Zero to One means true innovation; creating what wasn't there before. Monopolies are the way to go. Competition is for losers. Think for yourself.
Zero to One: Notes on Startups, or How to Build the Future
Citation (APA): Thiel, P. (2014). Zero to One: Notes on Startups, or How to Build the Future [Kindle Android version]. Retrieved from Amazon.com
Preface: Zero to One
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the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
1. The Challenge of the Future
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In a world of scarce resources, globalization without new technology is unsustainable.
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New technology tends to come from new ventures— startups. From the Founding Fathers in politics to the Royal Society in science to Fairchild Semiconductor’s “traitorous eight” in business, small groups of people bound together by a sense of mission have changed the world for the better. The easiest explanation for this is negative: it’s hard to develop new things in big organizations, and it’s even harder to do it by yourself.
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a lone genius might create a classic work of art or literature, but he could never create an entire industry.
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Startups operate on the principle that you need to work with other people to get stuff done, but you also need to stay small enough so that you actually can.
2. Party Like It’s 1999
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If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.
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1. It is better to risk boldness than triviality. 2. A bad plan is better than no plan. 3. Competitive markets destroy profits. 4. Sales matters just as much as product.
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The most contrarian thing of all is not to oppose the crowd but to think for yourself.
3. All Happy Companies Are Different
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Creating value is not enough— you also need to capture some of the value you create.
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if you want to create and capture lasting value, don’t build an undifferentiated commodity business.
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Non- monopolists tell the opposite lie: “we’re in a league of our own.” 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.
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Non- monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets:
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in business, equilibrium means stasis, and stasis means death. 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.
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In the real world outside economic theory, every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.
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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.
4. The Ideology of Competition
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Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.
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Winning is better than losing, but everybody loses when the war isn’t one worth fighting.
5. Last Mover Advantage
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Simply stated, the value of a business today is the sum of all the money it will make in the future. (To properly value a business, you also have to discount those future cash flows to their present worth, since a given amount of money today is worth more than the same amount in the future.)
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Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.
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Proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate.
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As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.
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Paradoxically, then, 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 all people of Earth. This is why successful network businesses rarely get started by MBA types: the initial markets are so small that they often don’t even appear to be business opportunities at all.
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Many businesses gain only limited advantages as they grow to large scale. Service businesses especially are difficult to make monopolies.
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That's why consultancies aren't exactly the way to go.
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A good startup should have the potential for great scale built into its first design.
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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. 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. If you think your initial market might be too big, it almost certainly is.
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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, and a big market already served by competing companies is even worse. This is why it’s always a red flag when entrepreneurs talk about getting 1% of a $ 100 billion market. 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%. And even if you do 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.
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if your company can be summed up by its opposition to already existing firms, it can’t be completely new and it’s probably not going to become a monopoly.
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As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
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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. In this one particular at least, business is like chess. Grandmaster José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.”
6. You Are Not a Lottery Ticket
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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.
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In the 1950s, Americans thought big plans for the future were too important to be left to experts.
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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.
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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.
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Would- be entrepreneurs are told that nothing can be known in advance: we’re supposed to listen to what customers say they want, make nothing more than 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.
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Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.
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every great entrepreneur is first and foremost a designer.
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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.
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A business with a good definite plan will always be underrated in a world where people see the future as random.
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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. You are not a lottery ticket.
7. Follow the Money
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Albert Einstein made the same observation when he stated that compound interest was “the eighth wonder of the world,” “the greatest mathematical discovery of all time,” or even “the most powerful force in the universe.” Whichever version you prefer, you can’t miss his message: never underestimate exponential growth. Actually, there’s no evidence that Einstein ever said any of those things— the quotations are all apocryphal. But this very misattribution reinforces the message: having invested the principal of a lifetime’s brilliance, Einstein continues to earn interest on it from beyond the grave by receiving credit for things he never said.
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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.
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But life is not a portfolio: not for a startup founder, and not for any individual. An entrepreneur cannot “diversify” herself: you cannot run dozens of companies at the same time and then hope that one of them works out well. Less obvious but just as important, an individual cannot diversify his own life by keeping dozens of equally possible careers in ready reserve.
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If you do start your own company, you must remember the power law to operate it well. 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. However, you can’t trust a world that denies the power law to accurately frame your decisions for you, so what’s most important is rarely obvious. It might even be secret. But in a power law world, you can’t afford not to think hard about where your actions will fall on the curve.
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Social elites have the most freedom and ability to explore new thinking, but they seem to believe in secrets the least. Why search for a new secret if you can comfortably collect rents on everything that has already been done?
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“Thiel’s law”: a startup messed up at its foundation cannot be fixed.
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Bad decisions made early on— if you choose the wrong partners or hire the wrong people, for example— are very hard to correct after they are made. It may take a crisis on the order of bankruptcy before anybody will even try to correct them. As a founder, your first job is to get the first things right, because you cannot build a great company on a flawed foundation.
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When you start something, the first and most crucial decision you make is whom to start it with. Choosing a co- founder is like getting married, and founder conflict is just as ugly as divorce. Optimism abounds at the start of every relationship. It’s unromantic to think soberly about what could go wrong, so people don’t. But if the founders develop irreconcilable differences, the company becomes the victim.
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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.
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It’s very hard to go from 0 to 1 without a team.
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In the boardroom, less is more. The smaller the board, the easier it is for the directors to communicate, to reach consensus, and to exercise effective oversight. However, that very effectiveness means that a small board can forcefully oppose management in any conflict. This is why it’s crucial to choose wisely: every single member of your board matters. Even one problem director will cause you pain, and may even jeopardize your company’s future.
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A board of three is ideal. Your board should never exceed five people, unless your company is publicly held.
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As a general rule, everyone you involve with your company should be involved full- time. Sometimes you’ll have to break this rule; it usually makes sense to hire outside lawyers and accountants, for example. 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. Even working remotely should be avoided, because misalignment can creep in whenever colleagues aren’t together full- time, in the same place, every day. If you’re deciding whether to bring someone on board, the decision is binary. Ken Kesey was right: you’re either on the bus or off the bus.
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For people to be fully committed, they should be properly compensated. Whenever an entrepreneur asks me to invest in his company, I ask him how much he intends to pay himself. 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.
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If a CEO collects $ 300,000 per year, he risks becoming more like a politician than a founder. High pay incentivizes him to defend the status quo along with his salary, not to work with everyone else to surface problems and fix them aggressively. A cash- poor executive, by contrast, will focus on increasing the value of the company as a whole.
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If a CEO doesn’t set an example by taking the lowest salary in the company, he can do the same thing by drawing the highest salary. So long as that figure is still modest, it sets an effective ceiling on cash compensation.
10. The Mechanics of Mafia
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Recruiting is a core competency for any company. It should never be outsourced.
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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.
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Max Levchin, my co- founder at PayPal, says that startups should make their early staff as personally similar as possible.
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The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflict. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long- term relationships that transcend mere professionalism. More than that, internal peace is what enables a startup to survive at all. When a startup fails, we often imagine it succumbing to predatory rivals in a competitive ecosystem. But every company is also its own ecosystem, and factional strife makes it vulnerable to outside threats. Internal conflict is like an autoimmune disease: the technical cause of death may be pneumonia, but the real cause remains hidden from plain view.
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entrepreneurs should take cultures of extreme dedication seriously. Is a lukewarm attitude to one’s work a sign of mental health? Is a merely professional attitude the only sane approach? 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.
11. If You Build It, Will They Come?
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EVEN THOUGH SALES is everywhere, most people underrate its importance. Silicon Valley underrates it more than most.
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We underestimate the importance of distribution—a catchall term for everything it takes to sell a product—because we share the same bias the A Ship and C Ship people had: salespeople and other “middlemen” supposedly get in the way, and distribution should flow magically from the creation of a good product. The Field of Dreams conceit is especially popular in Silicon Valley, where engineers are biased toward building cool stuff rather than selling it. But customers will not come just because you build it. You have to make that happen, and it’s harder than it looks.
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In Silicon Valley, nerds are skeptical of advertising, marketing, and sales because they seem superficial and irrational. But advertising matters because it works. It works on nerds, and it works on you. You may think that you’re an exception; that your preferences are authentic, and advertising only works on other people. It’s easy to resist the most obvious sales pitches, so we entertain a false confidence in our own independence of mind. But advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later. Anyone who can’t acknowledge its likely effect on himself is doubly deceived.
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Maybe this is true of education also? Like aside from teaching you how to learn, it's meant not to make you an expert but leave "subtle impressions" of concepts that make relearning it or deep diving easy later on.
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The most fundamental reason that even businesspeople underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.
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If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.
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Superior sales and distribution by itself can create a monopoly, even with no product differentiation. The converse is not true. No matter how strong your product—even if it easily fits into already established habits and anybody who tries it likes it immediately—you must still support it with a strong distribution plan.
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The product needs a personal sales effort, but at that price point, you simply don’t have the resources to send an actual person to talk to every prospective customer. This is why so many small and medium-sized businesses don’t use tools that bigger firms take for granted. It’s not that small business proprietors are unusually backward or that good tools don’t exist: distribution is the hidden bottleneck.
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A product is viral if its core functionality encourages users to invite their friends to become users too. This is how Facebook and PayPal both grew quickly: every time someone shares with a friend or makes a payment, they naturally invite more and more people into the network. This isn’t just cheap—it’s fast, too. If every new user leads to more than one additional user, you can achieve a chain reaction of exponential growth. The ideal viral loop should be as quick and frictionless as possible.
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distribution follows a power law of its own. This is counterintuitive for most entrepreneurs, who assume that more is more. But the kitchen sink approach—employ a few salespeople, place some magazine ads, and try to add some kind of viral functionality to the product as an afterthought—doesn’t work. Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. 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.
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Everybody has a product to sell—no matter whether you’re an employee, a founder, or an investor. It’s true even if your company consists of just you and your computer. Look around. If you don’t see any salespeople, you’re the salesperson.
12. Man and Machine
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computers are complements for humans, not substitutes. The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.
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How will artificial intelligence empower people? Maybe it's useful to think of applications that act as support or augmentation. For example, an augmentation for our brain that covers our human weaknesses (rote memory, scheduling, recall, somehow prevent bias, logical fallacies). A sort of invisible assistant that brings to the fore useful information from the Internet or from local logs. As a real life example, I feel Todoist has augmented my unreliable memory. Something like that but smarter and more value generating.
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men and machines are good at fundamentally different things. 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.
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Properly understood, technology is the one way for us to escape competition in a globalizing world. As computers become more and more powerful, they won’t be substitutes for humans: they’ll be complements.
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if humans and computers together could achieve dramatically better results than either could attain alone, what other valuable businesses could be built on this core principle?
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Better technology in law, medicine, and education won’t replace professionals; it will allow them to do even more.
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LinkedIn has done exactly this for recruiters.
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Refer to this section for how LinkedIn augments recruiters and does not replace them.
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We have let ourselves become enchanted by big data only because we exoticize technology. We’re impressed with small feats accomplished by computers alone, but we ignore big achievements from complementarity because the human contribution makes them less uncanny. Watson, Deep Blue, and ever-better machine learning algorithms are cool. But the most valuable companies in the future won’t ask what problems can be solved with computers alone. Instead, they’ll ask: how can computers help humans solve hard problems?
13. Seeing Green
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seven questions that every business must answer:
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Companies must strive for 10x better because merely incremental improvements often end up meaning no improvement at all for the end user.
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The most obvious clue was sartorial: cleantech executives were running around wearing suits and ties. This was a huge red flag, because real technologists wear T-shirts and jeans. So we instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings. Maybe we still would have avoided these bad investments if we had taken the time to evaluate each company’s technology in detail. But the team insight—never invest in a tech CEO that wears a suit—got us to the truth a lot faster. The best sales is hidden. There’s nothing wrong with a CEO who can sell, but if he actually looks like a salesman, he’s probably bad at sales and worse at tech.
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Doing something different is what’s truly good for society—and it’s also what allows a business to profit by monopolizing a new market. 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.
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a valuable business must start by finding a niche and dominating a small market. Facebook started as a service for just one university campus before it spread to other schools and then the entire world.
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Aside from not being a innovative enough concept, this is what we could have done with beknowntho to improve it. Could have refined the process in captive Ateneo market. Once everything was automated and process streamlined, only then scale horizontally.
14. The Founder’s Paradox
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Almost all successful entrepreneurs are simultaneously insiders and outsiders.
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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.
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A unique founder can make authoritative decisions, inspire strong personal loyalty, and plan ahead for decades. Paradoxically, impersonal bureaucracies staffed by trained professionals can last longer than any lifetime, but they usually act with short time horizons.
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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.
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The lesson for founders is that individual prominence and adulation can never be enjoyed except on the condition that it may be exchanged for individual notoriety and demonization at any moment—so be careful.
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Above all, don’t overestimate your own power as an individual. Founders are important not because they are the only ones whose work has value, but rather because a great founder can bring out the best work from everybody at his company.
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To believe yourself invested with divine self-sufficiency is not the mark of a strong individual, but of a person who has mistaken the crowd’s worship—or jeering—for the truth. The single greatest danger for a founder is to become so certain of his own myth that he loses his mind. But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom.
Conclusion: Stagnation or Singularity?
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Our task today is to find singular ways to create the 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 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.