Shallow men believe in luck, believe in circumstances.… Strong men believe in cause and effect. - *Ralph Waldo Emerson. *
The mark of a great thinker/executive is having the disposition, courage and ability to update their views when hard data suggests they are mistaken. I've always been impressed when people use data to drive how they operate, be it in their labs or personal lives. The strong tendency for most of us when confronted with evidence disputing a theory is to create ad-hoc hypotheses to bolster the current model. It's natural and we all do it to an extent. We hedge. Peter Thiel is a first principles thinker - and it's exciting to see where this reasoning leads him. This book distills his very compelling ideas on startups, some of which run counter to conventional thinking. It's a great read - and a quick one. Might change some of your assumptions. For example you should definitely read this if you think competition is always a good thing, or that the normal distribution describes top performing portfolios with some winners, some losers (it's more like a power law where the top performer offsets all others).
Summary bullets here:
On Startups:
- When we think about the future, we hope for a future of progress. That progress can take one of two forms. Horizontal or extensive progress means copying things that work—going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things—going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done.
- If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth. The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers. So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you? The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.
- Most businesses never need to deal with venture capital, but everyone needs to know exactly one thing that even venture capitalists struggle to understand: we don’t live in a normal world; we live under a power law. 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. VCs must find the handful of companies that will successfully go from 0 to 1 and then back them with every resource.
- 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...One distribution strategy usually dominates all others, too. Time and decision-making themselves follow a power law, and some moments matter far more than others... 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....positively defined, a startup is the largest group of people you can convince of a plan to build a different future…A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think....It is better to risk boldness than triviality.
- In the most dysfunctional organizations, signaling that work is being done becomes a better strategy for career advancement than actually doing work (if this describes your company, you should quit now).
Some contrarian ideas worth considering:
- The most contrarian thing of all is not to oppose the crowd but to think for yourself…BUSINESS VERSION of our contrarian question is: what valuable company is nobody building…What important truth do very few people agree with you on?—is difficult to answer directly. It may be easier to start with a preliminary: what does everybody agree on? “Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule,” Nietzsche wrote (before he went mad). If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.
- 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…Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best…The greatest thing Jobs designed was his business. Apple imagined and executed definite multi-year plans to create new products and distribute them effectively. 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.
- WHENEVER I INTERVIEW someone for a job, I like to ask this question: “What important truth do very few people agree with you on? …A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x.”
**On Monopolies: **
- 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.
- 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.
- 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 perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
- Sequencing markets correctly is underrated, and it takes discipline to expand gradually….Amazon shows how it can be done. Jeff Bezos’s founding vision was to dominate all of online retail, but he very deliberately started with books….
- The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets….Indeed, 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….
- 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.
- Competitive markets destroy profits.
- MONOPOLY means new products that benefit everybody and sustainable profits for the creator. Competition means no profits for anybody, no meaningful differentiation, and a struggle for survival. So why do people believe that competition is healthy? The answer is that competition is not just an economic concept or a simple inconvenience that individuals and companies must deal with in the marketplace. More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking. We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain.