A Conspiracy to Change Society

The future can be brought into today in a definite shape. It can be made to conform to our designs. 19th century building projects, such as great dams, undersea tunnel projects, or in the 20th century, the US intercontinental highway system were built according to this mental attitude.

Nowadays not much people believe they can affect the incoming future. Perhaps that's why the finance sector has grown to its size in the US: money is the ultimate optionality in the face of a (believed to be) indefinite and untameable future.

This indefinite understanding of the future has also affected how we think about new businesses today. We praise leanness, and pivoting to new product designs in startups – in fact, this "pivoting" (aka, changing your mind about "the secret" that your company has set out to exploit), has become something celebrated in startup centres in the Universities. "We decided to pivot our product design to satisfy this other need that we now become aware of, in the course of our work." For the sake of "pivoting" many new startups do not flesh out their products, nor markets, and leave them to be "decided later as we go along".

This is wasteful. Instead, your company should be right about its "secret" from the outset, and pivot as little as possible. Being right about its secret insight, the startup should plan to bring the material results of that insight into present by building its production and distribution capabilities, and offering its customers the product that comes from the future.

A "secret", in our context, is a piece of understanding about the world. This understanding has to be more or less accurate, and has to point to a kernel of truth about the current (and near future) state of the technique and of human society. Here are some of the possible secrets that today's successful companies may have made use of, back in their early days:

• The bulk of human knowledge will be on the internet, therefore, whichever company gives people a product to search the world wide web, will be immensely successful (Google, 1998).
• Money is essentially a way for the people that make up a society to communicate with each other about the production and consumption of commodities. Since money is communication, and internet is communications en masse, it is only inevitable that monetary networks (payments and banking) will move to the internet (Confinity and X.com, before merging to form Paypal, in 1998).
• People are vain and desire superficial social connections (Facebook, in 2004).
• White-collared office jockeys even more so! (LinkedIn, 2003)
• Internet allows us to fulfill any consumer product order faster than everbody else. It also allows us to do this practically without having to have any closed hours on our shop. Facing with this consumers will eventually move their shopping to our online platform (Amazon, 1994).
• State of the art improvements in electric motor, batteries, and computerized power electronics are ready give the electric car a winning edge over the gas-guzzling automobiles. Given a sexy design, people are more than ready to embrace this green, alternative mobility (Tesla Motors, 2003).

Each of these secrets, perhaps, was shared by other entrepreneurs as well. Perhaps, some sizeable portion of the society were able to see "where the things were going" – it was in the air. Whatever the case, you had to have your nose in the wind.

You will build your startup on top such a secret, a conspiracy to change the world, by bringing a definite view of the future into the present. So, where do you find these secrets? There are two sources:

1. secrets about nature
2. secrets about people

These two categories of secrets sit in-between the known and the unknowable (ie, the mystery). Secrets are the sources of great companies. Uber, Airbnb, Facebook, LinkedIn understood the secrets about people and addressed their unaddressed needs.

To find secrets about nature, you study science. To find secrets about people, you start asking questions about their taboos. What notions are commonly accepted without deliberation? Here's an example "secret" that not much people knows about or considers:

Competition and capitalism are the opposites.

Once you become aware of this secret, you can start building a company with this secret understanding about the nature of competition vs capitalism, and aim for escaping the competition. Depending on the accuracy of your insight into the secrets about people, you can move yourself to the correct path (ie, the path of building a vertically innovating tech startup that will be the last mover in its niche market and generate monopoly profits in the future).

Once you find such secrets, you tell these secrets only to the minimum amount of peoplpe who needs to know about them. These small number of people that you share this common secret with, are your co-founders. The secret is the insight about reality that allows you to build a unique product around.

This is all there is to it: a great company is a conspiracy to change the world, and your co-conspirators are people who share the common secret which allows you to change the world.

Being a sole founder limits your ability to move from zero to one. Your abilities, resources and time are limited. It is much better to pool in these resources with 3-4 other co-founders and work towards a common goal.

At the same time, a startup has to have a right start. A startup that's plagued with interpersonal problems among its co-founders from the very beginning is very difficult to fix.

Therefore, you and your co-founders must get along. You guys should be on the same page about your understanding of the business you are starting. Moreover, you should understand why each one of you wants to start this particular business (and put in 100-hour work weeks for years). And this understanding has to be shared among the co-founders.

With this in mind, picking a co-founder at your local University's startup event is simply insane, only comparable to marrying someone you met 5 minutes ago. "Hey you too code Python? Let's start a startup." How commonplace is such way of finding a "co-founder"? Unfortunately, too much. And such startups do not get anywhere.

Founders should share a prehistory before they start a company together—otherwise they’re just rolling dice.

In order to properly motivate the founders, in early stage startups they shouldn't get high yearly salaries. In practical terms, this number shouldn't exceed 150k USD. Anymore than that, the founders will start politicking about keeping their high salaries, rather than focusing completely on fixing the business operation problems, or developing a disruptive product. Instead, giving the founders equity on company motivates them properly and aligns the founders' monetary incentives with the company's future success.

When it comes to the employees, no startup can get on its feet with part time employees. All the employees has to be committed full time to the business. Furthermore, the colleagues should share the same office space, with no remote workers, day in and day out. All of these are essential for instilling a sense of common, shared struggle among the founders and employees.

Do not focus on benefits and paycheck. If all it takes an employee to leave your company to join another one is a snack bar by the water cooler, then let him go. Same for the salaries. Instead of these, the employee should be motivated by the mission statement of the company and developing products that make the mission a success.

Startups are different than existing businesses, because the existing businesses are evaluated by the cash flows they generate for themselves today, while for startups, they are evaluated for their ability of generating cash flows in the future.

Old economy businesses, like The New York Times company of 2013, or other newspapers, nightclubs, restaurants, etc., generate revenues today. They are, in a sense, already reached their peak potential in brand recognition, market positioning, and the products they offer to their customers. Their peak profitability is in today and now, and they are pretty much open to disruption and competition from the new entrants, and thus open to losing their profits.

With tech startups, the curve is inverted: most of them will generate big revenues not today, but in the future (given that they become successful monopolies). Therefore, their valuation has to take into account this possible view of the future.

This is also why Twitter was valued 10x more than the New York Times Company, back in 2013. The investors expected Twitter to be able to generate monopoly profits in 10 years, while the newspapers' monopoly days was over.

Since most tech companies' monopoly profits will come in the next 10-15 years, the most important question to ask is: "Is this startup going to be around in 10 to 15 years?"

Most new tech companies focus on the growth and earnings in the short term. They become obsessed with short-term cash flow metrics and game their operations for maximizing these metrics.

Instead of maximizing for these wrong metrics, the startup should focus on becoming monopoly in its target market (which has a narrowly defined scope in the founding days, yet growing its scope as the it matures). In order to do that, it should carry the characteristics of monopolies in other markets that came before: