Originally read: 2/27/23 - 2/28/23

Summary

Startups should think first principles, seeking out fields with secrets and 0→1 disruptive innovations rather than 1→n sustaining innovations to escape competition and monopolize as a reward. The founding moments of a company are critical so create a strong company culture and work to ensure no misalignment arises. Sell your values and vision to employees, investors, media, and customers. Building a successful startup requires passion, dedication, and the willingness to take risks and make mistakes along the way.

“The most contrarian thinking of all is not to oppose the crowd, but to think for yourself”

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

“The opportunity to do irreplaceable work on a unique problem alongside great people”

Key Takeaways

• 0→1 (technology, vertical, disruptive) vs 1→n (globalization, horizontal, sustaining)
• All markets are either a perfect competition or monopoly
  • Reward for innovation: patents, monopoly
  • Think first principles, escape competition
• Reasons for thinking all secrets are found:
  • Incrementalism, risk aversion, complacency, flatness
  • Seek out fields with secrets and be secretive
• Founding moments are critical
  • Create a strong company culture
  • Work to ensure no misalignment
• Sell to employees, investors, media, customers

Notes

1: The challenge of the future

• “What important truth do very few people agree with you on?”
  • Technology more important than globalization
• Eg. “most people believe in X, but the truth is the opposite of X”
• 1→n: globalization, horizontal progress
• 0→1: technology, vertical + intensives progress
• Startup: “the largest group of people you can convince of a plan to build a different future”

2: Party like it’s 1999

• Bubble: disproven old view
  • Dot com: eg. page views
• False dogma from ↑
  1. Incremental > grand visions
  2. Stay lean (unplanned)
  3. Improve on competition (existing customer)
  4. Product > sales
• “The most contrarian thinking of all is not to oppose the crowd, but to think for yourself”

3: All happy companies are different

• Perfect competition or monopoly
  • Airlines vs Google profit margins
• Universal need to describe market in ways that benefit company - thus, both sides are downplayed
• In a static world, a monopolist is just a rent collector
• Patents, monopolies: reward for innovation
• Monopoly is the product of every successful business

4: The ideology of competition

• School prepares you for convention
• Competition is often compared to war
• Think first principles, not beating competition
• 0→1: escape competition via monopoly
• Either don’t throw any punches or strike hard and end it quickly, no middle ground

5: Last mover advantage

• “The value of a business today is the sum of all the money it will make in the future”
• Discounted cash flows
• Company advantages:
  • Proprietary technology (10x better)
  • Network effects (must start especially small - doesn’t even look like a business opportunity to start)
  • Economies of scale (SaaS)
  • Branding
• Err on the side of niching too small
• Monopolize a small niche and scale up
• Disruption (challenging, established companies, or ideas) is a dangerous game and bad signal (no monopoly)
  • Think positive sum

6: You are not a lottery ticket

• Definite/indefinite optimists/pessimists
• Definite pessimism: China
• Indefinite optimism: dominates modern US (PE)
• Finance = indefinite: “the only way to make money when you have no idea how to create wealth”
• “Only in a definite future is money a means to and end, not the end itself”
• Biotech indefinite, tech definite
• We’re too probabilistic (hedged)
• Leanness is a methodology, not a goal
• Startups: intelligent design > Darwinism
• “A business with a good definite plan will always be underrated in a world where people see the world as random”
  • Founders with definite optimism are undervalued in acquisitions

7: Follow the money

• Pareto principle: 80/20 rule
• Power law of VC investing
• Only invest in companies with 100x return potential
• VC: 0.2% GDP, 11% private sector jobs, 21% of GDP in earnings
• Focus relentlessly at something you’re good at doing

8: Secrets

• Fundamentalism: conservatism
• 4 reasons for thinking all secrets are found:
  • Incrementalism: academia quantity > quality
  • Risk aversion: risk of lonely and wrong
  • Complacency: middle class content
  • Flatness: too many educated people to still have secrets
• Economic bubbles prove there are fundamental secrets
• Natural + human secrets
• Seek out fields with secrets
  • eg. can’t major in college
• Be secretive with your idea

9: Foundations

• First moments critical (big bang, constitution)
• Ownership (shares), possession (operators), control (board)
• Risks of misalignment:
  • Big board (>5)
  • Part-time workers (on/off the bus)
  • Unfair compensation
  • Careless equity distribution
  • Not always “founding”

10: The mechanics of mafia

• Treat early employees like best friends
• Unique perks: 1) mission, 2) team, 3) unique person fit
• “The opportunity to do irreplaceable work on a unique problem alongside great people”
• Early employees should all be “similar” (different in the same way)
• Define roles early (#1 source of conflict)
• Be a cult

11: If you build it, will they come?

• Literally everything is sales, but there’s a systematic effort to hide it
  • Fame, politics, business, etc.
• The best sales is hidden
• Distribution is essential to the design of a product
• Can sell bad product but good products won’t sell themselves
• Eg. Alex Karp spends 25 days / month on the road selling
• Advertising, viral marketing
• Sell to employees, investors, media, customers

12: Man and machine

• “Computers are compliments for humans, not substitutes”
• Human in the loop systems
• AGI: “worry for the 22nd century”

13: Seeing green

• 7 Qs every company must answer:
  1. Engineering: can you create a breakthrough? (vs incremental)
  2. Timing: right time?
  3. Monopoly: big share of small market?
  4. People: right team?
  5. Distribution: deliver product
  6. Durability: moat (10+ yrs)
  7. Secret: unique, others don’t see
• Big green energy market → lots of competition → small share, bad
• Social good = majority opinion
• Social entrepreneurship creates ambiguity between social and financial goals
• Can’t just ride big wave, always need uncommon insight (niche market)
  • Eg. Tesla started as niche
  • Secret: green movement was as much a social phenomenon as an environmental imperative → high-end roadster

14: The founders paradox

• Cultivate a personality
• “Perhaps every modern king is just a scapegoat who’s managed to delay his own execution”
• Need to be tolerant of quirky founders
• Founders need irrationality
• “The single greatest danger of a founder is to become so certain of his own myth that he loses his mind, but an equally insidious danger for businesses is to lose all sense of myth and mistake disenchantment for wisdom”

Conclusion

• World’s limited resources will always result in competition, spurring innovation
  • Economic competition more intense than ever before (globalization)
  • Stagnation = conflict = extinction
• AGI, the singularity
• Look at the world anew (first principles)