The Challenge of the Future
Two types of progress, Technology 0 to 1, Globalization 1 to n
- What important truth do very few people agree with you on?
Party Like it’s 1999
This chapter is about what businesses learned in the 1999 crash and what they still believe today. Thiel believes they learned the wrong lessons, the right lessons are below.
- What does everybody agree on? If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.
- It is better to risk boldness than triviality
- A bad plan is better than no plan
- Competitive markets destroy profits
- Sales matters just as much as product
All Happy Companies Are Different
In this chapter Thiel states that you must build a monopoly company and goes on to show how you identify monopoly companies by the way they advertise themselves. Monopolies drive progress because they allow long term profits, this allows businesses to plan far into the future. Without a monopoly company thinking is always short term.
- What valuable company is nobody building?
- Monopoly is the condition of every successful business!
The Ideology of Competition
More about the negatives of competition
- Creative monopoly means new products that benefit everybody and sustainable profits for the creator. Competition means no profits for anybody, no meaningful differentiation and a struggler for survival.
- If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most.
Last Mover Advantage
Here we get into solid tips for creating a monopoly business. The essential things covered are a proprietary technology, network effects, economies of scale and branding.
- But a great business is defined by its ability to generate cash flows in the future.
- Most of a tech company’s value will come at least 10 to 15 years in the future.
- For a company to be valuable it must grow and endure.
- Will this business still be around a decade from now?
- You must think critically about the qualatative characteristics of your business.
- Monopolies usually provide some combination of: proprietary technology, network effects, economies of scale, and brand.
- As a good rule of thumb, proprietary technology must be at least 10x as good as its closest substitute in some important dimension to lead to real monopolistic advantage.
- Proprietary Technology – The clearest way to make a 10x improvement is to invent something completely new.
- Radically improve on an existing solution
- Amazon offered 10x as many books
- Through superior integration design
- Network Effects
- Paradoxically, then, network effects businesses must start with especially small markets.
- 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.
- Economies of scale
- A monopoly business gets stronger as it gets bigger
- A good startup should have the potential for great scale built into it’s first design
- But these techniques for polishing the surface don’t work without a strong underlying substance
- When Steve Jobs returned to Apple, he didn’t just make Apple a cool place to work; he slashed product lines to focus on the handful of opportunities for 10x improvement.
- But no technology company can be built on branding alone
- Therefore every startup should start with a very small market. Always err on the side of starting too small.
- Jeff Bezo’s founding vision was to dominate all of online retail, but he started very deliberately with books.
- Sequencing markets correctly is underrated, and it takes discipline to expand gradually.
- What really matters is generating cash flows in the future
- dominate a small niche
- “You must study the endgame before everything else” Jose Raul Capablanca
You Are Not a Lottery Ticket
Do not succumb to chance. Make your own destiny, work for it, plan for it and persist with it. You will not get there by chance.
- “Shallow men believe in luck, believe in circumstances … Strong men believe in cause and effect” Ralph Waldo Emerson
- Indefinite attitudes to the future explain what’s most dysfunctional in the world today
- 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
- Optimists welcome the future, pessimists fear it.
- Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth
- But indefinite optimism seems inherently unsustainable: how can the future get better if no one plans for it?
- lean startups “adpat” and “evolve”
- 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
- It’s true that every great entrepreneur is first and foremost a designer
- A business with a good definite plan will always be underrated in a world where people see the future as random
- 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.
Follow the Money
Remember the power law when making investments, either in yourself, in the market or in a startup. Only a small percentage ever get to exponential growth. Invest in companies that you believe all have the opportunity for exponential growth. Personally, think very hard about what skill will be required in the future, then invest all your resources in acquiring that skill.
- never underestimate exponential growth
- The power law – so named because exponential growth equations describe severely unequal distributions – is the law of the universe
- The error lies in expecting that venture returns will be normally distributed
- Rule 1 – Only invest in companies that have the potential to return the value of the entire fund
- because rule number one is so restrictive, there can’t be any other rules
- 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.
- But in the power law world, you can’t afford not to think hard about where your actions will fall on the curve.
To build a successful company that is valuable you have to do something that no one has done before. To do that you must tap into secrets that aren’t already universally understood.
- It’s essential to learn elementary mathmatics, for expamle – but it won’t give you an edge. It’s not a secret.
- “needs to have goals whose attainment requires effort, and needs to succeed in attaining at least some of his goals” Kaczynski
- Minimal effort goals
- Serious effort goals
- Impossible goals
- What secrets is nature not telling you?
- What secrets are people not telling you?
- This is why physics PhDs are notoriously difficult to work with – because they know the most fundamental truths, they think they know all the truths.
- What are people not allowed to talk about? What is forbidden or taboo?
- Are their any fields that haven’t been standardized and institutionalize?
- A great company is a conspiracy to change the world
To found a company, start right. Have committed founders that add value.
- If you want an effective board, keep it small
- You’re either on the bus or off the bus
- In no case should a CEO of an early startup receive more than $150k / year salary
- founders would do well to keep the details secret
- 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
- it lasts as long as a company is creating new things, and it ends when creation stops
The Mechanics of Mafia
Company culture should be of like minded people with individual talents. Internal conflict will tear a startup apart.
- without substance perks don’t work
- a startup is a team of people on a mission
- if you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time will – even in purely financial terms
- Why should the 20th person join your team, answers about the mission and answers about your team
- a tribe of like-minded people fiercely devoted to the company’s mission
- Cryptonomicon was required reading, and we preferred capitalist Star Wars to communist Star Trek
- digital currency that would be controlled by individuals instead of governments
- defining roles reduced conflicts
- internal conflict is like an auto-immune disease
If You Build It, Will They Come?
It is essential to have distribution (sales) and count it as part of your initial design. A company that has a product without good distribution is doomed to failure.
- Even though sales is everywhere, most people underestimate it’s importance
- We underestimate the importance of distribution
- Advertising works on nerds and it works on you
- Anybody who can’t acknowledge its likely effect on himself is doubly deceived
- What nerds don’t realize is that it also takes hard work to make sales look easy
- If you’ve invented something new, but not a way to distribute it, you have a bad business … paraphrased
- Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market
- Poor sales rather than bad product is the most common cause of failure
Man and Machine
The computer should be a complement to human activity. It should supplement decision making.
- VC Andy Kessler sounds almost gleeful when he explains that the best way to create productivity is to “get rid of people”
- computers are complements for humans, not substitutes
- seek to empower people
- but the global supply of workers willing to do repetitive tasks for an extremely small wage is extremely large
- we form plans and make decisions in complicated situations
- computers are tools, not rivals
- technology is the one way for us to escape competition in a globalizing world
- we were dealing with an adaptive enemy, and our software couldn’t adapt in response
- help people extract overarching insight from divergent sources of information
- how can computers help humans solve hard problems?
The failure of cleantech and the signs that it was doomed to failure.
- Seven Questions Every Business Must Answer
- The Engineering Question
- Breakthrough Technology?
- The Timing Question
- Is now the right time?
- The Monopoly Question
- Are you starting with a big share of a small market?
- The People Question
- Do you have the right team?
- The Distribution Question
- Do you have a way to deliver your product, distribution?
- The Durability Question
- Will position be defensible for 10 – 20 years?
- The Secret Question
- Have you identified a unique opportunity that others don’t see?
- The Engineering Question
- Exaggerating your own uniqueness is an easy way to botch the monopoly question
- Tech people should not look like sales people
- Great companies have secrets: specific reasons for success that other people don’t see
- Whatever is “good” enough to receive applause from all audiences can only be conventional
The Founders Paradox
How founders can be uniquely higher than average on both sides of a normal distribution of traits.
- Rand was a merely half-great writer: her villains were real, but her heroes were fake
Stagnation or Singularity?
Will we stagnate or flourish? Thiel seems to be saying if individuals in this society don’t start thinking for themselves then the outlook doesn’t look so good. Going from 0 to 1 is the only way to save the world from itself.
- When you add competition to consume scarce resources, it’s hard to see how a global plateau could last indefinitely … stagnation is likely to erupt into conflict.
- The essential first step is to think for yourself.