Today’s “best practices” lead to dead ends; the best paths are new and untried.
Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
Horizontal or extensive progress means copying things that work—going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things—going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done.
At the macro level, the single word for horizontal progress is globalization—taking things that work somewhere and making them work everywhere. China is the paradigmatic example of globalization; its 20-year plan is to become like the United States is today… The single word for vertical, 0 to 1 progress is technology. The rapid progress of information technology in recent decades has made Silicon Valley the capital of “technology” in general. But there is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.
Positively defined, a startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think.
In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can’t. In perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
Ellison and Siebel spent the second half of the ’90s trying to sabotage each other. At one point, Ellison sent truckloads of ice cream sandwiches to Siebel’s headquarters to try to convince Siebel employees to jump ship. The copy on the wrappers? “Summer is near. Oracle is here. To brighten your day and your career.”
Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.
What really matters is generating cash flows in the future, so being the first mover doesn’t do you any good if someone else comes along and unseats you. It’s much better to be the last mover—that is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision. In this one particular at least, business is like chess. Grandmaster José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.”
Ralph Waldo Emerson captured this ethos when he wrote: “Shallow men believe in luck, believe in circumstances.… Strong men believe in cause and effect.”
The philosophy of the ancient world was pessimistic: Plato, Aristotle, Epicurus, and Lucretius all accepted strict limits on human potential. The only question was how best to cope with our tragic fate. Modern philosophers have been mostly optimistic. From Herbert Spencer on the right and Hegel in the center to Marx on the left, the 19th century shared a belief in progress. These thinkers expected material advances to fundamentally change human life for the better: they were definite optimists.
Making small changes to things that already exist might lead you to a local maximum, but it won’t help you find the global maximum.
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.
VC investment accounts for less than 0.2% of GDP. But the results of those investments disproportionately propel the entire economy. Venture-backed companies create 11% of all private sector jobs. They generate annual revenues equivalent to an astounding 21% of GDP. Indeed, the dozen largest tech companies were all venture-backed. Together those 12 companies are worth more than $2 trillion, more than all other tech companies combined.
A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world. It begins by rejecting the unjust tyranny of Chance. You are not a lottery ticket.
institutionalized education traffics in a kind of homogenized, generic knowledge.
The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside.
A board of three is ideal. Your board should never exceed five people, unless your company is publicly held.
A company does better the less it pays the CEO—that’s one of the single clearest patterns I’ve noticed from investing in hundreds of startups. In no case should a CEO of an early-stage, venture-backed startup receive more than $150,000 per year in salary.
If a CEO collects $300,000 per year, he risks becoming more like a politician than a founder. High pay incentivizes him to defend the status quo along with his salary, not to work with everyone else to surface problems and fix them aggressively. A cash-poor executive, by contrast, will focus on increasing the value of the company as a whole.
A startup is a team of people on a mission, and a good culture is just what that looks like on the inside.
Why would someone join your company… But there are two general kinds of good answers: answers about your mission and answers about your team.
The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflict. Most fights inside a company happen when colleagues compete for the same responsibilities.
But advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later. Anyone who can’t acknowledge its likely effect on himself is doubly deceived.
In mid-2000, we had survived the dot-com crash and we were growing fast, but we faced one huge problem: we were losing upwards of $10 million to credit card fraud every month (at Paypal).
Today’s companies have an insatiable appetite for data, mistakenly believing that more data always creates more value. But big data is usually dumb data.
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.
OF THE SIX PEOPLE who started PayPal, four had built bombs in high school.
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.