The Book describe itself in a short Passage
Doing what someone else already knows how to do takes the world from 1 to n, adding more of something familiar. But when you do something new, you go from 0 to 1. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. Tomorrow’s champions will not win by competing ruthlessly in today’s marketplace. They will escape competition altogether, because their businesses will be unique.
I wanted to learn how to think differently/create a unique business, So i purchased this book with big enthusiasm from reading many reviews. It’s not good enough to say it was splendid even though the books is recommended by his friends ( Mark Zuckerberg, Elon Musk and Nassim Nicholas Taleb). Mostly this books is being proud about his business and his friends business but its a good journey understanding the business from 90’s to this century. And you could read this book mainly to understand about creating a monopoly in business. Except that it’s merely like a list of success stories compiled in a book with Charts and information of his friends companies.
so who is Peter thiel ?
The 18 Notes from that book about creating a business from 0 to 1.
1. Horizontal VS Vertical Business:
Horizontal business(or extensive) progress means copying things that work going from 1 to n and its easy to imaginable because we already know what it looks like. Vertical business (or intensive) progress means doing new things – going form 0 to 1 and its harder to imagine because its requires something nobody else has ever done.
Example: If you take one typewriter and build 100, you have made horizontal business(Like globalization of what works). If you have a typewriter and build a word processor, you have made a vertical progress. (Technology)
Image Source: blog.percolate.com
2. Four Big Lessons from Dot-Com Crash 1995-2002:
- Make incremental advances. Small, incremental steps are the only safe path forward.
- Stay lean and flexible. All companies must be lean which is code for unplanned and planning is arrogant and inflexible. Instead “Iterate” & treat entrepreneurship as agnostic experimentation.
- Improve on the competition. Instead of creating a new market prematurely, build your company by improving on recognizable products already offered by successful competitors.
- Focus on product, not sales. if your product requires advertising or salespeople to sell it. it’s not good enough: Technology is primarily about product development, not distribution.
Image source: http://www.thebubblebubble.com/
3. What is Valuable company: Perfect Competition & Monopoly / Turnover or Profit?
Ever wondered which type of company is really valuable(In terms of growth, future and Profit) on long Run? It’s a company which has monopoly business and unique in nature.
Example: Think of Airlines and Google. Airline competes each other for the same audience with different pricing level. Airlines companies serves millions of passengers(&hundreds of billion dollars) with average fare $178(As on 2012) but makes only 37 cents per passenger where Google has brought it only $50billion on 2012 with 21% of revenue as profits more than 100 times the airline industry’s profit margin that year.
Why? Airlines compete each other but Google stands alone (That’s monopoly). In Economics, every firm in a competitive market is undifferentiated and sells the same homogeneous product, so they must sell at whatever the market price the market determines.
Cons of competitive Market: New firms will enter the market, increase supply, drive prices down, some suffer losses and some will fold. Under perfect competition, no company makes an economic profit in the long run.
Google is a good example of a company that went from 0 to 1: It hasn’t competed each other since the early 2000, when it distanced itself from Yahoo! and Microsoft.
If you want to create and capture lasting value, don’t build an undifferentiated commodity business.
4. Why do people compete each other and whats the result!
Our educational system both drives and reflects our obsession with competition that pervades our society and distorts our thinking. Grades in Academic make student’s mentality with competitiveness and strives for highest marks status and credentials. This obsess them on long run and limit their to a circle.
In a startup, each wanted to prosper independently but as they grew, they began to focus on each other.
Windows VS Chrome, Bing VS Google Search, Explorer vs Chrome, Office vs Docs, and surface vs Nexus – Perfect competition.
When Microsoft and Google began focusing each other, Apple took over them with monopoly business with market capitalization of $500 Billion while Google and Microsoft combined $467 Billion. Peter also advice about fighting each other(competition).
sometimes you do have to fight, fight and win. There is no middle ground: don’t throw any punches, or strike hard and end it quickly
5. Delayed Revenue in Technology company
Technology company often lose money on first few years: it takes time to build valuable things and that means delayed revenue because it take at least 10 to 15 years in the future for ROI.
6. Characteristics of Monopoly
- Propriety Technology
- Network Effects
- Economics of scale
7. Monopoly 1: Proprietary Technology – 10X improvements
Proprietary technology(PT) is the most substantive advantage a company can have which makes difficult or impossible to replicate.
Example: Google’s search algorithms, which returns results better than anyone else’s.
A PT must be 10X better than closest substitute to lead to a real monopolistic advantage. The closest way to do meet this to invent something new.
Example 1: Amazon did this by offering at least 10 times as many books as competitors.
Example 2: Apple did this through superior integrated design by improving 10X in Ipad than Microsoft Windows XP Tablet and Nokia Tablet.
8. Monopoly 2: Network Effects
Network effects businesses must start with especially small markets. Facebook started with just Harvard students – Mark Zuckerberg’s first product was designed to get all his classmates signed up, not to attract Mass.
9. Monopoly 3: Economies of Scale
If you own a yoga studio, you’ll be able to serve to only certain numbers even though you open chain of. But most of Software startups (exclude service, only product based) can enjoy especially dramatic economies of scale because the original cost of producing another copy of product is close to Zero. [Not agreeable with Yoga Example]
10. Building a monopoly: Start small and Monopolize
Every startup should start with a very small market. The reason is
- Easier to dominate a small market than a larger one.
- Easier to reach a few thousand people who really love our product, where if you choose big market which is already served by competing companies is bad choice as its lack a good starting point or open to competition. So its hard to reach.
#Note: small doesn’t mean nonexistent. and not shrink the market in order to seem differentiated.
11. Building a monopoly: Scaling up like Amazon (Highly Strategic)
Jeff Bezo’s Amazon founding was to dominate all retail market but he started with small market (books). Then Amazon become the dominant solution for books. There he got 2 opportunities: Expand to the number of people or expanding to the adjacent markets. He chose the latter starting with CD, videos, and software.
12. Last great development will be first
Meaning its better to make last great development in your market which makes stay ahead of your competitors and that’s the 10X last improvement lead to monopoly profits
13. Success is never Accidental – Jack Dorsey, Twitter founder
victory awaits him who has everything in order(well planned) – Luck People call it.
14. Spray and Pray is a stupid Strategy
An entrepreneur cannot “diversify”. And cannot run dozens of companies at the same time and then hope that one of the them works out well at the early stage of companies (not to contradict with well established companies).
Same like VC error lies in expecting that venture returns will be normally distributed: that is bad companies will fail, mediocre one will stay flat and good one will return 2X and hope that winners counterbalance losers. but it results with no hits at all.
15. Look for Secrets
what happens when company stops believing in secret ? There is no innovation, thus leads to no new products, no growth.
Example: HP was worth $135 billion on Mid-2000. They stopped inventing things on 2000 (before their successful invention of deskjet, omnibook, officejet), started acquiring business like compaq without creating anything new. As a result 2012 HP was worth just $23billion,
Successful secret finders: Airbnb, Lyft and Uber.
The best place to look for secrets is where no one else is looking
16. On Marketing
No early-stage startup can match big companies marketing budget. a startup cannot runs ad on TV which is biggest megaphone, So spend your budget according to your ability and not compete with big players.
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.
Selling your company to the media is necessary part of selling to everyone else and never assume that people will admire your company without a public relations strategy.
17. On Founders
A unique founder can make authoritative decisions, inspire strong personal loyalty and plan ahead for decades. And don’t over estimate your own power as an individual. Founders are important not because they are the only ones who work the value, but rather because a great founder can bring out the best work from employees at his company.
18. Conclusion: For yourself & Singularity
Your task is to find singular ways to create new things that will make the future not just different, but better to go from 0 to 1.
The essential first step is to think for yourself.
Only by seeing our world a new, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.
Some of things not agreeable are
– Most of the companies he took for example are his invested companies showing indirectly that they are worth to be invested ( Too much of pages speaking only about Elon Musk Companies)
– Most of the professionals taken as an example and succeed in the books are his friends. ( Is this like selling ideas or seeding a wrong views in people mind ? )
welcome your thoughts on this…