Zero to One: Summary & Review - 2 | Summaries: Must Read Books for Entrepreneurs - Entrepreneurship PDF Download

Chapter 8: Secrets

• This chapter is about secrets. But not real secrets. Rather, secrets in the sense of discoveries.
• Just about everything used to be unknown. Things that seem obvious today were not always so, they had to be discovered.
• There’s a modern tendency to say there are no hard questions left. Technology has answered them. There are impossible questions that can never be answered. There are questions that can be answered easily, but answering easy questions isn’t very satisfying. Unabomber Ted Kaczynski was of this belief. He was a terrorist who sought to destroy existing institutions so that people could start over answering difficult and satisfying questions.
• Hipsters like facial hair and vinyl phonograph records. Maybe this is because they don’t think there are new things that are worth pursuing. There is a pencil drawing of Kaczynski wearing a hoodie next to a drawing of a young man wearing a hoody. The caption reads, Hipster or Unabomber? Attempts at humor notwithstanding, the reader may be left with the impression that Thiel has a poor grasp of youth culture.
• Fundamentalists also think this way. Religious fundamentalists think there are the easy questions that everyone knows and the mysteries that only God knows. Everything else is heresy. Environmentalism is also a religion, a fundamentalist one. The fact that we must protect the universe is the only truth that they know. Other than that, everything else is in the hands of Mother Nature, who cannot be questioned.
• People may think that there are no mountains left to climb; there is nothing left to discover. But this is wrong. There are certainly secrets left. Injustice, for example, thrives in an environment of ignorance; justice is restored by the beacon of knowledge.
• You’ll never find something if you don’t look, you’ll never succeed if you don’t try. If you believe it’s impossible, you won’t do it. You have to do it or it won’t be done.
• We can do amazing things. There are still amazing discoveries to be done. But we have to try.
• There are two kinds of secrets; there are secrets of nature and there are secrets about people. To find out about secrets of nature, you can study the physical world. Secrets about people are usually harder to find because they are either things that people don’t know about themselves or else they are things that people are actively trying to hide from others.
• If you learn a secret, be careful who you share it with. It could be dangerous to reveal your knowledge. As a rule of thumb, it’s best not to share secrets with anyone except for those you need to tell.
• Sometimes you can shorten your journey considerably by taking the hidden path.

Chapter 9: Foundations

• The start of a thing, the foundations, are really important. Decisions made early on can be hard to change later. Early mistakes can prove fatal to startups. This is the time when the groundwork is laid, when the rules are written. The beginning determines everything that comes after.
• Be very careful who your co-founder is. Don’t do it with just anyone. It’s like getting married. Avoid an ugly divorce by being careful who you choose for a partner.
• Starting with the right team is also important. Everyone on your team has to get along. There needs to be structure. Roles should be well-defined. Don’t worry about any of this stifling creativity. Creativity won’t thrive in a state of anarchy; having some amount of organization is critical.
• Ownership, possession and control are all different things. With startups, the owner usually has ownership and possession, while control often goes to the board. This can cause conflict.
• Small boards are better than big boards. It will be easier for them to reach decisions and manage conflict. Three board members are good. Don’t ever have more than five board members. Even small boards can bring problems for the firm, however. A small board can be quite effective in opposing management; for this reason, be very cautious about the people you choose to serve on the board of directors.
• Avoid outsourcing. Keep everyone together, working full time for the team. Avoid telecommuting and part time workers. Everybody needs to feel like they are all pulling towards the same goal. It’s like Ken Kesey said, “You’re either on the bus or off the bus.”
• Keep the CEO lean and hungry. Low CEO pay keeps the CEO from getting stuck on defending the status quo. It also telegraphs to everyone else on the team how committed the boss is. Low CEO salary will make it easier to keep everyone else’s pay low as well.
• People need to be adequately compensated. Cash compensation tends to keep people focused on short term value. For this reason, stock options are preferable to bonuses. Equity gives employees a part of the company and make them feel they really have a stake in it. Just be careful to avoid letting people know the exact amount of equity their coworkers hold; it could trigger jealousy and hostility. Employee stock options are a good way to increase loyalty, but not everyone will like it equally, though. Some people have a strong preference for cash pay.
• Birth doesn’t have to be a temporary phenomenon. As Bob Dylan said, those who aren’t busy being born are busy dying. Beginnings are periods of flexibility and are characterized by openness. This openness can be institutionalized, instilling the company with a culture that encourages innovation. Your company can remain new and innovative indefinitely.

Chapter 10: The Mechanics of Mafia

• Build a team. Don’t outsource core functions. Keep your group tight.
• When you think about ideal company culture, maybe you imagine a place where not only do people love their work, but the place is also a fun place to be. Silicon Valley has been known for the firms that have ping pong tables and sushi chefs in the workplace. But these fancy perks do not make culture. In essence, the company is the culture.
• Thiel built a team at PayPal that included many people who went on to start all sorts of successful companies. After they left PayPal, they founded well known startups including Tesla Motors, LinkedIn and YouTube. This cohort became known as “The PayPal Mafia.” Thiel didn’t follow the standard playbook of looking at resumes when he built his team. He wanted to put together a group of people who genuinely liked each other. He felt a fresh approach to hiring was needed.
• To hire a good team, look at it from the prospect’s point of view. Think about why they should want to work for you. They probably hear from recruiters at other companies that they will make a lot of money, that they’ll work with smart people and that they’ll help solve important problems. All of these are nice things, but they are the things that potential employees hear from everyone. You aren’t giving them a reason to pick your company over a different one when you use these reasons.
• When prospects ask you why they should want to work for you, the answer should be specific to your company. To draw talented employees tell them why your company is unique and important. Don’t try to sway anyone on the benefits of perks. You want loyal employees, not people who really care about free parking. Give your employees a standard benefits package that’s typical in your industry.
• To start, everyone should be as similar as possible. They need to work well together. They should all be different in the same way; if they all love comic books or something like that it will help them to get along and to work together.
• Roles should be well-defined. This reduces conflict. People won’t be as inclined to compete over turf. Internal conflict can be deadly to a startup.
• You want really dedicated people, but you don’t want to start a cult. Not too much, anyway. People in cults are usually misinformed fanatics. You want a certain level of fanaticism in your group, but not misinformation. You want a sense of specialness and separation from the outside world. You shouldn’t mind too much if people say that your group is a mafia.

Chapter 11: If You Build It, Will They Come?

• Sales are important. Middlemen have a bad name, but they are crucial. Distribution is crucial. Many people, especially tech people, don’t understand the importance of this. But it’s important.
• Marketing is important because it helps people discover products. Advertising is useful because it works. It puts ideas in the consumer’s mind. You might think that you personally have some immunity to advertising that other people lack, but you would be wrong.
• People are suspicious of sales staff because it isn’t always so easy to tell how hard they are working. All that schmoozing looks an awful lot like socializing. However, a good salesperson is like a good actor, they perform so well that it’s difficult to see how hard they work.
• Excellent sales and distribution can create a monopoly even if the product itself isn’t much different from its competitors. You need to have a strong distribution plan in order to succeed.
• Distribution is measured with two numbers. The Customer Lifetime Value (CLV) is the average amount of profit you can expect to gain from a customer. This figure has to be greater than the amount you spend to get that new customer; a figure known as the Customer Acquisition Cost (CAC). The more expensive your product is, the more you should be willing to spend to get new customers. You should also be willing to devote more time on each of them.
• On one end of the scale there are personal scales, where sales people deal directly with customers to sell expensive products. Really big deals are performed by CEOs more than salespeople.
• There’s a dead zone between the expensive products that call for personal sales strategies and inexpensive products that can do fine with traditional advertising. A product selling for, say, $1,000 isn’t really worth the expense of paying sales staff. The ideal customer for the product is probably the small business owner; mass marketing is a very inefficient way to reach this market.
• Marketing and advertising are for low-priced products, where there’s not enough payoff for salespeople to sell them. Advertising might be appropriate for startups where the numbers aren’t there for other distribution channels. But don’t try to compete with big companies through advertising campaigns.
• Viral marketing lies at the far end of the scale with the most inexpensive products. It’s viral if it makes users draw in other users. For example, if someone sends money via PayPal, the recipient is exposed to the service automatically when they receive their money.
• You have to get at least one distribution channel to work or else you’ll fail.
• Not only do you have to sell to customers, you also have to sell your idea to investors and employees. And the media. Don’t expect that your product is so wonderful that investors and everyone else will beat a path to your door. Develop a public relations strategy. Decide how you want to tell your story.

Chapter 12: Man and Machine

• Information technology has become so dominant that it has become synonymous with the very word “technology.” Computers continue to grow in power. Many functions once performed by humans have been taken over by computers. Some predict that this process will accelerate and computers will continue take over more and more human functions.
• People worry about computers replacing people, that a process mirroring that of globalization is taking place. Just as jobs were lost to workers in other countries, they will now be lost to computers.
• People need not worry that this will happen, however. While people in one part of the world aren’t so different from people in another part of the world, computers are very different from people. They do not require the same provisions. Their capabilities are different. The kinds of things that people are good at aren’t the same as the things that computers are good at. People are able to make complex decisions. Computers are good at processing large amounts of data.
• Computers are tools. The big technological advances of the future will happen in computers complementing — not replacing — people. We shouldn’t be afraid that computers will replace us.
• People and computers combined can do tasks better than either one can by themselves. This presents business opportunities. At PayPal, they developed a system for detecting credit card fraud that involved algorithms that flagged suspicious transactions which would then be reviewed by human operators. This demonstrates how the abilities of computers and people can complement one another.
• With his startup company Palantir, Thiel developed similar software for the FBI to analyze information from multiple sources. Computers alone can’t do that sort of work, nor can humans do it alone. Computers and humans combined are capable of much more. There are all sorts of examples of how Palantir helped the feds bust terrorists, child pornographers and all manner of fraudsters.
• There are many ways that computers can be harnessed to crunch the data and allow people to focus on complex problem solving. There are many opportunities still to be developed that take advantage of this synchronicity.
• Software engineers have been taught to think up ways that computers can do people’s jobs. But computers can’t learn everything. It isn’t just a matter of feeding them enough data. You can give computers more and more data, but this doesn’t actually make them any smarter. They can’t come close to human analysis. Artificial Intelligence is certainly interesting, and it becomes more and more developed every day, but it still isn’t close to being able to take on complex analysis. If the day ever comes when it will be able to do so, that day is far in the future.

Chapter 13: Seeing Green

• It seemed obvious that clean technology was going to be huge. At the beginning of the 20th century, lots of money was poured into new “cleantech” firms. Unfortunately, most of these firms ended up going out of business. They failed because they ignored the basic elements necessary for success.
• To ensure success, a startup needs proprietary technology that’s significantly better than the competition. The failed cleantech companies really dropped the ball on this one. Many of them were about twice as good as the competition, some of them didn’t even hit this mark. In reality, a new product should be at least 10 times better than the closest alternative. Your product has to be clearly, obviously better than anything else in order to capture customer interest.
• Good timing makes all the difference. Some of those cleantech companies expected solar technology to take off as fast as computer technology. Solar technology has been around for a long time, however, and its development has never been very fast. The growth of computer technology has always been fast. You have to understand whether you are dealing with a slow or fast growing technology and treat it appropriately.
• There isn’t much money to be made in a competitive market. Startups emphasize their uniqueness for this reason. However, it’s better to be as realistic as possible to understand whether your product has a chance at a true monopoly. In order to do this, you have to know what market you are actually in. If you make solar panels and you capture 11% of the solar panel market, you might think you’re doing well. It’s possible, though, that the relevant market that you should pay attention to is the global solar market, or even the entire renewables market. If you don’t look to the relevant market, you won’t have the information that you need to evaluate your company’s position.
• The people leading a startup should be experts in the product, like engineers. You need the right team for the job. The executives probably shouldn’t be salesmen.
• Distribution is as important as the product. Find the right channel and communicate with the customer.
• Cultivate durability. Plan to be the last mover in the market. Figure out your plan for the next 20 years or so. Anticipate changes in the market.
• You need to have secrets. Great companies have reasons for success that others don’t see.
• Doing something good for society is a misguided goal. It’s better to do something different. You will benefit society more that way.
• One of the few cleantech companies that has found success is Tesla. This is because they got all of the basic issues right. This shows that the problem was never with the idea of cleantech by itself, rather the problem was how most of the cleantech startups ran their firms.

Chapter 14: The Founder’s Paradox

• The people who founded PayPal were unusual, from Thiel’s perspective. His evidence for this is that many of them came from outside of the United States. An accompanying illustration shows six young men. The most striking thing about the picture is how alike they all appear. They are all about the same age, most of them look to be approximately the same height and build, and their hair is cropped short in a similar style. While Thiel is rightly proud of his team’s accomplishments, it’s achingly clear that he is either oblivious to the issue of diversity or he simply doesn’t think it’s important enough to address.
• A chart is offered with supposed negative traits on one side and supposed positive traits on the other. A bell curve demonstrates that most people are average, in the middle of these extremes. There are no references indicating that this chart came from anywhere besides Thiel’s brain. It’s presented as if it were empirical facts, but the astute reader will not take it as such. The labeled traits are highly debatable. Positive traits include qualities like rich, athletic and famous; yet exclude anything that might be socially positive such as giving, philanthropic or helpful. Negative traits include outsider and poor, right next to disagreeable and villain. This chart is mostly useful for the glimpse it gives us into Thiel’s mentality.
• The point being made here is that founders aren’t normal people. They tend to occupy extremes of bell curves, sometimes occupying both ends at once — for example, by being cash poor but rich on paper.
• Another chart with the same traits show a slightly less-distinct bell curve. This chart is labeled Fat-Tailed Distribution. The term Fat-Tailed isn’t defined anywhere in the text. Perhaps all the cool kids who took statistics know this means the possibility of a chart having skewed results, but it will send everyone else to the dictionary to parse. Exactly how this relates to the discussion isn’t mentioned. Another chart using the same traits is at least explained. The Founder Distribution is an inverse bell curve showing that founders have more of both the designated positive and negative traits.
• Unusual traits are self-reinforcing. The cycle goes that unusual people act differently and develop extreme traits, which they exaggerate. Other people see this and exaggerate the extremeness of the person when they describe them, which causes people to act differently.
• Look at Richard Branson. As someone who founded successful businesses at a young age, he was certainly exceptional, but he didn’t adopt some of his more eccentric traits until after he became successful. Several others in this mode are discussed, including Sean Parker and Lady Gaga.
• Many examples are given of unique people who were founders. It can be marvelous to not only think outside the box but to live outside of it as well, but that isn’t without its problems. A tremendous problem with standing out is that you can become a scapegoat when something goes wrong. Celebrities provide us with many examples of how the mighty can crash and burn.
• Businesses need founders, even if they’re a little eccentric. They can be magnets for hostility, however. Bill Gates is a prime example of this.
• The most important thing to bear in mind is that founders shouldn’t take the power and the glory too seriously.

Conclusion

Predicting anything beyond the next 20 or 30 years is perilous. At this juncture, there are four possibilities for what our future may be.
In the past, the world cycled between good times and bad. This pattern might be the inescapable norm, and the cycle could continue indefinitely. The conventional wisdom, though, is that through modern improvements, the world is reaching a plateau where things won’t suck as bad anymore; the cycle will be broken. However, you don’t have to be a huge pessimist to see the possibility that we, as a species, are marching ourselves toward extinction. We’ll have wars and problems, and poof, that’s it for us. The optimistic take is that we’re going to take off into a vastly improved future. Hopefully, it’ll be this last option. Hopefully, we’ll go from zero to one.