5. Last Mover Advantage

1. Twitter is generating more cash flow (not even profit at times), and
2. Twitter holds the monopoly of the future while publishing houses are failing to evolve effectively (improve or invent: “Anything You Want”).

1. Proprietary technology They have a technological advantage, their proprietary technology works much better than anyone else's - usually at least 10 times better. Google's search algorithms, for example are much faster and have better predictive power than anyone else's which makes it very difficult for a competitor to supplant them.
2. Network effect (start with a hyper-niche market. If you think its too big it is). Monopolies enjoy network effects, meaning the more people are using their product, the more useful it is. An example is, Facebook wouldn't be very useful if none of your friends where signed up. What makes it valuable to you is the fact that many of the people in your network can be found there. This means that newcomers face an uphill battle when trying to lure customers away from monopolies with broad existing customer-bases.
3. The economy of scale (SaaS vs employee labor-intensive). Monopolies benefit from economies of scale: cost savings gained by producing something on a large scale instead of a small one. Say you own a bakery and have a fixed costs like rent, heating and electricity totalling $1000. In this bakery, you can product between 1 and 10,000 buns a month, while the fixed costs remain the same. The more buns you sell, the more you can spread out those fixed costs meaning that the effective cost incurred per bun is less. Since monopolies are the largest producers in the their industry, economies of scale allow them to offer customers more attractive prices than newcomers, further strengthening their position. 
4. Excellent Branding (Apple Branding to stay continual trend). Monopolies often have strong brands that can't be replicated. Apple, for example is the strongest tech brand in existence. While many other companies have tried to emulate its sleekly designed products and store, they just haven't seen the same level of success because they lack Apple's powerful brand.

1. Actively attempt to seek a hyper-niche target market that has little to no competitors. Serve them, and do it well (all that matters == customer: “Anything You Want”),
2. Once you have dominated the market expands to the nearest adjacent market. Similar to Amazon selling CDs, DVDs then everything else,
3. Do not disrupt current giants. PayPal worked with Visa. Everyone won, and
4. Attempt to make the last great development in a specific market and reap all the benefits of a mature ecosystem.

6. You Are Not a Lottery Ticket

1. Indefinite pessimism: Since the 70s most of Europe forfeited authority to join forces without proper structure and order. The inevitable crash is indefinite so they ensue into a vacation mania.
2. Definite pessimism: Economic growth is not quick enough for China. The rich place money internationally, and the poor preparation for the definite inevitable (soon). Not sustainable growth.
3. Definite optimism: The Western world before the 70s. Major milestones were executed: Empire State Building, Panama Canal, Apollo program.
4. Indefinite optimism: Effortless progress creates entitlement. Wealth accumulation overshadowed engineering innovation.

11. If You Build It, Will They Come?

12. Man and Machine

1. In the summer of 2000 Paypal was losing $10Mn/Mo because of credit card fraud. It was nearly impossible for the human resources to flag and resolve every single transaction with brute force alone,
2. Thiel hired an elite team mathematicians to solve the problem algorithmically,
3. This solution worked, temporarily,
4. The latest solution was to assemble a highly specialized team of human analysts to review most suspicious transactions flagged by the algorithm,
5. This hybrid system was named “Igor” after the Russian fraudster who claimed he will never be caught, and
6. Paypal records first profit in 2002 vs quarterly loss of $29.3Mn one year before.

13. Seeing Green

1. The Engineering question: Can you create breakthrough technology instead of incremental improvements? Cleantech companies didn’t understand that to prevail over established energy companies, they needed technology ten times better than theirs, not just slightly better.
2. The Timing Question: Is now the right time to start your particular business? Some cleantech companies believed the industry was on the cusp of a period of rapid, exponential advances in, for example, solar-panel technology, and that this would allow them to flourish. But in fact clean technology has advanced slowly and linearly.
3. The monopoly question: Are starting with a big share from a small market? Cleantech companies were part of the trillion-dollar energy industry, which meant dog-eat-dog competition for even small shares of the market. A smaller market where you have a good chance of building a monopoly fast is a much better bet.
4. The people question: Do you have the right team? Cleantech companies were often run by non-technical executives who had no idea how to build great products.
5. The distribution question: Do you have a way to deliver your product? Many cleantech companies, like electric vehicle start-up Better Place, believed their technology was so good that they didn’t need proper distribution channels. After spending $800 million of investors’ money and selling just 1,000 cars, it ended up filing for bankruptcy.
6. The durability question: Will your market position be defensible 10 and 20 years into the future? Many solar-technology companies were surprised when Chinese companies began churning out similar products at a much lower cost. This should have been entirely foreseeable from the outset.
7. The secret question: Have you identified a unique opportunity that others don’t see? At the time, everyone agreed cleantech was going to be huge. But truly successful companies have secrets: they spot opportunities not everyone can see.

14. The Founder's Paradox

This chapter talks about 'The Matthew Effect' which is basically another way to state 'the law of cumulative advantage,' which is advantages tend to accumulate over time. Those that are given an early push get more advantages as time goes by and those that are put at a disadvantage continue to get limited resources.

This chapter begins with an account of a 2007 Memorial Cup Hockey championship game between the Medicine Hat Tigers and the Vancouver Giants where the Giants emerged victorious. While analysing the hockey roster for the Lethbridge Broncos, it was discovered that most of the players were born in the same few months. The Tigers roster exhibited exactly the same tendency. Most of the players were born early in the year, in January, February, or March. It was found that in Canadian hockey, recruiting at the cutoff date favours players born earlier in the year. Within a given group of recruits, a player born just after the date will be more mature relative to a player born later in the year. Thus, the cutoff date gives some individuals a built-in advantage based on birth date. Similar cutoff-based trends that favour relatively mature students can be observed in European soccer and in academic testing in math and science.

The "Matthew Effect" was an idea developed by sociologist Robert Merton; it takes its name from a verse in the Gospel of Matthew, which states that those who already have advantages will see further abundance, while the disadvantaged will simply continue to face losses. This kind of skewing can result from random factors such as birth date, which deprive large numbers of competitors of meaningful opportunities.

“If intelligence matters only up to a point, then past that point, other things—things that have nothing to do with intelligence—must start to matter more. It’s like basketball again: once someone is tall enough, then we start to care about speed and court sense and agility and ball-handling skills and shooting touch.”

There is a threshold for achieving in a particular area. Once that threshold is achieved, the influence of grades and IQ scores lessens with time. Gladwell supports this claim by listing recent Nobel Prize Winners in Medicine and Chemistry. Not all of these winners came from the absolutely best-ranked colleges, but all of them came from very good schools that provided firm grounds for academic success.

Gladwell also considers a study conducted by the University of Michigan Law School. This study focused on the law school's minority students, who generally faced relaxed admissions standards and earned lower grades than their non-minority peers. However, this disparity in grading standards did not translate into any difference in real-world success. The minority students were above the minimum aptitude threshold that they would need to pass to be professionally successful.

Tip – Intelligence does not determine achievement after a certain threshold.

Having a great mind is not enough. Genius has to be nurtured and encouraged, upbringing plays a role on how successful one becomes. Background and upbringing have more of an impact on success than IQ scores. Children from middle and upper-class families are taught to speak up, stand for themselves, and express thought independence. This explains why they achieve more throughout their lives. Their parents are also more involved in their lives and interests and this has a great impact on how they approach opportunities and challenges. They grow up believing that their voice and opinions matter even in the face of authority. These parents teach their children to demand respect and to “customise” a situation to suit to their needs. In other words, they teach their kids practical intelligence.

Practical intelligence is the soft and social skills that help you more easily navigate society – negotiation, comfort questioning authority, respecting your place in the work, etc. By contrast, poorer parents are often intimidated by authority and let their children follow a pattern of “natural growth” – there’s less pushing, prodding and encouraging than in wealthier families. This means children from poorer households are less likely to be taught practical intelligence, which radically decreases their chances for success. These children grow to be timid around many situations and develop stifling deference to authority.

“The heavily scheduled middle-class child is exposed to a constantly shifting set of experiences. She learns teamwork and how to cope in highly structured settings. She is taught how to interact comfortably with adults, and to speak up when she needs to. In Lareau’s words, the middle-class children learn a sense of “entitlement.” ~ Sociologist, Annette Lareau

Tip – More involved parents lead to an individual's success in life. Involved parents talk to their kids more and critically provide more opportunity for them by taking them to museums, putting them into summer school, helping them with their homework etc. These kids develop a sense of 'entitlement', so less likely to settle with the first 'No'.

For some outliers, disadvantages are often blessings in disguise. Rags-to riches stories focus on the many odds that the hero had to overcome, but they fail to point out that the odds work to empower the hero over future adversities. Outliers also benefit from “Demographic luck” or being born at the right time. For example, those who came to maturity in the 1930s during the height of the great depression had less of a chance to make it than those who matured later when the economy was booming. At the same time, engaging in meaningful work no matter how humbling gives you the opportunity to learn and grow. Humble meaningful work can also serve as a pebblestone for the prosperity of future generations. Meaningful work makes you want to ‘put in the hours’. Sociologist, Louise Farkas studied the family tree of many immigrants and found that their offspring became professionals. She put it down to the fact that it was because of their humble origins not inspite of it that they did well – i.e. they had been raised in a family where hard work was valued and practiced.

Cultural legacies play an important role in determining the success of outliers. These legacies shape how we react to our environments, how hard we work, how we approach opportunities, and our deference to power and authority. Chapter 6 analyses culture legacy and influence. Gladwell opens this discussion by describing a bloody feud that took place in the town of Harlan in the late nineteenth century. 

Harlan, Kentucky, was founded in 1819 by eight immigrant families from Scotland and Ireland. However, all was not peaceful, as two of the town’s founding families – the Howards and the Turners – didn’t get along. Yet, this was a pattern that was repeating itself in small towns up and down the Appalachians. The reason for this pattern of violence? A culture of honor.

Such a culture arises when an individual’s reputation is central to their livelihood and sense of self-worth. Working as a herdsman would fit such a description. The Scottish-Irish immigrants that inhabited Appalachia had a particularly strong culture of honor, as they had been herdsmen who’d carved out a livelihood on rocky, inhospitable land. Consequently, they dealt with conflict by forming tight familial bonds and placing loyalty to their kin above all else. This partly explains why murder rates are higher in the southern U.S. than anywhere else, but softer crimes such as muggings are lower.

In this chapter opens with an account of Korean Air Flight 801. Between 1988 and 1998, American Airlines reported only one plane accident in every 4 million flights. In comparison, during this same time period, Korean Air lost nearly five planes per million flights. Gladwell argues that the reason for Korean Air’s spate of crashes was Korea’s cultural legacy.

While each individual has their own unique personality, the community they grow up in can have a large influence on how they behave. Dutch Psychologist Geert Hofstede was fascinated by the cultural behavioural variations between countries. Keen to understand which cultures valued and respected authority and which didn’t, he created the Powder Distance Index (PDI for short).

This was of particular interest to the aviation industry because a vast amount of plane crashes occur when the co-pilot is too timid to point out faults to the pilot who is their superior. Concurrently, encouraging the co-pilots who come from high PDI countries (e.g., Korea) to assert themselves proved to be much harder than encouraging those from lower PDI countries (e.g., the U.S.), but it proved to be essential.

In 2000, David Greenberg from Delta Air Lines was brought in to transform the flailing Korean Air. The first thing he did to combat the timidity of the co-pilot towards their superior was to make English the standardised language in the cockpit. This provided the pilots with a new form of identity in which the high Korean PDI norms could be circumvented, allowing the co-pilots to become more assertive. Able to overcome the norms of their culture of deference, Korean Air hasn’t had a crash since 1999.

When English speakers are asked to look at a list of seven individual digits then look away and memorise them for 20 seconds, their recall is about 50 percent accurate. However, Chinese speakers’ recall is 100 percent accurate. The reason for this is, we memorise easily what can be said or read within a two-second timeframe. When Chinese speakers see a seven-digit list, their language allows them to fit all the digits into a two-second span, unlike English speakers. Further, the English-speaking number system is highly irregular. For example, numbers above 20 put the “decade” first and the unit number second, e.g., 21, but for numbers below 20, it’s the other way around, e.g., 14. This isn’t the case in China, Japan, and Korea. Their number system is more logical. For example, 11 is ten-one, and 24 is two-tens-four.

Consequently, Asian children learn to count much faster than American children. It also means they can perform more complex mathematical tasks at a younger age. Gladwell argues that because Asian children have the advantage of a logical number system, it’s more likely that they will enjoy math than their American counterparts. Consequently, they are more likely to put in the effort to learn math, so the stereotype of Asians being good at math comes from the logic of their language, not a natural innate ability.

In addition to language, rice – the staple of the Asian diet – also helps students learn math because rice farming fosters an intense work ethic. Farming rice is much harder than farming Western crops. A robust, profitable rice harvest demands precision, coordination and patience. Feudal systems in Europe left farmers little to show from their work; they had to turn over most of their crops to ruthless landlords, but such systems were not prevalent in Asia, so rice farming offered a clear relationship between effort and reward. As a result, a culture of hard work developed; one particularly illuminating age-old saying was, “No one who can rise before dawn three hundred sixty days a year fails to make his family rich.”

Asians are generally good at math and it’s part of their cultural legacy. People with ancestors who worked in rice paddies tend to inherit an attitude towards work that is particularly helpful when learning math. This tendency persists, even generations after families have left rice paddies behind.

The difference in performance between low-income students and high-income students is not down to differences in intelligence. Given the same opportunities, students from the two groups perform at the same level. Low-income students’ performance drops during the summer vacation. Their reading levels drop and their maths grades go down suggesting that the home environment has an oversized effect on school performance during the period.The length of the summer vacation also has implications on how well students perform. Students from the Asian countries of Japan and China have longer school days and as a result have better reading and math skills.

Gladwell open chapter 9 by providing a brief history of the KIPP (Knowledge Is Power Program) middle school in New York. The KIPP Academy is in one of the poorest neighborhoods in New York City. It has large classes, no entrance requirements, and the students are chosen by lottery. Roughly half the students are African American, and the other half are Hispanic. Seventy-five percent of them are from single-parent families, and 90 percent qualify for “free or reduced lunch.” Yet, it’s one of the most desirable public schools in the city.

However, Gladwell argues that KIPP’s success isn’t due to the curriculum, teachers, or resources. It’s due to the fact that KIPP takes cultural legacies seriously. In America, it’s traditional for schools to have a long summer vacation, but this inadvertently affects the learning development of more disadvantaged kids. Sociologist Karl Alexander asked Baltimore students from first to fourth grades across low, middle, and high socioeconomic backgrounds to take a math- and reading-skills test before and after the summer holiday.

He found that while the wealthiest students significantly advanced their test scores, the poorer kids regressed, thus starting their year at a disadvantage. This is because wealthier students are more likely to be exposed to learning stimuli during the summer break, whereas the poorer kids aren’t, putting them at a disadvantage.

There is an important ethnic background to Gladwell's family. In Jamaica, male slave-owners traditionally had affairs and relationships with their female slaves. One of Gladwell's ancestors was a slave-owner named William Ford; Daisy Ford was one of William's direct descendants and possessed, as a result of her part-Caucasian background, lighter skin that allowed her social advantages denied to darker-skinned Jamaicans. Though the relatively light-skinned Joyce was at an advantage in Jamaica, she found that her ethnicity put her at a disadvantage in other contexts. In England, for instance, she and Graham had difficulty finding housing. (Joyce recorded one such encounter with discrimination in Brown Face, Big Master, a book about her own life experiences.) Gladwell is aware of how all these seemingly random and arbitrary factors (location, skin colour, and opportunity) play a role in guiding virtually any success. Gladwell ends Outliers by acknowledging that history and community are the factors that make success possible, in his own family and beyond.