“A great company is a conspiracy to change the world” - Peter Thiel
There are 500-page books that convey one idea, then there are 200-page books that convey multiple ideas per chapter. Peter Thiel’s “Zero to One” is one of the latter. This book is about as “low-noise, high-signal” as you can get. From start to finish, every chapter is packed with wisdom and personal experiences from one of the greatest venture capitalist of our generation: Peter Thiel; co-founder of PayPal, Palantir, early investor in Facebook, and co-founder of “Founder’s Fund” whose portfolio include companies like Airbnb, Lyft, Spotify, Stripe, SpaceX, and Google.
Peter Thiel is an investor, and founder of multiple successful companies. As expected from someone of his stature, his efficiency and do-er attitude shines through from the first page. He doesn’t bother with academic rigor, nor references to scientific studies. You either believe him or you don’t. He shares his experience and worldview matter-of-factly and he has no hesitation painting with a broad brush. Yet his points are grounded in theory, and is terrifyingly rational and practical. Concise, coherent, and crisply written, you get the sense that he is onto something!
“Zero to One” started out as a collection of class notes gathered by a Stanford student who attended Peter Thiel’s lectures on startups. Over time, these notes started circulating well beyond the Stanford Campus. Eventually, these notes were compiled, refined, and turned into perhaps one of the most insightful book on startup ever written. Without further ado, here are the key insights of “Zero to One”.
“Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network.”
Every major breakthrough moment in business only happens once. Adding more to something we are familiar with takes us from “one to n”, creating something new and exciting and strange takes us from “zero to one”; a singularity event that has the potential to radically change our future. For example:
Thiel argues the future is defined by these “zero-to-one” startups. In fact, our future MUST be defined by them. Globalization without major technological change is environmentally catastrophic, and unsustainable in our finite world.
Large corporations tend to focus on “1-to-n” opportunities. For example, bankers make money by rearranging the capital structures of already existing companies. Lawyers resolve disputes and help firms structure their affairs. Management consultants don’t start new businesses; they squeeze out extra efficiency from old ones.
New technologies almost always emerge from new ventures because:
That doesn’t mean it is impossible for large companies to create breakthrough technology. The key ingredient is the creation of new value. To illustrate this, Peter Thiel gives the example of Apple. In 1997, under the leadership of an impeccably credentialed CEO, the company was on the verge of bankruptcy. Michael Dell famous said of Apple: “What would I do? I’d shut it down and give money back to the shareholders.”
Instead, Steve Jobs reclaimed the role of CEO and imbued Apple with his disruptive, radical innovation DNA. He introduced the iPod (2001), the iPhone (2007), and the iPad (2010). These products revolutionized four industries: personal computing, music, smartphones, tablet computing, and created an entire digital economy: the app store.
A single lone genius isn’t enough either. A successful startup is a group big enough to get stuff done, yet small enough that it actually can.
“Equilibrium means stasis, and stasis means death. If your industry is in a competitive equilibrium, the death of your business won’t matter to the world; some other undifferentiated competitor will always be ready to take your place”
“If you want to create and capture lasting value, don’t build an undifferentiated commodity business”
In 2012, average flight ticket was $178. Yet airline companies only made around 37 cents per passenger. Many restaurant owners joke they are running a non-profit business. Why are some businesses insanely profitable, while others barely scraping by?
Going back to Economics 101, in a competitive market, every firm is undifferentiated and sells the same thing. Supply and demand dictates that the prices eventually arrives at an equilibrium. Since no firm has any market power, they must sell at whatever price the market determines is appropriate.
Therefore, under perfect competition, no company makes any profit in the long run. Any profit can be attributed to market inefficiencies.
Firms within this competitive equilibrium tend to lose sight of reality and focus on trivial differentiating factors. Perhaps your firm thinks it’s more efficient than other firms so it can earn profit through volume. Either way, focusing on these trivial factors is ill-advised. As Bob Iger put it: “Innovate or die”.
The opposite of perfect competition is a monopoly. Thiel is quick to point out that:
We tend to have a negative opinion of monopolies; that their outsized profit comes at the expense of everyone else. However, Thiel points out that line of thinking is only true in a static world. If the world doesn’t change, monopolists are just rent collectors.
“But the world we live in is dynamic: it’s possible to invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopolies aren’t us good for the rest of society; they’re powerful engines for making it better”
When the first iPhone was released, it paved way to handsome profits and market dominance for almost a decade. The reward didn’t come from artificial scarcity, but from creating greater abundance.
What distinguishes a “zero-to-one” startup from an “1-to-n” startup? Peter Thiel lists out four stand-out characteristics:
Every great company is unique, but there are some common characteristics. Thiel offers some useful advice:
“Of the six people who started PayPal, four had built bombs in high school”
The current educations system favors those who can curate a bewilderingly diverse resume, explore many areas of knowledge, and become a well-rounded person that’s prepared for a unknowable future. To Peter Thiel, “management consultants” have come to embody this ethos of being a generalist.
“Come what may, he’s ready - for nothing in particular”
On the other hand, startup founders have firm conviction, and are passionately focused on one thing to the point of unhealthy obsession. They are disruptors looking for trouble and find it.
Peter Thiel applied this principle when assessing investment opportunities during the green-tech boom. True technologists with revolutionary technology aren’t running around in suits; it signals an over-preoccupation with branding rather than the underlying technology.
“At Founder’s Fund, we saw this coming. The most obvious clue was sartorial: cleantech executives were running around wearing suits and ties. This was a huge red flag, because real technologies wear T-shirts and jeans”
In the “Hitchhiker’s Guide to the Galaxy” by Douglas Adams, when an imminent catastrophe required the excavation of humanity’s original home, the population separated into three giant ships
Passengers on Ship B were ecstatic to leave first. What they don’t realize is that ship A and C actually conspired to get rid them, thinking they were useless. And so ship B landed on Earth.
The amusing story is meant to highlight the fact that sales is everywhere around us! Its importance cannot be understated. Technologists tend to think if you build a great product, the customers will come. That “the product sells itself”. Thiel is quick to point out that’s simply not the case. Selling effectively is harder than it looks.
“Nerds are skeptical of advertising, marketing, and sales because they think it seems superficial and irrational. But advertising matters because it works. It works on nerds, and it works on you. You may think you’re an exception; that your preferences are authentic, and advertising only works on other people. […] Anyone who can’t acknowledge its likely effect on himself is doubly deceived.”
The word “salesmanship” tend to bring out negative reactions in most people. They are seen as slimy, sly, disingenuous, and shady. There is some truth to that. Salesman are actors, their priority is persuasion, not sincerity. But the truth is we only react negatively to awkward, obvious salesmen - the bad ones.
Great salesmanship is hidden. Whatever the career, sales ability distinguishes the great from the good. The ability to sell your idea, persuade and communicate effectively is a short path to distinction.
“[Most people] underestimate the importance of sales [because] the systematic effort to hide it at every level of every field in a world secretly driven by it”
“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
The quote above have come to be known as Matthew’s law. It illustrates the diverging nature of many nature phenomenon. In mathematics, this has come to be known as Pareto Principle, or Power Law, or the 80-20 Rule. It defines our surrounding so completely that we often don’t see it.
Of course, the 80-20 number is just a rough approximation to the more important underlying phenomenon. That small minorities often achieve disproportionate results.
“Every fall, the deans at top law schools and business schools welcome the incoming class with the same implicit message: “You got into this elite institution. your worries are over. You’re set for life.” But that’s probably the kind of thing that’s true only if you don’t believe it”
“But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational. Time is your most valuable asset, it’s odd to spent it working with people who don’t envision any long-term future together”
“Computers are complements for humans, not substitutes. The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete”