Book summary of
Zero to One
Notes on Startups, or How to Build the Future
Every moment in business happens only once.
The next Bill Gates won’t build an operating system, and the next Larry Page won’t make a search engine. If you’re copying from them, you aren’t learning from them.
Doing what we already know what to do takes the world from 1 to n: adding more of something familiar. The act of creation is singular, it takes us from 0 to 1, and the result is something fresh and strange.
Zero to One is about how to build companies that create new things.
|1 to n||0 to 1|
|Horizontal progress||Vertical progress|
|Copy things that work||Do new things|
|Have one typewriter and build 100||Have a typewriter & build a word processor|
|Make it work everywhere||Find a better way to do things|
|Make incremental advances||It's better to risk boldness than triviality|
|Stay lean and flexible||A bad plan is better than no plan|
|Improve on the competition||Competitive markets destroy profits|
|Focus on product, not sales||Sales matters just as much as product|
The most powerful pattern in successful people is that they find value in unexpected places by thinking about business from first principles instead of formulas.
When starting a company, you need to ask yourself:
What valuable company is nobody building?
You need to be able to capture some of the value you create.
Google has 100x the profit margin of the airline industry. Airlines compete with each other, but Google stands alone. If you want to create and capture lasting value, don’t build an undifferentiated commodity business.
Under perfect competition, in the long run, no company makes a profit. The opposite of perfect competition is monopoly. A competitive firm must sell at the market price, a monopoly can set its own price.
A competitive ecosystem pushes people towards ruthlessness or death. If you don’t have to worry about competing with anyone, you have the capability to care more about your workers, product, and its impact on the world.
We’re not interested in illegal bullies. By monopoly, we mean a company that’s so good that no other firm can offer a close alternative. Monopolies deserve their bad reputation only in a world where nothing changes. Creative monopolies give customers more choices by adding entirely new categories of abundance to the world.
Progress isn’t about competition, it’s better monopoly businesses replacing incumbents. Monopolies drive progress. The promise of years or decades of monopoly is a powerful incentive to innovate.
Last mover advantage
A great business is defined by its ability to generate cash flows in the future. Any firm with close substitutes (like Nightclubs or restaurants) will see its profits competed away. They might collect healthy amounts today, but over time, customers will move on to newer and trendier alternatives.
Technology companies follow the opposite trajectory. They often lose money for the first few years, and most of the value will come at least 10 to 15 years in the future.
If you focus on near-term growth, you miss the most important question you should be asking: will this business still be around a decade from now?
Characteristics of Monopoly
The most substantive advantage a company can have because it makes your product difficult to replicate. Google’s search algorithms are an example.
You must be at least 10 times better than your closer substitute to lead to a real monopolistic advantage.
- Paypal made buying and selling on eBay 10 times better.
- Amazon offered 10 times as many books as any other bookstore.
- iPad improved on anything that had come before by at least an order of magnitude. From unusable to useful.
Network effects make a product more useful as more people use it. If all your friends are on Facebook, it makes sense for you to join Facebook, too.
They are very powerful, but you’ll never reap the effects unless your product is valuable to its very first users. That’s why Facebook started with just Harvard students.
Economies of scale
A monopoly business gets stronger as it gets bigger. The fixed costs of creating a product can be spread out over greater quantities of sales.
A strong brand is a powerful way to claim a monopoly.
Building a Monopoly
Start small and monopolize
Every startup is small at the start. 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 than a large one.
The perfect target market for a startup is a small group of particular people served by few or no competitors.
Any big market is a bad choice, and a big market already served by competing companies is even worse.
Once you dominate a niche market, then you should gradually expand into related and slightly broader markets.
Jeff Bezos dominated online books, then went on to dominate most similar markets, like CDs, videos, and software. Then they added more categories until they gradually dominated all of online retail!
If your company can be summed up by its opposition, it can’t be completely new and it’s probably not going to become a monopoly.
Disruptive companies often pick fights they can’t win. You should avoid competition as much as possible.
You’re not a lottery ticket
If success is mostly a matter of luck, serial entrepreneurs wouldn’t exist. Learning about startups is worthless if you’re just reading stories about people who won the lottery.
- Indefinite pessimism: An indefinite pessimist looks out onto a bleak future, but has no idea what to do about it.
- Definite pessimism: The future will be bleak, so you better prepare for it.
- Definite optimism: The future will be better if you plan and work to make it better.
- Indefinite optimism: The future will be better, but instead of building new products, you rearrange already-invented ones. This is how bankers, lawyers, investors, and management consultants make money. You overrate the power of chance and underrate the importance of planning.
|Optimistic||U.S. 1950s-1960s||U.S. 1982-present|
- 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. You’re a slacker with low expectations, so they’ll probably be met.
- But indefinite optimism seems inherently unsustainable: how can the future get better if no one plans for it?
The case against lean startups
Would-be entrepreneurs are told that nothing can be known in advance. We’re supposed to listen to what customers say, make a minimum viable product, and iterate our way to success.
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. Without a bold plan, you won’t go from 0 to 1.
The return of design
Anyone who used an Apple device will feel Steve Job’s obsession with visual and experiential perfection. But the most important lesson to learn from Jobs is his business.
Apple imagined and executed multi-year plans to create new products and distribute them effectively.
Jobs demonstrated 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.
Follow the money
Einstein probably didn’t say “Compound interest is the eighth wonder of the world.” But this misattribution reinforces the message. He invested his lifetime’s brilliance, so he continues to earn interest on it, even receiving credit for things he never said!
When you dedicate yourself to something, you should think hard about whether it will be valuable in the future.
The power law means that differences between companies will dwarf the differences in roles inside companies.
You could have 100% of the equity if you fully fund your own venture, but if it fails, you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable.
Instead of founding a new venture, you could consider joining the best company while it’s growing fast.
Learning elementary mathematics is essential, but it won’t give you an edge. It’s not a secret.
You should always be looking in the world for more secrets.
What valuable company is nobody building?
Most people think all the world’s problems are already solved. What’s left to do is either easy or impossible, which is deeply unsatisfying.
Very few people take unorthodox ideas seriously today. We have given up our sense of wonder at secrets left to be discovered.
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.
Before Airbnb, travelers had little choice to pay prices for hotels.
Few people imagined that you can build a billion-dollar business by connecting people who go places with people willing to drive them there, like Uber and Lyft.
How to find secret
There are two different questions to ask:
- What secrets is nature not telling you?
- What secrets are people not telling you?
Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know. Every business is built around a secret that’s hidden from the outside.
A startup messed up at its foundations cannot be fixed. Bad decisions made early on, like choosing the wrong partners or hiring the wrong people, are very hard to correct after they’re made.
Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce.
Founders should share a prehistory before they start a company together, otherwise, they’re just rolling dice.
Everyone in your company needs to work well together. It’s useful to distinguish between three concepts:
- Ownership: who owns the company
- Possession: who runs the company
- Control: who governs the company
You should have as small of a board as possible. A board of 3 is ideal. Your board should never exceed five people.
Everyone should be involved full-time unless they are lawyers or accountants. Part-time employees don’t work. Even working remotely should be avoided.
A company does better the less it pays the CEO.
A cash-poor executive will focus on increasing the value of the company as a whole.
Low CEO pay also sets the standard for everyone else.
If a CEO doesn’t set an example by taking the lowest salary, they can do the same thing by drawing the highest salary, which can still be modest.
Any cash is more about the present than the future. You can offer something better: part ownership of the company.
A startup is a team of people on a mission, and a good culture is just what that looks like on the inside.
You should hire people who would enjoy working together. They have to be talented, but even more excited about working with you.
Why would someone join your company when they can work at Google for more money and prestige?
Bad answers include: Your stock options would be worth more, You get to work with the smartest people. You can solve the most challenging problems. Every company makes these claims.
The only good answers are specific to your company. They’re about your mission and your team.
Explain why you’re doing something important that no one else is going to get done. Why your company is a unique match for them personally?
Do one thing
Every person in the company should be responsible for doing just one thing.
Customers won’t come just because you build it. You have to make that happen because it’s harder than it looks. Whatever the career, sales ability distinguishes superstars from also-runs.
It’s better to think of distribution as a part of the design of the product. If you’ve invented a good product but don’t have an effective way to sell it, you have a bad business.
Superior sales and distribution can create a monopoly, even with no product differentiation. The reverse is not true.
If your average sale is seven figures or more, every detail of every deal requires close personal attention.
Complex sales work best when you don’t have salesmen at all. SpaceX and Palantir CEOs do the sales of themselves.
If your products sells for $10,000 to $100,000, you should establish a process by which a sales team of modest size can move the product to a wide audience.
Between personal sales and advertising, there is a dead zone (for products priced around $1,000)
Marketing and Advertising
Marketing works for relatively low-priced products that have mass appeal but lack any method of viral distribution.
A product is viral if its core functionality encourages users to invite their friends to become users too. This is how Facebook and PayPal grew very quickly.
The power law of distribution
Most businesses get zero distribution channels to work: poor sales rather than a bad product is the most common cause of failure.
If you can get just one distribution to work, you have a great business. If you try several but don’t nail one, you’re finished.