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

Preface:

Every moment in business happens only once
Creating something new is zero to one
Best paths are new and untried
We are the only animals that can build new things by creating new technologies
Zero to One is about building companies that build new things
Successful people find value in unexpected places
There is no reason why the future should happen in only Stanford or Silicon Valley

Chapter 1: The challenge of the future

Courage is in even shorter supply than intelligence
The future is the set of all moments yet to come
The future will be different

- Zero to 1 -
Horizontal progress is 1- N
Vertical progress is 0–1 involves doing something you’ve never done.
China has copied a lot of the US’s progress
Vertical progress is technology
Globalization and technology are different modes of progress
Technology matters more than Globalization
Globalization without new technology is unsustainable
Only computers have changed dramatically

Startup Thinking:
New technologies come from new ventures
Work with enough people to get stuff done. But stay small enough so you can
A company most important strength is new thinking
Startup had to question received ideas and rethink business from scratch

Chapter 2: Party like its 1999

What important truth do very few people agree with you on
Companies exist to make money

90’s:
18 months of .com era
Mid 1990 US was in recession
Silicon valley felt sluggish
Internet had yet to take off until late 1992
Netscape in 1994 28 -> 174 bucks per share
Amazon stock shot up as well
1998 .com mania was a result of the world looking for something to pop
Running PayPal late 1999 was nerve racking for Peter
Beamed money to and from palm pilot
Email payment product (PayPal)
10 for joining and 10 more to refer a friend (PayPal)

- Lessoned Learned:
Everyone learned to treat the future as fundamentally indefinite

Lesson 1:
Make incremental advances
Anyone who claims to do something great is suspect

Lesson 2:
Stay lean and flexible
Lean means unplanned
Planning is arrogant try things out, iterate, treat entrepreneurs as experimentation

Lesson 3:
Improve on the competition
Start with an already existing customer

Lesson 4:
Focus on product or sales
Product development not distribution

Competitive markets destroy profits
We have no choice but to do more with less
Not to oppose the crowd but to think for yourself

Chapter 3: All happy companies are different

What valuable company is nobody building

Creating value is not enough
You need to capture the value you create

US airline serve millions of passengers paid 178 each way but only made 37cents per passenger trip
Google 50 bill in 2012 as opposed to 160 for the airline but google kept 21% as profits
Google is worth more that 3x more than every US airline combined

Perfect competition vs monopoly
Economist sees every monopoly as the same
By monopoly that is so good at what it does there is no close substitute
Has not competed in search since 2000
If you want to create and capture value don’t build business

Lies people tell:
Monopolists lie to protect themselves
Conceal their monopoly
Google it owns 68% of the search market
Google conceals itself as a technology company
Framing itself as a tech company allows google to deflect all sorts of unwanted attention

Google is a small fish in a big pond we are not the monopoly that the government is looking for

Google is at the intersection of a lot of things. car. phone. search. ventures.
Google has wider latitude to take care of its people
Monopolist can afford to not think about money
Non-monopolist can’t

Monopoly is the condition of every successful business

Chapter 4: The ideology of competition

Competition is an ideology
We trap ourselves within competition
Educational system is where competition lives
Students pay lots of money that outpaces inflation
Peter was happy he didn’t get the clerkship
2004 he sold PayPal

War and peace:
Competition not business that is like war
People fight because they are different
Greater the differences the greater the conflict
In the world of business, inside a firm they become obsessed within competition
Microsoft vs Google
As a startup up they were independent, over time they became obsessed with each other building competing software
Apple came along and overtook them all
500 billion
Google n Microsoft combined was just 300 billion
Consider mobile credit card readers, square, half-moon reader, triangle reader
If you’re less sensitive to social ques you are less likely to think like others
Other times rivalry is just weird

If you can’t beat a rival it may be better to merge
In early March Elon and Peter merged and were able to ride out the .com wave

Chapter 5: Last mover advantage

Escaping competition will give you a monopoly
Great business is defined buy its ability to create cash flow in the future
Technology companies lose money for the first few years normally
Most of the tech companies value will come 10–15 years in the future
Today pay-pal is growing around 15% annually
For a company to be valuable it must endure and grow it needs to be durable
Rapid short-term growth distracted Zynga with Farmville
Groupon had fast growth but couldn’t keep their customers

Characterizes of monopoly:

Prosperity technology
It makes your product difficulty or impossible to replicate
Has to be 10x better than its closest substitute
Invent something completely ne
A drug to eliminate sleep, baldness
or radically improve and existing solution (PayPal) -10 days and made it immediate
Amazon offered 10x as many books as any books store 1995 (earths largest bookstore)
Superior integrated design (before 2004 tablets were expertly poor) (then apple released the iPad)

Network effect:
If all your friends are on Facebook it makes sense for you to have Facebook as well
It needs to be valuable to its very first users
Network effect business need to start with smaller markets (Facebook, college)
Initial markets need to be small

Economies of Scale:
Software startups are easy cost is little to nothing
Service businesses are difficult to make monopolies
A good startup should have the ability to scale well from the first design

Branding:
Creating a strong brand
Apple is best at branding
Close control over customer experience
Many have tried to learn from apples success
Minimalist design
Apple has a complex suite of technologies software and hardware
Thousands of devs write for Apple

Yahoo acquired hot startups and tried to be cool again
What products will they actual create

Building a monopoly:
Start small and monopolize
air on the side of starting too small
it’s easier to dominate a small market
its easier to control the customer experience
Any big market is a bad choice
A large market will lack a good starting point

Scaling up:
Once you dominate a niche market then you should expand into broader markets
Amazon shows how it can be done
He started with books, roughly the same shape, easy to ship.
Amazon then had two options expand to adjacent markets or expand on books
CD, Videos, software
added gradually until they owned everything

Sequencing markets correctly is hard
Niche then expand to adjacent markets

If you truly want to make something new it is important that you make something that is totally different
If you company can be summed up then it can’t be completely new
Disruption attracts attention you don’t want that
expand to adjacent markets stay as low-key as possible

Napster Trouble:

Moving first is a tactic not a goal
Its much better to be the last mover
business is like chess, to succeed you must study the end gain before everything else

Chapter 6: You are not a lottery ticket

Does success come from luck or skill
Patchwork of lucky faith and opportunity
If success was luck serial entrepreneurs wouldn’t exist
Jan 2016 Jack Dorsey tweeted success is never accidental
Already successful people have an easier time doing new things
Ralph Emerson — Shallow men believe in luck and circumstances — strong men believe in cause and effect -
Victory awaits people that have everything in order
If you believe your life is a matter of chance, why read this book

Indefinite = failure:
A Definite view favors firm predictions
A definite person determines one less thing to do
To be a monopoly of one
Optimist welcome the future
Indefinite pessimisms
Looks out onto a bleak future but doesn’t know what to do about it — Europe
Cant know whether the decline is going to be fast or slow

2 Definite pessimism:
Thinks the future can be known but they know it’s going to be bleak so they prepare for it

Every senior Chinese leader experienced famine as a child

3 Definite optimism:
The future will be better than the present if he plans to make it better
Doctors, engineers, made the world a better place to live for humans
Steam navigation, canalization of rivers, whole populations
Each of these built upon their ancestors
Golden Gate bridge
Manhattan Project
Americans continue to shape the world
NASA put 12 men on the moon
In the 1950’s people would try to build ideas

4 indefinite optimism:
Has dominated American thinking in 1982
Expects to profit from the future but doesn’t know how
Rearrange stuff that exist
Lawyers, Bankers, people who make more efficient things, are all rearranged
Bankers — capital structures — pass around money
Lawyers — Take something that has happened and alters it
Boomers grew up with expectations but few plans
They can’t understand that you don’t have to work for the system

Our indefinitely optimistic world:
Calls for more bankers and lawyers
It’s the only way to make money if you don’t know how to create wealth
Students go to wall street because they cannot create their own wealth
In an indefinite world money is the only thing that matters because people cannot create their own wealth
The character of government after indefinite creep, they don’t know what’s going on either because they are more cautious

Indefinite life:
We haven’t uncovered the secrets of life
Life tables tell us our chances of dying
Probabilistic attitudes have changed biology

Biotech vs software:
B — Subject uncontrollable organisms
S — Subject Perfect determinate code

B- Environment poorly understood natural
S- Environment well understood

B- Approach indefinite, random
S- Approach Definite engineering

B- reg. heavily
S- reg. Basically unregulated

B- cost. Bills, time
S- cost. cheap

B- team. highly paid lab and team
S- team. committed hackers

Professors for biotech startups, its easy for people to say that heavy regulation

First 3 plans are good for the future.
The last is terrible
Progress without planning is called evolution
Everything living thing on is on some iteration and the best wins

Leanness is a methodology not a goal
A company is a strange place for indefinite optimism

The return of design:
Today good design is imperative
Every great entrepreneur is a good designer
Most important lesson to learn from job is hit products
Jobs saw that you could change the world through long term planning
First iPod, people thought it was just a nice feature
A business always looks bleak in the eyes of the indefinite
A startup is the largest endeavor in which you could have definite mastery
You are not a lottery ticket

Chapter 7: Money makes money

Whoever has will be given more and they will have an abundance — Matthew 25 verse 29
Never underestimate exponential growth
Earn interest beyond the grave
A select few people are constantly quoted
In 1906–80/20 20% of the people own 80% of the land-
natural and social world
biggest cities dwarf all small towns put together

Power law — Follow the money:
A few companies have exponentially greater value than everything else -
We live under a power law
Venture capitalist want to raise money, pool it into a fund and invest
they take a cut usually 20% if things go well
Venture funds usually have a 10 year life span
Most venture backed companies fail
Venture funds typically lose money at first and investors hope they increase substantially
Most Startups fail and most Funds fail with them
Seasoned companies
Investors assemble a diversified portfolio
Small handful of companies that dwarf everyone
Facebook > than everything else combined
Palitir Second > more than everything combined

Best investment

Only invest in companies that could out run everyone by 10x
VC’s must find a handful of companies that are going from 0–1

- Why don’t people see the power law —
For one thing it only becomes clearer over time
Power law doesn’t reflect daily experience
Most of the companies investors perceive everyday are relative levels of success
Power law distributions hide in plain site
less than 1% of business receive funding
Venture backed companies create 11% of private sector jobs
Generate revenues of 21% of GDP
together those 12 companies are worth more than 2 trillion dollars, more than all other tech companies combined

What to do with the power law:
Everyone is an investor
Don’t put all your eggs in one basket
Belief that the kind of work you do will be valuable
Investors that understand the power law make the fewest investments as possible
You can’t run dozens of companies at the same time and have all of them be successful
School acts against this
College students assemble a suite of exotic and minor skills
It does matter what you do
Focus restlessly on what you are good at
Too many people are starting companies

In a power law world, you need to think about where you actions will fall on the curve

Chapter 8: How to find secrets

Natural secrets exist all around us
Secrets about people are different
Questions to ask, what secrets are people and nature aren’t telling you
Best place to look for secrets is where no one else is looking
Are there are fields that matter that haven’t been tapped into
What to do with secrets
Tell anyone or do you keep it to yourself
Tell only who you need to.

Chapter 9: Foundations

A start up, messed up at its foundation cannot be fixed.
Bad decisions made early on are very hard to correct after they are made.
As a founder, your first job is to get things right.

Founding matrimony:
Choosing a co-founder is like getting married

— Ownership, possession and control
In business working for yourself builds alignment.
To anticipate misalignment in any company
— Ownership (Founders employees and investors)
Who legally owns equity
— Possession (Managers)
Who runs the company on a daily basis
— Control (Board of directors of founders and investors)
Who formally governs the company’s affairs

Smaller the board the better
Every single of your board member matters (Board of 3 is ideal never exceed 5 people)
Effective boards are small

On the bus or off the bus
Anyone who doesn’t own stock options or draw a regular salary from your company.
Part time employees don’t work
Remote workers don’t work

Cash is not king
A company does better the less the CEO gets paid
CEO of Box paid himself less than everyone by salary wise
Cash is attractive and pure optionality
Sometimes a bonus is better than average higher salary because it rewards good work

Chapter 10: The mechanics of mafia

Start with a thought experiment
Employees should love their work
Nobody should watch the clock
workers should feel at home
Pets should be welcome
Aquarium, ping pong tables, bean bags, open space
You can accomplish anything meaningful like that
No company has a culture every company is a culture

Why work with a group of people who don’t even like each other
From the start I wanted PayPal to be tightly knit
We set out to hire people who enjoyed working together

Recruiting is a core competency:
You need people who are skilled and work together cohesively
Why should the 20th employee join your company
Why would join your company when she could work at google

bad answers — Nothing to stand out, general, bland,
good answers are specifying to your company, answers about your missions and your team, why its compelling.
Even a great mission is not enough
You should be able to explain why you company is a great match to begin with
Don’t fit the perk war
Cover the basics and work towards the best

What’s under silicon valleys hoodies:
Startup uniform should be different in the same way
Startups should make their early staff as similar as possible, work quickly and efficiently in order to survive
Obsessed with digital currency

Do one thing:
Every individual should be sharply distinguished by her work
Efficiently match talent with task
startups move fast
Relationships between employees
Give everyone in the company just one thing
Deep result, defining roles reduce conflict
delegate responsibilities
eliminate competitive differences.
Every company is also its own ecosystem

Of cults and consultants:
Cultures of total dedication look crazy from the outside
Cults are dedicated
Better to be called a cult of even a mafia

Chapter 11: If you build it will they come?

Even though sales is important people underrate its importance

A ship
Thinkers leaders and achievers

B ship
B ship leaves first

C ship

Distribution -
Sales people and middle men get in the way of distribution

Customers won’t come just because you build it

Nerds vs Salesmen:
US sales add industry 150 billion a year
450 bill annually the US sales industry is even bigger
3.2 million Americans work in sales
What could that many sales people possibly be doing

Advertising matters because it works
Advertising exists to drive sales later

Nerds are used to transparency
Surface appearances don’t matter much

Sales is the opposite

Nerds hate people in sales
What nerds miss is that it takes hard work to be good at sales

Novices
Experts
Masters
Grandmaster

1876 — Like acting sales works best when hidden
Everyone who’s jobs in distribution have a job title that have nothing to do with those thing

None of us wants to be reminded when we’re sold

On wall street, a new person is labeled as an analyst

Selling is just as good as the product

How to sell a product:
No matter how strong your product
You must still support it with a strong distribution plan
Think of distribution as good as design of your product

Customer lifetime value — Total net profit that you gain from the customer must exceed how much you spend on average to acquire that customer

— prime example is the more money you spend on your product the more time and more it makes sense to spend more time with your product with the customer

Customer acquisition costs -

Complex sales:
For sales 7 figures or more = all the details are very very important
You might make sales once a year
but you might follow up with that customer

Space X shows that it can be done

Elon asked Nasa to sign contracts to fund his ideas
politics matters in big deals
Space X employs more than 3,000 people mostly in Cali
traditional 500,000 people across all 50 states
A sales grandmaster can focus on the most crucial people

Complex sales work best when you don’t have any sales men at all

businesses with complex sales succeed whenever 50% to 100% growth over the course of a decade
This will seem slow if you dream of viral growth

Good enterprise sales start small
A new customer might be your biggest
Once you have a pool of reference customers that support your work then you can begin to embark on bigger deals

Personal sales:
Most sales 10,000 and 100,000 and CEO won’t have to do any selling himself
In 2008 box had a good way for people to safely store their data in a cloud
Box built relationship with more and more users
If it started off by selling, it would have failed
sometimes the product itself is a form of distribution

By adding the type of person to your network, it makes your product more valuable
Scaling is fundamental here

-Distribution -
In between personal sales =sales people required
and traditional no people required

There is a dead zone

Distribution is the hidden bottle neck

- Marketing and advertising —
Can work for startups
Ecommerce Warby Parker
each pair starts at around 100
Company clv is a few 100 dollars

TV is a megaphone

Startups should resist large marketing plans

No early stage startup can keep upon with larger company advertisement

If every new user leads to another user your user base will exponentially grow

Viral loop should be as quick as possible

Paying people to sign = 7% daily growth,

The power law of distribution:
Distribution follows a power law of its own
The kitchen sink approach does not work
If you can get just one distribution channel to work you have a great business

Selling to non-customers:
You must sell your product to employees and investors
This company is so good that people will be clambering to join
Frenzy is very real
Selling your company to the media is important

The press can help attract or dismiss attention

Everybody sells:
All of us want to believe that we make up our own minds
Everyone has a product to sell
Look around, if you don’t see any sales people, you are the sales person

Chapter 12: Man and Machine

Every 1 of todays smartphones have a large amounts of processing power
Self driving cars could drive the next wave of unemployment
Will there be anything left for people to do?
Will a machine replace you?

Computers are compliments for people not a substitution

Substitution vs complementary:
15 years ago people were worried about cheaper Mexican substitutes

People compete for jobs and positions, computers compete for neither

Bush and Clinton preached free trade

Competition from computers
People have intentionality
Computers are different
To understand the scale

Computer for human substitution projects 2012 super computers 10 mill learned to identify cat
4-year-old, flawless

Humans and computers are categorially different
Computers are tools not rivals

Demand
Computers don’t yearn for things, property
Humans desire

Humans and computers can achieve huge tasks
2004 Palantir

CIA run by spies
NSA run by Generals importance on computers

CIA has to sift through noise
NSA process huge data, but cannot determine when someone is plotting a terrorist act

Palantir fuses the two

Think of professionals
Lawyers — communicate details
Doctors — clinical understanding
Teachers — understand how to tailor their teaching

LinkedIn didn’t pull recruiters
Recruiting is part detective work and part sales
Effectively replacing all of those functions with computers is almost impossible

LinkedIn wouldn’t have a business if it wasn’t for the people

The very term machine learning is on earth and its real.
Netflix algorithms
Google translates is machine learning because it has extracted data

Big data — is usually dumb data, computers can find patterns that elude humans but they don’t know how to compare that data to solve complex behaviors

Watson, deep blue,
the most valuable companies in the future will ask how will computers help humans solve more problems

Strong AI
Strong AI if we win we get utopia if we lose we don’t exist

Replacement by computers is for the 22nd century
There is room to create great products

Chapter 13: Seeing Green

21st century people thought clean technology was the best
Instead of a healthier plant we got nothing
Clean tech failed because it was a priority for a government (Republicans)

7 questions every business plan must answer
1- Engineering — Can you create breakthrough tech instead of incremental improvement
2- Timing — Is now the right time to start your business
3- Monopoly — Are you starting with a big share of a small market
4- People — Do you have the right team
5- Distribution — do you have a way to not just create but deliver your product
6- Durability — Will your market position be defensible
7- Secret — Have you identified an element that other don’t see

Clean tech companies were starting with zero good answers and were hoping for a miracle
Hard to know why every clean tech company failed

1 — a great tech company must have better technology in a magnitude that is far better than its closest substitute
Clean Tech companies rarely produces 2x or even 6x
Companies must strive for 10x because incremental improvements often end up meaning no improvement at all for the end user
Only when your product is 10x can you offer the customer transparent superiority

2 — Timing — CEO Andrew Wilson, solar industry — there is a lot to be figured out and improved like early microprocessors through history

Entering a slow-moving market could be a good strategy

3 — Monopoly —
In 2006 John Doore, green is the new red white and blue — internet markets are in billions energy markets are in the trillions

In 2006 Dave Pierce admitted to a panel that his company was just one of companies selling thin film solar cells
Customers won’t care about it unless it solves a problem in a superior way

You can’t dominate a sub- market if its fictional

4 — People — Energy problems are engineering problems
The people that ran clean companies were not engineers so they failed
Pass on any company whose founders dressed up for pitch meetings
The best sales is hidden

5 — Distribution — Is how the most important companies keep their products in the hands of consumers, they’ve got this on lock.

6 — Durability — Everyone should look to be the last mover in your respective market

Examples Apple in 2000 just 1.7% of natural gas came from fracked shale 5 years later that figure had climbed to 4%
By 2013 shale gas accounted for 34% and gas prices fell 70% since 2008

7 — The secret —
Every clean tech company
Everyone was bullish on solar
Bush liked solar roofs
Bill Gross said the potential for solar is important

While there is a gold rush here, there is actual gold

Each of them used broad convention
Great companies have secrets that other people don’t see

If socially good does that mean is it actually good or just seen as good from society.

Doing something different if what’s truly good for society
The best problems to work on are often the ones nobody tries to solve

- Tesla 7 for 7 —
Tesla is one of the few clean tech companies that thrive
They got the 7 for 7 right

1) Tesla’s tech is so good that other companies use their technologies
— Daimler battery packs
— Benz power train
— Toyota motor
— GM task force to track Tesla next move
— Its ability to integrate many products into one thing

2) Timing
— In 2009 green jobs were a political priority
— Elon saw an opportunity
— In 2010 Tesla secured 465-million-dollar loan

3) Monopoly
— High end production sports cars
— Starting small allowed them to RND to the model s

4) Team
— Elon describes his staff as special forces

5) Distribution
— Tesla took is very seriously
— Upfront costs are higher but it affords control over the experience, saves money and the brand

6) Durability
— Has a head start and moving faster than anyone else
— A car is a big purchase

7) Secrets
— Knew that fashion matters in clean tech
— Tesla looks clean
— Clean tech is more a social phenomenon

- Energy 2.0 —
Tesla success proves there is nothing wrong with clean tech
Energy is the master of resource
most of the world dreams of living as Americans do today

A value business must start as finding a niche and dominated a small market
Facebook — college campus
Tesla — high performance cars

The challenge for energy 2.0 is to think small

Chapter 14: The Founders paradox

Are all founders unusually people?
Which personal traits actually matter in a founder?

Difference engine:
Plot where everyone falls and you’ll see a bell curve
Normal can’t be rich and poor at the same time
Cash poor but millions on paper

Sure, Richard Branson
Started his first business at age 16
Lions mane hairstyle are less natural
Branson is the virgin king
King of PR, Branding, King of desert and water

The most famous people in the world are founders as well
Lady GAGA is a founder of her brand
Self manufactured myth
Certainly not normal

Where kings come from:
Brilliant king, solved the riddle of the sphinx
Law Maker and Law breaker
Normal people
Like founder scapegoats are weak on the other had they can diffuse conflict by taking the blame

American royalty:
Celebrities are labeled American royally
Grant titles like king of rock, pop, pop princess
Brittney spears — we created her from nothing shaved head, weight issues, lost custody of her kids
Elvis — self-destruct,
Jackson — start to drugs, repulsive

27 Club
Winehouse, they tried to make me go to rehab but I said no no no

We do this to tech founders as well
The beginning of is his when he suffered his third and worse plane crash
HE became addicted to pain killers
30 years of his life that

Highly visible success can attract highly unwanted attention

Bill Clinton or Bill gates importance?

The return of the king
Steve Jobs return to apple demonstrated the irreplaceable Position of a company’s founder

Creation of new value cannot be reduced to numbers

We need founders
We should be more tolerant of founders who seem strange

Above all
Don’t overestimate your own power as an individual

We cannot take the future for granted
We have to create the future
Think for your self

Founder / CEO @Kozen