Here are my notes on Zero to One by Peter Thiel.


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Sales & Customer Acquisition

  • Pay people to sign up. Pay people to refer friends. Build your user base (if value is in numbers — if your company’s based on the network effect).
  • Customer Lifetime Value vs Customer Acquisition Cost. Know the value of your customers to know how much you can afford to spend on them.
    • Alternatively, consider the value of your user base in future cash flows.
  • If you cannot spend on individual prospects, use the megaphone — mass advertising.
  • Advertising works — even if you think you’re immune to it. Advertising doesn’t make you buy it now — but it will make you buy it later. Advertising primes brand awareness.
  • Advertising seems irrational to nerds. But it still works, and is necessary — so do it.
  • You can succeed with superior sales and a standard product — but not with poor sales and a superior product.
    • Poor sales are the most common cause of failure — not poor products.
    • If you have a great product but don’t manage to sell it — you have bad business. No matter how strong your product, you must still support it with a strong distribution plan.
      • If you can get just one distribution channel to work — you have a great business.
  • Keep good relations to the press (PR) — for when a prospect googles your company. Protect your company’s reputation. (× Naval; Skin in the Game)

Monopolyamorists & non-monopolyamorists

  • Monopoly: a company so good at what it does that no other firm can compete. Be excellent at what you are doing. (× Lynchpin (Seth Godin)).
    • Strive for 10x better products than the competition (e.g. ChatGPT) — incremental improvements are invisible to the end user. End users must realize that your product is vastly better than the competition.
    • Great businesses are defined by the possibility of future cash flows.
  • Ingredients to monopoly
    • Proprietary technology
      • Covert marketplace: Amazon started off as online bookstore but without storing any physical inventory — just requesting the titles from suppliers when a customer made an order. (× supreme JIT; continuous flow (Toyota Way))
      • Human-in-the-loop: machines assisting humans, not replacing them. (supervised automation (Toyota Way))
      • Futurists vs luddites.
    • Network effect: the more people use it, the more useful — the upside: the more people around you use it, the more sense it makes for you to use it.
      • Start with small markets. “Always err on the side of starting too small.” (e.g. Amazon started with books; Facebook with Harvard)
        • Conquer the market one niche at a time (eBay starting with Beany Baby obsessives, etc.)
      • Viral marketing: a product is viral if it encourages users to invite their friends to become users too. (Facebook, PayPal) Exponential growth through viral marketing — when every new user leads to more than one additional new user.
    • Economies of scale: costs remain fixed as the company scales. (× no cost of replication (Naval))
    • Branding. Strong, unique brand. A company has monopoly over its branding by definition. Use it!
  • Monopolies vs competitive firms:
    • Monopolies set their own prices; competitive firms base their prices on the competition.
    • Monopolies can think long term; competitive firms are obsessed about short-term survival & profit (to a fault).
      • Safety is needed to go beyond survival. (× people) Long-term thinking needs short-term sacrifices that small companies cannot afford (without e.g. funding), as they have to prioritize survival.
  • Avoid competition as much as you can — target markets uncatered-for.
    • If you cannot beat a rival, it may be better to merge.
  • Growth vs durability trap: growth is easy to measure, durability is not. It’s easy to obsess over short-term metrics (Measure What Matters; rigged metrics (Skin in the Game)) but to miss the big picture (durability).
  • Which market is your reference? You might be a monopolist in one but a non-monopolist in the other (in the larger market).
  • Pre-mortem the competition frying you.

Teams

  • No company has a culture; each company is a culture. (× deliberate company culture (The Toyota Way))
    • “A startup is a team of people on a mission.”
    • “The early PayPal team worked well together because we were all the same kind of nerd.”
  • Hire people who match professionally but also personally — that you would actually enjoy working together with.
  • Make every employee responsible for one thing, and one thing only. (× single responsibility (Essentialism) Evaluate them on that thing only. Defined roles reduce conflict.
  • Business partner: think of what can go wrong and prepare for it. (× prenup agreements, I Will Teach You To Be Rich; pre-mortem (Clear Thinking))
    • When investing in a company — pay close attention the relationship between the founders, how well they know each other, how well they work together, etc. Companies implode as much as they explode.
  • Board of Directors: ideally 3 people, and no more than 5.
  • Equity helps aligning everyone’s interests with the company.
  • “Cults tend to be fanatically wrong about something important.”

Venture investing

  • Venture investing: Invest only in companies with the potential for extreme returns. — as opposed to a diversified, conservative portfolio (× I Will Teach You To Be Rich). A diversified portfolio inherently excludes high-risk high-return companies by definition.
    • Diversified, low-risk investing is less agentic. “Whenever you shift from the substance of a business to the financial question of whether or not it fits into a diversified hedging strategy, venture investing starts to look a lot like buying lottery tickets. And once you think that you’re playing the lottery, you’ve already psychologically preparing yourself to lose.”
  • Venture investing epitomizes and encourages going all-in. — and encourages companies to do so (high-risk, high-reward).
    • Schools are about hedging and safety — not going all-in. Schools encourage diversified skills and equal commitments (cf 45-min classes for every subject.) (arguably, mediocrity).
  • Finance is for people who don’t how (else) to create value. (M+M=M; Money) “Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth.”