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Book Summary – Zero to One: Notes on Startups or How to Build the Future

Zero To One - Book summary

How did companies like Google, Paypal, Amazon and Telsa become so successful, and how can you get there as a startup?  In this book, Peter Thiel – a billionaire entrepreneur and investor who co-founded PayPal and Palantir, and invested in hundreds of startups including Facebook and SpaceX – shares his insights about business and entrepreneurships. In this free Zero to One summary, you’ll get a synopsis of the key ideas from the book, including why much of what we believe in may be flawed, and how we can think about and create truly valuable businesses that shape a better world.

Changing the Future: From Zero to One

Progress can take 2 forms:

  • Horizontal (extensive) progress, which comes from copying things that work, e.g. when you improve a typewriter and sell it globally. It brings us from 1 to n.
  • Vertical (intensive) progress, which comes from doing new things that haven’t been done before, e.g. when you move beyond typewriters to invent a word processor.  It brings us from 0 to 1.

The most successful businesses in the world – such as Apple, Facebook, Google – achieved success not by copying others, but by creating something fundamentally new. They moved from 0 to 1. Globalization is at the heart of horizontal progress, while technology is at the heart of vertical progress. And the good news is, both can coexist. Each of these multi-billion dollar companies was once a startup. They became valuable because they uncovered truths behind widely-held (but incorrect) beliefs, hence fundamentally changing our world. Thiel calls these secrets.

Revisiting the 1990s Dot-Com Mania

In the book, Thiel gives a quick recap of the dismal global settings in the 1990s, the rise of the dot-com mania, and the burst of the dot-com bubble in 2000. Here are 2 important takeaways:

  •  First, although the dot-com mania was short-lived, it was a reflection of growing concerns that the old economy wasn’t working. The internet held promise of solutions for a globalized world, and indeed, technology and the internet have helped to tackle many challenges of globalization today.
  • Second, much of what we know is shaped by circumstances and reactions to past mistakes, and may not be true at all. Thiel showed how the business wisdom in the post dot-com era was actually flawed. We’ll now expand on some of Thiel’s business insights and ideas in the book.

Zero to One Business Insights

Most of us have assumptions about business and what works.  Thiel challenges some of the most widely accepted business wisdoms, and challenges us to consider alternatives.  Here’s a quick overview but you can get the full details from our 14-page Zero to One summary.

Creative Monopoly, not Competition

Most of us grew up learning that competition is good and essential. Theil suggests the opposite – that competition is destructive while a creative monopoly is the way of the future. Thiel defines a creative monopoly as one that has achieves this status because it does such a great job that there’re no viable substitutes.

Businesses fighting cut-throat competition are so preoccupied with survival, that they can’t focus on anything else. For instance, airlines create tremendous value through air travel, but are barely profitable. On the contrary, a creative monopoly like Google has not had viable substitutes – including Yahoo! and Microsoft – since the early 2000s, allowing it to retain some 20% of its revenues. It has resources to care about its stakeholders, invest in long term research and innovation, and make a greater impact on the world. You can learn more about this in our full Zero to One summary.

The Power Law of Venture Capital

Venture capitalists (VCs) try to find, fund, and profit from promising early-stage companies. Unfortunately, most start-ups fail (usually soon after they start), and a few companies will drastically outperform all others. Hence, a good VC should only invest in companies that can potentially go from 0 to 1, and succeed at large scale. Likewise, all of us are investors – entrepreneurs invest time and money in their startups, and employees invest time in their career. The question to ask is: will what you are doing be valuable decades from now?

Uncovering Secrets

The most valuable companies find and build their business upon secrets, i.e. what the world believes in that isn’t true. For example, Airbnb and Uber saw untapped supply and unmet demand in lodging and transportation, and created businesses to address them. In the book, Thiel explains the importance of belief, how to find secrets and what to do with them. You can check out our complete Zero to One summary for more details.

Last Mover Advantages

Being the first mover in a market can give you a headstart, but what matters is long-term cashflows, and it’s useless being the first-mover if you get dethroned later. It’s better to be the last mover – study the end-game, dominate a small niche and scale up to eventually develop and enjoy years of monopoly profits.

Thiel spends the rest of the book explaining how to build a monopoly and create a business that can shape the future.

Building a Monopoly

Most successful monopolies share some of these 4 characteristics:

Zero to One summary_characteristics-of-monopolies

1. Proprietary Technology

Proprietary Technology (e.g. Google’s search algorithms) can be a massive advantage because it makes your product hard or impossible to replicate. To have a real monopolistic advantage, your technology must be at least 10 times better than any substitute in some key aspect(s).

2. Network Effects

Network effects make a product more useful as more people use it, e.g. the more of your friends are on Facebook, the more you’d want to use it.

3. Economies of Scale

Economies of Scale spread out business fixed costs (e.g. R&D, management, office space) over more users/ sales, such that the marginal cost of producing an extra unit is negligible.

4. Branding

Branding is key to any monopoly, but it must be backed by substance.

As a small start-up, how can you put together the 4 elements above (brand, scale, network effects, and technology) to form your eventual monopoly?  Thiel outlines 3 important steps in the process of building a monopoly -that you can learn about in detail from our complete Zero to One summary.

Some foundations, once put in place, cannot be undone. Hence, it’s crucial to start your company with the right foundations, and here are some key ideas elaborated on in the book and also covered in our 14-page summary.

Zero to One summary_right-foundations

Specifically, you need to have Synergy (between the right people), long-term value & alignment (vs short-term transactional relationships), a tribe with its own cult and obsession, and effective sales and distribution to reach your customers.

Putting it Together

Thiel summarizes some of his key ideas into 7 questions that you must address in order to achieve massive success in your business.

  1. Engineering: Can you create breakthrough technology instead of incremental improvements?
  2. Timing: Is now the right time to start your particular business?
  3. Monopoly: Are you starting with a big share of a small market?
  4. People: Do you have the right team?
  5. Distribution: Do you have a way to not just create but deliver your product?
  6. Durability: Will your market position be defensible 10 and 20 years into the future?
  7. Secret: Have you identified a unique opportunity that others don’t see?

He ends off by sharing his perspective that the most successful businesses of the future are those that harness the synergy between human and computer capabilities, such that the human-computer combination achieves much more than either could alone. You can learn more about these details in our complete Zero to One summary.

Getting the Most from Zero To One

Ready to build a startup with impact and move from Zero to One? You can get more detailed insights, examples and practical tips from our complete book summary bundle which includes an infographic, a 14-page text summary, and a 24-minute audio summary.

Zero to One summary - book summary bundle

This book originated from a start-up course that Thiel was teaching at Stanford. One of the students, Blake Masters, took detailed class notes, which were reworked with Theil to form this book. The book is written in short, easy-to-read chapters, and packed with many useful examples, anecdotes and stories of companies like Paypal Google, Tesla, Siemens etc. to help us see interesting perspectives and alternative truths from Thiel’s eyes. It also includes a detailed recap of the dot-com rage in the 1990s and the more recent cleantech bubble.

Although the book focuses almost exclusively on technology companies and using technology to move from zero to one, the ideas can be extremely useful to help any startup or user of technology to think about how things work, and how we can build a better world. If you enjoyed these ideas you can buy the book here to learn more about them or visit zerotoonebook.com for more details.

To learn more about starting a business successfully, don’t forget to also read The Lean Startup summary to maximize the success of your business innovations, and The Hard Thing about Hard Things summary to prepare yourself for the harsh realities of starting and running a business.

About the Authors of Zero To One

Zero to One: Notes on Startups or How to Build the Future is authored by Peter Thiel–an entrepreneur and investor. He started PayPal in 1998, led it as CEO, and took it public in 2002. In 2004, he invested in Facebook (where he serves as a director) and launched PalantirTechnologies, a software company that harnesses computers to empower human analysts in fields like national security and global finance. He has provided early funding for LinkedIn, Yelp, and dozens of successful technology startups. He is also a partner at Founders Fund (a Silicon Valley venture capital firm that has funded companies like SpaceX and Airbnb), and a founder of the Thiel Fellowship and Thiel Foundation.

Blake Masters was a student at Stanford Law School in 2012 when his detailed notes on Peter’s class “Computer Science 183: Startup” became an internet sensation. He went on to co-found Judicata, a legal research technology startup.

Zero To One Quotes

“The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique.”

“Positively defined, a startup is the largest group of people you can convince of a plan to build a different future.”

“The first step to thinking clearly is to question what we think we know about the past.”

“All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.”

“There is no middle ground: either don’t throw any punches, or strike hard and end it quickly.”

“We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain.”

“Winning is better than losing, but everybody loses when the war isn’t one worth fighting.”

“Once you think that you’re playing the lottery, you’ve already psychologically prepared yourself to lose.”

“Don’t disrupt: avoid competition as much as possible.”

“Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce.”

Click here to download Zero to One book summary and infographic

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