This is one of my favourite business books, because it teaches a lot about innovation, and provides a lot of useful insights on how to build and invest in great companies, which is essential for me as an entrepreneur and angel investor.
In this blog post, I will be sharing some of the key insights from the book, and its practical applications.
I read a couple of books every week, and since I finished reading all the major trading and investing books about 8 years ago, I have been reading pretty widely, including psychology, philosophy, life, fiction, and business. Recently, this has been one of my favourite books, “Zero to One” by Peter Thiel. A lot of what he says resonates with me, such as his views on businesses, startups, and venture capital. As an angel investor, this is very helpful in selecting the right companies and people to invest in. “If you want to create and capture lasting value, don’t build an undifferentiated commodity business.” When I invest in new businesses such as Hustle Co (cafe) and Startup Academy (business incubator), I always stick to these 3 factors: 1. Right business model 2. Right people 3. Right numbers I feel that all 3 are necessary for any new startup to thrive, and constantly innovate to stay away from the competition. Now I just need to wait for my companies to IPO.
Here are some key insights:
- Think about business from first principles instead of formulas
- “What important truth do very few people agree with you on?”
- If you can answer this, it means there is a hidden opportunity for you to take advantage of.
- 1 to n is horizontal progress (globalization), which is taking an existing technology and helping to spread it. 0 to 1 is much harder, because vertical progress (technology) requires innovation and the creation of something new.
- In a world of scarce resources, globalization without new technology is unsustainable.
- Important lessons from the dot-com crash
- Make incremental advances instead of having grand visions
- Stay lean and flexible
- Improve on the competition instead of trying to create a new market prematurely
- Focus on products, not sales
- It is not enough for a company to create value – it needs to capture some of that value as well
- If you want to create and capture lasting value, don’t build an undifferentiated commodity business.
- Creative monopolists give customers more choices by adding entirely new categories of abundance to the world.
- In business, equilibrium means stasis, and stasis means death.
- Monopoly is the condition of every successful business. Every successful company earns a monopoly by solving a unique problem.
- Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.
- Focus on innovation instead of competition.
- Winning is better than losing, but everybody loses when the war isn’t one worth fighting.
- A great business is defined by its ability to generate cash flows in the future. For a company to be valuable, it must grow and endure.
- Ask yourself: will this business still be around a decade from now?
- Characteristics of a monopoly:
- Proprietary technology
- Is your product difficult or impossible to replicate?
- It should be at least 10x better than its closest substitute.
- Network effects
- This makes a product more useful as more people use it.
- The key is to start and focus on small valuable markets before growing it.
- Economies of scale
- A monopoly business gets stronger as it gets bigger.
- A good startup should have the potential for great scale built into its first design.
- Proprietary technology
- It’s much better to be the last mover – that is, to make the last great developement in a specific market and enjoy years or even decades of monopoly profits, rather than being the first mover that gets unseated.
- Study the endgame before everything else
- Venture firms usually have a 10-year lifespan since it takes time for successful companies to grow and “exit”.
- 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.
- This means that you should only invest in companies that have the potential to return the value of the entire fund.
- Every single company in a good venture portfolio must have the potential to succeed at cast scale.
- You should focus relentlessly om something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.
- A start-up messed up at its foundation cannot be first
- As Marshal Thurber said, initial conditions (the first 15%) is essential for everything you do.
- A company should be a tribe of like-minded people fiercely devoted to the company’s mission.
- The most fundamental reason that even business people underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.
- Superior sales and distribution by itself can create a monopoly, even with no product differentiation.
- Lifetime value of customer vs. Acquisition cost
- 7 questions that every business must answer:
- Can you create breakthrough technology instead of incremental improvements?
- Is now the right time to start your particular business?
- Are you starting with a big share of a small market?
- Do you have the right team?
- Do you have a way to not just create but deliver your product?
- Will your market position be defensible 10 and 20 years into the future?
- Have you identified a unique opportunity that others don’t see?
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.