Zero to One_ Notes on Startups, or How to Build the Future ( PDFDrive )

FOLLOW THE MONEY
MONEY MAKES MONEY. “For whoever has will be given more, and they will have an
abundance. Whoever does not have, even what they have will be taken from
them” (Matthew 25:29). Albert Einstein made the same observation when he
stated that compound interest was “the eighth wonder of the world,” “the
greatest mathematical discovery of all time,” or even “the most powerful force in
the universe.” Whichever version you prefer, you can’t miss his message: never
underestimate exponential growth. Actually, there’s no evidence that Einstein
ever said any of those things—the quotations are all apocryphal. But this very
misattribution reinforces the message: having invested the principal of a
lifetime’s brilliance, Einstein continues to earn interest on it from beyond the
grave by receiving credit for things he never said.
Most sayings are forgotten. At the other extreme, a select few people like
Einstein and Shakespeare are constantly quoted and ventriloquized. We
shouldn’t be surprised, since small minorities often achieve disproportionate
results. In 1906, economist Vilfredo Pareto discovered what became the “Pareto
principle,” or the 80-20 rule, when he noticed that 20% of the people owned
80% of the land in Italy—a phenomenon that he found just as natural as the fact
that 20% of the peapods in his garden produced 80% of the peas. This
extraordinarily stark pattern, in which a small few radically outstrip all rivals,
surrounds us everywhere in the natural and social world. The most destructive
earthquakes are many times more powerful than all smaller earthquakes
combined. The biggest cities dwarf all mere towns put together. And monopoly
businesses capture more value than millions of undifferentiated competitors.
Whatever Einstein did or didn’t say, the power law—so named because
exponential equations describe severely unequal distributions—is the law of the
universe. It defines our surroundings so completely that we usually don’t even
see it.
This chapter shows how the power law becomes visible when you follow the
money: in venture capital, where investors try to profit from exponential growth
in early-stage companies, a few companies attain exponentially greater value
than all others. Most businesses never need to deal with venture capital, but
everyone needs to know exactly one thing that even venture capitalists struggle