Easier to copy a model than to do something new.
The act of creation is singular and is the result of something fresh and strange.
Today’s best practices lead to dead ends; the best paths are new and untried.
Technology allows us to do more with less, taking our fundamental capabilities up another level. We are the only animals that are able to invent new things and better ways of building them.
Successful people find value in unexpected places, and they do this by thinking first about business from first principles instead of formulas.
What important truth do very few people agree with you on? Forces you to show courage and conviction.
Two types of progress:
Horizontal progress – 1 to n. Copying things that work, improving upon them, going into new markets.
Vertical progress – 0 to 1. Doing new things. Technology -any new or better way of doing things.
Globalization – defines our world’s recent history. Implies that the end game is to get every country in the world up to “developed” world levels. Lack of imagination – what can technology and innovation do to fundamentally change the world? There have been long periods in history with no technological improvements, but the 20th and 21st centuries have been fueled by tech / innovation.
Difficult to innovate within large bureaucracies and by yourself. Small start-ups are the sweet spots.
Dot Com Bubble of 1999 – 2000 created this dogma in the tech world, but is in right?
- Make incremental advances vs risking being bold.
- Stay lean and flexible versus having (even) a bad plan to guide you
- Improve on the competition vs avoiding competitive markets which destroy competition
- Focus on product, not sales vs the belef that a strong sales is equally important to product
What valuable company is nobody building? And if I create it, how will I capture some of the value which is created?
Need to avoid a market with perfect competition since that will inevitably squeeze potential profitability. Instead look for markets with monopoly potential – where you can produce at the quantity / price combination that maximizes profits. Be so good at what you do that nobody can challenge you.
Lesson for entrepreneurs – if you want to create and capture lasting value, don’t build an undifferentiated commodity business.
Creative monopolies – make society better by creating more options for consumers. The promise of years or decades of monopoly profits provides a powerful incentive to innovate?
Competition – if you can recognize it as a destructive force instead of a sign of value, you are already more sane than most.
Value of a business – the sum of all the money it will make in the future, discounted to their present worth. For a company to be valuable, it must grow and endure. Measurement-mania puts the emphasis on growth, with little attention to durability.
Characteristics of Monopoly Businesses –
- Proprietary tech – most substantive advantage a company can have since it makes your product difficult or impossible to replicate. Must be 10x better than the closest substitute in some important dimension.
- Network Effects – your product becomes more useful as more people start using it. Drives adoption. Paradoxically, these types of businesses must start in small markets.
- Economies of scales – fixed costs are leveraged as the company grows, better margins.
- Branding – once you have the other 3 locked down.
To build a monopoly business:
- Start with a small market, always err on the side of picking something extra small. It’s easier to dominate a small market than a large one. Perfect target is a small group of people concentrated together and served by no or few competitors.
- Scale into related and slightly broader markets after you get going.
- Avoid disruption / competition for as long as you can. DOn’t attract the attention of large well capitalized competitors if you can avoid it
- Be the last mover if possible. You must study the endgame before everything else.
Views of the future – definite view – makes sense to understand it in advance and to work to shape it. Indefinite view – it will be ruled by randomness, no reason to try to make a plan.
Definite – determine the one best thing to do and then do it. Be the best at something substantive.
When it comes to worldview, you can break regions into categories:
Indefinite Pessimists – Europe. Bleak future with no idea what to do about it. Reactionary.
Definitive Pessimists – China. The future can be known, but since the outlook is bleak, we must prepare for it.
Definitive Optimism – USA 1950s-1960s. The future will be better if we plan and make it better ourselves. Bold ambitious plans that were actually completed!
Indefinite Optimism – USA Today. We think it’s going to be better, but since we don’t know how it’s not worth guessing and making plans against our guesses. Leads to incrementalism – looking for efficiency and optimization instead of trying new things. Companies don’t know how or where to invest in the future – huge cash stockpiles and share buybacks.
Monopoly businesses – capture more value than millions of undifferentiated competitors. VCs focus on very few companies that have a chance to be overwhelmingly valuable (monopolies).
The best investment in a successful fund equals or outperforms the entire rest of the fund combined. Implies that every single company within a VC’s portfolio must have the potential to succeed at vast scale.
Investors who understand the power law make as few investments as possible. Also applies to how you spend your time / your career – you want the type of work you’re doing now to be very valuable decades from now.
Focus relentlessly on something that you are good at as opposed to being a generalist. Also think hard about whether what you’re doing is going to be valuable in the future.
This should dissuade you from wanting to start a company haphazardly – better to join onto to something with potential knowing the odds and potential payouts.
Secrets – the modern world tends to believe that we’ve already discovered all that there is to know. Why:
- Incrementalism – the way we’re taught that things develop in line with nature. There can’t be any quantum leaps remaining.
- Fear of being wrong – going against convention.
- Complacency – don’t really want there to be anything else. Happy with the way things are.
- Flatness – so many smart, driven people for generations. If there was anything else they would have already figured it out.
But there are secrets out there, waiting to be discovered by people willing to do the hard work by searching. What to look for?
- Secrets in the natural, physical world. The properties of physics.
- Secrets in people. What are people hiding about themselves or what don’t they even know about themselves.
A great company is a conspiracy to change the world.
Thiel’s law – a startup messed up at it’s foundation cannot be fixed.
Team / Founders – technical abilities and complementary skill-sets are important. How well the founders know each other and how well they work together also matter.
Avoid consultants and contractors – people involved in the project need to drive it with their full attention and effort. As such they need to be incentivized with ownership. Avoid people who are more interested in cash than equity.
Time – your most valuable asset. Not smart to spend it with people who you don’t envision a long term future with.
To sell employees on your company, go beyond mission, and explain why you’re doing something important that nobody else is going to get done. Next you need to explain why your company is a good match for that person specifically. Avoid fighting a perk war.
On the spectrum of consultants (nihilists, work for hire) and cults (dogmatism), start-ups need to be really close to a cult!
Distribution – marketing, sales, and advertising – generally underestimated in Silicon Valley because they seem superficial and irrational.
Advertising – doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later on.
Salesmen – actors. Their job is persuasion, not sincerity. Complex sales – selling something very expensive. Can take years to build up the right network and connections. Personal sales – selling something for between $10K – $100K. Require a CEO level person to be involved in the pitch. Smaller sales – no personal touch, use mass market advertising.
Humans and Computers – complimentary, not substitutes. Humans are good at forming plans and making decisions in complicated situations. Computers are the exact opposite. They excel at efficient data processing, but struggle to make basic judgements that would be simple for any human.
The Seven Questions Every Business Must Answer. Should be covered in any decent b-plan.
- The engineering question – can you create breakthrough technology instead of incremental improvements? Shoot for a 10x improvement over substitutes.
- The timing question – is now the right time to start your particular business?
- The monopoly question – are you starting with a large share of a small market? Avoid overestimating your own uniqueness.
- The people question – do you have the right team? If your CEO looks like a salesman, he probably is bad at sales and tech – avoid. The best sales are hidden.
- The distribution question – do you have a way to not just create but deliver your product?
- The durability question – will your market position be defensible 10 and 20 years into the future?
- The secret question – have you identified a unique opportunity that others don’t see?
Social entrepreneurship – generally fails because social is unclear. Does it mean what is better for society, or what is seen as better for society? Whatever can be seen as good enough to receive applause from society is conventional. Doing something different is what’s truly good for society – and it’s also what allows a business to make money via building a monopoly business.
Founders – only valuable if they can bring out the best work at everyone at their company.
Four Possibilities for the future – from Nic Bostrom
- Recurrent Collapse – never ending cycle of prosperity and ruin. Will continue forever. History repeats itself
- Plateau – the entire world will converge towards a plateau of development similar to the life of the richest countries today. Globalization continues.
- Extinction – a collapse so devastating that we won’t survive it. Nuclear war, environmental disaster.
- Singularity – accelerating takeoff towards a much better future. We create new technology that makes the world much, much better, in ways that most people can’t even imagine yet.
Whatever happens, we can’t take for granted that the future will get better on it’s own. Our task today s to create the new things that will make the future not just different, but better. Essential first step is to think for yourself.