Notes on Startups, or How to Build the Future

By Peter Thiel with Blake Masters

• 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.
• 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.
• The first step to thinking clearly is to question what we think we know about the past
• How much of what you know about business is shaped by mistaken reactions to past mistakes?
• Entrepreneurs are always biased to understate the scale of competition, but that is the biggest mistake a startup can make
• Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets. Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets.
• 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.
• All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition
• Competition can make people hallucinate opportunities where none exist
• Winning is better than losing, but everybody loses when the war isn’t one worth fighting
• If you can’t beat a rival, it may be better to merge
• For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn’t. Those who succumb to measurement mania obsess about weekly active user statistics, monthly revenue targets, and quarterly earnings reports. However, you can hit those numbers and still overlook deeper, harder-to-measure problems that threaten the durability of your business.

Characteristics of Monopoly

• Unique, but usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding
• Proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate
  • The clearest way to make a 10x improvement is to invent something completely new
• Network effects make a product more useful as more people use it
  • Must start with especially small markets
• Economies of scale
  • A monopoly business gets stronger as it gets bigger: the fixed costs of creating a product (engineering, management, office space) can be spread out over ever greater quantities of sales. Software startups can enjoy especially dramatic economies of scale because the marginal cost of producing another copy of the product is close to zero.
  • A good startup should have potential for great scale built into its first design
• Branding
  • A company has a monopoly on its own brand by definition, so creating a strong brand is a powerful way to claim a monopoly
  • No technology company can be built on branding alone