on 18-Oct-2016 (Tue)

Originally, “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices, improve the product over time, and eventually overtake even the premium products offered by incumbent companies using older technology.

Indeed, if your company can be summed up by its opposition to already existing firms, it can’t be completely new and it’s probably not going to become a monopoly. Disruption also attracts attention: disruptors are people who look for trouble and find it.

PayPal was disruptive, but we didn’t try to challenge any large competitor.

We took some business away from Visa when we popularized internet payments.

But since we expanded the market for payments overall, we gave Visa far more business than we took.

It was net positive, unlike Napster’s negative-sum struggle with the U.S. recording industry. As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competition as much as possible.

To a definite optimist, the future will be better than the present if he plans and works to make it better. From the 17th century through the 1950s and ’60s, definite optimists led the Western world. Scientists, engineers, doctors, and businessmen made the world richer, healthier, and more long-lived than previously imaginable. As Karl Marx and Friedrich Engels saw clearly, the 19th-century business class created more massive and more colossal productive forces than all preceding generations together.

Indefinite Optimism After a brief pessimistic phase in the 1970s, indefinite optimism has dominated American thinking ever since 1982, when a long bull market began and finance eclipsed engineering as the way to approach the future. To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans.

EVERY GREAT COMPANY is unique, but there are a few things that every business must get right at the beginning. I stress this so often that friends have teasingly nicknamed it “Thiel’s law”: a startup messed up at its foundation cannot be fixed. Beginnings are special.

Bad decisions made early on—if you choose the wrong partners or hire the wrong people, for example—are very hard to correct after they are made. It may take a crisis on the order of bankruptcy before anybody will even try to correct them. As a founder, your first job is to get the first things right, because you cannot build a great company on a flawed foundation.

When you start something, the first and most crucial decision you make is whom to start it with. Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce.

I invested in a company Luke started with someone else. It was his first startup; it was one of my first investments. Neither of us realized it then, but the venture was doomed to fail from the beginning because Luke and his co-founder were a terrible match. Luke is a brilliant and eccentric thinker; his co-founder was an MBA type who didn’t want to miss out on the ’90s gold rush. They met at a networking event, talked for a while, and decided to start a company together. That’s no better than marrying the first person you meet at the slot machines in Vegas: you might hit the jackpot, but it probably won’t work. Their company blew up and I lost my money. Now when I consider investing in a startup, I study the founding teams. Technical abilities and complementary skill sets matter, but how well the founders know each other and how well they work together matter just as much. Founders should share a prehistory before they start a company together —otherwise they’re just rolling dice.

The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflict. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism

Distribution may not matter in fictional worlds, but it matters in ours. We underestimate the importance of distribution—a catchall term for everything it takes to sell a product—because we share the same bias the A Ship and C Ship people had: salespeople and other “middlemen” supposedly get in the way, and distribution should flow magically from the creation of a good product. The Field of Dreams conceit is especially popular in Silicon Valley, where engineers are biased toward building cool stuff rather than selling it. But customers will not come just because you build it. You have to make that happen, and it’s harder than it looks.

The U.S. advertising industry collects annual revenues of $150 billion and employs more than 600,000 people. At $450 billion annually, the U.S. sales industry is even bigger. When they hear that 3.2 million Americans work in sales, seasoned executives will suspect the number is low, but engineers may sigh in bewilderment.

advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later. Anyone who can’t acknowledge its likely effect on himself is doubly deceived.

In engineering disciplines, a solution either works or it fails. You can evaluate someone else’s work with relative ease, as surface appearances don’t matter much. Sales is the opposite: an orchestrated campaign to change surface appearances without changing the underlying reality.

Complex sales works best when you don’t have “salesmen” at all. Palantir, the data analytics company I co-founded with my law school classmate Alex Karp, doesn’t employ anyone separately tasked with selling its product. Instead, Alex, who is Palantir’s CEO, spends 25 days a month on the road, meeting with clients and potential clients. Our deal sizes range from $1 million to $100 million. At that price point, buyers want to talk to the CEO, not the VP of Sales.

Businesses with complex sales models succeed if they achieve 50% to 100% year-over-year growth over the course of a decade. This will seem slow to any entrepreneur dreaming of viral growth. You might expect revenue to increase 10x as soon as customers learn about an obviously superior product, but that almost never happens.

Good enterprise sales strategy starts small, as it must: a new customer might agree to become your biggest customer, but they’ll rarely be comfortable signing a deal completely out of scale with what you’ve sold before. Once you have a pool of reference customers who are successfully using your product, then you can begin the long and methodical work of hustling toward ever bigger deals.