From 0 to 1: unlocking the secrets of business and the future

Chapter 6 Party Like It's 1999

Contrarian issues mentioned in Chapter 1—On what important issues do you disagree with others?This question is actually difficult to answer directly.We can go one step at a time, starting with the basic question—what is the consensus view relative to the fact that almost no one agrees with?Nietzsche wrote before insanity: "Insanity is rare in individuals, but it is common in groups, parties, nations, and epochs." If you can recognize the unrealistic popular views, You'll be able to see the counterfactuals behind those views.

Think about a basic proposition: "The purpose of a business is to make a profit, not to lose money." This point is obvious to any thinking person.But in the late 20s, people did not clearly understand this point, and any loss at that time could be regarded as an investment in future development.Traditional "new economy" thinking sees website page views as a more authoritative and future-focused financial measure than profit.

In fact, when we look back, we will find that traditional ideas are usually arbitrary and wrong; every wrong traditional idea is like a bursting bubble, but when the bubble bursts, the changes it brought to the world have not disappeared. The lessons learned from the dot-com boom of the 90s, the biggest bubble since the 1929 economic crisis, shaped and distorted everything people think about technology today.To gain clarity about this, our first step is to ask ourselves how much we know about the past.

The Internet Boom of the 20s
The 20s were prosperous and promising in our impression, but by the end of the decade, the Internet turned from prosperity to decline, but before that, it was not as optimistic as we remembered.In the 90 months in the late 90s (September 18-March 1998), we were completely immersed in the world of the Internet and left globalization behind.

With the fall of the Berlin Wall in November 1989, the start of the 11s was an invigorating one.But the good times didn't last long. In the middle of 90, the U.S. economy fell into a downturn.Technically, in March 1990, the recession was over.However, the recovery of the economy was slow, and the unemployment rate continued to rise until July of the following year.Manufacturing never fully recovered, and the transition to a services economy was long and painful.

From 1992 to the end of 1994, the United States was filled with a depressing atmosphere.Footage of American soldiers dying in Mogadishu, Somalia was played on loop on television news.The flow of job opportunities to Mexico has deepened American society's concerns about globalization and American competitiveness. In 1992, this undercurrent of negativity brought down Bush Sr., who was the 41st president of the United States at the time, and won nearly 20% of the popular vote for Ross Perot. The best performance by a "third party" candidate other than Republicans and Democrats.Neither Nirvana's grunge craze nor people's heroin obsession reflected hope and confidence.

At that time, Silicon Valley was also in depression, and Japan was about to win the semiconductor war.The Internet hadn't taken off yet, partly because of its limited commercial use (until late 1992), and partly because of a lack of good browsers. When I was at Stanford in 1985, I found out that economics was the most popular major in college, not computer science.For most students, science and technology majors are alternative and have no prospects.

The Internet changed all that.The Mosaic browser was officially released in November 1993, giving the public access to the Internet.Mosaic later changed its name to Netscape and released its own browser, Navigator, in late 11.Navigator was quickly accepted, starting in January 1994, from 1995% of the browser market to 1% in less than a year.Even before the company was profitable in August 20, Netscape had an IPO.In five months, Netscape stock soared from $80 to $1995 a share.Other tech companies are booming, too.

1996年4月雅虎公司刚上市就估值8.48亿美元。亚马逊紧接着也在1997年5月以4.38亿美元的估值上市。到1998年春天，每家公司的股价都翻了两番。这些公司的收益是非网络公司收益的数倍之高，怀疑论者对此提出了质疑。显而易见，市场已经陷入疯狂。

Such madness is understandable, but inappropriate. In late 1996, three years before the dot-com bust, Federal Reserve Chairman Alan Greenspan warned that "irrational exuberance" could lead to "inflated asset prices."Tech investors are gearing up, but not overtly irrational.It is indeed all too easy to overlook what is not going well in other parts of the world.

In July 1997, the East Asian financial crisis broke out.Crony capitalism and huge foreign debts have caused the economies of Thailand, Indonesia, and South Korea to plummet.The ruble crisis followed in August 7, when Russia had long been in fiscal deficit, depreciated currency, and heavily indebted.American investors were on edge over a country with no money but tens of thousands of nuclear bombs; the Dow Jones Industrial Average plunged more than 1998% in just a few days.

People are right to be concerned, the ruble crisis sparked a cascade of reactions that brought down the highly leveraged US hedge fund Long-Term Capital Management (LTCM).In the second half of 1998, Long-Term Capital Management managed to control losses to US$46 billion, but still had US$1000 billion in liabilities.Faced with huge debts, the Federal Reserve spent huge sums of money on emergency aid and cut lending rates in order to avoid systemic disaster.Europe also suffered catastrophe.Facing public skepticism and apathy, the euro, launched in January 1999, rose to $1 on its first day of trading, but fell to $1.19 in just two years. In mid-0.83, the central banks of the G2000 countries had to prop up it with billions of dollars.

The background of the short-lived Internet boom that began in September 1998 was such a broken and disordered world.The old economy was unable to meet the challenges posed by globalization.If you want a better future, you must find a way that works, and it must work everywhere.Circumstantial evidence shows that the new Internet economy is the only way forward.

Silicon Valley Gold Rush: September 1998 ~ March 9

The dot-com boom was hot but short-lived, lasting only 18 months.It was a Silicon Valley gold rush: there was gold everywhere, and there was no shortage of enthusiastic but hasty prospectors.Every week, dozens of new businesses compete to throw lavish opening parties (and parties celebrating success are rare).These paper millionaires pay thousands of dollars for banquets and attempt (and sometimes succeed) to pay for them with stock in startups.Large numbers of people have given up well-paying jobs to start companies or work in startups.I know a graduate student in his 40s who started 1999 different companies in 6. (Usually, 40-year-old grad school is weird, and 6 companies at a time is crazy, but in the late 90s, people thought these traits were a winning combination.) Everyone should have known that the boom could not last for long , the most "successful" companies at the time seemed to have an anti-business model in which the company kept losing money while growing.But the music was playing, and we can't blame the people who danced to it.Think about adding a ".com" to the company name, the value can double overnight, and the unreasonable becomes reasonable.

PayPal Mania
When I started PayPal in late 1999, I was shocked and terrified -- not because I didn't believe in my company, but because it seemed like everyone in Silicon Valley was ready to believe anything.Everywhere I looked, people were starting and transforming companies at will.An acquaintance told me that he planned to go public in his bedroom before starting his company — and he didn't think it was weird.In such an environment, it is strange to act rationally.

At least PayPal had a somewhat ambitious goal, one that skeptics saw as grandiose after the dot-com bust—we wanted to create a new currency for the Internet to replace the dollar.Our first product allowed people to transfer money using a handheld computer.But no one wanted the product, and journalists even rated the idea as one of the top ten worst business ideas of 1999.Handheld computers were still a rarity at the time, but email was ubiquitous, so we decided to take a different approach - develop an email payment system.

Until the fall of 1999, our email payments product worked fine—everyone could log into our web page to transfer money, it was easy.But we still don't have enough users, growth is slow, and costs are rising.We need at least 100 million users if we want PayPal to survive.The influence of advertising is too weak, and the gains outweigh the losses; the expected transactions with big banks have also frequently failed.So we decided to pay people to sign up to attract customers.

Every new user gets $10 for signing up, and another $10 for every friend they refer to sign up.This approach helped us attract hundreds of thousands of new users, growing exponentially.Of course, this customer acquisition strategy itself is not sustainable-you have to pay users to sign up, and exponentially increasing users means exponentially increasing costs.Sky-high costs were commonplace in Silicon Valley at the time, but our heads were still clear, and we thought this strategy was rational.Considering the huge user base and the small commission we collect from customers' transactions, we will definitely make a profit.

We know that more money is needed to get there, and we know that the boom is about to pass.We don't expect investors to believe that we can weather the coming storm, so the company is doing its best to raise capital before the shock hits. On February 2000, 2, the Wall Street Journal published a story praising our company's rapid growth and implying that PayPal was worth $16 million.We had raised $5 million in the second month after the story was published, and our most important investors considered the Wall Street Journal's valuation of my company to be authoritative.Other investors are rushing to invest in our company.A Korean company wired us $1 million without even negotiating a contract.I want my money back and they don't give me the address either. That round of financing in March 500 gave us time to succeed.As soon as we closed the deal, the dot-com bubble burst.

lessons learned

"They said the party ended at 2000 midnight in 12, whoops! No time!
So, tonight I'm throwing a party and throwing a party like it's 1999! "

——Prince

纳斯达克指数在2000年3月中旬达到了峰值5048点，然后在4月中旬跌至3321点。在2002年10月降到1114点触底反弹之前，市场崩溃一直被解读为对90年代科技乐观主义的审判。而这之后，曾经充满希望的90年代又重新被定义成疯狂贪婪的时代。纳斯达克的崩溃宣告了这个时代的终结。

Everyone is slowly starting to see the future with uncertain eyes, and anyone who proposes annual plans instead of quarterly ones should be shunned as extremists.Globalization has replaced technology as the hope of the future. The transition from "bricks to the web" in the 90s didn't work out as expected, investors turned their attention back to bricks (real estate) and BRICS (globalization), and the result was another bubble - this one The first time it happened in the real estate market.

Entrepreneurs who suffered from Silicon Valley’s disaster took four lessons that still dominate business thinking today:

① Step by step.

Don't wallow in grand visions, or you'll inflate the bubble.People who claim to be great can't be trusted, because people who have the ambition to change the world are usually more humble.Small incremental growth is the only way forward safely.

② Keep it simple and flexible.

All companies have to leave some space and not rigidly plan everything.You don't know what your career will turn out to be, and planning ahead is often rigid and unrealistic.Instead, you should try something, practice it over and over again, and treat entrepreneurship as an unknown experiment.

③ Compete in improvement.

Don't rush to create a new market.It is more secure to start a business with ready-made customers as the starting point.Successful people have already created recognized products, and improving on this basis is the only way to go.

④Focus on products, not marketing.

If your product needs advertising or marketing people to sell it, your product is not good enough: technology applied to business should focus on product development, not distribution.Advertising in the bubble era is obviously a waste, and the only sustainable growth is explosive growth.

These lessons have become dogma in the entrepreneurial world; those who ignore them are expected to suffer as doomed as the stock market crash of 2000, when tech stocks slumped.However the opposite of these laws might be more correct:

1. Boldness is better than mediocrity.

2. A bad plan is better than no plan.

3. It is difficult to make money in a competitive market.

4. Marketing is as important as product.

Indeed, there are bubbles in technological development. In the late 90s, people were arrogant and believed that they could make the leap from 0 to 1.As a result, very few start-ups made the leap, and many companies were just empty talk.But people understand that we have no choice but to find ways to do more with less. In March 2000, it was clear that the market had reached the peak of its madness.It is not obvious, but more importantly, people are also most awake at this time. They look to the future, consider what valuable new technologies are needed for future development, and believe in the ability to create new technologies.

We still need new technologies, and we may even need to pursue new technologies with the kind of mania of 1999.To build a new generation of businesses, we must let go of the old dogmas of the past.But that doesn't mean the opposite of those dogmas are necessarily true, because even if you try to escape, the mass current will carry you along.Instead, ask yourself: How much of what you know about your business is based on wrong reactions to past mistakes?The most anti-mainstream action is not to resist the trend, but not to abandon one's own independent thinking in the trend.

(End of this chapter)