Zero to One presents a new way of thinking about innovation
Intensive and extensive progress
What do we really mean by thinking about the future? Surely we mean things which will be different from today. And for things to be different there has to be change or progress.
There are two types of progress, horizontal or extensive progress, and vertical or intensive progress.
Extensive progress means expanding on existing ideas or innovations. For example by copying what works. One example of horizontal progress would be mass-producing phones and distribute them to developing countries.
Intensive progress means creating something fundamentally new, something which didn’t exist before. One example of vertical progress would be to build a smartphone from a regular one.
Predicting vertical progress is hard because we have to imagine things which don’t exist yet. You need to be able to see the present differently because the future will be inherently different than the present.
The author is so convinced of the importance of the ability to see things differently that he asks candidates in job interviews to cite a popular belief they disagree with.
Why Monopolies are good
Monopolies aren’t bad. They don’t necessarily mean that unfair play but rather that someone is doing something radically better than anyone else.
Society tends to view monopolies as large, evil corporations who are unfairly squeezing out competition. But they are actually good for society because, in order to beat a monopoly, someone has to come up with a radically better solution to the problem. And society then reaps the benefits of those solutions.
A good example is Google. Google has a clear monopoly over the search-engine business, and it is thanks to that monopoly that Google is able to reap profits big enough to keep its innovation running at full speed. When a company makes profits as big as Google, it is able to create long-term strategies and investments to further improve its product.
In intense competition companies have to battle for survival. They have to set prices low enough to entice customers away from their competition, which erodes their profit margins. Less profit means less innovation for the company, which means less useful products, which is bad for society.
Key points which make Monopolies better
There are some key characteristics which make monopolies successful. First there is the technological advantage. Technological advantage means that the product is so much better that nobody is able to compete. The advantage has to be a multiple — usually 10 times better — of the closest competition.
Second, comes the Network Effect. The more people use a service, the more useful it becomes to their users. It is really hard for new services to lure customers away from services with a strong network effect. Take WhatsApp as an example, most people use WhatsApp as a messenger. If someone tries a different messenger application, odds are that most of his or her friends will not be on it.
Monopolies benefit from Economies of scale. An economy of scale means that it is cheaper to produce something on a large scale. Often the larger the scale of production, the fewer costs an individual product. Which in turn means that the company will reap bigger profits.
Lastly, comes the brand. Big companies like Apple, are able to create a strong brand which makes them well known. Others may copy their products, but they won’t have the same success if they lack the same level of brand.
These four characteristics are good indicators if a company is close to having a monopoly. Use them when analyzing a business.
Why Competition is bad
Competition is viewed as something healthy. But this thinking is wrong. Competition means to struggle for survival and a small profit for businesses and individuals.
Even our education system reflects an obsession with competition. Students are made to compete with each other for their grades. This gets gradually worse until even elite students reach a point where the competition is so intense that they can’t catch up. Once that happens they feel inferior, and their dreams are basically beaten out of them.
Luck or skill?
Does success come from luck or from skill? In the book Outliers, Malcom Gladwell shows that success depends on “a patchwork of lucky breaks and arbitrary advantages.” But is success really just a matter of luck? Unlikely. There are hundreds of people who have started multiple multimillion-dollar businesses. These type of serial success stories indicate that they are not product of pure luck.
The future, a matter of chance or design?
There are two fundamentally different ways to think about the future. The first one is to assume that the future is random, that it is completely uncertain and therefore trying to master it is futile. This mindset is called the indefinite attitude.
The definite attitude in contrast is to think about the future as something which will take a definite form, you can try to understand it and start working to shape it.
In the indefinite attitude, process trumps substance.
The author argues that indefinite attitude is what’s dysfunctional in modern society. People prepare for nothing in particular. Instead, they prepare for a completely unknown future, often spending a decade to assemble a bewilderingly diverse résumé but at the end, they are prepared for nothing in particular.
A definite person, in contrast, determines the best think to do and then does it. Wouldn’t it make more sense if a student focuses only on one subject and then master it completely?
Optimists welcome the future, pessimists fear it. Combine pessimism with “indefinitism, ” and you get indefinite pessimism.
Indefinite pessimists look out onto a bleak future but don’t know what to do about it.
Since Europe succumbed to undirected bureaucratic drift in the 1970s, the Eurozone can be described by indefinite pessimism. Nobody seems to be in charge and the whole zone is a slow-motion crisis. Europeans are reactive instead of proactive and just hope that things don’t get worse.
The indefinite pessimism believes that a decline is inevitable, but he doesn’t know when and how, so he might as well try to live through the daily routine and work for vacations in the meantime.
A definite pessimism believes that the future will be bleak, but also that it can be known and thus he prepares for it.
China is probably the most definitely pessimistic place in the world. Despite the fact that most of the world thinks China is going to take over the world, China actually is worried that it won’t.
The reason China grows so fast is not thanks to its own innovation, but because it has a low starting base and therefore has a lot to catch up. The incredible fast growth of China is achieved by relentlessly copying everything the West has already successfully implemented.
But despite the fast growth, the overall Chinese mindset is that winter is coming, poorer Chinese save everything they can to get through the bleak future and wealthy Chinese try hard to get their money out of the country.
Now we get to the attitude which defines the western world since the 17th century, all through the 1950’s and 60’s, definite optimism.
Definite optimists believe the future will be better if he prepares for it.
Karl Marx and Friedrich Engels saw that the 19th-century business class generated more productive forces than all the preceding generations.
To the indefinite optimist, the future will be better but he does not know exactly how, so he won’t design specific plans.
Instead of building radically new products, indefinite optimists opt for rearranging already-invented ones. Remember horizontal growth?
Indefinite optimism calls for bankers and lawyers instead of engineers. Since there is no concrete vision and plan for the future, the only way to make money is a focus in finance and diversify. Diversification is important since an indefinite optimist doesn’t see anything substantive about the future.
It is tempting to say for many people in today’s society that “everything has already been done.” That there is nothing radically new to discover (horizontal progress) and no secrets. But the fact is that there are still plenty of secrets, it’s just that they are discovered only by people who look for them relentlessly.
Andrew Wiles proved Fermat’s Last Theorem, something which was tried without success for 358 years by other mathematicians. This is a good example of someone who needed brilliance to succeed, but also a belief in secrets. Secrets in this case meaning things which aren’t yet known and discovered.
In business, there are many examples of uncovered secrets. Take Uber or Airbnb as examples. Uber became the biggest transport service provider without owning a single car. Airbnb saw an untapped opportunity in property owners unoccupied space and became a multi-billion company and the biggest competition of hotels. All without owning a single property.
How to find secrets
We can divide secrets into two categories, natural secrets, and secrets about people. Natural secrets are the secrets which surround us. We have to study the physical world in order to find them.
Secrets about people are secrets people don’t know about themselves or things they know but don’t want others to know. To find secrets, you have to look in those places, think about what are people not allowed to say, or what they don’t want you to know.
The best way to look for secrets is to look where nobody else is looking. School for example, is something everyone gets through, so you probably won’t discover many secrets there, only conventional wisdom.
Nutrition is a good example of an area which contains many secrets. Newer studies often prove older studies wrong. Conventional wisdom like the food pyramid which told us to eat low fat diets is flawed as newer studies have shown, and this affects us all.
What to do with a secret, once discovered? The best idea is to tell just to people who you need to, for example, your company. Telling secrets to anyone is seldom a good idea.
Startups need a good foundation
The start of a company is a crucial moment. Every company needs a solid foundation. As teams tend to be small in the beginning, every person plays a very important role.
Personal connections are important. Personal differences between founders can compromise the entire company, that’s why it is very important that the team members get along nicely and share the same vision.
Finally, startups should instill a strong culture in their teams. Company cultures are critical for success. In Paypal, the culture was so strong that many members of the team later went on to start other companies.
Sales and distribution
Sales and distribution is crucial. Many people, especially in the technology industry would like to focus exclusively on the product. But no product will bring in money if it doesn’t get sold. And for it to sell it needs to be brought to the clients. Distribution and sales are. A company needs to solve those two things in order to be successful.
The seven critical questions
Many cleantech companies failed between 2005 and 2009 because they didn’t consider the seven critical questions necessary to understand their market opportunity.
- The engineering question: Can you create a true technological breakthrough?
- The timing question: Is this the right time to start the business?
- The monopoly question: Will you be able to get ahead of the competition by a factor of 10?
- The people question: Is your team suited for this type of company? Example, a tech-company should consist of “nerds” instead of non-technical people.
- The distribution question: How will you deliver your products to your customers?
- The durability question: Can you still defend your market position in 20 years?
- The secret question: Do you see a unique opportunity that others may have missed?
Innovative companies like Tesla succeeded because they answered all 7 key questions.
Vision is crucial
The value of a company is often defined by its vision. Often companies don’t make profits from the get-go. Take PayPal as an example, in 2001 Paypal wasn’t making any profits, but the author found that most of the profits would come after more than ten years later. Today the company is worth $46+ billion.
When Yahoo offered to buy Facebook for $1 billion in 2006, Mark Zuckerberg didn’t even consider to sell it. He knew that the company would grow and be worth much more. Today Facebook is worth $330 billion at its value keeps growing.
Perhaps the most famous visionary is Steve Jobs. He catapulted Apple from the brink of bankruptcy to be the most valuable company in the world within a decade.
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