This is a book written by Peter Thiel, who has been the co-founder of Paypal & a few more startups. He is also an investor and has invested in many startups including Facebook.
This book is a must-read for someone who is starting his/her own venture as it helps in knowing about the dynamics of owning a start-up in a non-conventional way.
I would be listing a few lessons from the book as summary.
1. Innovation –
Innovation must take place to create a better and new future. If any innovation is not futuristic in nature then it is not innovation. Many startups across the world, especially in developing countries try to copy-paste ideas and technology and call it innovation, however, Peter Thiel feels that it will only create problems in the longer run.
He calls the ‘copy paste’ innovation as horizontal innovation and creating completely new things as vertical innovation. He feels that innovation should be something that goes from 0 to 1.
He calls out China in particular for copying things and feels that this type of development is only detrimental in the longer run.
Monopoly can be good for both customers and the company itself. He feels that economics which prefers perfect competition and criticizes monopoly is in general copied from the older generation’s physics. Because of this they try to compare individuals and businesses with atoms and feel that equilibrium refers to perfect competition. A monopoly that doesn’t innovate and is not creative is just a rent collector, but a creative monopoly like Google or Microsoft is actually a boon for the customers.
He describes the portrayals of monopolies and non-monopolies and shows us the difference in their approaches. A non-monopoly company actively tries to show that it has a commanding market share and is a dominant player, whereas monopolies actively show that they are not monopolies and are facing immense competition.
He believes that every founder must try to create monopolies and find out areas that have a high market share. It is irrational to want competition as a founder and then try to struggle to get market share. But creating a monopoly is usually only possible when there is a 0–1 innovation.
He gives a mantra of creating monopolies. Founders should start small and create a monopoly in that small area/market, don’t disrupt (challenge any large competitor immediately) and scale up exponentially into bigger markets by constantly upgrading the product.
Thiel stresses on the fact that the foundations of the startup must be solid. If the foundations are messed up you can’t correct it later. Co-Founders and founding team are the foundations of any startup and they should be hired with great attention and care.
Co-Founders must know each other really well and complement each other’s skills and competencies. Peter Thiel believes that initially, most employees should have equity as it will enable them to work hard for ‘their’ company. Also, the employees’ vision must match that of the company.
He stresses on the fact that all employees should be full-time employees. You can’t work with part-time workers, hence he doesn’t even want consultants to be a part of your startup.
The book advises CEO’s and Co-Founders to not draw extremely high salaries and lead their employees by an example. Another important point is that each employee must have a specific role charted out to work on.
4. Venture Capital
Venture Capitalists invest in a lot of startups with the aim to make money. But even though 90% of startups fail, they still manage to make money. Many people think of making a return as a way of normal distribution wherein success and failure are the only 2 factors considered and hence if we apply this to VC business then, many will find it to be a loss-making industry.
However, it is Power Law that is applied in case of calculating returns or understanding how VC’s work. Here a number of successes or failures doesn’t matter, the magnitude of success decides the profit (The amount of loss is fixed as only the investment made will be lost in case the startup deadpools).
Therefore, even if out of 20 startups, 19 closes down and 1 becomes highly successful, even then the VC firm would make a lot of money on the fund. All investments made by VC’s are made to find such 1 startup.
There are multiple lessons in this book, nicely explained with real life cases and stories which make it a highly engaging book to read.
Written by: Navkaar Bothara