I'm working on a type of framework that draws from Peter Thiel's cs183 lectures, Ray Dalio's Manifesto, the habit ideas I ran across a few days ago with a little game theory and a lot of economics and stats.
Peter Thiel's c183 class notes:
Going 0 to 1 is much harder than going from 1 to n because people will think you're crazy. "The path from 0 to 1 might start with asking and answering three questions. First, what is valuable? Second, what can I do? And third, what is nobody else doing?" or "What important truth do very few people agree with you on?" or "What valuable company is nobody building?"
Learn about statup history then think for yourself.
This is a good class to study/memorize.
"Great companies do three things. First, they create value. Second, they are lasting or permanent in a meaningful way (Great companies are durable.) Finally, they capture at least some of the value they create." This class explains some valuation equations (go back and learn them.) It speaks of competition and monopoly.
"The usual narrative is that capitalism and perfect competition are synonyms. No one is a monopoly. Firms compete and profits are competed away. But that’s a curious narrative. A better one frames capitalism and perfect competition as opposites; capitalism is about the accumulation of capital, whereas the world of perfect competition is one in which you can’t make any money. Why people tend to view capitalism and perfect competition as interchangeable is thus an interesting question that’s worth exploring from several different angles."
"Sometimes credentials do reflect significant degrees of accomplishment. But the worry is that people make a habit of chasing them. Too often, we seem to forget that it’s genuine accomplishment we’re after, and we just train people to compete forever."
"Things in the professional world are often worst of all; at every level, people are just competing with each other to get ahead. This is tricky to talk about. We have a pervasive ideology that intense, perfect competition makes the best world. But in many ways that’s deeply problematic."
People often tell lies:
"if you have a monopoly, you probably don’t want to talk about it. ... So monopolies pretend they’re not monopolies while non-monopolies pretend they are." (so investors will invest in them)
"People also tell lies about markets. Really big markets tend to be very competitive. You don’t want to be a minnow in a giant pool. You want to be best in your class. So if you’re in a business that finds itself in a competitive situation, you may well fool yourself into thinking that your relevant market is much smaller than it actually is."
"These questions are hard, but the bigger problem is that your incentive is not to ask them at all. Rather, your incentive is to rhetorically shrink the market. If a bearish investor reminds you that 90% of restaurants fail within 2 years, you’ll come up with a story about how you’re different. You’ll spend time trying to convince people you’re the only game in town instead of seriously considering whether that’s true."
The takeaway is that it’s important to identify how these rhetorical narratives work. Non-monopolies always narrow their market. Monopolies insist they’re in a huge market. In logical operator terms, non-monopolies tell intersection stories: British food ∩ restaurant ∩ Palo Alto. Hometown hero ∩ hackers ∩ sharks. Monopolies, by contrast, tell union stories about tiny fishes in big markets. Any narrative that carries the subtext of “we’re not the monopoly the government is looking for” will do.
Market Share lies:
"There are all kinds of ways to frame markets differently. Some ways are much better than others. Asking what is the truth about a given market—and reaching as close to an objective answer as possible—is crucially important. If you’re making a mobile app, you need to determine whether your market is apps on the iPhone, of which there are several hundred thousand, or whether there’s a good way to define or create a very different, smaller market. But one must stay on guard against the sources of bias in this process."
"It’s not surprising that this is Google’s narrative. Monopolies and companies worried about being perceived as such tell a union story. Defining their market as a union of a whole bunch of markets makes them a rhetorical small fish in a big pond. In practice, the narrative sounds like this quotation from Eric Schmidt:
“The Internet is incredibly competitive, and new forms of accessing information are being utilized every day.”
The subtext is: we have to run hard to stay in the same place. We aren’t that big. We may get defeated or destroyed at any time. In this sense we’re no different than the pizzeria in downtown Palo Alto."
Cash and Competition:
"One important data point is how much cash a company has on its balance sheets. ... n a perfectly competitive world, you would have to take all that cash and reinvest it in order to stay where you are. If you’re able to grow at $30b/year, you have to question whether things are really that competitive. Consider gross margins for a moment. Gross margins are the amount of profit you get for every incremental unit in marginal revenues."
"But in perfect competition, marginal revenues equal marginal costs. So high margins for big companies suggest that two or more businesses might be combined: a core monopoly business (search, for Google), and then a bunch of other various efforts (robotic cars, TV, etc.). Cash builds up because it turns out that it doesn’t cost all that much to run the monopoly piece, and it doesn’t make sense to pump it into all the side projects. In a competitive world, you would have to be funding a lot more side projects to stay even. In a monopoly world, you should pour less into side projects, unless politics demand that the cash be spread around. Amazon currently needs to reinvest just 3% of its profits. It has to keep running to stay ahead, but it’s more easy jog than intense sprint."
How to own a market:
"For a company to own its market, it must have some combination of brand, scale cost advantages, network effects, or proprietary technology. Of these elements, brand is probably the hardest to pin down. One way to think about brand is as a classic code word for monopoly. ... Brand is a tricky concept for investors to understand and identify in advance. But what’s understood is that if you manage to build a brand, you build a monopoly."
"Scale cost advantages, network effects, and proprietary technology are more easily understood. Scale advantages come into play where there are high fixed costs and low marginal costs. Amazon has serious scale advantages in the online world. Wal-Mart enjoys them in the retail world. They get more efficient as they get bigger. There are all kinds of different network effects, but the gist of them is that the nature of a product locks people into a particular business. Similarly, there are many different versions of proprietary technology, but the key theme is that it exists where, for some reason or other, no one else can use the technology you develop."
"Apple—probably the greatest tech monopoly today—has all these things."
Creating your Market:
There are three steps to creating a truly valuable tech company. First, you want to find, create, or discover a new market. Second, you monopolize that market. Then you figure out how to expand that monopoly over time.
Choosing the right market:
Find one that's just the right size - Too small = no customers. Markets that are too big are bad - it’s hard to get a handle on them and they are usually too competitive to make money. "Creating your market has nothing to do with framing stories about intersections or unions. What is essential is to figure out the objective truth of the market.
Monopoly and Scaling:
"If there is no compelling narrative of what the market is and how it can scale, you haven’t yet found or created the right market. A plan to scale is crucial."
"The best kind of business is thus one where you can tell a compelling story about the future. The stories will all be different, but they take the same form: find a small target market, become the best in the world at serving it, take over immediately adjacent markets, widen the aperture of what you’re doing, and capture more and more. Once the operation is quite large, some combination of network effects, technology, scale advantages, or even brand should make it very hard for others to follow. That is the recipe for building valuable businesses."
"There is always some room to operate in existing markets. Instead of creating a new market, you could “disrupt” existing industries. But the disruptive tech story is possibly overdone. Disruptive companies tend not to succeed. "
"Much better than to disrupt is to find a frontier and go for it."
"So where are the places where technology is happening? Where is there room for the journey to continue? The frontier is a promising place, but also a very uncertain one. You can imagine a tech market where nothing is happening for a long time, things suddenly start to happen, and then it all stops. The tech frontier is temporal, not geographical. It’s when things are happening."
"We should ask ourselves whether the right time to enter a tech industry is early on, as conventional wisdom suggests. The best time to enter may be much later than that. It can’t be too late, since you still need room to do something. But you want to enter the field when you can make the last great development, after which the drawbridge goes up and you have permanent capture. You want to pick the right time, go long on tech, succeed, and then short tech."
"Google, the narrative goes, is the last search engine company; it wrought a quantum improvement in search with its shift to an algorithmic approach, and that can’t be much improved on."
"But sometimes seemingly terminal markets aren’t. Look at aerospace. SpaceX thinks it can cut space launch costs by 70-90%. That would be incredibly valuable. If nothing has happened in an industry for a long time, and you come along and dramatically improve something important, chances are that no one else will come and do that again, to you."
"The question is whether there’s a gold rush in mobile. An important subquestion is whether, given a gold rush, you’d rather be a gold digger or the guy selling shovels to gold diggers. But Google and Apple are selling the shovels."
Frontiers and People:
"One way to tell whether you’ve found a good frontier is to answer the question “Why should the 20th employee join your company?” If you have a great answer, you’re on the right track. If not, you’re not. The problem is the question is deceptively easy sounding."
So what makes for a good answer? First, let’s put the question in context. You must recognize that your indirect competition for good employees is companies like Google. So the more pointed version of the question is: “Why would the 20th engineer join your company when they could go to Google instead and get more money and prestige?”
The right answer has to be that you’re creating some sort of monopoly business. Early businesses are driven by the quality of the people involved with them. To attract the best people, you need a compelling monopoly story. To the extent you’re competing with Google for talent, you must understand that Google is a great monopoly business. You probably should not compete with them at their core monopoly business of search. But in terms of hiring, you simply can’t compete with a great monopoly business unless you have a powerful narrative that has you becoming a great monopoly business too.
Speaks of good company culture. Cult vs not having a culture at all. "You want your people to be different in a way that gives the company a strong sense of identity and yet still dovetails with the overall mission. Having different kinds of problem-solvers on a team, for example, can make for a stronger culture."
Does your company create or fight? avoid fighting where you can, but where you must you should fight and win. "You want to pick an environment where you don’t have to fight. But you should bring along some good fighters to protect your non zero-sum people and mission, just in case."
"... with such passivity, what are you going to do about your competitors? Can you even build a sales team? If you got run over so hard by investors, how are you going to fare against the entire world?"
And then a lot of good anecdotes about hiring and building teams.
This is where he starts comparing the nation's founding fathers to startup founders. How a founding can last a few months or several years depending on how long technical innovation is happening. Founders should stay in charge from 0 to 1, then the executives should execute to go from 1 to n. It speaks of trust and rules; a 2x2 matrix of lowTrust/highTrust vs noRules/manyRules. in other words, how much structure to impose on your startup to keep it going well.
It says to set up a Delaware C Corp and says why.
It talks a lot about equity alignment.
It talks about fundraising.(read/memorize this.)
Then it talks about the board.
This is about VC, history of, how it works. It introduces the power distribution. Good anecdotes from PG, and others.
Great advice for pitching.
Predictable things that VCs will want to know:
1) Macro a. Are you a company or just a product/feature? b. Your vision for the company 2) Your product(s) a. What it is b. What problem it solves c. Why it is superior d. Why it is not likely to be displaced for some time 3) Team a. This is the ethos part of the presentation – why are you the right people for the task and why should the VC trust you? b. Are you missing anyone? c. How are you recruiting/convince the 20th employee to join? d. What’s your philosophy on compensation? 4) The Business a. Market size, specifically the “addressable” market b. How much of the market are you are going to capture and how c. Competitive analysis/advantages d. Business model e. How will you generate revenue? i. Sales process ii. Customer acquisition cost iii. Profitability f. Barriers to entry/exit 5) The Ask a. How much do you need and what will you use it for? b. What’s your burn? c. Valuation 6) Funding History/Syndication a. Who else are you talking to? (This is the pathos bit) b. Why do you want to work with this VC? c. What do you want from the VC besides money?
Distribution - getting your product to customers. Introduces Customer Lifetime Value, Average Revenue per User per Month, retention rate, Average customer lifetime, and cost per customer acquisition. You want CLV > CLA. A product is never so good it sells itself. He talks about how great salespeople basically hide their pitch in conversation, are able to hit all levels at once. Advertising that is hidden typcially works best. It speaks of engineering vs sales. You must find your unique sales angle, be it via complex sales
trick is, there are a lot of secrets out there. you have to find one and execute on it. There is a framework for finding these secrets.
So, go out and figure out what people aren't telling you OR what the universe is not telling you. What people aren't telling you should give you a good idea of where to go looking for secrets. That's where you should direct your attention. Often, people will hide secrets about the universe, for ex. the power law. The idea is to ask questions to find out what is taboo, what is not talked about. Tesla succedded because they realized that cleantech was not about being clean, but more about being fashionable. So, they went for the high-end luxry market and won.
Now, what do you do wiht your secrets?
start up. don't tell secrets about people (julian assange). do share secrets about nature. tell your secrets and MOVE FAST.
Decide if you want to fight or flee.
Luck vs. Skill in success. optimistic/pessimistic vs determinate/indeterminate - need to study this one more.
Of markets in clean energy and environment.
Ways to think about the future. Look at past predictions of the future and see where they went wrong. We're probably making similar predicting the future, now. Figure out where the "future" failed (nuclear, flying cars) and maybe concentrate in those areas.
of biotech companies.
Of AI companies
Traits of founders - one interesting thing here is finding/being the scapegoat and the politics of sacrifice (britney spears).
talking about the future with three experts.