Vertical or intensive progress is doing new things (0 to 1) aka technology.
Horizontal or extensive progress is copying things that work (1 to n) aka globalization.
Ask yourself: “What important truth do very few people agree with you on?”
Most people think that the future of the world will be defined by globalization but the truth is that technology matters more.
A startup must question received ideas and rethink business from scratch.
PayPal wanted to create a new internet currency to replace the US dollar.
When PayPal first started its email-to-email payment, it gave customers $10 to sign up and $10 to refer a friend. This got hundreds of thousands of people to sign up.
"Lean" is code for “unplanned.”
4 Rules that Thiel says are unconventional in Silicon Valley but he believes:
- It is better to risk boldness than triviality.
- A bad plan is better than no plan.
- Competitive markets destroy profits.
- Sales matters just as much as product.
Creating value is not enough – a startup also needs to capture some of the value it creates.
Even very big businesses can be bad businesses:
- Ex) Airlines only make about 37 cents per passenger per flight. They have terrible margins even though they create a lot of value for their customers.
- Google serves billions of people and makes 3x the profit of all airlines combined.
In perfect competition, in the long run, no company makes an economic profit.
If you want to create and capture lasting value, don’t build an undifferentiated commodity business.
PayPal was the first email-based payment system.
Monopoly is the condition of every successful business. A monopoly is when a business has created something that cannot be easily replicated.
Thiel started PayPal and Elon Musk started X.com at the same time. Both platforms had the exact same features. Instead of destroying each other through competition, they merged and made it past the dot com crash.
- Join forces with people working towards the same goal as you.
A business is valued based on its future expected cash flow.
Think: "Will this business be around a decade from now? If it will, then it’s likely good.
Characteristics of a monopoly (what you want your business to have): proprietary technology, network effects, economies of scale, and branding.
Proprietary technology creates a barrier to entry for other businesses. It can make it impossible for another company to take your place (Ex. Google’s Search algorithm.)
Proprietary technology must be 10x better than any substitute to lead to a monopolistic advantage.
The clearest way to make a 10x improvement is to create something completely new. New category products are also easier to market.
Network effects (word of mouth): If all your friends are on Facebook, for instance, you’ll get Facebook too. In order to have network effects, you need to have a good, valuable product or service when the network is small.
Creating a strong brand is a powerful way to claim a monopoly.
Every startup should start with a very small market. Always err on the side of starting too small. You want to dominate the market. It’s easier to dominate a small market than a big market.
Avoid competition as much as possible.
Every great entrepreneur is first and foremost a great designer.
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.
The one rule for venture capital: only invest in companies that have the potential to return the value of the entire fund.
Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know.
Thiel’s Law: A startup messed up at its foundation cannot be fixed.
Partnerships are difficult to get right. The partners need a good history together.
A sole proprietorship could solve the partnership problem but it is very hard to go from 0 to 1 without a team.
Ownership, possession, and control:
- Ownership: who legally owns a company’s equity?
- Possession: who actually runs the company on a day-to-day basis?
- Control: who formally governs the company’s affairs?
A typical startup allocates ownership among founders, employees, and investors. The managers and employees who operate the company enjoy possession. And a board of directors, usually comprising founders and investors, exercises control.
Most conflicts in a startup erupt between ownership and control – between founders and investors on the board.
To avoid conflicts, the board should be as small as possible. You need to choose wisely who is on the board. Every single board member matters.
A board of three people is ideal. The board should never exceed 5 people unless the company is publicly held. The average for a public company is 9 members.
As a general rule, everyone involved with your company should be involved full-time. There are some exceptions; it usually makes sense to hire outside lawyers and accountants. However, anyone who doesn’t own stock options or draw a regular salary from your company is fundamentally misaligned.
Hiring consultants doesn’t work. They’re interested in short-term results, not long-term. Part-time employees don’t work. Working remotely should be avoided.
A company does better the less it pays the CEO.
The CEO of an early-stage, venture-backed startup should not receive more than $150,000 a year salary.
Stock compansation is good because it makes employees think long term and incentivises them to grow the business. Giving everyone equal shares is usually a mistake.
It’s impossible to achieve perfect fairness when distributing stock among employees. Founders would do well to keep the details a secret.
People who want equity are more likely to be good hires because they care about the future of the company.
Recruiting should never be outsourced. You need people who want to work together.
Why would a good potential employee work for you instead of a more prestigious company like Google? It must be because of your mission and your team.
Your mission has to be something important that no one else is going to get done. Ex) At PayPal, if you were excited by creating a new digital currency to replace the US dollar, PayPal wanted to meet with you; if not, you weren’t the right fit.
Don’t fight the perk war. Anyone who would be swayed by laundry pickup or free pet daycare is not a good foot for the team. Just cover the basics like health insurance.
Startups should make their early staff as personally similar as possible.
Make every person in the company responsible for one thing. Most fights inside a company happen when colleagues compete for the same responsibilities.
A product will go viral if its core functionality encourages users to invite their friends to become users too. This is how Facebook and PayPal grew so quickly.
Most businesses get zero distribution channels to work: poor sales rather than bad products is the most common cause of failure.
- If you can get just one distribution channel to work, you have a good business. If you try for several but don’t nail one, you’re finished.
Selling your company to the media is a necessary part of selling it to everyone else.
Media attention can help attract investors and employees.
As computers become more and more powerful, they won’t be substitutes for humans, they’ll be compliments.
Replacement by computers is a worry for the 22nd century.
Don’t overestimate your own power as an individual. Founders are important because they are the only ones who can bring out the best work of everyone in their company.