This article is an excerpt from the Shortform summary of "Zero To One" by Peter Thiel. Shortform has the world's best summaries of books you should be reading.
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Are you looking for the best startup tips? Or are you looking to launch a startup and don’t know where to begin?
This collection of business startup tips can help you think like a founder, and dive into the logistics of your business, like hiring people. These startup tips serve as a great guide and jumping-off point for your startup launch.
Startup Tip #1: Lessons From the Past
Startups consisting of a few people with a common mission are the source of most new technology. But many tech startups today are hobbled by four erroneous lessons drawn from the 1990s dot-com bubble and crash. This offers several great business startup tips.
- Make incremental advances: Be wary of big visions that drive bubbles. Move forward with small, incremental steps.
- Stay lean and flexible: To stay lean and flexible, don’t tie your hands with planning. Instead, try things and iterate or build on the ones that work.
- Build on the competition: Don’t try to create new markets. Build your business by improving on a product people are already buying from someone else.
- Focus on product, not sales: If you have a good product, it should spread virally without a need for advertising.
Tech startups treat these lessons as sacrosanct, but they actually undermine success, especially big innovations. The opposite of each lesson is more accurate:
- It’s better to be bold than inconsequential.
- A bad plan is better than none.
- Don’t compete: competition destroys profits.
- Sales strategy matters as much as product.
Monopolies and Competition
The idea of a monopoly can be threatening. But considering monopolies is another one of Thiel’s business startup tips. Monopolies are good for society. While it may seem counterintuitive, they can be more ethical, treat workers with greater consideration, and create more value than companies locked in competition do.
Competitors are caught up in a daily struggle for survival. For instance, with their low margins, restaurants have to do everything possible to minimize expenses—which can include paying minimum wage to employees and putting family members to work for nothing. In survival mode, money is everything.
In contrast, in a monopoly where profits are assured, there’s room to consider other things besides money. For instance, lacking intense competition, Google can give consideration to its workers, its products, and its impact on society.
Monopolies’ bad reputation comes from sometimes earning outsized profits at the expense of society. Certain monopolies corner the market on something that’s needed and jack up the price; customers have no choice but to pay it. This works for the owners in a world where nothing changes, like in the game of Monopoly, where you control as much real estate as you can, but you can’t create new real estate.
In contrast, creative monopolies do good and drive social progress because they operate in a different environment, a dynamic one. Instead of controlling all the options like Monopoly real estate, they create new options. They expand consumers’ choices by creating new categories of things. By adding value, creative monopolies make society better.
Other Factors in Building a Monopoly
There are five additional considerations in building a monopoly:
- Discovering a secret: Creating a great business that no one else can compete with starts with discovering and building on a secret. It can be an untapped opportunity or a different way of looking at a problem. For example, Airbnb recognized and connected a supply of unoccupied lodging with travelers’ demand for affordable and unique accommodations. The founders of Uber and Lyft built billion-dollar businesses by connecting people who needed rides with drivers willing to provide them. Believing in secrets (untapped potential) and looking for them enabled these entrepreneurs to see an opportunity no one else noticed.
- Expanding your market: How you choose and expand your market are critical to your success. Start with a small market because it will be easier to dominate than a large one. Once you’ve dominated a small market, slowly expand into related markets that are a bit wider. This was Amazon’s approach. Jeff Bezos’s long-term goal was to dominate online retail but he chose to start by selling only one thing—books. After a successful start with books, the company began selling CDs, videos, and software and gradually expanded to other categories until it became the dominant online retailer.
- Disrupting: When entrepreneurs think of their companies as disrupting a market, they’re focusing on things as they currently are, rather than coming from a new perspective. It’s far more important to focus on the new product you’re creating than on how old companies will react to it. If disrupting existing companies is part of your company’s identity, then your company isn’t new and isn’t likely to become a monopoly.
- Being a ‘last mover’: The “first mover advantage” means getting into a new market first and taking a substantial share of the market before anyone else gets there. But moving first is a tactic, not a goal.” Your goal is to generate cash flows for the future. You do this by starting with a small slice of the market (being the first mover) and gradually expanding, dominating each new slice until you own the ultimate market for your product. You want to be the last mover—the one who makes the last spectacular improvement in a market that ensures years of monopoly profits.
- Understanding the power law: The power law describes a common phenomenon in which small changes can have disproportionate results. Startups should operate according to the power law. A narrow focus on the right thing will produce the greatest results:
- One market will bring the greatest success.
- One distribution strategy will outperform all others.
- Some moments will count more than others.
- What’s most important probably won’t be obvious.
Startup Tip #2: Basics, Key Decisions, Building a Team
When starting a company, it’s important to choose leaders who have the right technical knowledge and whose skills are complementary. Equally important, however, is how well the founders know each other and work together. You also need a structure and clearly defined roles so everyone is aligned to move the organization forward. Having clear organization and a great team are common tips for startups.
For effective alignment, you must make three decisions:
- Ownership: Who will own the company’s equity. Ownership is typically divided among founders, employees, and investors.
- Possession: Who will run the company day-to-day. It may be a founder/CEO or manager and employees.
- Control: Who will govern the company. A board of directors (usually consisting of founders and investors) maintains control.
Compensation
A CEO of a venture-funded startup shouldn’t be paid more than $150,000 a year. High pay (more than $300,000) encourages him to protect his salary by defending the status quo and minimizing problems rather than exposing and fixing them.
Other advantages of low CEO pay are that it:
- Encourages the executive to focus on increasing the value of the company.
- Motivates employees to work harder. By working for lower pay, an executive demonstrates his commitment to the company and its mission. Employees will follow his example.
By the same token, over-paying employees encourages them to focus on what the company is doing in the present instead of thinking about how to increase the company’s value in the future. Cash bonuses also encourage short-term thinking. Offering equity or part ownership of the company shifts the focus to the future.
Recruiting
Most tips for startups include taking time to recruit the best employees. The first few employees in a startup might be attracted by exciting roles or equity. But beyond your first round of hires, you must be able to articulate to the 20th candidate why she should want to join your company.
Your answers need to be specific to your company. They should address:
1) Your mission: Explain what makes your mission unique and compelling—what’s the important thing you’re doing that no one else is doing?
2) Your team: Show potential employees that the people on your team are the kind of people they want to work with. Show recruits how your company is a unique match for them.
Don’t cite your perks—you don’t want people working for you who can be convinced to do so by things like laundry pickup because that’s an indication of superficiality. Your unique mission is what should count.
Startup Tip #3: Success Comes From Planning
Planning ahead is one of the most important startup tips. Businesspeople debate whether success comes from luck or design. Some popular writers and leaders emphasize luck and downplay the importance of design or planning in contributing to success. This makes many people think planning—trying to shape the future—is pointless.
For instance, author Malcolm Gladwell writes in Outliers that success results from “lucky breaks and arbitrary advantages.” Warren Buffett notes that he was lucky to be born with certain qualities. Jeff Bezos and Bill Gates both claim luck played a role in their success.
It’s possible luck could play a role in an individual success, but luck isn’t sufficient to explain how the same person—for instance, Elon Musk, Jack Dorsey, Steve Jobs—could achieve a series of extraordinary, multibillion-dollar successes.
When Dorsey, the founder of Twitter and Square, tweeted in 2013 that “Success is never an accident,” most of the responses were dismissive, citing white male privilege over intelligent planning as the biggest factor in success. However, while connections, wealth, and experience—and luck—can be factors, in recent years, we’ve tended to ignore or overlook the importance of planning.
In the past, people thought differently. From the Renaissance and the Enlightenment into the 20th century, people believed you made your own luck by working hard. Ralph Waldo Emmerson wrote, “Shallow men believe in luck, believe in circumstances … strong men believe in cause and effect.”
Today, whether you think of the future as determined by chance or design affects how you act in the present and whether you ultimately succeed.
A Checklist for Success
While you’re searching for tips for startups, you should complete this checklist. In summary, a startup won’t succeed without a business plan that addresses each of the following questions. If your answers are weak, your company will fail—however, with a solid answer for each, you’ll be on your way to having a great business.
- Engineering: Is your technology a significant advance or only incremental improvement?
- Timing: Is this the right time to sell this technology?
- Monopoly: Are you targeting a big share of a small market?
- People: Do you have the right people on your team?
- Distribution: Do you have a plan to sell your product?
- Durability: Will you dominate your market in the next 10 to 20 years?
- Secret: Have you identified a unique opportunity overlooked by everyone else?
These startup tips can help you begin your startup journey. Use these startup tips to build your business plan and work toward your launch.
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Like what you just read? Read the rest of the world's best summary of Peter Thiel's "Zero To One" at Shortform .
Here's what you'll find in our full Zero To One summary :
- Why some companies genuinely move the world forward when most don't
- How to build a company that becomes a monopoly (and why monopolies aren't bad)
- Silicon Valley secrets to selling products and building rockstar teams
