Notes – Zero to One
Zero to One evolved out of the notes Blake Master’s took while taking Peter Thiel’s class at Stanford. My notes below reference the page numbers from the book. The original source material from Blake’s web site is an excellent resource and I’d recommend reading it if you can.
Check out this article for insights on how to evaluate cryptoassets using lessons learned from Zero to One.
Page: 2
successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
Page: 5
“What important truth do very few people agree with you on?”
Page: 9
In a world of scarce resources, globalization without new technology is unsustainable.
Page: 10
Startups operate on the principle that you need to work with other people to get stuff done, but you also need to stay small enough so that you actually can. Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.
Page: 12
OUR CONTRARIAN QUESTION—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.
Page: 13
The first step to thinking clearly is to question what we think we know about the past.
Page: 21
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.
Page: 22
how much of what you know about business is shaped by mistaken reactions to past mistakes? The most contrarian thing of all is not to oppose the crowd but to think for yourself.
Page: 25
if you want to create and capture lasting value, don’t build an undifferentiated commodity business.
Page: 30
Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets:
Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets:
Page: 32
Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
Page: 33
the history of progress is a history of better monopoly businesses replacing incumbents.
Page: 34
Monopoly is the condition of every successful business.
Page: 39
Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.
Page: 43
If you can recognize competition as a destructive force instead of a sign of value, you’re already more sane than most.
Page: 47
If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.
Page: 48
Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding. This isn’t a list of boxes to check as you build your business—there’s no shortcut to monopoly. However, analyzing your business according to these characteristics can help you think about how to make it durable.
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.
Page: 50
Paradoxically, then, network effects businesses must start with especially small markets.
Page: 53
Always err on the side of starting too small. The reason is simple: it’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.
Page: 54
The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.
Page: 56
Sequencing markets correctly is underrated, and it takes discipline to expand gradually. The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.
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.
Page: 57
As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.
Page: 86
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.
Page: 87
every single company in a good venture portfolio must have the potential to succeed at vast scale.
Page: 91
power law means that differences between companies will dwarf the differences in roles inside companies. You could have 100% of the equity if you fully fund your own venture, but if it fails you’ll have 100% of nothing. Owning just 0.01% of Google, by contrast, is incredibly valuable (more than $35 million as of this writing).
Page: 92
in a power law world, you can’t afford not to think hard about where your actions will fall on the curve.
Page: 94
what valuable company is nobody building? Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable.
Page: 97
four social trends have conspired to root out belief in secrets.
First is incrementalism.
Second is risk aversion.
Third is complacency.
Fourth is “flatness.”
Page: 99
To say that there are no secrets left today would mean that we live in a society with no hidden injustices.
Page: 103
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?
Page: 105
are there any fields that matter but haven’t been standardized and institutionalized?
Page: 108
As a founder, your first job is to get the first things right, because you cannot build a great company on a flawed foundation.
Page: 116
Equity can’t create perfect incentives, but it’s the best way for a founder to keep everyone in the company broadly aligned.
Page: 119
“Company culture” doesn’t exist apart from the company itself: no company has a culture; every company is a culture. A startup is a team of people on a mission, and a good culture is just what that looks like on the inside.
Page: 123
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. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflict. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism. More than that, internal peace is what enables a startup to survive at all.
Page: 125
Every company culture can be plotted on a linear spectrum: The best startups might be considered slightly less extreme kinds of cults. The biggest difference is that cults tend to be fanatically wrong about something important. People at a successful startup are fanatically right about something those outside it have missed.
Page: 128
What nerds miss is that it takes hard work to make sales look easy.
Page: 130
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.
Superior sales and distribution by itself can create a monopoly, even with no product differentiation.
Page: 153
the seven questions that every business must answer: 1. The Engineering Question Can you create breakthrough technology instead of incremental improvements? 2. The Timing Question Is now the right time to start your particular business? 3. The Monopoly Question Are you starting with a big share of a small market? 4. The People Question Do you have the right team? 5. The Distribution Question Do you have a way to not just create but deliver your product? 6. The Durability Question Will your market position be defensible 10 and 20 years into the future? 7. The Secret Question Have you identified a unique opportunity that others don’t see?
Page: 162
Every entrepreneur should plan to be the last mover in her particular market. That starts with asking yourself: what will the world look like 10 and 20 years from now, and how will my business fit in?
Page: 165
Great companies have secrets: specific reasons for success that other people don’t see.
Page: 166
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.
Page: 170
An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale.
Page: 175
it’s more powerful but at the same time more dangerous for a company to be led by a distinctive individual instead of an interchangeable manager.
Steve Miller
Stay up to date on his research by subscribing to his newsletter.
The CFA designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.