0:00 It's true that every great entrepreneur
0:01 is first and foremost a designer. Anyone
0:04 who's held an iPhone or a MacBook has
0:06 felt the result of Steve Jobs obsession
0:08 with visual and experential perfection.
0:10 But the most important lesson to learn
0:11 from Jobs has nothing to do with
0:13 aesthetics. The greatest thing Jobs
0:16 designed was his business. Apple
0:18 imagined and executed definitive
0:20 multi-year plans to create new products
0:22 and distribute them effectively. Forget
0:25 minimum viable products. Ever since he
0:26 started Apple in 1976,
0:29 Jobs saw that you can change the world
0:31 through careful planning, not by
0:33 listening to focus groups or copying
0:35 other people's success. Long This is one
0:38 of my favorite sentences in this entire
0:39 section. Long-term planning is often
0:42 undervalued by our indefinite shortterm
0:45 world. When the first iPod was released
0:47 in October 2001, industry analysts
0:50 couldn't see much more than quote a nice
0:52 feature for Macintosh users that doesn't
0:54 make any difference to the rest of the
0:56 world. Jobs plan the iPod to be the
0:59 first of a new generation of portable
1:01 postPC devices. But that secret was
1:05 invisible to most people. One look at
1:08 the company's stock chart since then
1:10 shows the harvest of this multi-year
1:12 plan. The power of planning explains the
1:15 difficulty of valuing private companies.
1:17 When a big company makes an offer to
1:19 acquire a successful startup, it almost
1:21 always offers too much or too little.
1:24 Founders only sell when they have no
1:27 more concrete visions for the company.
1:30 Definitive founders with robust plans
1:33 don't sell. When Yahoo offered to buy
1:37 Facebook for a billion dollars in July
1:38 2006, I thought we should at least
1:41 consider it. But Mark Zuckerberg walked
1:43 into the board meeting and announced,
1:45 "Okay guys, this is just a formality. It
1:47 shouldn't take more than 10 minutes.
1:49 We're obviously not going to sell here."
1:51 Mark saw where he could take the
1:54 company, and Yahoo didn't. A business
1:57 with a good definitive plan will always
1:59 be underrated in a world where people
2:02 see the future as random. A startup is
2:05 the largest endeavor over which you can
2:08 have definitive mastery. You can have
2:11 agency not just over your own life but
2:14 over a small and important part of the
2:17 world. It begins by rejecting the unjust
2:22 tyranny of chance. You are not a lottery
2:26 ticket. Okay, that is an excerpt from
2:28 the book that I'm going to talk to you
2:30 about today which is 0ero to1 notes on
2:31 startups or how to build the future and
2:33 is written by Peter Teal and Blake
2:35 Masters. So I was actually shocked. I
2:37 think this is probably the only business
2:40 book, maybe the only business book worth
2:42 reading. And I was actually shocked that
2:43 it's been four years since I read it. I
2:45 think I've read this three or four times
2:46 by now. But what I wanted to do this
2:48 time is I didn't want to be influenced
2:51 since it's been four years since I read
2:52 it. And since then, I probably read I
2:54 don't know what 200 more biographies of
2:55 history's greatest entrepreneurs. I
2:56 didn't want to be influenced by any
2:58 notes or highlights I I left in the p
3:00 the previous uh copies of the book. So I
3:02 bought a new copy of the book and went
3:03 through it brand new. And really what I
3:07 want to talk to you about today, which I
3:08 I think is really one of the most
3:10 interesting things is the way I think
3:12 about this book now, it's it doesn't
3:14 really tell you what to do. It's like
3:15 more of like a prompt for your think
3:17 your own thinking. But I think the main
3:19 message that Peter is trying to get
3:21 across is you should be focused on
3:24 trying to build a creative monopoly. And
3:26 so I'm going to go to that idea over and
3:28 over again. I think Apple is one of the
3:29 best examples. So, you know, I started
3:31 our conversation today with Apple. I'm
3:33 going to end our conversation today with
3:35 Apple. I think the preface of this book
3:37 is a good outline on what we should try
3:39 to be doing as founders and that's
3:42 really uh line from one of my heroes
3:44 Edwin Land who's founder of Polaroid
3:46 which his personal motto was don't do
3:48 anything someone else can do and you
3:50 hear Peter Teal echo that sentiment in
3:52 the very first lines of the book where
3:55 he says every moment in business happens
3:56 only once. The next Bill Gates will not
3:58 build an operating system. the next
4:00 Larry Page or Sergey Brin won't make a
4:02 search engine and the next Mark
4:03 Zuckerberg won't create a social
4:05 network. If you are copying these guys,
4:07 you aren't learning from them. The act
4:09 of creation is singular as is the moment
4:12 of creation and the result is something
4:14 fresh and strange. Unless, and he's
4:17 talking about American businesses here,
4:18 but this really applies to every
4:20 business in the world. Unless they
4:21 invest in invest in the difficult task
4:23 of creating new things, American
4:24 companies will fail in the future. No
4:27 matter how big their profits remain
4:29 today, today's best practices lead to
4:31 dead ends. The best paths are new and
4:34 untried. If American business is going
4:36 to succeed, we're going to need hundreds
4:38 or even thousands of miracles. And I
4:41 love I forgot the section uh when I read
4:43 it previously, and I love his definition
4:46 of miracles. This would be depressing
4:49 but for one crucial fact. Humans are
4:51 distinguished from other species by our
4:53 ability to work miracles. We call these
4:56 miracles technology. And then he has in
4:59 my opinion the best definition of
5:01 technology and the one I've been using
5:02 for several years I just got from this
5:04 book. Gets into that in one moment. Says
5:06 technology is miraculous because it
5:07 allows us to do more with less.
5:09 Ratcheting up our fundamental
5:10 capabilities to a higher level. By
5:12 creating new technologies we rewrite the
5:15 plan of the world. It's easy to forget
5:18 in a world where so much of what we do
5:19 is repeat what has been done before.
5:22 0ero to one is about how to build
5:24 companies that create new things. And I
5:28 absolutely love this. Uh it says this
5:29 book offers no formula for success. The
5:31 paradox of teaching entrepreneurship is
5:33 that such a formula necessarily cannot
5:36 exist because every innovation is new
5:39 and unique. No authority can prescribe
5:41 in concrete terms how to be innovative.
5:43 This is what I mean about this book is
5:45 really best used and best thought of as
5:47 a prompt for your own thinking. Indeed,
5:50 it's it's also funny to me because
5:53 something I I've told you over and over
5:54 again that we forget that we forget and
5:57 you know people are always like why why'
5:58 you read James Dyson's first
5:59 autobiography five times? Well, I was
6:01 like well I've actually read it way more
6:02 than that. I've read it five times all
6:03 the way through, but I've read
6:04 highlights from that book, I don't know,
6:06 hundreds of times. And I got actually
6:07 got to meet James Dyson for my other
6:09 show and got to sit down and record a
6:12 conversation with him for two straight
6:13 hours. So, it's like, how many times
6:15 have I really read the book? Way more
6:16 than than five. But the reason I bring
6:18 that up is because even though I haven't
6:20 read this book in four years, there's
6:21 certain lines that just stick in your
6:24 thinking. And this is one of them. This
6:26 is one of the most important lines of
6:28 the book. So he says indeed the single
6:30 most powerful pattern I have noticed is
6:31 that successful people find value in
6:33 unexpected places and they do this by
6:35 thinking about business from first
6:37 principles instead of formulas. So I
6:40 read that line I think about this book
6:41 but I think about almost every single
6:43 person you and I have talked about on
6:44 founders. Obviously James Dyson being a
6:46 great example Steve Jobs where Peter was
6:48 just saying the greatest thing that
6:49 Steve ever designed was act his actual
6:51 business. Uh Edwin Lant all of these
6:53 people thought about business from first
6:55 principles. And then when I got to this
6:57 section where he's like, hey, you know,
6:59 there's this book offers no formula for
7:00 success. The paradox of teaching
7:02 entrepreneurship is that such a formula
7:03 necessarily cannot exist. It's that idea
7:06 that what this book gives you is some
7:08 questions to ask yourself only you can
7:12 answer those questions for yourself and
7:13 the result of those answers can help
7:15 lead you to build a creative uh to build
7:18 a creative monopoly. I I just read this
7:20 uh book of Elon that my friend Eric
7:22 Jorgensson wrote and there was a line in
7:24 there that I really love because Elon
7:26 talked about this and Elon was reading
7:27 The Hitchhiker's Guide to Galaxy and he
7:28 said something that he read in that book
7:30 stuck out to him and he says a lot of
7:31 times the question is harder than the
7:33 answer. And if you can properly phrase
7:36 the question, then the answer is the
7:38 easy part. Before we get back into this,
7:40 I want to tell you about the presenting
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7:46 SpaceX is one of the most valuable
7:47 businesses in the world and one of the
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7:51 constantly attacking and questioning
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8:46 ramp.com. So then the book gets into
8:49 like the fact that you can build if you
8:51 there's a series of questions that that
8:53 Peter's going to propose. And if you can
8:55 answer them, you can build a company
8:56 around that answer. So he t he calls
8:58 this the contrarian question, which what
9:00 important truth do very few people agree
9:02 with you on? And he says it's really
9:04 hard to answer because even if you have
9:06 an answer, you could be afraid to state
9:08 it honestly because it bucks the trend
9:11 of what other people around you believe.
9:13 It might be controversial. And so he has
9:15 this great line here that I think is
9:16 good framing for this. Brilliant
9:17 thinking is rare, but courage is even in
9:19 shorter supply than genius. A good
9:22 answer to this question takes the
9:23 following form. Most people believe X,
9:26 but the truth is the opposite of X. No
9:29 one can predict the future exactly, but
9:30 we know two things. It's going to be
9:32 different and it must be rooted in
9:34 today's world. Most answers to the
9:36 contrarian question are different ways
9:38 of seeing the present. Good answers are
9:41 as close as we can come to looking into
9:43 the future. And so when I got to this
9:45 part where he says good answers are as
9:47 close as we come to looking into the
9:48 future. There's this great line by Edwin
9:50 Lan I want to read to you uh this quote
9:52 that he would repeat inside as he was
9:53 building Polaroid. He says the present
9:55 is the past biting into the future. And
9:58 then Peter gets into the fact that
9:59 technology is just a better way of doing
10:01 something. And this is my favorite
10:03 definition of technology I've ever
10:04 heard. There's no reason why technology
10:06 should be limited to computers. Properly
10:08 understood. Any new and better way of
10:11 doing things is technology. And then I
10:14 love this part because he's describing
10:15 the environment in which new technology
10:18 is normally created. So you have small
10:19 teams engaged in new thinking. And then
10:21 he gives a couple historical examples.
10:23 says, "New technology tends to come from
10:25 new ventures, which we call startups.
10:26 From the founding fathers in politics to
10:29 Fairchild semiconductors, traitorous 8
10:31 in business, small groups of people
10:33 bound together by a sense of mission
10:35 have changed the world for the better."
10:37 And so, history is full of examples of
10:39 that line where he says, "Small groups
10:41 of people bound together by a sense of
10:42 mission have changed the world for the
10:44 better." And then he describes the
10:46 environment in which when you're
10:48 starting small, that is one of your main
10:50 advantages to engaging in new thinking
10:52 and then developing new technology. He
10:53 says startups operate on the principle
10:54 that you need to work with other people
10:56 to get stuff done. But you also need to
10:58 stay small enough so that you actually
11:00 can positively defined. A startup is the
11:03 largest group of people you can convince
11:04 of a plan to build a different future. A
11:07 new company's most important strength is
11:10 new thinking. Even more important than
11:13 nimleness, small size affords space to
11:16 think. That is one of the most unique
11:18 ideas in the book. This is what startup
11:20 has to do. Question received ideas and
11:24 rethink business from scratch. So you've
11:26 already seen this several times. I would
11:28 say there's only a handful of ideas in
11:30 this book. He will repeat them and then
11:32 as the book continues, he ties them
11:34 together. And this idea of thinking from
11:36 first principles, rethinking business
11:37 from scratch is something he'll repeat
11:39 over and over and over again in the
11:40 book. And so what I love that Peter does
11:42 is before he gets into how he thinks
11:44 about building a creative monopoly,
11:45 which again is the main point of what I
11:46 want to discuss with you today, he talks
11:48 about what the opposite of building a
11:50 creative monopoly looks like. And he at
11:53 the time he's uh he's building PayPal
11:55 during the com boom in the late '9s,
11:57 early 2000s. And he's describing this
12:00 environment of people essentially just
12:02 this mass mania of everybody copying
12:05 what everybody else is doing. So it
12:06 says, "When I was running PayPal in late
12:07 1999, I was scared out of my wits
12:09 because it seemed like everyone else in
12:11 the valley was ready to believe anything
12:12 at all. Everywhere I looked, people were
12:15 starting and flipping companies with
12:17 alarming casualness. One acquaintance
12:19 told me how he planned an IPO from his
12:22 living room before he'd even
12:23 incorporated his company. That is
12:25 insane." And he didn't think that was
12:27 weird. In this kind of environment,
12:29 acting sely began to seem eccentric. So
12:32 saying after the.com bust people started
12:35 to rewrite the way to build companies
12:37 cuz and they did this out of fear which
12:39 again is not think rethinking business
12:41 from scratch not thinking from first
12:42 principles they came up with basically
12:44 four ideas that he saw repeated over and
12:46 over again and Peter's going to take the
12:48 opposite. So they said hey you know just
12:49 make number one make incremental
12:51 advances number two stay lean and
12:53 flexible number three improve on the
12:55 competition number four focus on product
12:57 not sales and in Peter's mind he's like
12:59 well that's what people say right this
13:03 is what I think people should do and so
13:05 he says the opposite principles are
13:07 probably more correct number one it is
13:10 better to risk boldness than triviality
13:12 number two a bad plan is better than no
13:15 plan number three competitive markets
13:17 destroy profits, why you should be
13:19 building a creative monopoly, and number
13:21 four, sales matters just as much as
13:24 product. And he believes number four so
13:26 much, he has an entire uh chapter in
13:28 this book dedicated to sales and
13:30 distribution. Um, now everything that
13:33 he's been writing up until this point
13:35 has been building up to this. The most
13:37 contrarian thing of all is not to oppose
13:39 the crowd, but to think for yourself.
13:42 And the way to do that is to ask
13:44 yourself this question. What valuable
13:46 company is nobody building? So now Peter
13:49 gets into what a creative monopoly is
13:51 and why you want to build one. In this
13:52 book, by monopoly, we mean the kind of
13:54 company that's so good at what it does
13:56 that no other firm can offer a close
13:58 substitute. The lesson for entrepreneurs
13:59 is clear. If you want to create and
14:01 capture lasting value, do not build an
14:04 undifferiated commodity business. I'm
14:06 building a new studio for founders right
14:08 now, and I'm very tempted to just have a
14:10 giant portrait of Edwin Land sitting
14:12 behind me. So every time I look at him,
14:14 I can just think, don't do anything that
14:15 somebody else can do. So then a few
14:17 pages later, Peter continues on why this
14:20 is so important. And he's going to
14:21 define this again. Creative monopolists
14:23 give customers more choices by adding
14:26 entirely new categories of abundance to
14:28 the world. Creative monopolies aren't
14:30 just good for the rest of society.
14:32 They're powerful engines for making it
14:33 better. This is an important point.
14:35 We're not talking about monopoly is is
14:37 in the term of, you know, how most
14:39 people think about it. Think about like
14:41 Cornelius Vanderbilt or the robber
14:42 barons where essentially they monopolize
14:44 you know phys in in Vanderbilt's case
14:47 you know I own all the ships if you want
14:50 to get across this river you have to pay
14:51 whatever I I decide the prices that's
14:54 not what we're talking about here we're
14:55 saying be so good that no one else can
14:57 offer what you're doing I think of Apple
15:00 as a creative monopoly obviously
15:02 creative monopoly the list Google the
15:04 list goes on and on the history of
15:06 progress is a history of better monopoly
15:08 businesses replacing incumbents
15:10 Here's how you know if you're not
15:12 building a creative monopoly. If your
15:13 industry is in a competitive
15:14 equilibrium, the death of your business
15:16 won't matter to the world. Some other
15:18 undifferiated competitor will always be
15:20 ready to take your place if you stop
15:21 doing what you're doing. Could somebody
15:22 else do just pick up where you left off?
15:25 And then this line is so important that
15:26 he italicized it. He says monopoly is
15:29 the condition of every successful
15:32 business. Toltoy opens anina by
15:35 observing all happy families are alike.
15:38 Each unhappy family is unhappy in its
15:41 own way. Business is the opposite. All
15:44 happy companies are different. Each one
15:47 earns a monopoly by solving a unique
15:50 problem. All failed companies are the
15:52 same. They failed to escape competition.
15:55 He opens the very next chapter
15:57 continuing his point. Creative monopoly
16:00 means new products that benefit
16:02 everybody and sustainable profits for
16:05 its creator. And then this point is
16:06 really important. You build a creative
16:08 monopoly by being customer obsessed and
16:11 different. Inside a firm, people become
16:14 obsessed with their competitors for
16:15 career advancement. Then the firms
16:17 themselves become obsessed with their
16:19 competitors in the marketplace. Amid all
16:22 the human drama, people lose sight of
16:25 what matters and focus on their rivals
16:27 instead. Rivalry causes us to
16:29 overemphasize old opportunities and
16:32 slavishly copy what has worked in the
16:34 past. And then he gets into the fact
16:36 that so many people that have built
16:37 creative monopolies might have asberers
16:39 or they might be on the spectrum
16:40 somewhere. I I obviously think that's
16:42 not necessary, but the way I think about
16:44 this, the maximum I have for this is
16:45 just mute the world and build your own.
16:47 So he talks about this. The hazards of
16:49 imitative competition may partially
16:52 explain why individuals with an
16:53 asberers-like social ineptitude seem to
16:55 be at an advantage. If [snorts] you're
16:57 less sensitive to social cues, you're
16:59 less likely to do the same things as
17:01 everyone else around you. If you're
17:03 interested in making things, you'll be
17:05 less afraid to pursue those activities
17:07 single-mindedly and thereby become
17:09 incredibly good at them. I never met
17:11 Steve Jobs. I don't know if people
17:12 considered him that said thought he, you
17:15 know, had aspberers. I don't I never
17:16 heard that before. I actually spent a
17:17 bunch of hours with Ed Catmill who
17:19 worked with Steve for like 24
17:21 consecutive years. Actually got to go to
17:22 Ed's house and have a conversation and
17:24 recorded a conversation for my uh other
17:26 podcast with Ed. If you haven't listened
17:28 to it, I highly uh suggest you do. It's
17:30 on my other feed. I'm assuming you're
17:31 already following it if you're listening
17:32 to this, but if not, just search David
17:33 Senra wherever you're listening to this
17:35 at. But I the point about this is like I
17:38 find this section very interesting. I
17:40 have a very maybe a slightly different
17:41 view than Peter does. And it's just as
17:43 simple as this line that he just said.
17:45 Are you just interested in making
17:46 things? Like if you're interested in
17:48 making things like all a business,
17:50 right? A business is just an idea that
17:51 makes somebody else's life better. In my
17:53 case, I like to read. I like history. I
17:55 like podcasts and I like
17:56 entrepreneurship. If you look, if you've
17:58 plotted my four interests out in ven
17:59 diagram, what is going to sit at the
18:01 center? Founders podcast sits at the
18:02 center. I am obsessed with making these
18:04 things. If I don't podcast, I get
18:06 depressed. I get sad. I literally just
18:08 I'm I feel compelled to do this. I don't
18:11 necessarily I'm defin I'm not autistic.
18:14 I don't have asberers. I just like
18:16 making things that make other people's
18:17 lives better. And I think that is like
18:20 key. Like there's a lot of people that
18:22 get into business for all kinds of other
18:24 reasons. you know, they want to make a
18:26 lot of money, maybe they want to have
18:27 control over their schedule, they, you
18:28 know, whatever the case is. But I think
18:30 this is almost like the apex of
18:32 entrepreneurship if you're interested in
18:34 making other people's lives better. It's
18:35 just like you're just obsessed with
18:37 making things. And if you just focus on
18:39 I want to make something and then think
18:41 about how you want to make it and kind
18:43 of ignore how other people think you
18:45 should be doing it, I think that path
18:47 could lead to a creative monopoly. It's
18:50 as simple as that line. If you're
18:52 interested in making things, you'll be
18:54 less afraid to pursue those activities
18:55 single-mindedly and thereby become
18:57 incredibly good at them. This is another
19:00 line I think of uh uh Charlie Mer had
19:03 this great line that you know he thought
19:04 that if you just like learn the the few
19:07 big ideas and all the important
19:08 disciplines, right? You know, there
19:10 might be two, three, four big ideas in
19:12 all these different disciplines, you you
19:14 master those, you get that in your head.
19:16 He says those uh handful of days carry
19:19 most of the freight, right? When I heard
19:21 him say that, I kind of flip that and my
19:24 line of this is that time carries most
19:26 of the weight. That if you're obsessed
19:28 with making things and assuming what
19:30 you're making is making somebody else's
19:31 life better and you just single-mindedly
19:33 focus on that and you do it for a long
19:35 time, time carries most of the weight.
19:38 So, he says you'll be less afraid to
19:39 pursue this activity single-mindedly and
19:40 thereby become incredibly good at them.
19:42 Then, when you apply your skills, you're
19:44 a little less likely than others to give
19:45 up your own convictions. This can save
19:47 you from getting caught up in crowds
19:49 competing for obvious prizes. So again,
19:52 the way I think about this is just mute
19:53 the world and build your own. And then
19:55 when I just said time carries most of
19:57 the weight, I forgot what the next
19:58 section is and it's perfect. This is
20:00 another idea. Again, I haven't read this
20:01 book in four years. This idea sticks out
20:03 to me. The fact that you see this
20:04 entrepreneurs make this mistake all the
20:06 o over and over again. They overoptimize
20:10 for growth at the expense of durability.
20:13 But think about how he opened the book.
20:14 Apple think Apple's a multi-t trillion
20:16 dollar company today was founded 50
20:19 years ago 1976. So he says a great
20:22 business is defined by its ability to
20:24 generate cash flows in the future.
20:26 Simply stated the value of a business
20:28 today is the sum of all money it will
20:29 make in the future. Most of a tech
20:32 company's value will come at least 10 to
20:34 15 years in the future. I was just
20:37 reading about Jensen uh this morning.
20:39 Think about in Jensen's case. He's been
20:42 running somebody for 33 years. It wasn't
20:44 10 [laughter] in Nvidia's case, it
20:46 wasn't the value came 10 to 15 years
20:47 into the company. They came 25 to 30
20:50 years into the future. Um, so
20:55 I know I've already quoted Charlie Mer
20:56 once, but I have to put him on almost
20:58 every podcast. If I could only learn
20:59 from one person, it'd probably be that
21:01 that's passed away, it'd probably be
21:03 Mer. When I was reading poor Charlie's
21:05 Almanac, uh they were talking to his
21:07 kids for the book and it says that in
21:09 their dad's eyes, one of his sons says
21:10 that his dad thought that durability was
21:12 a first rate virtue. And I love that. So
21:16 if you go back to what Peter is saying
21:17 here, hey, most of the tech company's
21:18 values coming a decade, decade and a
21:20 half, two decades into the future, he
21:22 expounds on that. The overwhelming
21:23 importance of future pro profits is
21:25 counterintuitive.
21:27 For a company to be valuable, it must
21:29 grow and endure. He [snorts] did he
21:32 italicized endure. He did not italicize
21:34 growth. So for a company to be valuable
21:37 must grow and endure. But many
21:38 entrepreneurs focus only on short-term
21:40 growth. Growth then he tells us why this
21:42 is so good. Growth is easy to measure.
21:45 Durability isn't. Those who succumb to
21:48 measurement mania obsess about weekly
21:50 after active user statistics, monthly
21:52 revenue targets, and quarterly earning
21:54 reports. However, you can hit those
21:57 numbers and still overlook deeper,
21:59 harder to measure problems that threaten
22:01 the durability of your business. If you
22:04 focus on nearterm growth above all else,
22:08 you miss the most important question you
22:10 should be asking. Will this business
22:13 still be around a decade from now? Amen.
22:17 I feel like throwing the book across the
22:18 room if I'd had to get up and go grab
22:20 it. I love this part. The most important
22:23 question. I don't give a [ __ ] if you're
22:25 successful for a year or for five years.
22:27 It's like what is the whole point of
22:29 what you and I get together every week
22:30 and we're talking about we're not
22:31 talking about and they don't write books
22:33 about people that run a business for 5
22:34 years. It's they they they grow a
22:36 business and the business endures decade
22:38 after decade after decade. Look at what
22:40 he said. This is the most important
22:42 question you should be asking. Will this
22:44 business still be around a decade from
22:47 now? And before we get back into this, I
22:49 want to tell you about Applov. One of my
22:51 all-time favorite quotes is from the
22:53 book 0ero to1. In that book, Peter Teal
22:55 writes, he says, "The single most
22:56 powerful pattern I have noticed is that
22:58 successful people find value in
22:59 unexpected places. And they do this by
23:02 thinking about business from first
23:03 principles instead of formulas." And
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23:07 with their advertising platform.
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23:50 going to apploven.com.
23:52 That's apploven.com.
23:54 And then I want to tell you about Vanta.
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24:50 There's a great line from Drake that I
24:51 loved. Uh he says, "Just give it time.
24:53 We'll see who's still around a decade
24:55 from now." Drake happened to say that in
24:57 2013. I think that's a very interesting
24:59 idea. And I say this over and over again
25:00 where you like, you know, people ask my
25:02 opinion on this startup, this startup
25:05 over here or that startup over there.
25:06 It's like, I don't know, like let's are
25:07 they around a decade from now? Let's see
25:08 who's around a decade from now. I love
25:09 this idea. uh every monopoly is unique
25:12 but they usually share some combination
25:14 of the following characteristics
25:15 proprietary technology network effects
25:18 economies of scale and branding. though
25:20 he is going to use I love there's a
25:23 reason I started today's discussion uh
25:26 with Apple because he uses Apple
25:29 basically as as the perfect example of a
25:31 creative monopoly and so I think for
25:33 branding you know we don't have to
25:36 you understand that Apple has one of the
25:38 best uh brands in tech and I think at
25:40 the writing of this book I actually went
25:41 back and looked I was shocked even this
25:43 book think about he's talking about hey
25:45 the value of a company is going to
25:46 happen a decade decade two two decades
25:48 in the future this book is already over
25:50 a decade old. I think it was published
25:51 in 2014. So this time he says, you know,
25:53 Apple has the best brand in tech. So
25:56 that takes care of point number four.
25:57 Let's go over how Apple's uh an example
26:00 of the other three characteristics.
26:02 Proprietary technology, network effects,
26:03 economies of scale. And he says right
26:05 here, Apple has a complex suite of
26:07 proprietary technologies both in
26:09 hardware and software. Then he gets to
26:11 scale. It manufactures products at a
26:13 scale large enough to dominate pricing
26:15 for the materials it buys. Then it gets
26:17 into network effects and it enjoys
26:19 strong network effects from its content
26:20 ecosystem. Thousands of developers write
26:23 software for Apple devices because
26:25 that's where hundreds of millions of
26:26 users are and those users stay on the
26:29 platform because it's where the apps
26:31 are. And so that is where Apple is 40
26:34 years after its founding right at the
26:36 time of the writing of the book. But he
26:37 talks about that's not where these
26:39 creative monopolies start. These
26:41 creative monopolies always start
26:43 excessively small and they then they
26:45 monopolize. So he says every startup is
26:47 small at the start. Every monopoly
26:49 dominates a large share of its market.
26:51 Therefore, every startup should start
26:54 with a very small market. Always heir on
26:58 the side of starting too small. If you
27:00 think your initial market might be too
27:02 big, it almost certainly is. Small
27:04 doesn't mean non-existent. The when I
27:06 got to that part made me laugh because
27:08 Apple's first sale was for 50 computers
27:12 for $25,000
27:14 and it was sold to this this com this
27:17 shop in uh I think Palo Alto called the
27:19 bite shop. And one of my favorite pieces
27:21 of Apple lore is that Apple's first sale
27:25 was made barefoot because Steve Jobs
27:27 walked into the bite shop barefoot. So
27:30 then Peter gives us a perfect example of
27:31 starting small and monopolizing. The
27:33 perfect target market for a startup is a
27:34 small group of particular people
27:35 concentrated together and served by few
27:38 or no competitors. Once you create and
27:40 dominate a niche market, then you should
27:42 gradually expand into related and
27:44 slightly broader markets. Amazon shows
27:47 how this can be done. Jeff Bezos's
27:49 founding vision was to dominate all of
27:52 online retail, but he very deliberately
27:54 started with books. This is so
27:55 fascinating cuz people like I can't
27:57 believe you know how how Amazon grew
27:59 just from this idea of being the world's
28:01 largest bookstore. If you go back and
28:03 read all the books and you can listen to
28:05 the podcast I've done I've done what I
28:06 don't know 10 or 15 podcasts on Jeff
28:08 Bezos by now but when he was working at
28:10 De Shaw this hedge fund in New York City
28:12 him and David Shaw would talk about how
28:15 what are businesses we can build that
28:17 can take advantage of this crazy insane
28:20 growth that we see on the internet. And
28:21 the code name for what turned out to be
28:23 Amazon was actually called the
28:25 everything store. We might start with
28:26 books, but eventually we're going to
28:28 start we're going to sell everything.
28:29 Amazon continued to add categories
28:31 gradually until it had become the
28:32 world's general store. Sequencing
28:36 markets correctly is underrated and it
28:38 takes discipline to expand gradually.
28:40 The most successful companies make the
28:42 core progression to first dominate a
28:44 specific niche and then scale to
28:46 adjacent markets a part of their
28:48 founding narrative just like Amazon did.
28:51 And then Peter repeats something over
28:52 and over again. He says competition is
28:54 for losers. There's lines like this, the
28:56 one I'm about to read to you all
28:57 throughout the book. Avoid competition
28:59 as much as possible. Then he gets into
29:01 the fact that really you don't want to
29:03 be the first mover, you want to be the
29:05 last mover. Then he says the last will
29:07 be first. You probably heard about first
29:09 mover advantage, but moving first is a
29:11 tactic, not a goal. What really matters
29:13 is generating cash flows in the future.
29:15 So being the first mover doesn't do you
29:17 any good if someone else comes along and
29:19 unseat you. It is much better to be the
29:22 last mover. That is to make the last
29:24 great development in a specific market
29:26 and enjoy years or even decades of
29:29 monopoly profits. In this one particular
29:31 elase, business is like chess. And so
29:34 then he quotes his grandmaster who says
29:36 to succeed you must study the endgame
29:39 before everything else. And so then
29:41 Peter has advice. He thinks you should
29:43 be a definitive person. And this is
29:44 really interesting. He says the
29:45 definitive person determines the one
29:46 best thing to do and then does it. The
29:49 definitive person strives to be great at
29:51 something substantial. They strive to be
29:53 a monopoly of one. So if you go back to
29:55 where we started this discussion where
29:57 he said the greatest thing that Steve
29:58 Jobs designed was his business. Apple
30:00 imagined and executed definitive
30:02 multi-year plans to create new products
30:04 and distribute them effectively. So then
30:06 he goes back into this is in the chapter
30:09 called that you're not a lottery ticket
30:11 that Peter's perspective is you know
30:13 that you can actually make definitive
30:15 plans and optimistically
30:18 run down those plans make those plans
30:20 real turn them into from a vision into a
30:23 reality and that too much of society or
30:25 other people will tell you oh it's just
30:26 all comes down to luck and so he gives
30:27 some examples where the first explorer
30:30 to reach the south pole after he reached
30:31 the south pole has this great line and
30:33 he said victory awaits him who has
30:36 everything in order. Luck people call
30:38 it. And when I was reading this section,
30:41 I reread the section several times
30:42 because I love this idea of being a
30:44 definitive optimist. Uh I think if
30:46 you're listening to this, you're most
30:47 likely definitive optimist. I would
30:48 classify myself as this as well. And I
30:51 think Napoleon actually has some of the
30:53 best quotes on this. There's this great
30:55 book. I think I did all the way back on
30:56 episode 301. It's called The Mind of
30:58 Napoleon. It's published in like 1957.
31:00 And the book is very hard to find, but
31:01 it's like 300 pages of just Napoleon in
31:03 his own words. And he says something in
31:05 that book that was interesting. He says,
31:07 a consecutive series of great actions
31:10 never is the result of chance and luck.
31:12 It is always a product of planning and
31:15 genius. And then Napoleon asks the
31:17 question, what is luck? And his answer
31:19 is the ability to exploit accidents. He
31:23 has another Napoleon and later in the
31:25 book has another line about this. All
31:27 great events hang by a single thread.
31:29 The clever man takes advantage of
31:31 everything and neglects nothing.
31:34 The way I think about this is do
31:36 everything and you will win. And so then
31:38 Peter goes into definitive optimism. To
31:40 a definitive optimist, the future will
31:42 be better than the present if he plans
31:43 and works to make it better. And he
31:45 thought for a long period of time, for
31:46 several decades, America was like this.
31:48 And he gives examples of this. Even the
31:50 Great Depression failed to impede
31:51 relentless progress in the United
31:53 States, which has always been home to
31:55 the world's most farseeing definitive
31:58 optimists. gives several examples. The
32:00 Empire State Building was started in
32:01 1929 and finished in 1931. The Golden
32:04 Gate Bridge was started in 1933 and
32:06 completed in 1937. The Manhattan project
32:09 was started in 1944 and had already
32:11 produced the world's first nuclear bomb
32:12 by 1945. Americans continued to remake
32:16 the face of the world. Then he talks
32:18 about the interstate highway system
32:19 which began construction in 1956 and the
32:21 first 20,000 m of road were open for
32:24 driving by 1965.
32:28 NASA's Apollo program began in 1961 and
32:30 put 12 men on the moon before it
32:33 finished in 1972.
32:35 Big plans for the future. This is his
32:38 critique of present modern-day society.
32:40 Big plans for the future have become
32:43 archaic curiosities. And then a few
32:45 pages later, I think this is a summary
32:46 of this entire chapter. Definitive
32:48 optimism works when you build the future
32:51 that you envision. And then the next
32:53 chapter is about the power law. I think
32:56 uh one of the great ways I think about
32:57 what he's telling us here is that power
32:59 law power laws rule everything around us
33:02 and this is why building a monopoly is
33:04 so important if you want to have
33:05 obviously financial success too.
33:07 Monopoly businesses capture more value
33:09 than millions of undifferiated
33:10 competitors. The power law so named
33:13 because exponential equations describe
33:15 severely unequal distributions is the
33:17 law of the universe. It defines our
33:19 surroundings so completely that we
33:21 usually don't even see it. We do not
33:24 live in a normal world. We live under a
33:27 power law. And as a result, company
33:29 outcomes follow a power law. A small
33:31 handful of companies radically
33:33 outperform all others.
33:36 So assuming you and I agree what Peter
33:38 is saying here, that power laws rule
33:39 everything around us. The next obvious
33:40 question is, well, what do you do with
33:41 the power law? And Peter has some ideas
33:43 here. When you choose a career, you act
33:45 on your belief that the kind of work you
33:46 do will be valuable decades from now.
33:48 Your life is not a portfolio. An
33:51 entrepreneur cannot diversify himself.
33:53 So therefore, you should focus
33:54 relentlessly on something you're good at
33:56 doing. But before that, you must think
33:58 hard about whether it will be valuable
34:00 in the future. If you do start your own
34:03 company, you must remember the power law
34:04 to operate it well. This is one of my
34:06 favorite lines in the entire book. The
34:08 most important things are singular. One
34:10 market will probably be better than all
34:12 others. One distribution strategy
34:14 usually dominates all others, too. Time
34:17 and decision-making themselves follow a
34:19 power law and some moments matter far
34:22 more than others. However, you can't
34:24 trust a world that denies the power law
34:26 to accurately frame your decisions for
34:27 you. So, what's most important is rarely
34:30 obvious. It might even be a secret. And
34:34 so then he goes into his chapter all
34:36 about secrets. This is why it's so
34:38 important. Every one of today's most
34:39 famous and familiar ideas was once
34:40 unknown and unsuspected. A conventional
34:43 truth can be important, but it won't
34:45 give you an edge. It's not a secret. One
34:48 of my favorite tweets I've ever seen,
34:49 maybe my favorite tweet of all time that
34:51 I saw was somebody that said that they
34:53 think the the most interesting careers
34:56 are somebody that found an earned secret
34:58 and they exploit the hell out of it for
35:00 multiple decades. And so the example in
35:02 that tweet was Mark Leonard was the
35:04 founder of Constellation Software was
35:06 working in VC at the time and he was
35:08 coming across all these vertical market
35:10 software companies and realizing hey
35:11 these are terrible fit for venture
35:13 capital but if I was to buy them never
35:15 sell them build a conglomerate of them
35:18 and keep compounding I can create a lot
35:20 of value and so that was his earned
35:22 secret that he wouldn't have come across
35:23 if he if he didn't have the previous job
35:25 that he had. And one prompt for your
35:27 thinking to find a secret is going back
35:28 to that question that he asked earlier.
35:30 What valuable company is nobody
35:31 building? Every correct answer is
35:34 necessarily a secret, something
35:35 important and unknown, something hard to
35:38 do but doable. If there are many secrets
35:40 left in the world, there are probably
35:42 many worldchanging companies yet to be
35:44 started. And then Peter gets into why
35:47 creative monopolies are so rare, why
35:48 people are not looking for secrets.
35:50 People are scared of secrets because
35:52 they are scared of being wrong. By
35:54 definition, a secret hasn't been vetted
35:56 by the mainstream. If your goal is to
35:58 never make a mistake in your life, you
36:01 shouldn't look for secrets. There is a
36:02 ton of quotes from, you know, the last
36:05 10 years of doing this podcast, uh, all
36:08 these founders talk about the
36:09 inevitability of making mistakes, the
36:11 inevitability of problems, flipping
36:13 problems into opportunities. But when I
36:15 read that line, if your goal is to never
36:16 make a mistake in your life, you
36:17 shouldn't look for secrets. I think the
36:18 best quote I've ever come across about
36:21 uh about this, at least for
36:22 entrepreneurs, comes from the founder of
36:24 IKEA. He reframed that if mistakes are
36:27 inevitable, which they are, every single
36:28 person building a company is going to
36:28 make mistakes and gonna make ton of them
36:30 and some are going to be, you know,
36:31 massive mistakes. But he reframed this.
36:34 He says, "Making mistakes is the
36:36 privilege of the active. The only way to
36:38 make no mistakes in your life is to do
36:40 nothing." Peter continues, "Belief in
36:42 secrets is an effective truth." The
36:44 truth is that there are more, many more
36:46 secrets left to find, but they will
36:48 yield only to relentless searchers. What
36:50 a great line. They will yield only to
36:53 relentless searchers. There is more to
36:55 do in science, medicine, engineering,
36:56 and in technology of all kinds. Great
36:58 companies can be built on open but
37:01 unsuspected secrets about how the world
37:04 works. And then he gets into, well, what
37:06 do you do with secrets? And he says,
37:08 it's rarely a good idea to tell
37:10 everybody everything that you know. When
37:12 I got to this section, there's going to
37:13 be a lot of this uh what Peter's
37:15 thinking here and his writing here
37:17 really echoes to me Rockefeller and
37:20 Rockefeller was I came up with this
37:22 maximum when you study Rockerfeller that
37:23 bad boys move in silence. He shrouded
37:26 his entire organization in secrecy. But
37:28 one of my favorite things, one of my
37:29 favorite stories from Rockefeller is you
37:31 know he obviously built Standard Oil by
37:33 acquiring a bunch of other companies and
37:36 sometimes a potential acquirer was
37:38 resisting and in one time Rockefeller
37:40 kind of snapped at the guy and he says,
37:42 "I have ways of making money you know
37:44 nothing about." So it's really a good
37:46 idea to tell everybody everything you
37:48 know. Rockefeller would agree with that.
37:49 So who do you tell? Whoever you need to
37:51 and no more. There's always a golden
37:54 mean between telling nobody and telling
37:56 everybody and that's a company. That is
37:57 a very unique idea, unique framing of
38:00 what a company is. The best
38:02 entrepreneurs know this. Every great
38:04 business is built around a secret that
38:05 is hidden from the outside. A great
38:08 company is a conspiracy to change the
38:11 world. When you share your secret, the
38:13 recipient becomes a fellow conspirator.
38:16 That is excellent. And then he ends the
38:18 chapter with a very simple and direct
38:21 piece of advice. Take the hidden paths.
38:25 So we have a secret. We're going to
38:27 start a new company. He has this entire
38:28 chapter called foundations. He has this
38:30 thing called Teal's law which he says
38:32 that a startup messed up at its
38:33 foundation cannot be fixed. He says
38:35 every great company is unique, but there
38:37 are a few things that every business
38:38 must get right at the beginning. And he
38:40 says he stresses this over and over to
38:41 his friends. And this is very
38:43 fascinating because there's this great
38:45 book called In the Company of Giants. Uh
38:47 I I think it's episode like 208 or
38:50 something like that. It's I really
38:52 recommend buying it and reading it. I'm
38:53 shocked I come across people that
38:54 haven't. The reason I I say this is
38:56 because it was written in 1997 by two
38:58 Stanford MBA students at the time. Uh
39:00 you know they're in Silicon Valley and
39:02 they interview the the book is
39:04 essentially transcripts of I think 16
39:06 interviews with technology company
39:07 founders at the time. So like Michael
39:08 Dell's the book, Steve Jobs in the book,
39:10 Bill Gates is in the book and a bunch of
39:11 other founders that had a company at the
39:13 time and then disappeared are also in
39:14 the book. And I just find it one
39:16 infinitely readable and it's just full
39:18 of great advice. But when I got to this
39:21 section, Peter is going to talk about
39:22 how important obviously like the success
39:24 of your company is dependent on who like
39:26 who's inside the company. Like who are
39:27 the people you're able to recruit for
39:29 your mission? Who are the your
39:30 co-conspirators? Who are the ones you're
39:31 letting in on your secret is the way to
39:32 think about this. So he says bad
39:34 decisions made early on if you choose
39:36 the wrong partners or hire the wrong
39:37 people for example are very hard to
39:39 correct after they are made. As a
39:41 founder your first job is to get the
39:43 first things right because you cannot
39:45 build a great company on a flawed
39:47 foundation. When you start something the
39:49 first and most crucial decision decision
39:51 you make is who to start it with. Let me
39:54 pull out this quote from In the Company
39:55 of Giants because I think Steve Jobs
39:57 again is the clearest communicator I've
39:59 ever come across and he was asked I I
40:01 love this idea. So he's asked again
40:03 these are these are you know just
40:04 Stanford MBA students they don't really
40:05 know much and at the time and that's why
40:08 they're writing the book they're trying
40:09 to learn so he you know they're like hey
40:12 you know in a typical startup you're so
40:13 busy like you're not going to have time
40:15 to spend recruiting other people and
40:17 Steve's like what this is his answer I
40:20 disagree totally I think it's the most
40:22 important job this is so good assume
40:25 you're by yourself in a startup and you
40:26 want to partner you take a lot of time
40:28 finding the right partner right he would
40:30 be half of your
40:32 Why should you take any less time
40:34 finding the third or the fourth or the
40:36 fifth person you hire? When you're in a
40:38 startup, the first 10 people will
40:40 determine whether the company succeeds
40:42 or not. Each is 10% of the company. So
40:45 why wouldn't you take as much time as
40:46 necessary to find all a players? If
40:49 three were not so great, why would you
40:51 run a company where 30% of your company
40:53 was not so great? A small company
40:56 depends on great people much more than a
40:59 big company does. Going back to Peter,
41:02 when you start something, the first and
41:04 most crucial decision you make is whom
41:06 to start it with. And then I just have
41:09 one more insight from this chapter. I
41:10 love this insight. This is a great way
41:12 to think about it. And I think I missed
41:13 this the first two or three times I read
41:14 the book, too. This leads us to a second
41:16 less obvious understanding of the
41:18 founding. It lasts as long as a company
41:21 is creating new things, and it ends when
41:24 creation stops.
41:27 Another great idea and another unique
41:28 insight. No company has a culture. Every
41:31 company is a culture. A startup is a
41:34 team of people on a mission. And a good
41:37 culture is just what that looks like on
41:39 the inside. One of my smartest friends
41:41 has this great line that he repeats. He
41:42 says that your life is your
41:44 relationships. And I love this
41:45 unexpected insight from Peter Thiel
41:48 here. He says, "Since time is your most
41:50 valuable asset, it is odd to spend it
41:53 working with people who you don't
41:54 envision any long-term future together.
41:57 If you can't count durable relationships
42:00 among the fruits of your time at work,
42:02 you haven't invested your time. Well,
42:04 then he goes back to this idea of how
42:06 important recruiting is. He calls this
42:08 section recruiting conspirators, which I
42:09 absolutely love. He says, "Recruiting is
42:11 a core competency for any company. It
42:13 should never be outsourced. You have to
42:16 figure out why your 20th employee should
42:18 want to join your company. Talented
42:19 people do not need to work for you. They
42:21 have plenty of options. So, general and
42:24 undifferiated pitches don't say anything
42:26 about why a recruit should join your
42:29 company instead of many others. The only
42:31 good answers are specific to your
42:34 company. Everyone at your company should
42:36 be different in the same way. It should
42:38 be a tribe of like-minded people
42:41 fiercely devoted to the company mission.
42:44 And then he's just got this one random
42:45 idea that I've never forgot either. His
42:47 very interesting way that he manage he
42:50 was managing PayPal at the time. It's
42:51 called do one thing. He says the best
42:53 thing I did as a manager at PayPal was
42:54 to make every person in the company
42:56 responsible for doing just one thing.
42:58 Every employees one thing was unique and
43:00 everyone knew I would evaluate him only
43:02 on that one thing. I had started doing
43:05 this just to simplify the task of
43:06 managing people. But then I noticed a
43:08 deeper result. Defining roles reduced
43:11 conflict. So he's talking about in fact
43:14 this is really interesting. He says
43:16 internal peace. So he's he's trying he
43:18 he was trying to simplify his job as a
43:20 manager and then realized the really
43:22 valuable byproduct is that it reduced
43:24 internal conflict that is excessively
43:26 valuable because it allows you to keep
43:28 working together for a long period of
43:29 time. Internal peace is what enables a
43:32 startup to survive at all. Internal
43:34 conflict is like an autoimmune disease.
43:37 The best startups might be considered
43:39 slightly less extreme kinds of cults.
43:41 The biggest difference is that cults
43:43 tend to be fanatically wrong about
43:44 something important. people at a
43:46 successful startup are fanatically right
43:48 about something those on the outside
43:50 world have missed. And so then we get to
43:52 this chapter I mentioned earlier that he
43:54 thinks that sales is so important. He
43:55 dedicated an entire chapter to it. If
43:58 you only remember one line from this
44:00 chapter, I'm going to I'm going to tell
44:01 you up front what I think is the most
44:02 important line. Superior sales and
44:05 distribution by itself can create a
44:06 monopoly even with no product
44:08 differentiation. The converse is not
44:10 true. So he opens the chapter. says,
44:13 "Even though sales is everywhere, most
44:14 people underrate it's important. Silicon
44:17 Valley underrates it more than most."
44:19 And he states the obvious truth here.
44:20 Customers will not come just because you
44:22 build it. You have to make that happen
44:23 and it's harder than it looks.
44:25 Advertising matters because it works. It
44:27 works on nerds and it works on you. You
44:30 may think that you're the exception that
44:31 your preferences are authentic and
44:33 advertising only works on other people.
44:35 It's easy to resist the most obvious
44:36 sales pitches so we entertain a false
44:38 confidence in our own independence of
44:40 mind. But advertising doesn't exist to
44:42 make you buy a product right away. It
44:44 exists to embed subtle impressions that
44:47 will drive sales later. I gota that's so
44:50 important. I got to repeat that.
44:51 Advertising doesn't exist to make you
44:52 buy a product right away. It exists to
44:54 embed subtle impressions that will drive
44:57 sales later. Anyone who can't
44:59 acknowledge its likely effect on himself
45:01 is doubly deceived. I I absolutely love
45:04 what he goes what he says here. Sales
45:06 works best when it's hidden. This
45:08 explains why almost everyone whose job
45:10 involves distribution has a job title
45:12 that has [laughter] nothing to do with
45:13 those things. Here's these great
45:15 examples. People who sell advertising
45:17 are called account executives. People
45:19 who sell customers work in business
45:21 development. People who sell companies
45:23 are investment bankers. And people who
45:25 sell themselves are called politicians.
45:27 The most fundamental reason that even
45:30 business people underestimate the
45:32 importance of sales is a systemic effort
45:34 to hide it at every level of every field
45:37 in a world secretly driven by it. And
45:40 then this is something again I've
45:42 already pointed out several lines to you
45:44 that you know even though I haven't read
45:45 this book in many years that have have
45:47 always stayed with me. The fact that he
45:49 thinks about distribution as part of
45:51 product design. Very fascinating. It's
45:53 better to think of distribution as
45:54 something essential to the design of
45:55 your product. If you've invented
45:57 something new, but you haven't invented
45:58 an effective way to sell it, you have a
46:00 bad business, no matter how good the
46:02 product. Superior sales and distribution
46:04 by itself can create a monopoly even
46:06 with no product differentiation. The
46:08 converse is not true. Again,
46:10 distribution is essential to the design
46:12 of your product is the summary of that
46:14 section. And then remember how I told
46:16 you he's got a small handful of ideas
46:17 that he weaves throughout the entire
46:18 book. He now ties the power law to
46:20 distribution. Distribution follows a
46:22 power law of its own. This is
46:24 counterintuitive for most entrepreneurs
46:25 who assume that more is more. Most
46:28 businesses get zero distribution
46:29 channels to work. Poor sales rather than
46:32 bad product is the most common cause of
46:35 failure. If you can get just one
46:37 distribution channel to work, you have a
46:39 great business. And then finally, I have
46:42 one last idea that I want to talk to you
46:43 about, and it's the idea that
46:44 founder-ledd companies are more powerful
46:47 and at the same time more dangerous. And
46:49 it starts with the fact that many
46:51 founders have these extreme traits. And
46:53 so he's going to give a cautionary tale
46:55 in Howard Hughes and then I feel a
46:58 positive optimistic tale in Steve Jobs.
47:01 But let's go to this idea that many
47:02 founders have extreme traits. Normally
47:04 we expect opposite traits to be mutually
47:06 exclusive. And so in the book there's
47:08 some graphs and some examples like okay
47:09 on one side on the left hand side you
47:11 have this weak nerd and on the other
47:13 hand you have this strong athlete. Maybe
47:15 you have this idiot savant on one side
47:16 and a polymath on another. You have
47:18 somebody that's disagreeable on one side
47:19 and charismatic on the other. somebody
47:21 that's an outsider on one side, an
47:22 insider on the other and so on and so
47:24 forth. And [snorts] so in normal
47:26 society, normal people, these opposite
47:28 traits are mutually exclusive, but not
47:30 in founders. And so Peter Teal says when
47:33 you plot out founders personality
47:35 traits, they appear to follow an inverse
47:37 normal distribution. And this is why
47:39 it's so important to get in your mind.
47:40 It's more powerful, but at the same time
47:42 more dangerous for a company to be led
47:44 by a distinctive individual instead of
47:47 an interchangeable manager. And so Peter
47:49 uses the life story of Howard Hughes as
47:51 an example of these the dangers of
47:53 having these extreme traits over a long
47:55 period of time if they get out of your
47:57 control. So Howard Hughes arc from fame
47:59 to pity is the most dramatic of any 20th
48:02 century tech founder. He was born
48:04 wealthy but he was always more
48:05 interested in engineering than luxury.
48:07 He built Houston's first radio
48:09 transmitter at the age of 11. The year
48:12 after that he built the city's first
48:14 motorcycle. By the age of 30, he had
48:16 made nine commercially successful movies
48:18 at a time when Hollywood was on the
48:20 technological frontier. But Hughes was
48:22 even more famous for his parallel career
48:24 in aviation. He designed planes,
48:27 produced them, and piloted them himself.
48:29 Hughes set world records for top air
48:31 speed, fastest transcontinental flight,
48:34 and fastest flight around the world.
48:36 Hughes was obsessed with flying higher
48:38 than everyone else. He liked to remind
48:40 people that he was a mere mortal and not
48:43 a Greek god. Something that mortals say
48:45 only when they want to invite comparison
48:47 to gods. Hughes was quote, "A man to
48:50 whom you cannot apply the same standards
48:53 as you can to you and me." His lawyer
48:55 once argued in federal court. Hughes
48:57 paid the lawyer to say that. When
49:00 Hughes, I love this part. When Hughes
49:02 was awarded the Congressional Gold Medal
49:03 in 1939 for his achievements in
49:05 aviation, he didn't even show up to
49:07 claim it. Years later, President Truman
49:10 found it in the White House and mailed
49:11 it to him. The beginning of Hugh's end
49:13 came in 1946 when he suffered his third
49:16 and worst plane crash. Had he died then,
49:19 he would have been remembered forever as
49:21 one of the most dashing and successful
49:23 Americans of all time. But he survived
49:26 barely. He became obsessivempulsive,
49:28 addicted to painkillers, and withdrew
49:30 from the public to spend the last 30
49:31 years of his life in self-imposed
49:34 solitary confinement. Hughes had always
49:36 acted a little crazy on the theory that
49:38 fewer people would want to bother a
49:40 crazy person. But when his crazy act
49:43 turned into a crazy life, he became an
49:45 object of pity as much as awe. So that
49:49 is the danger of founder companies and
49:51 these extreme traits. I want to get to
49:53 the example of Steve Jobs is really the
49:56 best example of this. And before I get
49:57 to what Peter Teal writes in this book,
49:59 there's this great book that I've told
50:00 you about multiple times called The
50:02 Return to the Little Kingdom. And the
50:03 updated version is written by Michael
50:04 Moritz. It's really a I would say a
50:07 history on the first handful of years,
50:08 maybe the first six to eight years of
50:10 Apple. In the updated version on the
50:12 copy that I have, Michael Morz described
50:14 Steve Jobs in one of the best ways I've
50:15 ever heard. And I think Mors is a
50:16 phenomenal writer. So I want to read
50:17 this to you and I think it perfectly
50:19 sets up the final thing I want to talk
50:20 to you about and really the whole crux
50:22 of the book and the importance of being
50:25 this definitive optimist that is going
50:27 out and intentionally building creative
50:29 monopoly which is the whole point of I
50:30 think reading this book at this point.
50:32 So this is what Michael Mort said. Many
50:34 are familiar with the reemergence of
50:35 Apple. They may not be as familiar with
50:37 the fact that it has few if any
50:39 parallels. When did a founder ever
50:42 return to the company from which he had
50:43 been rudely rejected to engineer a
50:45 turnaround as complete and spectacular
50:48 as Apples? While turnarounds are
50:50 difficult in any circumstances, they are
50:52 doubly difficult in a technology
50:53 company. It is not too much of a stretch
50:55 to say that Steve founded Apple not once
50:59 but twice. and the second time he was
51:02 alone. And then this is what Peter Teal
51:04 says about this. Steve Jobs returned to
51:06 Apple, demonstrated the irreplaceable
51:09 value of a company's founder. In some
51:12 ways, Steve Jobs and Bill Gates were
51:14 opposites. Jobs was an artist, preferred
51:16 closed systems, and spent his time
51:17 thinking about great products above all
51:20 else. Gates was a businessman, kept his
51:22 products open, and wanted to run the
51:24 world. But both were insiders and
51:27 outsiders and both pushed the companies
51:29 they started to achievements that nobody
51:30 else would have been able to match. Then
51:33 he goes into Steve Jobs. Steve was a
51:35 college dropout who walked around
51:36 barefoot and refused to shower. Jobs was
51:39 also the insider of his own personality
51:41 cult. He could act charismatic or crazy,
51:44 perhaps according to his mood or perhaps
51:46 according to his calculations. But all
51:49 this eccentricity backfired him in 1985.
51:53 Apple's board effectively kicked Jobs
51:55 out of his own company. Jobs returned to
51:58 Apple 12 years later shows how the most
52:01 important task in business, the creation
52:03 of new value cannot be reduced to a
52:06 formula and applied by professionals.
52:09 When he was hired as an interim CEO of
52:11 Apple in 1997, the impeccably
52:14 credentialed executives who preceded him
52:16 had steered the company nearly to
52:18 bankruptcy. Instead, Jobs introduced the
52:20 iPod in 2001. the iPhone in 2007, the
52:24 iPad in 2010 before he had to resign in
52:26 2011 because of poor health. By the
52:29 following year, Apple was the single
52:30 most valuable company in the world.
52:33 Apple's value crucially depended on the
52:35 singular vision of a particular person.
52:39 This hints at the strange way in which
52:41 the companies that create new technology
52:43 often resemble feudal monarchies. A
52:46 unique founder can make authoritative
52:48 decisions, inspire strong personal
52:50 loyalty, and plan ahead for decades.
52:53 Paradoxically, impersonal bureaucracies
52:56 staffed by trained professionals can
52:58 last longer than any lifetime, but they
53:00 usually act with short time horizons.
53:04 The lesson for business is that we need
53:06 founders. If anything, we should be more
53:09 tolerant of founders who seem strange or
53:12 extreme. We need unusual individuals to
53:15 lead companies beyond mere
53:17 incrementalism.
53:19 Founders are important not because
53:21 they're the only ones whose work has
53:22 value, but rather because a great
53:25 founder can bring out the best work from
53:27 everybody else at his company.
53:32 And that is where I'll leave it. Highly
53:33 recommend reading the full book. That is
53:36 424 books down, 1,000 to go. And I'll
53:39 talk to you again soon. [snorts]