Zero to One: Notes on Startups, or How to Build the Future is a book by PayPal co-founder Peter Thiel. In it he talks about the challenges of producing real innovation to drive a start-up business.
He emphasises doing something new. You have to get a monopoly, with a broad scope. I could start a Finnish restaurant in Leeds for example but I wouldn’t have a monopoly. I would be the only Finnish restaurant in Leeds, but I would actually be competition with all the other restaurants in Leeds nonetheless.
In comparison the biggest tech start-ups typically have achieved near monopoly. Google handles more search traffic than all other search providers put together. The key is to start with a niche market that you can dominate and grow from there. Facebook started by only accepting students from Harvard for example. University by university it opened its doors one at a time and achieved domination. Similarly eBay started with only collectables, and PayPal started by online targeting eBay power sellers.
It also needs to be a business that can stick around. How sustainable is it in the long term? Decades from now? Zynga is a good example. The games company was worth a huge amount of money thanks to the success it had with FarmVille and Zynga Poker. At its peak, its shares were worth $10 a pop. Now they’re worth only a quarter of that because continuing to predict what social games will continue to captivate the world is an unreliable business model.
Thiel argues that you should have a small a board as possible. Ideally three people; a maximum of five. Everyone at the company should be full time: no consultants, no part time workers, no remote working. A start-up is a family and people need to be together every day to bond. Founders and CEOs should pay themselves a little as possible. This sets an example to the company, but also helps keep themselves motivated.
If you are thinking about doing a tech startup, or actually starting one, this is probably a worthwhile book to read. It is not very hands-on, but contains a lot of theory that seems useful. Given it is quite short, it seems like a sensible investment.