Zero to One

📝 Notes

• Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. (Page 6)
• Successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas. (Page 7)
• Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things — going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done. (Page 11)
• Anyone who claims to be able to do something great is suspect, and anyone who wants to change the world should be more humble. Small, incremental steps are the only safe path forward. (Page 25)
• If you want to create and capture lasting value, don’t build an undifferentiated commodity business. (Page 29)
• Entrepreneurs are always biased to understate the scale of competition, but that is the biggest mistake a startup can make. The fatal temptation is to describe your market extremely narrowly so that you dominate it by definition. (Page 32)
• Monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets: British food ∩ restaurant ∩ Palo Alto Rap star ∩ hackers ∩ sharks (Page 34)
• The competitive ecosystem pushes people toward ruthlessness or death. A monopoly like Google is different. Since it doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products, and its impact on the wider world. Google’s motto—“Don’t be evil”—is in part a branding ploy, but it’s also characteristic of a kind of business that’s successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can’t. (Page 36)
• The history of progress is a history of better monopoly businesses replacing incumbents. Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. Then monopolies can keep innovating because profits enable them to make the long-term plans and to finance the ambitious research projects that firms locked in competition can’t dream of. (Page 39)
• Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. 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. (Page 40)
• Our educational system both drives and reflects our obsession with competition. Grades themselves allow precise measurement of each student’s competitiveness; pupils with the highest marks receive status and credentials. We teach every young person the same subjects in mostly the same ways, irrespective of individual talents and preferences. Students who don’t learn best by sitting still at a desk are made to feel somehow inferior, while children who excel on conventional measures like tests and assignments end up defining their identities in terms of this weirdly contrived academic parallel reality. And it gets worse as students ascend to higher levels of the tournament. Elite students climb confidently until they reach a level of competition sufficiently intense to beat their dreams out of them. Higher education is the place where people who had big plans in high school get stuck in fierce rivalries with equally smart peers over conventional careers like management consulting and investment banking. For the privilege of being turned into conformists, students (or their families) pay hundreds of thousands of dollars in skyrocketing tuition that continues to outpace inflation. (Page 41)
• All Rhodes Scholars had a great future in their past. (Page 43)
• With the benefit of hindsight, we both knew that winning that ultimate competition would have changed my life for the worse. Had I actually clerked on the Supreme Court, I probably would have spent my entire career taking depositions or drafting other people’s business deals instead of creating anything new. (Page 42)
• If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most. (Page 49)
• For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn’t. Those who succumb to measurement mania obsess about weekly active user statistics, monthly revenue targets, and quarterly earnings reports. However, you can hit those numbers and still overlook deeper, harder-to-measure problems that threaten the durability of your business. (Page 52)
• The clearest way to make a 10x improvement is to invent something completely new. If you build something valuable where there was nothing before, the increase in value is theoretically infinite. (Page 54)
• Many businesses gain only limited advantages as they grow to large scale. Service businesses especially are difficult to make monopolies. If you own a yoga studio, for example, you’ll only be able to serve a certain number of customers. (Page 57)
• A good startup should have the potential for great scale built into its first design. (Page 57)
• Always err on the side of starting too small. The reason is simple: it’s easier to dominate a small market than a large one. (Page 59)
• In practice, a large market will either lack a good starting point or it will be open to competition, so it’s hard to ever reach that 1%. (Page 60)
• It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision. (Page 64)
• Process trumps substance: when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options. This describes Americans today. In middle school, we’re encouraged to start hoarding “extracurricular activities.” In high school, ambitious students compete even harder to appear omnicompetent. By the time a student gets to college, he’s spent a decade curating a bewilderingly diverse résumé to prepare for a completely unknowable future. (Page 68)
• A definite view, by contrast, favors firm convictions. Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one. This is not what young people do today, because everyone around them has long since lost faith in a definite world. No one gets into Stanford by excelling at just one thing, (Page 68)
• An indefinite pessimist looks out onto a bleak future, but he has no idea what to do about it. (Page 69)
• Every other country is afraid that China is going to take over the world; China is the only country afraid that it won’t. (Page 70)
• The easiest way for China to grow is to relentlessly copy what has already worked in the West. And that’s exactly what it’s doing: executing definite plans by burning ever more coal to build ever more factories and skyscrapers. (Page 70)
• To a definite optimist, the future will be better than the present if he plans and works to make it better. (Page 71)
• The Empire State Building was started in 1929 and finished in 1931. The Golden Gate Bridge was started in 1933 and completed in 1937. The Manhattan Project was started in 1941 and had already produced the world’s first nuclear bomb by 1945. (Page 72)
• big plans for the future have become archaic curiosities. (Page 73)
• To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely. Instead of working for years to build a new product, indefinite optimists rearrange already-invented ones. Bankers make money by rearranging the capital structures of already existing companies. Lawyers resolve disputes over old things or help other people structure their affairs. And private equity investors and management consultants don’t start new businesses; they squeeze extra efficiency from old ones with incessant procedural optimizations. (Page 74)
• While a definitely optimistic future would need engineers to design underwater cities and settlements in space, an indefinitely optimistic future calls for more bankers and lawyers. (Page 76)
• Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth. If they don’t go to law school, bright college graduates head to Wall Street precisely because they have no real plan for their careers. And once they arrive at Goldman, they find that even inside finance, everything is indefinite. It’s still optimistic—you wouldn’t play in the markets if you expected to lose—but the fundamental tenet is that the market is random; you can’t know anything specific or substantive; diversification becomes supremely important. (Page 76)
• He didn’t have any more concrete ideas about the good society than Rawls: both of them focused on process. Today, we exaggerate the differences between left-liberal egalitarianism and libertarian individualism because almost everyone shares their common indefinite attitude. In philosophy, politics, and business, too, arguing over process has become a way to endlessly defer making concrete plans for a better future. (Page 79)
• “Life tables” tell us our chances of dying in any given year, something previous generations didn’t know. However, in exchange for better insurance contracts, we seem to have given up the search for secrets about longevity. Systematic knowledge of the current range of human lifespans has made that range seem natural. (Page 80)
• Eroom’s law—that’s Moore’s law backward—observes that the number of new drugs approved per billion dollars spent on R&D has halved every nine years since 1950. (Page 81)
• Researchers experiment with things that just might work instead of refining definite theories about how the body’s systems operate. (Page 81)
• Forget “minimum viable products”—ever since he started Apple in 1976, Jobs saw that you can change the world through careful planning, not by listening to focus group feedback or copying others’ successes. (Page 86)
• Long-term planning is often undervalued by our indefinite short-term world. When the first iPod was released in October 2001, industry analysts couldn’t see much more than “a nice feature for Macintosh users” that “doesn’t make any difference” to the rest of the 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. (Page 86)
• founders only sell when they have no more concrete visions for the company, in which case the acquirer probably overpaid; (Page 87)
• A startup is the largest endeavor 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. (Page 88)
• If you focus on diversification instead of single-minded pursuit of the very few companies that can become overwhelmingly valuable, you’ll miss those rare companies in the first place. (Page 92)
• The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined. This implies two very strange rules for VCs. First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments. (Even quite successful companies usually succeed on a more humble scale.) This leads to rule number two: because rule number one is so restrictive, there can’t be any other rules. (Page 93)
• Whenever you shift from the substance of a business to the financial question of whether or not it fits into a diversified hedging strategy, venture investing starts to look a lot like buying lottery tickets. (Page 94)
• less than 1% of new businesses started each year in the U.S. receive venture funding, and total VC investment accounts for less than 0.2% of GDP. But the results of those investments disproportionately propel the entire economy. Venture-backed companies create 11% of all private sector jobs. They generate annual revenues equivalent to an astounding 21% of GDP. Indeed, the dozen largest tech companies were all venture-backed. Together those 12 companies are worth more than $2 trillion, more than all other tech companies combined. (Page 97)
• You should 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. For the startup world, this means you should not necessarily start your own company, even if you are extraordinarily talented. If anything, too many people are starting their own companies today. (Page 100)
• The most important things are singular: One market will probably be better than all others, as we discussed in Chapter 5. One distribution strategy usually dominates all others, too—for that see Chapter 11. Time and decision-making themselves follow a power law, and some moments matter far more than others—see Chapter 9. (Page 100)
• what valuable company is nobody building? Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. (Page 103)
• This process extends all the way up through the tenure track, which is why academics usually chase large numbers of trivial publications instead of new frontiers. (Page 107)
• If you overachieve and end up learning something that’s not on the test, you won’t receive credit for it. But in exchange for doing exactly what’s asked of you (and for doing it just a bit better than your peers), you’ll get an A. This process extends all the way up through the tenure track, which is why academics usually chase large numbers of trivial publications instead of new frontiers. (Page 107)
• The prospect of being lonely but right—dedicating your life to something that no one else believes in—is already hard. The prospect of being lonely and wrong can be unbearable. (Page 107)
• Every fall, the deans at top law schools and business schools welcome the incoming class with the same implicit message: “You got into this elite institution. Your worries are over. You’re set for life.” But that’s probably the kind of thing that’s true only if you don’t believe it. (Page 107)
• if it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already? This voice of doubt can dissuade people from even starting to look for secrets in a world that seems too big a place for any individual to contribute something unique. (Page 107)
• We are within reach not just of marginal goals set at the competitive edge of today’s conventional disciplines, but of ambitions so great that even the boldest minds of the Scientific Revolution hesitated to announce them directly. We could cure cancer, dementia, and all the diseases of age and metabolic decay. We can find new ways to generate energy that free the world from conflict over fossil fuels. We can invent faster ways to travel from place to place over the surface of the planet; we can even learn how to escape it entirely and settle new frontiers. But we will never learn any of these secrets unless we demand to know them and force ourselves to look. (Page 112)
• Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. (Page 114)
• a startup messed up at its foundation cannot be fixed. (Page 118)
• Now when I consider investing in a startup, I study the founding teams. Technical abilities and complementary skill sets matter, but how well the founders know each other and how well they work together matter just as much. Founders should share a prehistory before they start a company together—otherwise they’re just rolling dice. (Page 120)
• Actually, a huge board will exercise no effective oversight at all; it merely provides cover for whatever microdictator actually runs the organization. If you want that kind of free rein from your board, blow it up to giant size. If you want an effective board, keep it small. (Page 124)
• However, anyone who doesn’t own stock options or draw a regular salary from your company is fundamentally misaligned. At the margin, they’ll be biased to claim value in the near term, not help you create more in the future. That’s why hiring consultants doesn’t work. Part-time employees don’t work. (Page 125)
• A company does better the less it pays the CEO—that’s one of the single clearest patterns I’ve noticed from investing in hundreds of startups. In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary. (Page 126)
• However, high cash compensation teaches workers to claim value from the company as it already exists instead of investing their time to create new value in the future. A cash bonus is slightly better than a cash salary—at least it’s contingent on a job well done. But even so-called incentive pay encourages short-term thinking and value grabbing. Any kind of cash is more about the present than the future. (Page 126)
• Equity is a powerful tool precisely because of these limitations. Anyone who prefers owning a part of your company to being paid in cash reveals a preference for the long term and a commitment to increasing your company’s value in the future. (Page 129)
• But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational. Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together. If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well—even in purely financial terms. (Page 133)
• They had to be talented, but even more than that they had to be excited about working specifically with us. (Page 134)
• You’ll attract the employees you need if you can explain why your mission is compelling: not why it’s important in general, but why you’re doing something important that no one else is going to get done. That’s the only thing that can make its importance unique. (Page 135)
• Above all, don’t fight the perk war. Anybody who would be more powerfully swayed by free laundry pickup or pet day care would be a bad addition to your team. Just cover the basics like health insurance and then promise what no others can: the opportunity to do irreplaceable work on a unique problem alongside great people. (Page 136)
• Internal conflict is like an autoimmune disease: the technical cause of death may be pneumonia, but the real cause remains hidden from plain view. (Page 138)
• The extreme opposite of a cult is a consulting firm like Accenture: not only does it lack a distinctive mission of its own, but individual consultants are regularly dropping in and out of companies to which they have no long-term connection whatsoever. (Page 140)
• Selling your company to the media is a necessary part of selling it to everyone else. Nerds who instinctively mistrust the media often make the mistake of trying to ignore it. But just as you can never expect people to buy a superior product merely on its obvious merits without any distribution strategy, you should never assume that people will admire your company without a public relations strategy. (Page 155)
• People have intentionality—we form plans and make decisions in complicated situations. We’re less good at making sense of enormous amounts of data. Computers are exactly the opposite: they excel at efficient data processing, but they struggle to make basic judgments that would be simple for any human. (Page 162)
• When a cheap laptop beats the smartest mathematicians at some tasks but even a supercomputer with 16,000 CPUs can’t beat a child at others, you can tell that humans and computers are not just more or less powerful than each other—they’re categorically different. (Page 162)
• The Engineering Question Can you create breakthrough technology instead of incremental improvements? 2. The Timing Question Is now the right time to start your particular business? 3. The Monopoly Question Are you starting with a big share of a small market? 4. The People Question Do you have the right team? 5. The Distribution Question Do you have a way to not just create but deliver your product? 6. The Durability Question Will your market position be defensible 10 and 20 years into the future? 7. The Secret Question Have you identified a unique opportunity that others don’t see? (Page 174)
• A great technology company should have proprietary technology an order of magnitude better than its nearest substitute. But cleantech companies rarely produced 2x, let alone 10x, improvements. (Page 176)
• Entering a slow-moving market can be a good strategy, but only if you have a definite and realistic plan to take it over. (Page 178)
• Customers won’t care about any particular technology unless it solves a particular problem in a superior way. And if you can’t monopolize a unique solution for a small market, you’ll be stuck with vicious competition. (Page 179)
• Social entrepreneurs aim to combine the best of both worlds and “do well by doing good.” Usually they end up doing neither. (Page 190)
• The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve. (Page 190)
• Cleantech gave people a way to be optimistic about the future of energy. But when indefinitely optimistic investors betting on the general idea of green energy funded cleantech companies that lacked specific business plans, the result was a bubble. (Page 194)
• But the dream of the ’90s turned out to be right: skeptics who doubted that the internet would fundamentally change publishing or retail sales or everyday social life looked prescient in 2001, but they seem comically foolish today. Could successful energy startups be founded after the cleantech crash just as Web 2.0 startups successfully launched amid the debris of the dot-coms? The macro need for energy solutions is still real. But a valuable business must start by finding a niche and dominating a small market. (Page 195)
• When you plot them out, founders’ traits appear to follow an inverse normal distribution: (Page 201)
• But both were insider/outsiders, and both pushed the companies they started to achievements that nobody (Page 214)
• Jobs’s return to Apple 12 years later shows how the most important task in business—the creation of new value—cannot be reduced to a formula and applied by professionals. (Page 215)
• The lesson for business is that we need founders. If anything, we should be more tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism (Page 215)
• The essential first step is to think for yourself. Only by seeing our world anew, 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. (Page 221)