Learning from Book: Zero to One by Peter Thiel. Part-2

This is a followup post on the earlier post on Learning from Book: Zero to One by Peter Thiel. Part-1

1. Preface
2. The Challenge of Future
3. Party like its 1999
4. All happy companies are different
5. The Ideology of competition
6. The last mover advantage
7. You are not a lottery ticket
8. Follow the money
   1. Unequal distribution often are described by exponential laws or famously Power Law. These means for VC's invest in companies who can return as much as entire value of fund. This eliminates most companies. For investors these a good mental model. think of companies that can give great returns over long periods. Something like what Ian Cassel recommends.
   2. For most people Power law is hard to understand, as it doesn't reflect our day to day experiences. We are used to standard deviation curves and worse our minds are tuned to straight line thinking.
   3. The beauty with any law or principle is the way it extends to other dimensions. Think on career perspective. We should evaluate a career with a belief that what we do now can be valuable for decades. That itself can eliminate a lot of poor choices. Personally for me a large part of my career i wasn't part of creating something valuable. 
   4. From all perspectives investment, career, company think if what you are doing is going to be valuable in future. Of course biases can cloud your thoughts and hence the need to have multiple mental models.
9. Secrets
   1. Due to enormous progress in last century and wide availability of information we have false sense of belief that there are very few secrets left to uncover. The reduction in geographical secrets further aggravates this. The age old biases of going against a known belief to find a secret and the complacency associated with it make it worse.
   2. For investors we can look at disasters if we find that company has stopped believing in secrets and solving them. Reading AR's from this perspective will be quite interesting. Solving these riddles leads to a natural moat. But as said often for solving that one riddle you need to try multiple riddles. Hence, the need of R&D in any company and investments in it.
   3. Great companies can be built by solving secrets which are right in open.Facebook, Airbnb, Uber are few examples.
   4. They solve for two questions
      1. What secrets is nature not telling you?
      2. What secrets are people not telling you?
      3. This lens is an incredibly powerful mental model to evaluate business, careers. What secrets are you or the company you are investing in helping solve?
10. Foundations
    1. Thiels Law: A startup messed at foundation cannot be fixed. This can be extended to investors when companies go change in management or new successor comes along and tries to change foundation.
    2. Check how well the founders know each other. This is one of the reasons why Family businesses in India succeed as they know each other and can easily align to a goal
    3. To evaluate the foundation of company check 3 things
       1. Ownership: Who legally owns the companies equity?
       2. Possession: Who runs the company on day to day basis
       3. Control: Who formally governs companies affairs?
    4. Overlay this with incentives at each level. If they are not aligned things can get messy.
    5. A company remains great till it creates new things thus remaining ahead on value curve. The day creation stops, companies start to end.
11. The Mechanics of Mafia
    1. Every company is a culture. Thus it makes sense that when we understand that. When we speak to employees about scuttlebutt that is also something we should check. How is the culture on creativity? how easy is decision making etc
    2. From a professional perspective since time is your most valuable asset (refer letter of Seneca) its odd to spend time with people with whom you don't envision long term future. 
    3. The same analogy extends to hiring. What kind of people you want to hire? Do they fit in your culture of value creation? What is needed is while people can be different they need to be like minded devoted to companies mission
12. If you build it, will they come
    1. Distribution or Sales of a product is as critical as design of Product. If you have a great product but not there is no effective distribution channel you still will end up with Poor business. That is why often distribution itself becomes a great moat. Superior Sales and Distribution by itself create a monopoly even with no product differentiation. But the converse is not true.
    2. For distribution design we need to think of two dimensions
       1. Customer Acquisition cost through a distribution channel
       2. Customer life Value (CLV) or Profits earned from customer through this. 
       3. Acquisition Cost should be less than CLV. Now think of advertising and distribution costs incurred by companies.
    3. Often for mid sized companies for increasing sales, distribution is the bottleneck. Mid sized business need to balance the cost of reaching customers and effort of personal sales.
    4. Marketing and Advertising works for companies who have low priced product with mass appeal but can't do viral marketing. Therefore, mostly new tech companies hardly advertising. They rather focus on building the network
    5. Advertising can also work when customer acquisition cost and CLV make every distribution channel uneconomical. Probably that is why Amazon needs to spend on advertising in India.
    6. Power law of distribution-If business can get even one distribution channel to work, we are into great business. That is why FMCG's are usually great business. Their offline distribution is very strong.
    7. Look around, if you don't see a salesperson you are :)
13. Man and Machine
    1. Technology is not substitution its complementary to humans. 
    2. Tech is one of the tools for better future
14. Seeing Green
    1. Every business needs to answer these 7 questions. Great checklist for investing
       1. 1. The engineering question- Can you create breakthrough tech, instead of marginal improvements
          2. The timing question- Is this the right time to start your business? Is this the right time to be in this business? Probably the question with most biases involved.
          3. The Monopoly Question- Are we starting with a big share of small market? Data driven answer
          4. The People Question-Do we have right team? Again can have huge biases
          5. The Distribution question-Do you have a way to not just create but deliver it also?
          6. The Durability Question-Will your market position be defensible in 10 or 20 years into future? Will be influenced by Optimism bias
          7. The Secret Question- Have you identified a unique opportunity that other's don't see? Try to answer this with data and not hypothesis
15. The Founders Paradox
    1. The best founders usually have inverted fat tails. They can high frequency of charismatic moments and Sullen jerkiness. They can be paper (stock) rich and cash poor. They can attract both fame and infamy. Almost as Charlie Munger says they are Intelligent Fanatics. Lesson for investors is to accept the negative sides. Lesson for a person joining a startup is to be ready for a bumpy ride and think if you fit the inverted curve.
    2. The greatest danger for a founder is to become certain of his myth. And an equally damning danger for every business is to lose all sense of myth and mistake disenchantment as wisdom.