Here is an essay version of class notes from Class 11 of CS183: Startup.
“Capitalism and competition are antonyms.” That is a secret; it is an important truth, and most people disagree with it. People generally believe that the differences between firms are pretty small. They miss the big monopoly secret because they don’t see through the human secrets behind it. Monopolists pretend that they’re not monopolists (“Don’t regulate us!”) and non-monopolists pretend that they are (“We are so big and important!”). Things only tend to look similar on the surface.
The power law secret operates similarly. In one sense it’s a secret about finance. Startup outcomes are not evenly distributed; the follow a power law distribution. But in another sense it’s a very human secret. People are uncomfortable talking about inequality, so they either ignore it or rationalize it away, and it becomes a secret.
The distribution secret also has two sides to it. Distribution is much more important than people think. That makes it a business secret. But it’s a human secret too, since the people involved in distribution work very hard to hide what’s going on.
II. The Next Secret
Probably the biggest secret—bigger than monopoly/competition, power law, or distribution—is that there are many important secrets left. This used to be a convention forty or fifty years ago. Everyone believed that there was much more left to do. But generally speaking, we no longer believe that. It’s become a secret again.
Awesome read. I’ve believed this for a long time - though Peter states it much more eloquently!
I have to say I disagree with some of his perspectives on secrets.. at least the way they’re explained here: I think secrets are more subtle than depicted, and I think “knowing” a secret in the sense of a startup company is many times more akin to “knowing” an art, like Kung Fu, than “knowing” a fact, like the boiling point of water. It is not trivial to copy brilliance.
- chip on your shoulder, “I’m going to change the world, just try and stop me” = good.
- chip on your shoulder, “Investors are all lemmings and I’ll prove it” = not so good. Even when you don’t say it out loud – it shows.
Another gem from Mark Suster. Make sure to read the whole thing.
When I started investing I forgave this attitude and sympathized with the fact that many investors really don’t have a clue as compared to the entrepreneurs who pitch them. Like Mark, I like entrepreneurs with the “chip on the shoulder”, folks with a lot to prove.
Fortunately I realized that being upbeat, undaunted, and undeterred in the face of abject failure is a key success factor for any entrepreneur. Holding onto baggage / scar tissue portends distraction at best, failure at worst. Reminds me a bit of Peter Thiel’s (awesome) lecture on wars.
Failure is an opportunity: to learn, adapt, “pivot”, and -most importantly- bounce back with spring in your step. Always look for the gold lining.
“So, basically, to validate a startup idea, all you have to use is twitter. Create your brand name on twitter. In the description field, write your 1 or 2 sentence pitch. Spend time picking the brand name and then the pitch. Afterwards, find a famous person on twitter who belongs to your target group. For example, nerds or women, or mothers, or joke-lovers. Whatever you define as your target group. Start following the followers of this person. If you get a follow-back rate of 10% and above, then you have a good idea. If your follow-back rate is lower than that, then you have a bad idea.”