Zero to One - Peter Phiel  ## Metadata - Author: **Peter Phiel** - Full Title: Zero to One - Category: #books - Tags: #business #startup #wealth ## Highlights - 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). - 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. - When we raised $100 million the next month, our lead investor took the Journal's back-of-the-envelope valuation as authoritative. (Other investors were in even more of a hurry. A South Korean firm wired us $5 million without first negotiating a deal or signing any documents. When I tried to return the money, they wouldn't tell me where to send it.) - 1. Make incremental advances Grand visions inflated the bubble, so they should not who wants to be indulged. Anyone who claims to be able to do something great is suspect, and anyone to change the world should be more humble. Small, incremental steps are the only safe path forward. - 2. Stay lean and flexible All companies must be "lean," which is code for "unplanned." You should not know what your business will do; planning is arrogant and inflexible. Instead, you should try things out, "iterate," and treat entrepreneurship as agnostic experimentation. - 3. Improve on the competition Don't try to create a new market prematurely. The only way to know you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors. - 4. Focus on product, not sales If your product requires advertising or salespeople to sell it, it's not good enough: technology is primarily about product development, not distribution. Bubble era advertising was obviously wasteful, so the only sustainable growth is viral growth. - 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? - The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combina tion that maximizes its profits. - Framing itself as just another tech company allows Google to escape all sorts of unwanted attention. - Every individual needs to have goals whose attainment requires effort, and needs to succeed in attaining at least some of his goals. - But this "spray and pray" approach usually produces an entire portfolio of flops, with no hits at all. This is because venture returns don't follow a normal distribution overall. Rather, they follow a power law: a small handful of companies radically outperform all others. If you focus on diversification instead of single-minded pursuit of the very few companies that can become overwhelmingly valuable, you'll miss those rare companies in the first place. - A venture fund makes money when the companies in its portfolio become more valuable and ei ther go public or get bought by larger companies. Venture funds usually have a 10-year lifespan since it takes time for successful companies to grow and "exit." - Warren Buffett famously considers himself a "member of the lucky sperm club" and a winner of the "ovarian lottery." Jeff Bezos attributes Amazon's success to an "incredible planetary alignment" and jokes that it was "half luck, half good timing, and the rest brains." Bill Gates even goes so far as to claim that he "was lucky to be born with certain skills," though it's not clear whether that's actually possible. - The power of planning explains the difficulty of valu ing private companies. When a big company makes an offer to acquire a successful startup, it almost always offers too much or too little: founders only sell when they have no more concrete visions for the company, in which case the ac quirer probably overpaid; definite founders with robust plans don't sell, which means the offer wasn't high enough. - 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. - As a general rule, everyone you involve with your company should be involved full-time. Sometimes you'll have to break this rule; it usually makes sense to hire outside lawyers and accountants, for example. However, anyone who doesn't own stock options or draw a regular salary from your company is fundamentally misaligned. At the margin, they'll be biased to claim value in the near term, not help you create more in the future. - The CEO of a huge company like General Motors, for example, will own some of the company's stock, but only a trivial portion of the total. Therefore he's incentivized to reward himself through the power of possession rather than the value of ownership. Posting good quarterly results will be enough for him to keep his high salary and corporate jet. - Tags: #stock - In the boardroom, less is more. The smaller the board, the easier it is for the directors to communicate, to reach consensus, and to exercise effective oversight. However, that very effectiveness means that a small board can forcefully oppose management in any conflict. This is why it's crucial to choose wisely: every single member of your board matters. Even one problem director will cause you pain, and may even jeopardize your company's future. A board of three is ideal. Your board should never exceed five people, unless your company is publicly held - Whenever an entrepreneur asks me to invest in his company, I ask him how much he intends to pay himself. A company does better the less it pays the CEO-that's one of the single clearest patterns I've noticed - Tags: #business - Startups don't need to pay high salaries because they can offer something better: part ownership of the company itself. Equity is the one form of compensation that can effectively orient people toward creating value in the future. However, for equity to create commitment rather than conflict, you must allocate it very carefully. Giving every one equal shares is usually a mistake: every individual has different talents and responsibilities as well as different opportunity costs, so equal amounts will seem arbitrary and unfair from the start. On the other hand, granting different amounts up front is just as sure to seem unfair. Resentment at this stage can kill a company, but there's no ownership formula to perfectly avoid it. - The first team that I built has become known in Silicon Valley as the "PayPal Mafia" because so many of my former colleagues have gone on to help each other start and invest in successful tech companies. We sold PayPal to eBay for $1.5 billion in 2002. Since then, Elon Musk has founded SpaceX and co-founded Tesla Motors; Reid Hoffman co founded LinkedIn; Steve Chen, Chad Hurley, and Jawed Karim together founded YouTube; Jeremy Stoppelman and Russel Simmons founded Yelp; David Sacks co-founded Yammer; and I co-founded Palantir. Today all seven of those companies are worth more than $1 billion each. PayPal's office amenities never got much press, but the team has done extraordinarily well, both together and individually: the culture was strong enough to transcend the original company. - Recruiting is a core competency for any company. It should never be outsourced. You need people who are not just skilled on paper but who will work together cohesively after they're hired. The first four or five might be attracted by large equity stakes or high-profile responsibilities. More important than those obvious offerings is your answer to this question: Why should the 20th employee join your company? - Like acting, sales works best when hidden. This explains why almost everyone whose job involves distribution whether they're in sales, marketing, or advertising-has a job title that has nothing to do with those things. People who sell advertising are called "account executives." Peo ple who sell customers work in "business development." Peo ple who sell companies are "investment bankers." And people who sell themselves are called "politicians." There's a reason for these redescriptions: none of us wants to be reminded when we're being sold. - The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete. - We don't trade with computers any more than we trade with livestock or lamps. And that's the point: computers are tools, not rivals. - The fraudsters' adaptive evasions fooled our automatic detection algorithms, but we found that they didn't fool our human analysts as easily. So Max and his engineers rewrote the software to take a hybrid approach: the computer would flag the most suspicious transactions on a well-designed user interface, and human operators would make the final judgment as to their legitimacy. - We instituted a blanket rule: pass on any company whose founders dressed up for pitch meetings. Maybe we still would have avoided these bad investments if we had taken the time to evaluate each company's technology in detail. But the team insight never invest in a tech CEO that wears a suit-got us to the truth a lot faster. The best sales is hidden. There's nothing wrong with a CEO who can sell, but if he actually looks like a salesman, he's probably bad at sales and worse at tech. - 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. - Tags: #impact - Tesla CEO Elon Musk rightly saw a one time-only opportunity. In January 2010-about a year and a half before Solyndra imploded under the Obama administration and politicized the subsidy question Tesla secured a $465 million loan from the U.S. Department of Energy. A half-billion-dollar subsidy was unthinkable in the mid-2000s. It's unthinkable today. There was only one moment where that was possible, and Tesla played it perfectly. - 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. - Tags: #impact #favorite #business - Apple's value crucially depended on the singular vision of a particular person. This hints at the strange way in which the companies that create new technology often resemble feudal monarchies rather than organizations that are supposedly more "modern." A unique founder can make authoritative decisions, inspire strong personal loyalty, and plan ahead for decades. Paradoxically, impersonal bureaucracies stated by trained professionals can last longer than any lifetime, but they usually act with short time horizons.