, most people underrate its importance
• We underestimate the importance of distribution (everything it takes to sell a product)
• We’re biased toward building > selling
• They won’t come → you need to make it happen and its hard
• Science and engineering challenges are plain to see, but sales is just as hard
• We underestimate the importance of sales because industries try to hide it
• The best product doesn’t always win
• Economists attribute this to “path dependence”
• Circumstances independent of objective quality can determine which products enjoy widespread adoption
• Think of distribution as something essential to the design of your product
• Superior sales and distribution by create a monopoly, even with no product differentiation, but the converse is not true
• Two limiters of distribution:
• CLV: Customer Lifetime Value (total net profit you earn on the average customer over your relationship.
• CAC: the amount you spend on average to acquire a new customer
• CLV must exceed CAC. Higher priced products allow for higher costs of sales
• Distribution methods can be plotted on a continuum:

• At a deal size of $1 million to $100 million, buyers want to talk to the CEO, not the VP of Sales.
• Personal Sales: when deal size is between $10,000 and $100,000 the challenge is to design a process by which a sales team of modest size can move the product to a wide audience.
• For a product priced around $1,000, there might be no good distribution channel to reach the small businesses that might buy it. How do you get people to hear your value proposition.
• Marketing and advertising works for relatively low-priced products that have mass appeal but lack any method of viral distribution.
• Paypal achieved growth by paying people to join and refer friends.
• Cost $20 per customer
• 7% daily growth (user base doubles every 10 days)
• Got them hundreds of thousands of users and a viable opportunity to build a great company by servicing money transfers for small fees that ended up greatly exceeding our customer acquisition cost
• Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market
• Paypal targeted the most valuable users first → eBay PowerSellers
• there were 20,000 of them, most bought and sold meaning a constant stream of payments.
• The Power Law of Distribution: one distribution method is likely to be far more powerful than every other for any given business
• 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.
• Clamor and frenzy are very real,→ selling your company to the media is a necessary part of selling it to everyone else.

Chapter 12 Man and Machine

• Mature industries are stagnating, but information technology is advancing rapidly
• If Moore’s law continues, tomorrow’s computers will be even more powerful.
• Software is eating the world
• Computer's are complements for humans, not substitutes → more value will come from empowering people rather than making them obsolete
• People and machines are good at fundamentally different things
• People have intentionality—we form plans and make decisions in complicated situations.
• Computers are excel at efficient data processing, but they struggle to make basic judgments
• We don’t trade with computers any more than we trade with livestock or lamps. And that’s the point: computers are tools, not rivals.
• Computers don’t yearn for more, we get their efficiency gains without having to compete with them for resources.
• technology is the one way for us to escape competition
• Why do so many people miss the power of complementarity?
• Today’s companies have an insatiable appetite for data, mistakenly believing that more data always creates more value
• Actionable insights can only come from a human analyst
• Ask how can computers help humans solve hard problems? )
• Strong AI terrifies the luddites, makes futurists uneasy; it’s not clear whether strong AI would save humanity or doom it
• strong AI is like a cosmic lottery ticket: if we win, we get utopia; if we lose, Skynet.
• there is room in between for sane people to build a vastly better world in the decades ahead

Chapter 13 Seeing Green

• The 7 questions every company must answer:
1. Engineering: Can you create breakthrough technology instead of incremental improvements?
• You should have proprietary technology an order of magnitude better than its nearest substitute
• 10x because incremental improvements often end up meaning no improvement at all for the end user
• People are so used to exaggerated claims that you’ll be met with skepticism when you try to sell a 20% improvement. only when your product is 10x better can you offer the customer transparent superiority
2. Timing: Is now the right time to start your particular business?
• Are there engineering developments that suggest impending liftoff?
• If the market is moving slowly, you need a plan to take it over
3. Monopoly: Are you starting with a big share of a small market?
• trillion-dollar markets mean ruthless, bloody competition
• don’t be fooled by exaggerating your own uniqueness
4. People: Do you have the right team?
• Do you have builders or suits?
• Are you creating value?
5. Distribution: Do you have a way to not just create but deliver your product?
6. Durability: Will your market position be defensible 10 and 20 years into the future?
• Plan to be the last mover
• What will the world look like 10 and 20 years from now, and how will my business fit in?
• What will stop China from wiping out my business?
• An overwhelming social need doesn’t always imply an overwhelming business opportunity
7. Secret: Have you identified a unique opportunity that others don’t see?
• If you don’t have good answers to these questions, you’ll run into lots of bad luck, nail all seven, you’ll succeed.
• Getting five or six correct might work
• Tesla is 7 for 7:
• Technology: can integrate many components into one superior product.
• Timing: 2009 a onetime-only opportunity Tesla secured a $465 million loan from the U.S. Department of Energy.
• Monopoly: Tesla started by dominating a tiny market (high-end electric sports cars) which funded the next step (the luxury electric sedan market)
• Team: great engineers and salespeople
• Distribution: cut dealers out of the chain
• Durability: first mover, learning,
• Secret: rich people wanted to appear green (DiCaprio driving a Prius)

Chapter 14: The founders paradox

• 4 of the 6 founders of PayPal had built bombs in high school
• Most successful entrepreneurs are simultaneously insiders and outsiders, they attract both fame and infamy.
• Entrepreneurs are usually unusual people
• We worship and despise technology founders just as we do celebrities
• Be tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism
• Individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonisation at any moment → so be careful.