March Update

I realized this week that it has been one year since starting this blog. A lot has happened in the last year that has resulted in me being a much different person than I was last March. Over the last year I have read 21 non-fiction books and written summaries about them. The summaries have been longer than I initially intended, but I also have a much different approach to reading than when I first started this. I am now actively taking notes, bookmarking key themes, quotes, insights as I read. Then I will go back and write up my summary of those key points. The basic result is I end up reading each book almost 2X and it has allowed me to retain a lot more than I would have otherwise.

I had several personal breakthroughs in the first half of last year, however if you look through the last year there was definitely a time period where I slowed down bit in mid-July. My best friend died in a car accident on July 15 of last year, which I have written about only privately until this point. The second half of the summer I was trying to hold it all together while still finishing up planning my wedding in September. Taylor’s death had a profound impact on my outlook on life – on how fleeting it is. This has both emboldened me and inspired me to break out of my current life. My life so far has been focused on risk aversion, I mentioned before that I started investing for retirement at 16 years old, I have always been relatively frugal, picked a ‘safe’ career where I can make it through to around 60 years old and retire… I wrote in my “Current State – May 2016” post about how I was starting to wander off the ‘safe’ path that was in front of me. When Taylor died, my risk-averse foundation took a serious hit. Taylor was driving to work when he got rear-ended: this is something that can happen to anyone at any moment. No matter how risk averse I am, life is something that should not actuarial. I have realized life is much too short to spend it doing something you are not passionate about.

This is the biggest challenge, finding something that I can get excited about doing every day. Over the last year I have tried to boil the essence of my ‘sweet spot’ down to a few key ingredients. So far in that recipe I have found a couple of themes, which I will expand upon as I learn more about myself:

  • Creation
    • I have found that I get into a state of flow when I am creating something; when I am building something; when I am using my imagination.
    • Computers are good at analyzing data, humans are good at creating something new and beautiful. My current job has too much analysis, however I do see a lot of creativity in my thinking – even if it comes out in a different form than other ‘creative’ people
  • Learning
    • I am always looking at myself and what I am working on and asking “am I learning anything from this process?” When I find myself getting stuck in a rut at work, it is typically because my growth has stagnated. When I am not learning anything, working is boring. This one also ties in a lot with ‘creation’ since by definition, creation has a prerequisite of a growth mindset.
  • Philanthropy
    • Helping people or causes I believe in. One thing I have learned is that giving your time and connecting with other people has a great impact on yourself and others.

One thing I noticed after writing these items is that all of them are in some form in Choose Yourself by James Altucher around ways of releasing oxytocin. I believe if I were to start a business of my own it would need to be at the intersection of these three themes.

Looking back, 2016 was probably the most significant year of my life to date. I started this journey of a self-directed MBA where I would force myself to my own accountability and learning program. My best friend died in a car accident, which shook the foundation I had built in the last 26 years of life. On the other end of the emotional continuum, I got married in September, which was incredible because I was able to marry my best friend in front of all my friends and family that mean the most to me. In retrospect, 2016 was a year of significant personal and emotional growth through the best and worst of times.

Looking forward, 2017 is showing itself to be a transition year right now. Where 2016 was a transformation year, 2017-2018 is my transition into the new life I want to create for myself. Right now I see the end of the tunnel for the SDMBA I have been doing. I only have 3 books left, which will be followed by Y-Combinator/Stanford collaboration “how to start a startup”. The idea here is that I will generate an idea through the startup process which would potentially be the basis for my startup company. Phase 3 of the SDMBA is to start a business. It can be a side business such as financial advice to small businesses or something much larger. The idea is to get SOMETHING started. Action leads to inspiration, which leads to motivation, which then leads right back to action and this positive feedback loop continues.

One last thing I wanted to give an update on was travel. This is one area that has popped up as a significant piece of my identity. In 2016 we barely traveled at all due to how busy we were with wedding planning (and I ran out of time off). Going into 2017 we committed to wanting to both travel more and be better friends by visiting the out-of-town friends we never see. Our travels in 2017 have/will include the following:

  • Mexico (honeymoon) in February
  • San Diego – visiting Erika’s Aunt
  • New York/Connecticut – visiting friends
  • South Africa – we just added this on. We have friends that live in South Africa. We are planning on volunteering through IVHQ for a week, then spending a few days with our friends.
  • North Carolina?  Not booked yet, but we have friends there that we would love to visit

We have a travel list and travel fund, which maybe I will write about a bit more in another post. I have found travel to be something that inspires me and forces me out of my comfort zone. Learning new places, putting yourself out there in a new environment is a great way to force yourself into vulnerability, force yourself to talk to people, and force yourself to grow.

Just wanted to get an update ‘in the books’ since I have been doing more personal stuff in a private journal than on here.

RG

Advertisements

Hackers & Painters – Book Review

Hackers and Painters by Paul Graham is an interesting read – much different from any of the other books I have read in this journey since it is a collection of his personal essays. I am not going to summarize the book like I have others, but I would like to write about some of the key insights I found that made me think a bit. If I had to summarize the book with a couple of key words, they would be: value creation, contrarian, a view inside the world of hacking, big ideas that are well thought out, and brilliant.

There are 15 total essays below is the list along with some of the key takeaways or quotes I took from them. There were a couple that went into the weeds on software languages and programming so I will briefly go over those.

  1. Why Nerds are Unpopular
    1. I took a couple of good notes in this section, but the summary is that the nerds are different and the social pressures of trying to be popular cause the “popularity middle class” students to try and push down the group that is different.
    2. The ‘nerds’ in school are are trying to play a different game from the others- one that is closer to the one played in the real world
    3. Graham says that the teachers do not know how cruel the kids are to one another. They are in a similar position to prisoners: their goal is to keep the prisoners on the premises, fed, and not killing one another.
    4. Things get better for nerds after school because in college and beyond the ‘pool’ gets a lot bigger and they can clump together.
    5. Graham argues that life seems awful to kids because the adults – who have no economic use for you- have abandoned you to spend years cooped up together with nothing real to do in the emptiness of school life.
  2. Hackers and Painters
    1. Graham says that Hackers and Painters have a lot in common. They are both creators. Hackers find themselves mislabeled as the ‘computer science’ which makes it seam like a science- and this has some negative implications from a research standpoint. I won’t labor it though…
    2. Hackers are like artists in that they look at the masters of the past to build in the future – like great painters, programers will look at source code and building upon their work.
    3. If you want to make money at some point – you should understand one of the reasons startups can beat massive companies. Companies want to dampen the variation in their process to avoid disasters. The problem with that is you end up dampening the high points as well as the low points.
      1. Big companies win by sucking less than other big companies- they aren’t shooting for making great products.
      2. The place to fight design wars is in new markets
  3. What you Can’t Say
    1. Ask yourself the following “do you have any opinions that you would be reluctant to express in front of a group of peers?” if the answer is no, you might want to think about that: everything you believe is something you are supposed to believe!?
    2. What would you get in trouble for saying?
    3. Heresy- what is shot down before even looking to see if it is true or not? indecent, improper, un-American, defeatist, etc
    4. Prigs – what are the taboos that we use? Graham suggests looking at what the picture the world looks like that we show our kids as a good place to see where the taboos are. Santa, sex, curse words, etc. A well brought-up teenage kid’s brain is a more or less complete collection of all our taboos – in mint condition!
    5. Mechanism: when everyone imitates the whim of some influential person
      1. “To launch a taboo, a group needs to be poised halfway between weakness and power. A confident group doesn’t need taboos to protect it. And a group needs to be powerful enough to protect it”
      2. Fashions tend to have the early adopters followed by the second, larger group driven by fear – that is afraid if they do not adopt they will stand out because they are afraid of standing out.
    6. Why?
      1. Challenge yourself to think contrarian because it is good for the brain. “to do good work you need a brain that can go anywhere. And you especially need a brain in the habit of going where its’s not supposed to”
    7. Pick your battles-  “argue with idiots, and you become an idiot” The most important thing is to be able to think what you want, not say what you want.
      1. The trouble with keeping your secrets to yourself is that you are missing out on the advantages of discussion: talking about an idea leads to more ideas.
    8. Always be questioning
      1. Everyone thinks that they are open-minded, though they will quickly draw the line at things that are really wrong. “in other words, everything is ok except things that aren’t”
      2. Always be questioning. That’s the only defense. What can’t you say? and Why?
  4. Good Bad Attitude
    1. The term “hacker” to the popular press means someone who breaks into computers. To programmers, this same term means ‘someone who is a good programmer’
    2. Graham tries to show the logic behind the mind of a hacker in this essay. To oversimplify it, it is someone who can master something. Or make it do whatever they want regardless of whether the computer wants to or not. Hackers are notorious for wanting to get inside things they are not supposed to: picking locks, breaking into computers, Jobs and Wozniak’s Blue Boxes to hack free long distance phone calls… etc.
      1. Show a hacker a lock and the first thing they will try to do is pick it
    3. Hackers see intellectual property and patents as a threat to the intellectual freedom they need to do their job
    4. “Hacking is the essence of American-ness. It is no accident that Silicon Valley is in America, and not France, or Germany, or England, or Japan. In those countries, people color inside the lines.
    5. The founding fathers of the US sound more like hackers – “the spirit of resistance to government” Jefferson wrote, “is so valuable on certain occasions that I wish it always to be kept alive.”
    6. Summary: Break the rules
  5. The Other Road Ahead
    1. This essay is about the starting of Graham’s company ‘Viaweb’ there is a lot of good stuff in the essay, but I want to focus on some more specific items
    2. For Hackers, there are two reasons you probably haven’t started a startup:
      1. You don’t know anything about business
      2. You’re afraid of competition
        1. Graham argues that neither of these barriers are big enough to be worried about
    3. There are two things you have to know about business:
      1. Build something users love
      2. Make more money than you spend
        1. “if you get these two right, you are ahead of most startups. You can figure out the rest as you go>”
    4. Making something people love:
      1. Make it clean and simple that you would want to use yourself
      2. Get version 1 out fast and continue to improve the software
        1. listen to users as you do but different users are right about different things
          1. Less sophisticated users show you what you need to simplify/clarify
          2. Most sophisticated users tell you what you need to add
      3. Compare your product to what it could be, not what your competition is
      4. If you can’t design software as well as implement it, don’t start a startup.
  6. How to Make Wealth – page 87 (good one to read again in the future)
    1. A startup is a small company that takes on a hard technical problem
    2. Ask yourself “how much smarter are you than your job description expects you to be?”
    3. If starting a startup was easy, then everyone would be doing it
    4. The key is this: you just have to start doing something people want
    5. Money is not wealth,  it is a side effect of specialization Wealth is created when you do something valuable (something people want)
    6. “Some of the best programmers are libertarians. In our world, you sink or swim, and there are no excuses. When those far removed from the creation of wealth – undergraduates, reporters, politicians,- hear the richest 5% of the people have half the total wealth, they think injustice! An experienced programmer would be more likely to think is that all? The top 5% of programmers probably write 99% of the good software.”
    7. In a company, the work you do is averaged with a lot of other people’s
      1. All a company is is a group of people working together to do something people want. It is doing something valuable that matters, not joining the group.
    8. Companies are not set up to reward people for working harder. You cannot offer to your boss that you will work 10X as hard if he will pay you 10X your salary. The official fiction of the workplace is that you are already working as hard as you can. The other problem is that the company has no way of measuring your work.
      1. This is part of why group work slows down difficult problems: in a large group, your performance is not separately measurable – and the rest of the group slows you down
    9. If you are in a job that feels safe you will never going to be rich: if there is no danger, there is almost no leverage
    10. Your goal is to be part of a small group working on a hard problem: Smallness = measurement
    11. A startup is not merely a group of ten people, but ten people like you
    12. Creating wealth has historically been due to the development of new technology
      1. To do this you need to deliberately seek hard problems
      2. Create barriers to entry
      3. As a rule, start by picking a hard problem, and at every decision point, take the harder choice
    13. For most people the most powerful motivator is not the hope of gain, but the fear of loss.
    14. Investors in startups care mostly about one thing: how many users you have. This is the metric you need to track for yourself.
    15. “A startup is, economically: a way of saying, I want to work faster. Instead of accumulating money slowly by being paid a regular wage over the course of fifty years, I want to get it over with as soon as possible.”
      1. The problem with working slowly isn’t that technological innovation happens more slowly, it is that it doesn’t happen at all.
  7. Mind the Gap
    1. Making money is a specialized skill. Nobody complains that some people are better at painting (writing, basketball, etc.) than others, but when it comes to money people think that inequity is wrong.
    2. Graham has three reasons for disparities of wealth:
      1. Daddy model of Wealth: Children tend to misunderstand wealth, confuse it with money, and think there is a fixed amount of it that is distributed by authorities vs. something that needs to be created and can be created unequally
        1. Kids do not create wealth, so they rely on what is given to them. When you are given something, it seems like it should be distributed equally.
        2. How much someone’s work is worth is not a policy question, it is determined by the market. That is why a CEO gets paid on average 100X the average person. Would you rather have 100 ‘average’ people running your company or Steve Jobs? The point isn’t that they are 100X more productive/skilled, but even if it is 10X, it is concentrated in one person – which makes it a lot more valuable.
        3. Saying certain kinds of work are underpaid is identical to saying that people want the wrong things
        4. The distribution may be unequal, but it is hardly unjust
      2. Stealing it
        1. Taxation/Confiscation
          1. The way to get rich here was not to create wealth but to serve a ruler powerful enough to appropriate it.
        2. The rise of the middle class caused wealth to stop being a zero-sum game
          1. Jobs and Wozniak didn’t have to make us poor to make themselves rich: they made things that made our lives materially richer. They had to or we wouldn’t have paid for them.
        3. For most of the world’s history, the main (and fastest) way to get rich was to steal it.
      3. Lever of Technology – will this increase the gap between the rich and the poor?
        1. It will certainly increase the gap between the productive and unproductive
          1. If you look at High School kids, they could get a job at McDonalds, or they could learn to write software or design websites: only some of them will, the rest will be flipping burgers.
    3. Alternative to an Axiom
      1. Policies are often criticized because they will increase the income gap between the rich and poor – It might be true that this increased gap might be bad, but you shouldn’t say that it is axiomatic.
        1. Graham argues that an increase in income variation is a sign of health: technology seems to increase variation in productivity faster than linear rates. If we do not see corresponding variation in income there are three possible explanations:
          1. Technical innovation has stopped
          2. People who would create the most wealth aren’t doing it
          3. They aren’t getting paid for it
            1. 1&2 would be bad, 3 would mean that only the things that are fun to do would get done
              1. The unfunny kinds of wealth creation would slow dramatically in a society that confiscates private fortunes. Several examples on page 119
      2. Graham finishes the essay saying that “you need rich people in your society not so much because in spending their money they create jobs, but because of that they have to do to get rich. Not trickle down effect where you get hired as the waiter, but if you let Henry Ford get rich he will replace your horse with a tractor. Don’t bust up the incentives for technological innovation and putting in the hard work.
  8. A Plan for Spam
    1. Graham talks about his strategy and program (pet hobby maybe?) for eliminating spam. I won’t go into the details here.
  9. Taste for Makers
    1. “taste” is the topic of this essay, with Graham pointing out that it is one of the ‘half-truths’ adults told us when we were growing up. You have been told that ‘taste’ is just a matter of personal preference but at the same time when you go to a museum you need to pay attention since Leonardo Da Vinci was a great artist. How are we supposed to reconcile these conflicting messages?
    2. Mathematicians consider good work to be ‘beautiful’, but what are the components that make something beautiful?
    3. How do you make good stuff?
      1. “if you want to make something that will appeal to future generations, one way to do it is to try to appeal to past generations”
    4. Good Design
      1. Good design solves the right problem
        1. Make sure you are answering the right question: what makes the most sense? Example of different font style – the most important thing about this decision is legibility, and it is easier to tell apart a lowercase g from y in Times New Roman than other fonts.
      2. Good design is suggestive
        1. They should suggest something, say something. Not telling you something, it lets your imagination fill in the gaps. For example, everyone makes up their own story about the Mona Lisa
      3. Good design is often slightly funny
        1. May not have to be funny, but it’s hard to imagine something that could be called humorless also being called good design
      4. Good Design is Hard
        1. If you’re not working hard, your probably wasting your time
        2. Form follows function, or form should follow function
        3. Wild animals are beautiful because they have hard lives
      5. Good Design looks easy
        1. Like great athletes, great designers make it look easy
        2. “when people talk about getting in ‘the zone’ I think what they mean is that the spinal cord has the situation under control. Your spinal cord is less hesitant, and it frees conscious thought for the hard problems
      6. Good design uses symmetry
        1. Nature uses it a lot, which is a good sign
        2. The danger of symmetry, and repetition especially is that it can be used as a substitute for thought.
      7. Good design resembles nature
        1. Nature has had a long time to work on the problem, So it is a good sign when your answer resembles nature.
        2. It is not cheating to copy!
        3. “The point of painting from life is that it gives your mind something to chew on: when your eyes are looking at something, your hand will do more interesting work.”
      8. Good design is redesign
        1. Experts expect to throw away some early work
          1. It takes confident to say ‘there is more where that came from’
          2. Don’t convince yourself that ‘its not that bad’
          3. Fear that if you try to redo something, it will turn out even worse
        2. “Dangerous territory, that. If anything, you should cultivate dissatisfaction”
      9.  Good design can copy
        1. A novice imitates without knowing it. Next he tries to be completely original. Then he decides its more important to be right than original
        2. If you don’t know where your ideas are coming from, you are probably imitating an imitator.
        3. The ambitious are not content to imitate. The second phase in growth of taste is a conscious attempt at originality
        4. The masters just want to get the answer right, if part of the right answer has already been discovered by someone else, that’s no reason not to use it
      10. Good design is often strange
        1. Not just beautiful, strangely beautiful
        2. “Einstein didn’t try to make relativity strange. He tried to make it true, and the truth turned out to be strange.”
        3. “Michelangelo was not trying to paint like Michelangelo. He was just trying to paint well; he couldn’t help painting like Michelangelo”
      11. Good design happens in chunks
        1. By location: fifteenth century Florence for painting, Silicon Valley, Grand Rapids beer scene
        2. Companies: lockheed’s Skunk Works; Manhattan Project, etc.
        3. Find the current hot spots and go to them
      12. Good Design is often daring
        1. “Today’s experimental error is tomorrow’s new theory. IF you want to discover great new things, then instead of turning a blind eye to the places where conventional wisdom and truth don’t quite meet, you should pay particular attention to them.”
        2. People in the past have made beautiful things by fixing something they thought was ugly
        3. “The recipe for great work is: very exacting taste, plus the ability to gratify it.”
  10. Programming Languages Explained
    1. Skipping this one – he goes pretty in-depth here (starts on page 146 for future reference)
  11. The Hundred Year Language
    1. “What programmers in a hundred years will be looking for, most of all, is a language where you can throw together an unbelievably inefficient version 1 of a program with the least possible effort… Inefficient software isn’t gross. What’s gross is a language that makes programmers do needless work”
    2. The holy grail of programming languages is reusability
  12. Beating the Averages
    1. Ask yourself: what makes your startup odd, unique, different
      1. A startup cannot do what all of the other startups are doing
      2. If you aren’t doing something odd, you’re in trouble
    2. At Viaweb, their secret sauce was the programming language Lisp, which allowed them to rapidly write their software
    3. In business, there is another more valuable than a technical advantage your competitors don’t understand
    4. A startup should give its competitors as little information as possible
    5. A startup has choices: if you have a choice in several languages, it is a mistake to program in anything except the most powerful one
    6. Comments about the power continuum for languages on page 176 which can be applied to other technologies. Basically – if you do not understand something, you do not know if you are looking up or down the power continuum. If you program in an inefficient language, it is easily to look down on other languages, but if you do not understand them, you might not realize that you are actually looking ‘up’ the continuum to something that is more powerful.
      1. “they’re satisfied with whatever language they happen to use, because it dictates the way they think about programs”
    7. Look at your competition to see what technology (languages) they are using- you can see it by taking hints from their job postings: are they looking for a specific type of experience? like C++, Java? etc.
  13. Revenge of the Nerds
    1. Talks about the ‘pointy haired boss’ that:
      1. Knows nothing about technology
      2. has very strong opinions about it
        1. This is why he says you need to use a certain ‘mainstream’ language: because it is a standard
          1. There will always be a lot of java programmers out there (easy to hire)
          2. I won’t get in trouble for using it – its a standard!
        2. He believes that all programming languages are pretty much equivalent
    2. If you start a startup, don’t design your product to please VC’s or acquirers. Design your product to win over the users, everything else will follow
    3. Beware: In technology, the current ‘best practice’ is the average,  not the best technology
      1. Technology should often be cutting edge.
  14. The Dream Language
    1. No real summary here – starts on page 200 about his vision for the hacker’s dream language: fast, efficient in writing, brief syntax, etc.
  15. Design and Research
    1. No real summary here, just a couple of high level takeaways- starts on page 216
    2. “If you think you’re designing something for idiots, odds are you’re not designing something good, even for idiots.
    3. Morale is key in design – for example if you are bored when you draw something, your drawing will be boring.
    4. “building something by gradually refining a prototype is good for morale because it keeps you engaged. In software, my rule is: always have working code. (Coster implications)
    5. “Design means making things for humans. But its not just the user who’s human. The designer is human too.

Overall I enjoyed this collection of essays primarily because they challenge you to question things. They challenge you to think outside of the box you are in. There is a contrarian spirit to this book that is really inspiring and makes me take a look at my life, my biases, my safe spots, and the things that are engrained in by operating system.

RG

 

 

 

 

 

 

 

 

Zero to One – Book Review

Zero to One – Peter Thiel is an book about how to not just start a business, but how to make sure it defines a new category and progresses the world further. There is quite a bit of contrarian thought process similar to Hackers and Painters. Peter Thiel starts out the book saying that the big industry defining businesses will only happen once: Bill Gates and the operating system, Mark Zuckerberg and social networks, etc. These are one-time events and the next ‘Bill Gates’ will not create a new operating system, they will create something completely new that nobody had ever thought of. If you were to make a ‘new version’ of current technology, Thiel would call this going from 1 to n. It is incremental relative to what has already been done. The premise of 0 to 1 is that you are creating value from something that didn’t exist before (or didn’t exist in the dominant form you would see from Facebook, Microsoft, Google, etc).

Thiel says that one of the main questions he asks during a job interview is: “what important truth do very few people agree with you on?” He is looking for what inspires a contrarian mindset in the person he is going to hire because if they do not have any unique ideas, they are only thinking what they had been taught in school without thoughts of their own. “brilliant thinking is rare, but courage is in even shorter supply than genius.”

Challenges for the Future

  • While we cannot completely predict the future, we do know two things for certain:
    • It is going to be different
    • It must be rooted in today’s world
  • Progress can be defined in two ways:
    • Horizontal progress builds on previous things that we already know work (1 to n)
      • Globalization is a great example of horizontal progress: taking things that work somewhere (U.S) and moving them other places (China, Africa, etc.)
    • Vertical progress is the creation of something completely new (0 to 1)
      • More difficult to imagine because it is something that has never been done before.
      • The single word definition for vertical progress is technology, or any new or better way of doing things.
  • Why this matters?
    • “Spreading old ways to create wealth around the world will result in devastation not riches. In a world of scarce resources, globalization without new technology is unsustainable”
  • Startup thinking
    • It is hard (and rare) to develop new things in big organizations
    • It is also hard to do it all by yourself
    • “Startups operate on the principle that you need work of other people to get stuff done, but you also need to stay small enough so that you actually can.”

Dot Com Crash

  • The Dot Com bubble led to the Silicon Valley learning the following lessons that are still used dogmatically in today’s startup world:
    • Make incremental advances
    • Stay lean and flexible
    • Improve on the competition
    • Focus on products, not sales
  • Thiel argues that the following are probably more correct: 
    • 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
  • Thiel argues you shouldn’t necessarily oppose the cloud, but you should think for yourself

All Happy Companies are Different

  • Ask yourself the following business question: what valuable company is nobody building?
  • Thiel goes into the differences between monopolies and perfect competition.
    • Under perfect competition, no companies make an economic profit
    • Thiel views monopolies as the kind of business that is so good at what it does that no other firm can offer a close substitute.
      • Monopolies are the only way to create and capture lasting value. You don’t want to build an undifferentiated commodity business
      • The lesson here is that you want to stay away from competitive markets and focus on where you can create a monopoly.
      • When looking at your target market you need to include the relevant data: does Google compete with the U.S. Search advertising industry? The U.S. Online advertising? or even the global advertising industry? Companies that have a monopoly will typically downplay their significance in the market. Meanwhile the company that is in a fiercely competitive market will try to show how dominant they are in a smaller market than what they should be measuring themselves against-this can be very dangerous if you are not correctly understanding your market and competition.
  • Are monopolies bad?
    • No- Only in a world where nothing changes. In a static world, the monopolist is just a rent collector.
    • In the real world you can invent new and better things
    • If monopolies were bad, why would the government protect monopolies by creating and protecting patents?
    • Monopoly is the condition of every successful business
    • Monopolies are the economic wild card that create value in an economist’s static model. We should retrain our brain- “monopolies are good”

Competition and Rivalry

  • “Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past”
  • “Winning is better than losing, but everybody loses when the war isn’t one worth fighting”
  • Thiel’s PayPal was in a rivalry with Elon Musk’s X.com as the internet bubble approached and they realized they had to merge together to survive the
  • Don’t let your ego fight over trivialities

Last Mover advantage

  • A monopoly is only a great business if if can endure in the future
    • A tech company’s value is typically expected to come 10-15 years in the future
    • The most important question for durability is this: “Will this business still be around a decade from now” 
      • Numbers will not tell you the answer to this question, you will need to think critically about the qualitative characteristics of your business
  • Characteristics of a monopoly
    • Proprietary technology – a good rule of thumb is that it should be 10X better than ints closest substitute
      • This means you will need to invent something completely new to escape the competition
      • Examples
        • Apple iPad combined integrated design and operating system that solved the shortcomings of all other tablets to thatpoint
        • Amazon launched its claim to be the ‘world’s largest bookstore’ because it could request any book from their suppliers vs having to hold inventory of 100k books like Barnes and Noble
    • Network Effects
      • Facebook works because all of your friends are on Facebook.
      • You need to be able to start small, but also able to scale
        • Facebook started as just for Harvard students, but expanded to the world
        • “This is why successful network businesses rarely get started by MBA types: the initial markets are so small they don’t even appear to be business opportunities at all”
    • Economies of Scale
      • Software is a natural one here, once you create the product, incremental variable cost is close to zero
      • A service business like a yoga studio for example could never become a monopoly because of the cost associated with spreading , hiring, training, etc.
        • Air BnB and Uber were able to try and solve these issues by adding a software model to services
    • Branding
      • A company has a monopoly on its brand by definition – try to create a strong brand
        • Apple is the strongest tech brand, but you need to realize that it was build on the back of superior products.
        • Beginning with brand rather than substance is dangerous – Yahoo! story on page 53
        • When Steve Jobs returned to Apple, he slashed several product lines in order to focus on the handful of opportunities for 10X improvement
  • Building a monopoly
    • Choose your market carefully and expand deliberately- start with a very small market: it is easier to dominate a small market than a large one.
      • If you think your initial market might be too big, it almost certainly is.
      • “the perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors”
        • Any big market is a bad choice
        • Any big market already served by competing companies is even worse
          • Big red flag when entrepreneurs talk about getting 1% of a $100B market
            • The large market will lack a good starting point or be open to competition
    • Scaling up
      • Amazon shows how you can go from dominating a niche to expanding to adjacent markets: CD’s, videos, and software
        • Ebay did the same thing with collectibles: Beanie Babies, which was able to scale to other products, but it didn’t work as well for commodity products that you would buy at Amazon.
    • Don’t Disrupt- avoid competition altogether
      • “if you truly want to make something new, the act of creation is far more important than the old industries that might not like what you create.”
      • “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 be a monopoly”
      • First mover advantage
        • This is tactic, not a goal. What really matters is making the last development in a market that allows them to enjoy years of monopoly profits

You Are Not a Lottery Ticket

  • Jack Dorsey said on Twitter once “success is never accidental” he took a lot of heat for it (coming from a billionaire white man) but there is a lot of truth to this statement. Waldo Emerson wrote “Shallow men believe in luck, believe in circumstances… strong men believe in cause and effect”
  • Thiel distinguishes between definite and indefinite people
    • A definite view – favors firm convictions , instead of pursuing many-sided mediocrity and calling it ‘well-roundedness.’ the goal is to make yourself indistinguishable.
    • Indefinite attitudes towards the future rely on randomness, lack of concrete plans to carry out. Becoming omnicompetent in order to be prepared for the completely unknown future.
  • Thiel created a matrix to show the difference between Definite and Indefinite and how they relate to Optimism and Pessimism. It is worth a read starting on page 62, and the diagram is below:

Thiel Definite

  • This matrix shows different scenarios/mindsets of the future along with the financial  (investments vs. savings scenarios) that correspond.
    • Indefinite Pessimism
      • Europe in the present keeps on kicking the can down the road. they know the future will be bleak, but they do not know what to do about it. They are reactionary when things happen, and there is hope that things won’t get worse.
    • Definite Pessimism
      • China knows that their future will be worse than it is today, but know they must prepare for the downfall. Savings are really high and the rich are trying to get their money out of the country
    • Definite Optimism
      • Knows the future will be better than the present if we plan and work to make it better. Thiel mentioned several large, bold things that have been accomplished in the past (nearly every decade until the 70’s): manhattan project, Empire state building, Interstate system, men on the moon/space program, etc. These bold strokes of innovation and growth have been replaced by Indefinite Optimism where we are unwilling to take major risks.
    • Indefinite Optimisim
      • America today- there is little investment and value creation or risk. Thiel blames the Baby Boomer population that “learned from childhood to overrate the power of chance and underrate the importance of planning”
    • Indefinite thinking spreads to other areas
      • Finance- is the only way to make money when you have no idea how to create wealth
      • Politics- the government used to be able to coordinate complex solutions to problems, but today the gov only provides insurance and entitlements
      • Philosophy
      • Life- instead of searching for a way to prolong lives, we have started looking at ‘life tables’ to tell us how long we are supposed to live. On page 75 Thiel put a side by side comparison of Biotech startups (indefinite thinking) vs. Software startups (definite thinking). This is why U.S. companies are letting so much cash pile up on their balance sheets- they don’t have a clear idea of what they should do with it.
    • The problem with all of this is that it is unsustainable: “how can things get better if there are no plans for it?”
      • For startups this is especially true- there is advice out there that you should build something and iterate it based on feedback. This is an ‘indefinite’ plan – Thiel argues that while Darwinism might be a fine theory in other contexts, for startups intelligent design works best.
      • Steve Jobs saw this in that you can change the world through careful planning- When the iPod was released, it was seen as ‘a nice feature for macintosh users’ but Jobs planned on the iPod to be the first generation of portable post-PC devices.
    • Thiel argues we need to have a cultural revolution to break us out this ‘indefinite thinking’ and back to a definite future. “It begins by rejecting the unjust tyranny of Chance”

Follow the Money: The Power Law (starting page 82)

  • I won’t spent too much time on this chapter, it is mainly about VC’s. The basic idea about the ‘power law’ is that the 80/20 rule applies to startups as well. A VC might invest in several startups in order to build a portfolio, but most likely only one or two will be very successful. What typically happens then is that they will give all of their attention to the struggling startups while neglecting the one that could make them the most money and gain that monopoly footing.
    • VC’s also have a curve where they will have the initial cash investment, then several of the startups will likely fail before the ones that succeed actually pay out. This can be a major cash issue for some VC’s

Secrets

  • “what valuable company is nobody building?” Thiel argues that every correct answer is necessarily a secret, or something important and well known. If you break the concept of ‘ideas’ into three groups, they would be:
    • Conventions – an easy truth we teach to grade school kids
    • Secrets – something that is hard, but doable. It is possible to figure these out with a lot of work
    • Mysteries – the unknown and unsolvable
  • Thiel argues we do not look for secrets like we used to. He gives a couple of reasons for this:
    • Incrementalism – we are taught the right way to do things is one small step at a time. This is how our education reward system is currently set up- there is no incentive for being an over-achiever.
    • Risk aversion- people are scared of secrets because they are afraid of being wrong.
    • Complacency- The social elites have the most freedom and ability to explore new thinking, but are often the least likely to. Why would you search for a new secret if you are already comfortably collecting rent on the stuff that has already been done?
    • Flatness- basically this is the mindset that “if it were possible to discover something new, wouldn’t someone from the faceless global talent pool of smarter and more creative people have found it already?”. This voice of doubt dissuades people from even trying: “we have given up our sense of wonder at secrets left to be discovered”
  • Why secrets must still exist
    • “to say that there are no secrets left today would mean that we live in a society with no hidden injustices”
      • look for irrationality
      • look for bubbles
      • look for things that are unjust
      • look for things that should be better
      • Think to yourself “in 100 years, what would I expect to replace this technology?”
      • Thiel talks about a ton of ideas on page 102 saying “The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers
  • The Two kinds of secrets
    • People – Things that people don’t know about themselves or things they hide because they do not want others to know
      • Finding out secrets about people, you need to ask yourself ‘what are people not allowed to talk about? what is forbidden or taboo?’ (this was also discussed in one of Paul Graham’s essays in the book Hackers & Painters
    • Nature – some undiscovered aspect of the physical world
  • What to do with secrets?
    • It is rarely a good idea to tell everybody everything you know. There is a golden mean between telling nobody and telling everybody. Thiel’s rule is “who ever you need to, and no more”
    • “Every great business is built around a secret that is hidden from the outside”

Foundations

  • “Thiel’s Law”: a startup messed up at its foundation cannot be fixed. Bad decisions made early on are very hard to correct after they are made.
    • Who you choose to partner with- ‘how well the founders know each other and how well they work together matter just as much (as technical abilities and complementary skill sets)
    • Ownership- its very hard to go from 0 to 1 without a team. In the boardroom for example, the ideal board size is three (and it should never exceed five) Thiel splits the functions of 3 concepts:
      • Ownership – who legally owns the equity?
      • Possession: who actually runs the company’s day to day business?
      • Control: who formally governs the company’s affairs
    • Team- everyone you involve should be involved full time (with some exceptions) but is key to note that if you do not own stock options or draw a regular salary, you are fundamentally misaligned (consulting).
    • Cash is not king- for startups, Thiel has found that a company does better the less it pays the CEO. Two main reasons being that if they make too much they risk becoming too much like a politician than a founder, it also sets an example if you are taking the lowest salary in the company. It also sets an example if you take the highest salary in the company
    • Vested Interests – Equity is seen as a useful form of compensation for cash-strapped startups. You need to allocate it very carefully- do not give everyone even shares. See page 115 for more on this. The key is to keep all compensation and equity details secret
    • Extending the Founding – Bob Dylan said ‘ he who is not busy being born is busy dying’. Thiel takes this to mean ‘being for’ is not a one time event. The most valuable company maintains an openness to invention that is most characteristic of beginnings

The Mechanics of Mafia

  • What would the ideal company culture look like? Immediately you think of the working conditions at Google or other Silicon Valley companies. Thiel argues that without substance the perks will not work.
    • “A startup is a team of people on a mission and a good culture is just what that looks like on the inside”
  • The PayPal Mafia as it is known has an impressive list of the initial PayPal team that has gone on to start seven businesses -all worth at least one billion each
    • The culture was strong enough to transcend the original company
  • Recruiting
    • Should never be outsourced
    • The first core group will likely be attracted by large equity stakes or high profile responsibilities
    • You need to answer the question “why should the 20th employee join your company?”
      • How do you attract someone who is also looking at a position at Google? There is no specific answer, but you need to convey your answer around your mission and your team: why is your mission compelling. Explain why the company is a good match for him personally
      • Offer them a an opportunity to do irreplaceable work on a unique problem alongside great people
    • Your goal is to build a tribe of like-minded people fiercely devoted to the company’s mission
    • “the best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing“- defining roles reduced conflict, it simplified managing people.
  • Cults and Consultants
    • Thiel created a linear spectrum that showed consultants on one side with cults  on the other. The idea being that consultants are detached and the cults are dogmatic and completely devoted. He put “Zero to One Companies” in a circle on the side closer to cults. stressing that while cults tend to be fanatically wrong about something, successful startups tend to be fanatically right about something those on the outside have missed.

If you Build It, Will They Come? (starting page 126)

  • This chapter is about the importance of sales. Something a lot of startups will disregard as less important. The problem is that if you have invented something new but don’t have an effective way to sell it you have a bad business, no matter how good the product is.
  • Strong distribution plan (for effectiveness)
    • Your Customer Lifetime Value (CLV) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost (CAC))
  • There is a continuum of sales below that shows the target markets and distribution channels to use. There is a noticeable dead spot in the ‘sales to small business’ section

sales continuum

  • Complex Sales- those of 7 figures or more deal with large businesses and bureaucracies and government and requires a sales grandmaster (Thiel points to Elon Musk) that focuses on just a few of the most crucial people to overcome political inertia. Customer is going to want to talk directly with the CEO on business deals of this size.
  • Personal sales – usually takes the work  of a sales team that can move the product to a wider audience than the CEO alone. Sometimes it is key to focus small and expand (example on page 133)
  • There is a dead zone in the ‘sales to small business’ section. For example if you wanted to sell to all convenience stores or CNC tool shops it is a bit more difficult (less profitable and lower CLV-CAC value) since it needs a personal sales effort for a relatively small sale.
  • Marketing and Advertising- For relatively low priced products that have mass appeal but lack of method for viral distribution- you do not see door to door sales of laundry detergent. Startups need to be careful not to compete on advertising with big business budgets.
  • Viral marketing- “a product is viral if its core functionality encourages users to invite their friends to become users too (Facebook, PayPal)
  • The Power Law of Distribution – If you can get just one distribution channel to work, you have a great business.
  • Selling to non-customers – selling ideas to investors, stakeholders, employees, etc. “never assume people will admire your company without a public relations strategy.”
  • “Everybody Sells” – look around, if you don’t see any salespeople, your the salesperson!

Man and Machine

  • This chapter is about the rise of AI, Automation, machine learning, etc. Thiel has a more optimistic view of the rise of the machines. He believes that the best companies will use technology as complementary vs. a substitute for workers.
  • “The most valuable businesses of the coming decades will be built by entrepreneurs who seek to empower people rather than make them obsolete”
  • The Complementary vs substitute attitude is in part because he recognizes computers and humans are better at doing completely different things from one another. For example, it was a big deal when supercomputers were able to identify a cat with 75% accuracy from millions of YouTube thumbnails. But he put this into perspective that a 4 year old can do this with 100% accuracy.
    • Computers are good at handling a lot of data
    • Humans are good at making judgements
  • Computers are tools, not complements
    • “better technology in law, medicine, and education won’t replace professionals; it will allow them to do even more”
    • The REAL question that companies of the next generation need to ask is “how can computers help humans solve hard problems?”

Seeing Green (pg 152)

  • This chapter gives a nice overview of the 7 questions to ask and runs through a couple of examples of companies and industries that have succeeded and failed. As a side note, this is also a great chapter from an investor’s point of view. If you are investing in a startup company you should be asking yourself these 7 questions about the potential investment.
    • Engineering: Can you create a breakthrough technology instead of just incremental improvements?
    • Timing: Is this the right time to start your particular business?
    • Monopoly: are you starting with a big share of a small market?
    • People: Do you have the right team?
    • Distribution: do you have a way to not just create but deliver your product?
    • Durability: Will your market position be defensible 10 and 20 years into the future?
    • Secret: Have you identified a unique opportunity that others don’t see?
  • Starting on page 156, Thiel went through an example based on everything the “Cleantech movement” got wrong in the late 2000’s and compared it to Elon Musk’s Tesla- part of the movement, but was strategic in hitting all seven of the questions.
    • This isn’t to say that it is not an opportunity, but the companies all were pushing the same technology and it became highly competitive. They were all trying to ‘shoot an elephant’ when it came to the massive market opportunity. Tesla shows a good example of the exception.

The Founder’s Paradox

  • Thiel argues that founders hold onto the more ‘extreme’ traits of the personality spectrum (below). Founders also are likely to have ‘fatter’ tails when it comes to the graph. Founder Distribution.png
  • We should be more tolerant of the founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism.

Conclusion: Stagnation or Singularity

  • Thiel finishes the book with a prophecy/challenge. He says there are 4 scenarios that could happen in the future:
    • Recurrent collapse – a more historical view of how things have been in the past: an alternation between prosperity and ruin.
    • Plateau – This is what most people seem to assume: that the ‘developed’ world will plateau and the developing world will catch up. Overall the future would look a lot like the present.
    • Extinction – A collapse so devastating that we won’t survive it
    • Takeoff – This is likely the most difficult to imagine: accelerating takeoff toward a much better future
  • The challenge to us is “which of the four will it be?”

RG