People then products then traffic then revenues then profits

I have always been fascinated by start-ups and their founders. During my time at Microsoft, I encountered several, mainly Italian, either for business or for the intellectual curiosity of getting to know them. Now at Spencer Stuart I am appreciating the opportunity of working with them on an even more international scale, interacting with private equities, funds, founders, and their ecosystem at large.

There are many great books written on start-ups and their universe. One of the best I have read is probably Peter Thiel’s “Zero to One”, recommended to me by my dear friend and former colleague Vincenzo Esposito.

Peter Thiel is an entrepreneur and investor. He co-founded PayPal and Palantir. He also made the first outside investment in Facebook and was an early investor in companies like SpaceX and LinkedIn. Several years ago, he wrote his famous book, “Zero to One: Notes on Startups, or How to Build the Future”, which I think is even more relevant in the complex, interconnected, and rapidly transforming world in which we are living today.

Zero To One is an exercise in thinking — about questioning and rethinking. It often explores the act of thinking about thinking. Somehow, it reminds me of another great masterpiece, i.e., “Think Again” by Adam Grant.

The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.

What I also appreciated about this book is that it puts people at the core of any start-up and business: "people then products then traffic then revenues then profits". This is something I totally agree with.

Here are some insights I would like to share, taken from Peter Thiel’s book.

You can only step into the same river once

Like Heraclitus, who said that you can only step into the same river once, each moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network.

Of course, it’s easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time someone creates something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.

Quite interesting, at least to consider, for any start-up! For a good reason, this is also the title of the book! :-)

The best interview question

Peter Thiel shares that, whenever he interviews someone for a job, he likes to ask this question: “What important truth do very few people agree with you on?”

This is a question that sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon. And it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular.

In the most minimal sense, the future is simply the set of all moments yet to come. But what makes the future distinctive and important isn’t that it hasn’t happened yet, but rather that it will be a time when the world looks different from today. Most answers to this question are different ways of seeing the present; good answers are as close as we can come to looking into alternative futures.

Also, as the question “What important truth do very few people agree with you on?” is hard to answer at first, in case you are the person receiving this question, Peter Thiel suggests it’s sometimes better to start instead with, “what does everybody agree on?”. If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth, and you may start from there to elaborate your view.

Thanks to my new role at Spencer Stuart, I may consider leveraging this “interview question” in my daily activities.

Progress comes from monopolies, not competition

This is probably the most “provocative” message contained in the book.

Peter Thiel indicates that the problem with any competitive business goes beyond lack of profits. “Imagine you’re running one of those restaurants in Mountain View. You’re not that different from dozens of your competitors, so you’ve got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees only minimum wage. And you’ll need to squeeze out every efficiency: That is why small restaurants put Grandma to work at the register and make the kids wash dishes in the back.”, states Thiel.

According to him, a “monopoly”. since it doesn’t have to worry about competing with anyone, has wider latitude to care about its workers, its products and its impact on the wider world. 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.

So a monopoly is good for everyone on the inside, but what about everyone on the outside? Do outsize profits come at the expense of the rest of society? Actually, yes: Profits come out of customers’ wallets, and monopolies deserve their bad reputation—but only in a world where nothing changes. But the world we live in is dynamic: We can invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.

I do not fully share Thiel’s perspective here, but it is undoubtedly food for thought.

Begin with targeting a small niche group of customers

Many startup founders begin thinking directly about a huge market, like making cars. They wrongly believe that if they can capture even 1% of that market, they will have a billion-dollar company. But Peter Thiel says that is wrong because large markets are not full of opportunity, but instead full of profit-killing competition.

The best startup approach, according to Thiel, is to begin with a small niche market. Find a group of people not being served and build them a unique solution. That’s how you create “monopoly” (using Thiel’s word).

Many of the most successful companies started small:

• Tesla began with an electric sports car named the Roadster that cost six figures. Only later did they expand into progressively more affordable cars.
• Facebook began as a social network exclusively for Harvard students. Only later did they expand to other universities, then high schools, then everyone. With this strategy, they toppled the dominant Myspace.
• PayPal began with serving PowerSellers on eBay. Their strategy was first getting the most active eBay sellers using their payment service. Then all of the more casual eBay users followed.

Also, Jeff Bezos decided to launch Amazon as a website that sold only books. Over years, they continually expanded to selling music CDs and movie DVDs, then electronics, toys and jewellery. Now, of course, they sell everything. But that strategy was not an accident. From the first day, Jeff Bezos had the vision of creating an “Everything Store” that would compete against giants like Walmart. He believed that it would be much easier to get a foothold in the market by first mastering one category of products, like books.

To sum-up, trying to win 1% of a huge market usually fails. Instead, we should begin a new business by targeting a very small group of people that is not being served. Offer something totally unique they will love. Then progressively expand.

Last can be First

Another somehow “provocative” and counter-intuitive perspective from Thiel.

You’ve probably heard about “first mover advantage”: if you’re the first entrant into a market, you can capture significant market share while competitors scramble to get started. That can work, but moving first is a tactic, not a goal. 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.

Chess Grand-master José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.”

Clearly, these are just some of the lessons and insights shared by Peter Thiel in his book. Nevertheless, these are the ones I remember the most.

If you have not yet read it, it is a nice reading. In case you did, I look forward to reading your feedback and/or any additional insight you want to share. Also, which other books on “start-ups” and going from “zero to one” would you recommend?