Zero to One: Notes on Startups, or How to Build the Future

Summary:

When starting a company, there are so many decisions to make which will decide the company's future. The authors give some advice and share their opinion on how startups can succeed. 

Notes:

• Ten times better: Marginal improvement is hard to sell. It has to be ten times better than the substitute. Invent something new or radically improve the existing solution, superior integrated design.

• Start small: Start with a smaller market. The perfect target market for a startup is a small group of particular people concentrating together and served by few or no competitors. Any big market is a bad choice. 

• Growth and endure: For companies to be valuable, they must grow and endure. Many entrepreneurs focus only on short-term growth because it is easier to measure (weekly active user statistics, monthly revenue, quarterly earning reports). Some example metrics for enduring: How to have a constant stream? Are there repeating customers? Will the company still be around a decade from now? 

• Dominate then expand: The company should first aim to dominate the market and then expand the market.

• Power law: Investment in startups is like buying a lottery. Less than 1% of companies receive investment. Only a few will succeed. Entrepreneurs should think about if their company will succeed. Life is not a portfolio. You can only run a few companies simultaneously and hope one of them works out well.

• Social trend: 

  • Incrementalism: just a bit better than your peer (academic).

  • Risk aversion: afraid to be wrong and never making a mistake.

  • Complacency: collect rent from everything that has been done.

  • Flatness: the world is homogeneous. Wouldn't someone have found it already?

• Secrets: The answers to the following questions are secrets. Most people act as if there were no secrets left to find.

  • What valuable company is nobody building? Are they essential and unknown? Or hard to do but doable? 

  • What secret is nature not telling you? What secrets are people not telling you?

  • Is any field that matters but still needs to be standardized and institutionalized? 

  • How can machines help humans to solve hard problems?

• Roles in the company:

  • Ownership: who legally own the company.

  • Procession: who actually runs the company on day-to-day business (employee, manager).

  • Control: formally government the companies affair (board, founder, director).

  • There will be misalignment when different people are in different positions.

  • The smaller the board, the easier it is for the director to communicate—every member of your board matters. A board of 3 is ideal. It should never exceed five unless it is public.

  • You are either on the bus or off the bus. Part-time employees don't work, and working remotely should be avoided.

  • The company does better the less they pay the CEO. It should be less than $150k/yr. 

  • Any kind of cash is more about the present than the future. It encourages short-term thinking instead of creating something that doesn't exist. Anyone who is preferred to be paid in equities (stock shares) instead of cash reveals a preference for the long term and the commitment to increase your company's value in the future. It's the best way to keep everyone in the company broadly aligned.

• Selling products: No one wants to be reminded that they are being sold. That's why people who sell advertising are called acoustics executives; people who sell customer working business development; those who sell companies are investment bankers; and those who sell themselves are called politicians.

• 7 questions every business must answer:

  • 1. Engineering: can you create breakthrough technology instead of incremental improvements

  • 2. Timing: is now the right time to start your particular business 

  • 3. Monopoly: are you starting with a significant share of a small market

  • 4. People: do you have the right team

  • 5. Distribution: do you have a way not just to create but deliver your products

  • 6. Derivability: will your market position be defensible 10 or 20 years into the future

  • 7. Secret: have you identified the unique opportunity that others don't see