Peter Thiel – widely known as founding CEO of PayPal and also as the don of the “PayPal Mafia” has written some really effective and pragmatic pointers on startups and about the things the future beholds for them.
Here are the five pointers that I took aways from this book:
- Pragmatic Selling
As a rule of thumb, the total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost). In general, the higher the price of your product, the more you have to spend to make a sale. - Good Sales is Hidden
In Silicon Valley, the techies are more skeptical of advertising and marketing because they seem superficial. But in reality, advertising plays a very crucial role in the lifecycle of a product/service. Simply because it works on the masses. Advertising doesn’t exist to make you buy a product right away, rather, it exists to embed subtle impressions that will drive sales later. - Forces that Drive a Business
During PayPal’s infancy, the initial user base was 24 people all of whom who worked at PayPal. At that point, renting ad space on banners turned out to be much more expensive than actually paying up people to sign up and then paying them more to refer friends. By utilising the latter, PayPal achieved exponential growth in terms of user base. It did cost them 20$ per customer but led to 7% daily growth, which essentially meant that the user base doubled every 10 days!
In 2021, we can see similar strategies being used by other business as well. For example, even Google Pay used the same “Refer and earn” scheme when it was penetrating in India. I very vividly remember people running around with their referral codes and forcing others around them to sign up to earn the referral bonus. - The Dilemma of Capitalism and Monopoly
Below is a really cool excerpt from the book which explains it very well.
What does a company far into the future with large cash flows look like? Every company is unique, but they share some combination of the following characteristics: Proprietary technology, network effects, economies of scale and branding. If we talk about proprietary technology, as a good rule of thumb, it must be atleast ten times better than its closest substitute in some important dimension to lead to a real monopolistic advantage. - “Lucky Breaks and Arbitrary Advantages”
I firmly believe that if success were a matter of luck, serial entrepreneurs and their multi-billion dollar enterprises wouldn’t simply exist. In the book, there’s a badass quote from Ralph Emerson which reads “Shallow men believe in luck, believe in circumstances.. Strong men believe in cause and effect.” There are very interesting four views put forth by the author around Optimism and Pessimism: Indefinite Pessimism, Definite Pessimism, Definite Optimism and Indefinite Optimism. If we go in the depths of it, it can be a separate blog post altogether. However, to give you the gist of it here are small one-line definition of what the author is trying to put forth:
An indefnite pessimist looks out onto a bleak future but he has no idea what to do about it.
A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it.
To a definite optimist, the future will be better than the present if he plans and works to make it better. But he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to define it concretely. As an example, bankers make many by rearranging existing capital structures, private equity consultants do not start new businesses, rather squeeze out efficiency from old ones with procedural optimizations
This book is a mix of hardcore facts, pragmatic tips on building a startup the right way and very well structured futuristic views. Loved this one to the core. Recommend for the ones interested in entrepreneurship and business in general.