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

Interesting take on building a startup. Many contrarian views.

My Notes

by creating new technologies, we rewrite the plan of the world.

The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative.

the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

“What important truth do very few people agree with you on?

“Most people believe in x, but the truth is the opposite of x.

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.

small groups of people bound together by a sense of mission have changed the world for the better.

Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.

what does everybody agree on?

If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.

Conventional beliefs only ever come to appear arbitrary and wrong in retrospect; whenever one collapses, we call the old belief a bubble

So the backdrop for the short-lived dot-com mania that started in September 1998 was a world in which nothing else seemed to be working.

1. It is better to risk boldness than triviality. 2. A bad plan is better than no plan. 3. Competitive markets destroy profits. 4. Sales matters just as much as product.

The most contrarian thing of all is not to oppose the crowd but to think for yourself.

what valuable company is nobody building?

if you want to create and capture lasting value, don’t build an undifferentiated commodity business.

If you lose sight of competitive reality and focus on trivial differentiating factors—maybe you think your naan is superior because of your great-grandmother’s recipe—your business is unlikely to survive.

Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.

Creative monopolists give customers more choices by adding entirely new categories of abundance to the world.

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.

competition is an ideology—the ideology—that pervades our society and distorts our thinking.

Had I actually clerked on the Supreme Court, I probably would have spent my entire career taking depositions or drafting other people’s business deals instead of creating anything new.

Competition can make people hallucinate opportunities where none exist.

Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.

As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.

Therefore, every startup should start with a very small market.

it’s easier to dominate a small market than a large one.

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.

to succeed, “you must study the endgame before everything else.”

“Success is never accidental.”

Finance epitomizes indefinite thinking because it’s the only way to make money when you have no idea how to create wealth.

We are more fascinated today by statistical predictions of what the country will be thinking in a few weeks’ time than by visionary predictions of what the country will look like 10 or 20 years from now.

In philosophy, politics, and business, too, arguing over process has become a way to endlessly defer making concrete plans for a better future.

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.

But leanness is a methodology, not a goal.

You could build the best version of an app that lets people order toilet paper from their iPhone. But iteration without a bold plan won’t take you from 0 to 1.

why should you expect your own business to succeed without a plan to make it happen?

Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.

But the most important lesson to learn from Jobs has nothing to do with aesthetics. The greatest thing Jobs designed was his business. Apple imagined and executed definite multi-year plans to create new products and distribute them effectively.

Jobs saw that you can change the world through careful planning, not by listening to focus group feedback or copying others’ successes.

A business with a good definite plan will always be underrated in a world where people see the future as random.

A startup is the largest endeavor over which you can have definite mastery. 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. You are not a lottery ticket.

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.

At Founders Fund, we focus on five to seven companies in a fund, each of which we think could become a multibillion-dollar business based on its unique fundamentals.

an individual cannot diversify his own life by keeping dozens of equally possible careers in ready reserve.

It does matter what you do. 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.

If your goal is to never make a mistake in your life, you shouldn’t look for secrets.

There are two kinds of secrets: secrets of nature and secrets about people.

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;

“Thiel’s law”: a startup messed up at its foundation cannot be fixed.

Bad decisions made early on—if you choose the wrong partners or hire the wrong people, for example—are very hard to correct after they are made. It may take a crisis on the order of bankruptcy before anybody will even try to correct them. As a founder, your first job is to get the first things right, because you cannot build a great company on a flawed foundation.

It’s very hard to go from 0 to 1 without a team.

“Company culture” doesn’t exist apart from the company itself: no company has a culture; every company is a culture.

Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together.

The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing.

It’s better to think of distribution as something essential to the design of your product. If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.

The total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value, or CLV) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost, or CAC).

Our deal sizes range from $1 million to $100 million. At that price point, buyers want to talk to the CEO, not the VP of Sales.

In between personal sales (salespeople obviously required) and traditional advertising (no salespeople required) there is a dead zone.

For a product priced around $1,000, there might be no good distribution channel to reach the small businesses that might buy it.

Even if you have a clear value proposition, how do you get people to hear it?

A product is viral if its core functionality encourages users to invite their friends to become users too.

One of these methods is likely to be far more powerful than every other for any given business:

entrepreneurs, who assume that more is more. But the kitchen sink approach—employ a few salespeople, place some magazine ads, and try to add some kind of viral functionality to the product as an afterthought—doesn’t work.

If you can get just one distribution channel to work, you have a great business.

computers are complements for humans, not substitutes. The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.

LinkedIn has done exactly this for recruiters. When LinkedIn was founded in 2003, they didn’t poll recruiters to find discrete pain points in need of relief. And they didn’t try to write software that would replace recruiters outright.

the most valuable companies in the future won’t ask what problems can be solved with computers alone. Instead, they’ll ask: how can computers help humans solve hard problems?

Customers won’t care about any particular technology unless it solves a particular problem in a superior way.

The most obvious clue was sartorial: cleantech executives were running around wearing suits and ties. This was a huge red flag, because real technologists wear T-shirts and jeans. So we instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings.

But the team insight—never invest in a tech CEO that wears a suit—

Social entrepreneurs aim to combine the best of both worlds and “do well by doing good.” Usually they end up doing neither.

Whatever is good enough to receive applause from all audiences can only be conventional, like the general idea of green energy.

Doing something different is what’s truly good for society—and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve.

An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale.

Our task today is to find singular ways to create the new things that will make the future not just different, but better—to go from 0 to 1.

The essential first step is to think for yourself. Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.