Notes on Startups, or How to Build the Future – Goodreads link
I tried reading this book back in 2016 and it didn’t resonate, but so many people revere it that I figured I should dive in again. After spending more time working on business strategy this lands a lot better.
The book came from a collection of notes that student Blake Masters took during Peter Thiel’s Stanford class in 2012 (CS 183).
My primary goal in teaching the class was to help my students see beyond the tracks laid down by academic specialties to the broader future that is theirs to create.– Peter Thiel
Focus on thinking differently from others, specifically through the lens of the question What do you believe is true that almost nobody else believes is true?
Turn your idea or “secret” into a product for a tiny market and avoid competition.
Make sure what you offer is so good that the competition is miles behind you, allowing for long-term growth and market dominance.
Who should read / listen to it
This book is helpful for anyone thinking about business strategy or doing innovative work. The ideas translate across industries and jobs, particularly the advice to think for yourself.
🥦 Impressions + Impact
Peter Thiel offers a very refreshing perspective on startups and not just the advice to “disrupt, move fast, get out of the building” that I’ve seen elsewhere. Overall this book inspired me to think longer-term and to look out for “secrets” or unique insights in particular markets.
💬 Top 3 Quotes
1) Think for Yourself
You can’t escape the madness of crowds by dogmatically rejecting them. Instead ask yourself: how much of what you know about business is shaped by mistaken reactions to past mistakes? The most contrarian thing of all is not to oppose the crowd but to think for yourself.
2) Sharing your Secret
In practice, there’s always a golden mean between telling nobody and telling everybody—and that’s a company. The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.
3) The Last Mover Advantage
Every entrepreneur should plan to be the last mover in her particular market. That starts with asking yourself: what will the world look like 10 and 20 years from now, and how will my business fit in?
** You might also like my summary of The Elephant in the Brain about how social pressures drive our decisions.**
🔟 Ten High-Value Take-Aways
1) Principles for Startups
Thiel explains several guiding principles that oppose the common sentiment.
First – to develop a bold business plan, rather than a timid one.
Second – that improvising is far less effective than making a plan, even a bad one.
Third – competition is the enemy of profits (for more see #3 below)
Fourth – having good sales and distribution is as important as the greatness of the product.
2) New monopolies disrupt old ones
For example, Microsoft’s operating system lost its dominance to the Apple iOS as mobile devices become the most frequently used technology.
IBM had a hardware monopoly in the 60s and 70s but Microsoft disrupted that with their platform monopoly. Telephone service was owned by AT&T for a long time, but now many providers compete to offer cheap phone plans.
All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.
3) The more we compete, the less we gain
We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain. This is a simple truth, but we’ve all been trained to ignore it.
Before joining forces with Elon Musk, he and Thiel had competing businesses – PayPal and X.com. They partnered to avoid any crash from the tech bubble they perceived, and the bet paid off.
4) Future Profits
A business value is the sum of all future profits combined. For example, LinkedIn will derive most of its value in the 2020s when it has reached a large enough customer base and can leverage its features and size. It is much easier to focus on short-term growth, but endurance is the more important thing to emphasize.
For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn’t.
5) Make it 10X Better
To replace an existing business, new technology needs to ten times better than the substitute. A lesser improvement will be seen as too small an improvement to justify the inconvenience of changing.
6) On Business Focus
Initial markets begin as tiny opportunities. Thiel explains that this is why MBA’s start so few companies – they don’t see a business opportunity in such a small idea as Mark Zuckerberg’s tool to rate people’s faces at Harvard.
When Steve Jobs returned to Apple, he didn’t just make Apple a cool place to work; he slashed product lines to focus on the handful of opportunities for 10x improvements. No technology company can be built on branding alone.
7) Defined by your competition
It is more valuable to distinguish your company as a unique entity instead of how you differentiate yourself. To truly grow to the point of being the leader in a market a company needs to stand entirely on its own.
Indeed, if your company can be summed up by its opposition to already existing firms, it can’t be completely new and it’s probably not going to become a monopoly.
8) Starting a company?
Thiel explains that with the potential for a small business to grow exponentially it’s more lucrative to join a great company rather than start your own. If you want to find success, look for a job at a great company that is growing fast.
If anything, too many people are starting their own companies today.
9) Social Trends against Secrets
These are the four social trends that work together to discourage the search for new ideas or “secrets” in business.
- Incrementalism – we have been taught to slowly build up skills or experience. You don’t get credit for learning something if it’s not on the test. Making giant leaps is counter to our social upbringing, but that’s the route to innovation.
- Risk Aversion – if you work on something secret (or innovative) you have a real chance of failure.
- Complacency – it is easier to follow the status quo than to believe in secrets. A much more comfortable option is to take the job offer or become a landlord or invest in a mutual fund.
- Flatness – when people assume the world is homogeneous and highly competitive, it’s easy to make the excuse that someone should have already discovered this secret.
If your goal is to never make a mistake in your life, you shouldn’t look for secrets. The prospect of being lonely but right—dedicating your life to something that no one else believes in—is already hard.
10) Distribution is Essential
Make sure that your new invention or product also has an efficient distribution solution. Products do not sell themselves. By combining a great product with exceptional sales and distribution you can build a successful business.
It’s better to think of distribution as something essential to the design of your product. If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.
Superior sales and distribution by itself can create a monopoly, even with no product differentiation. The converse is not true.
** You might also like my summary of the book Company of One about the reasons to keep your business small **
❇️ More Resources
Blake Masters — Note Essays on CS183 – These ended up becoming the book Zero to One
Peter Thiel’s Religion — David Perell (2019) – a great essay about Peter Thiel and his “followers”
🎙 Podcast Interviews
Interesting conversation that ranges from innovation to the bubble in education. I like that he answers questions from Harvard students and faculty.
We have seen progress in the world of bits but not in the world of stuff.— Peter Thiel
Peter Thiel – The Portal with Eric Weinstein (Jul 2019)
This discussion revolves around the stagnation of science and technology innovation. You can also read a summary at Podcast Notes.
Go into a room and subtract off all the screens. How do you then know you’re not in 1973?— Eric Weinstein