#8 Startups, Secrets and Success

Real startups go from zero-to-n

Welcome readers old and new. This is one of Thomas Hollands’ notes in his search for ideas which are surprisingly general, or generally surprising. The first issue explains the project, and you can find all past issues here.

---

Peter Thiel’s Secrets

All successful startups are built on a secret.

At least, that's what Peter Thiel says. There are three words doing the heavy lifting in this oft-repeated silicon valley aphorism: startups, successful, and secret. Let's examine each one and see where it takes us.

Secret

A secret is something you know to be true, that most other people don't.

Thiel says the best secrets come in the following form: Most people believe X, but the truth is closer to the opposite of X.

A valuable secret affects a lot of people, and is far from consensus.

A true secret is a wellspring of competitive advantage. Acting on a secret brings your hidden knowledge into the world, creating something that few others could create, in Thiel's words, going from zero-to-one.

Startups

What counts as a startup?

A year ago my friend and I started a tutoring company. While most of our customer acquisition happened online, the tutoring mainly happened in person. Was that a startup?

I believe all startups have one thing in common:

They have the potential to grow several orders of magnitude in relatively short time.

Growing exponentially requires multiplicative dynamics. A positive input (such as hours worked) results in multiples of a positive output (such as monthly recurring revenue).

An extra few hours sharpening up the UI on a SaaS product, or refining the copy on an ad campaign, doesn't just result in a few extra users. Done right it can result in multiples of increases in user growth. Startups live on a very steep power law — how you spend your time is the only thing that matters.

Multiplicative dynamics require leverage. There are many ways to get leverage, as I've discussed elsewhere. The essence of leverage is to turn a single great decision into a repeatable process, that can then be executed at scale. In Thiel's lingo, scaling is going from one-to-n.

One example of leverage might be creating a bot which automatically adds my signature at the end of an email. I decide to write the code once, put in the upfront time, then execute it mindlessly in thousands of emails I send every year. With some modifications, I could scale it out by sharing it with my friends who'd run it on their emails too.

Thiel says copying is competition, and competition is for losers. Winners make their own markets, creating a monopoly by building something brand new. But successful startups don’t just build things that are new and useful. They build one thing that is new and useful to many, many people. This inherently involves lots of copying.

If I make shoes that fit my (short, wide, flat) feet perfectly, I have solved a problem in a new, useful way, but I don’t have a startup. Unique, idiosyncratic solutions to small problems create a lot of individual value, but cannot scale.

Scaling requires large n. A market of 1 is no market at all.

It seems the essence of a startup is not in the zero-to-one immaculate conception of a new, useful product, but in kickstarting exponential growth, by creating many from the original one.

Real startups don't go from zero-to-one, they go from zero-to-n.

To summarise: all startups have the potential to exponentially grow by several orders of magnitude in relatively short time. To grow they need to do something new and useful (zero-to-one; based on a secret) in a big market, and then use leverage to scale it exponentially (one-to-n).

A newsletter growing virally is a startup. Bands trying to make it big are startups. A new sports team trying to enter the big leagues is a startup.

Anything that can exponentially grow by several orders of magnitude is a startup; all startups have the potential to exponentially grow by several orders of magnitude.

Let's revisit my original question. Was our tutoring company a startup?

Short answer: No.

We had developed a relatively new and relatively useful style of tutoring in a big market (London), and were in the process of codifying it. Then we planned to expand exponentially via a franchise model. So far this hasn’t worked. Though we saw good organic growth, bringing on capable, motivated tutors was a bottleneck. Partnering with schools looked like a better option, but this wouldn’t have led to startup-defining exponential growth.

Success

Now we’ve defined a startup, defining success is easy.

Successful startups are ones which have managed to survive exponentially growing by several orders of magnitude in relatively short time.

I’ll be writing more about survival of the fittest in the future.

---

Some secrets

Health and wellness

I'm working with a fitness tech company who I'm convinced are sitting on a goldmine. To get that gold out of the ground, they need to go to market effectively, which means they need to understand their consumers.

Most people believe growth in health and fitness is driven by increasing awareness of the benefits of an active lifestyle. But the truth is most people hate being active and just want to look sexually attractive.

Education

Education is a hot topic, and since everyone has been educated in some capacity, everyone has an opinion about how other people should be educated. Strangely, most people’s opinions are very similar to their own experiences. I wonder why?

Most people believe society would be better off if everyone had 1% better education. But the truth is society would be much better off if 1% of people had 100% better education.

At some point I will write about Kolmogorov schools and other experiments in this vein.

Flavour

Most people believe ketchup is a great, versatile condiment. But the truth is it's trash. Ketchup is used for about five different flavour jobs, and is mediocre at all of them.

This is a small secret that makes a big difference. One of ketchup’s “jobs to be done” is to carry flavour on the skin of a french fry. Dipping chips in a mix of mayo and sriracha is a 10x improvement if I’ve ever tasted one.

Starting small

You get better at spotting secrets the more you practice. And the easiest way to practice is to start small.

Think about a specific thing you know a lot about (like french fries). What unquestioned conventional wisdom could be substantially improved upon? Repeat this enough, and you’re guaranteed to find secrets that are not only flavourful, but valuable too.

Tell me your secrets. Or share mine.