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Key Takeaways from Zero to One

jakkaps.com

124 pointsJakkaps48 comments

One of my favorite points in the book is the explanation for why any sort of niche small business software sucks.

In consumer software, customer acquisition cost is low and development costs can be spread over millions of people, so there is a big profit potential even though the price is low. For large enterprises, the customer acquisition cost is high (lots of meetings with suits), but the payout is high (millions of dollars is good value for software that is going to be deployed at 20,000 locations and serve millions of customers). For a small business, customer acquisition is still expensive (sales and support done personally), but the price is still pretty low.

The book cured me of mumbling "I could make software better than that in a week" every time I saw a receptionist at a small office struggling with a bad app.

The book cured me of mumbling "I could make software better than that in a week" every time I saw a receptionist at a small office struggling with a bad app.

What if the acquisition cost could be made low? Doesn't patio11's appointment reminder app fall into this category?

https://www.indiehackers.com/interview/how-i-grew-my-appoint...

It might. He talks about revenue but not about profit. So we dpn't really know much about his costs, aside from him mentioning that he was spending a meaningful amount on insurance.

It could very well be that acquisition cost was quite reasonable, and he may have talked about this elsewhere. I just don't think the IH interview tells us enough to know for sure one way or the other.

He's published a huge amount of detail about revenue and costs, his profits aren't enough to sustain a family.

I say that with the greatest amount of respect for the man by the way, he's super super smart and I love his writing.

Probably not, given that he abandoned the app and works at Stripe now.

It can be great even if the "acquisition cost" is high, assuming you charge people for it.

It just doesn't lend itself to the "do a business that sells $10 dollar bills for $5 funded by VC money until it has enough eyeballs to start selling ads".

I learned the hard way that "passive income" via SaaS is fools game. Yes it does exist, but it's incredibly rare and so it's very unlikely that any idea I have is going to be the unicorn idea that generates a shedload of money for minimal effort.

I stand about as much chance of becoming the next YouTube/Insta star.

I guess I will never redevelop my salons booking app. I do appreciate how it easily emails me back my forgotten password in plain text tho.

If your dream is to be a "startup" (meaning it scales because of millions of VC funding despite the lack of any sort of plan as to how to make a profit) then yes, small business software sucks.

If your dream is to make millions through a sustainable enterprise, then small business software is awesome.

Please do not mistake me asking in a direct way as arrogance, but: Are you making this claim based on the assumptions that cashflows over medium user acquisition & support cost will work out or have you pulled this off yourself?

I'm currently scoping a small - medium enterprise concept with a very concrete set of paying first customers, but thinking ahead this looming uncertainty really bothers me.

I can't talk for OP but I've been running a software company with both software products and bespoke service lines that generate a good level of income...I reckon I can assist you with your uncertainty - feel free to email me on simon.swords@atlascode.com

It's a matter of scaling. Small business-focused products generally will scale linearly with inputs. Good for a "lifestyle" business that keeps its owners and employees happy, bad for a VC-funded business that needs to hit a grand slam just to break even.

And this is why, from the point of view of a "lifestyle" business owner, VC funding looks like the kiss of death. Scaling fast is risky, and if you're gambling with your own money, you don't want to be forced to turn your sure bet into someone else's moonshot.

To back who you are replying to. My story might be interesting.

Small niche software doesn't suck : if you love that niche, if you can create something that that niche loves and that what you create is difficult for others to replicate.

I have small business with small client base that will forever remain small. ~ 140 clients. A couple of staff members now days.

Cost of acquisition is high. I need to retain a client for 2 years to achieve ROI. That bit is hard work. But you structure things accordingly. From the clients perspective, changing competitors products is very disruptive so I need to make sure I create something that makes it worth their while. The product itself and its capabilities compared to competitors, where the product is headed, support etc around that product and whether or not their is a genuine need for the product.

Making good money. Now bringing home more than market salary, but only after many years of sitting under so probably not at net break even just yet. In a few years all going well I'll sell out and will live very comfortably in retirement off what I expect to be able to sell for.

Fairly happy with my lifestyle. Flexible and generally a little less hours than full time. Can be pressured/stressful at times but no more than I remember when I worked for others.

I'll never be Peter Thiel wealthy but I am on track to achieve my financial goals.

Congrats! Fellow entrepreneur, interested to hear more about your story.

>One of my favorite points in the book is the explanation for why any sort of niche small business software sucks.

Because the author prefers filthy greed and the creation of yet another corporate behemoth over creating something decent, charging people for it, and making a living from that?

The problem is people in small niche businesses often don't have the money to pay what amounts to a sustainable amount relative to what a software developer capable of striking out on their own could make with nearly zero risk by working for one of those behemoths (or really anyplace where tech is a competitive enabler or differentiator).

How is that a problem? The developer that wants that can go work on one of those behemoths, and those that value the small niche businesses can work there.

Plus, I don't see Basecamp or Panic or Bare Bones or whatever paying less to their devs. And less compared to what?

Behemoths are usually in SV or a few constrained places, and have the usual SV culture (including ageism etc).

Small niche business are anywhere, in places with much smaller costs of living, better work-life balance, and more kid-friendly environments. Heck, Procreate (frequently top of the App Store and Award Winning) is in Tazmania.

The problem is that it's insanely difficult to build a sustainable business in software targeting niche small businesses.

I think Basecamp is not targeting niche small businesses; they're a general purpose project management/team collaboration software, used by many businesses. It happens to be used by some small niche businesses, but in the same way a business checking account is used by many small niche businesses.

To me, niche small business software evokes more "software to automate inventory in a small machine shop", "landscape sprinkler system installation planning software", "antique shop inventory management software", "beekeeper scheduling software", etc.

This is something I too have learned. Just because some product/feature sucks/is missing, doesn't mean it's commercially viable to address.

Sometimes the market is too small or costs too much to reach.

Users might legitimately want something, but not enough to pay the price required to sustain a business.

The point of lean startups isn't so that your startup finds the global maximum.

Investors invest in many startups. Each one starts in a different valley and starts climbing the hill. The investor's job is that one of the startups pays off. Your job is to climb your hill quickly and cheaply.

This. If you think of startup investments as market probing activity, then the lean startup model is an optimized version of this for specific kinds of markets.

You aren't going to make a new storage company or a new ASIC-based company in the lean startup model (though you can certainly be _lean_er_ than companies tended to be in the past or the lavishly spending mega-investment-level companies on the spendthrift side of the capital wall like Uber) but you can do a lot of probing of the consumer marketplace this way.

Depends on which way you look at. I wrote the article from the perspective of a founder, not an investor. The math analogy is a bit stretched though. Following it, the only thing that matters is where you start. If you started in the hill leading up to the global maximum you'd be good. I have no statistics to back this up, but I would suspect reaching a global maximum is more expensive than reaching a local one. Truly world-changing ideas, therefore, don't lend themselves as well to the lean methodology.

I guess it's a matter of scale, like a fractal. If your idea is big enough, it might be easy to get fooled into thinking you are at the top when a small detour might lead to a much higher summit.

The point about Lean Startup is close, but ultimately incorrect. The whole idea behind pivoting is to make a dramatic change when iteration starts to put you into a local maximum. Eric Ries explains it exactly in this way: when each additional iteration leads to less and less improvement, that is when it is time to pivot. Pivoting is not A/B Testing, it is not iterating. It's making a leap in a new direction.

Thanks for this, it resonates with me strongly but somehow I didn't pick it up from the book.

"From what I’ve observed, really smart people tend to be right, and you can safely accept their viewpoints."

What?

I couldn't believe this statement. It completely neglects the massive differences that exist between people of any intelligence in terms of what and how they think. I'm talking about things like educational level, ideological biases, epistemological approaches to thinking, etc. It also completely neglects the honesty and integrity of the person you are emulating.

To give just one example: I've found that most of the "conspiracy nuts" I've met (people who think we didn't go to the Moon, etc.) are highly intelligent, probably pretty far above average. If anything being highly intelligent makes it much easier to rationalize a ridiculous belief system. Any idiot can imagine a round Earth that spins and orbits the sun but it takes someone with very high intelligence to understand ether vortex theory. Judging by the intricacies of their speculations the "bakers" who assemble bizarre far-fetched conspiracy theories out of QAnon's cold reading act are also quite intelligent.

Con artists also tend to be highly intelligent, hence my comment about honesty and integrity.

For some odd reason it seems like a whole lot of very bright people have adopted this weird kind of biological determinist hard materialist view of cognition and its quality. By materialist I mean it reminds me of Marxist dialectical materialism: the idea that the state of society is a pure function of its technology and other capital. A bunch of people think you can measure someone's IQ and that will tell you how correct their opinions are. Smart people have better opinions because they can think more faster, or something.

I struggle to understand how anyone could possibly believe this. It's patently absurd. It's roughly analogous to saying you can tell the quality of a driver by the performance of the vehicle they are driving, or that the correctness of a computer's output is a pure function of processor speed irrespective of what software it's running.

I agree. At best the argument that you can trust "smart" people is circular: that smartness is a socially constructed measure of how "good/right/clever" everyone else finds your thinking. so in general people will endorse the opinions of those they endorse as "smart people"

100% this, "If anything being highly intelligent makes it much easier to rationalize a ridiculous belief system."

I wager you're getting down voted due to people who see themselves as "smart" taking taking offense at the implication that they are just as fallible as every other human on the planet.

I'm assuming it's downvotes for implied respect for anyone that could question the moon landing or consider QAnon theories.

If that's the case then the downvoters dreadfully misread my post. That's not what I was saying at all. I was pointing out that bad ideas can be held by people regardless of their raw intelligence.

I assume I'm a monkey pretending to be sapient.

Psychologists have found that a lot of decision making is rationalisation of an instinctive decision.

Those moments when you stand there thinking why the hell did I just agree to that etc.

>It's roughly analogous to saying you can tell the quality of a driver by the performance of the vehicle they are driving, or that the correctness of a computer's output is a pure function of processor speed irrespective of what software it's running.

Good simile.

>I struggle to understand how anyone could possibly believe [really smart people tend to be right].

You don't really struggle to understand that, do you? It's kinda shoved on us from an early age: "Respect your elders, they have more life experience.", "Do what the teacher says, they're the experts.", etc. It takes a fair amount of willpower to think "wow, no one else sees it this way, or at least if they do, they haven't come up with a solution".

Maybe I worded myself poorly. I meant 'really smart people' not in absolute IQ terms, but more in 'hey this dude believes some things about a subject he has knowledge of and from what I can tell he is well regarded among peers and seems smart'-terms.

That's a bit better but only tends to apply within limited domains. I've met a chemistry Ph.D that would be quite knowledgeable and likely correct when it comes to inorganic chemistry but who believes that the Earth is 6000 years old and that the Noah's Ark story is absolutely literal.

Human beings can and often are extremely competent in some domains while simultaneously being highly irrational, misinformed, or just ignorant in others. Then you have to consider ideology and social conformity which can both bias people toward holding beliefs that don't make sense regardless of intelligence.

My overall point is that intelligence is only weakly related to logical validity or overall correctness. What and how you think matter quite a bit and those things are learned.

In some ways the ones who've mastered a field can be worse, they assume that mastery of an esoteric field translates to mastery of everything.

Tech is pretty bad for that.

I try hard to avoid that trap, we seem to live in a world where experts are undervalued and loud confident sounding people are listened to.

It's frustrating since people like simple answers and the loud confident ones are happy to pretend to give them.

>> we seem to live in a world where experts are undervalued and loud confident sounding people are listened to

"loud confident sounding people" is fairly self-evident

Can you share your definition of "expert", please? :)

The former get a lot of airplay (here and elsewhere). Finding the latter appears to be a whole lot harder.

>What?

Agreed. See Theranos.

People have too much faith in their opinions. Exempting yourself from a general human behavior is dumb...

That second phrase is gold!

This sort of thing always comes up when I talk to my friends about marriage. I tell them that I'll never get married because of the divorce statistics, and they tell me that only dumb foolish people get divorced. I tell them "how do I know I'm also not a dumb foolish person or whoever I marry isn't a dumb foolish person?" I haven't found an answer to that yet.

Genuinely not trying to start a flame war, just trying to make an interesting point.

That’s the kind of observation I’ve come to appreciate the older/wiser I get. You start off life feeling invincible, that those kinds of stats won’t apply to you because you’re not a fool like everyone else. But eventually you learn to pay attention to the stats because much more often than not you fall pretty close to the center of the bell curve for most things in life, no matter what.

I find the fact that this book encourages monopolies troubling at best and dishonest at worst. He seems to be in favor of authoritarianism and domination more than freedom. I find it disingenuous especially for a billionaire who preaches 'Faith' in the free market when one of his teachings is essentially eliminating competition.

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